Insights - Article

Hospital Pharmacy Costs: Controlling Your Budget

Hospital pharmacy costs are rising rapidly. Here are some ideas on how to control your budget.


Recent eye-popping increases in prescription drug prices and their impact on consumers have been all-over mainstream media reports.

However, the more devastating impact that persistent drug price increases are creating for hospital finances has been lost in the noise.

Drug prices for both commonly and infrequently used drugs are spiraling up much faster than bundled reimbursements can keep up with.

Drug Costs are Killing your Budget

Average inpatient drug spending increased 38.7 percent on a per admission basis (from $714 to $990) from FY 2013-2015, the most recent data available.

hospital pharmacy costs – increase

That might not be so bad but the pharmaceuticals index used by the CMS is only updated every five to seven years for existing drugs, which means it isn’t able to capture the rapid price increases that we’re now seeing. The rise of bundled payments means that hospitals are therefore unable to pass on these rapidly increasing costs.

The bottom line is that rising drug costs directly impact hospitals’ ability to provide patient services.

Nearly all surveyed hospitals said rising drug prices affected their ability to manage overall healthcare costs.

This exchange should get your attention:

At a hearing on Capitol Hill last month, Rep. Matthew Cartwright, D-Pennsylvania, questioned Valeant’s interim chief executive, Howard B. Schiller, about the firm’s pricing strategies.

“Because Isuprel and Nitropress are hospital-administered drugs, it is hospitals that are bearing the biggest burden of your price increases,” Cartwright said. “Am I correct in that?”

“That is correct,” Schiller said.

“Given the choice between paying higher prices and risking the lives of their patients, most hospitals choose to knuckle under and pay the price. Am I correct in that?” Cartwright asked.

“I’d assume that is correct, yes,” he replied.

What can be done?

hospital pharmacy costs - budgetAs federal and state lawmakers introduce bills to curb rising prices, the debate between providers and pharmaceutical companies continues to escalate. In the meantime, hospitals must continue to manage their budgets.

A significant opportunity for pharmacy cost savings can be found in centralizing pharmacy operations to:

  • Impact clinical prescribing habits
  • Optimize pharmacy labor costs

Telepharmacy is the key to unlocking both of these opportunities.

Consolidating Pharmacy Operations

Most multi-facility organizations have one or more flagship facilities along with numerous satellite or community facilities. Flagships are typically heavily staffed 24/7 while satellite facilities tend to be more lightly staffed.

It’s extremely difficult, if not impossible, to physically shift staff from location to location to cover times of high demand. Given the natural ebb and flow of patient demands as well as normal staffing scheduling headaches, the average health system simultaneously has a lot of underutilized and overwhelmed pharmacists.

Telepharmacy technology allows you to smooth out those peaks and valleys by centralizing and consolidating scattered resources in a virtualized manner. In the process, you’ll increase overall efficiency and labor savings, and gain new levels of visibility across your system.

A centralized telepharmacy platform is essential to optimizing resources and providing much-needed visibility across the system.

From Opaque to Transparent

A centralized telepharmacy platform allows you to analyze turnaround times, load factors, error rates, clinical intervention rates, and prescribing habits across your facilities and shifts… and down to the granular level. It works across EHR systems and facilities to create a comprehensive view and comparison data.

This business intelligence transforms your pharmacy from an opaque stand-alone cost center into a transparent and integrated part of your overall service delivery system with actionable insights, benchmark data, and scalable processes.

Impacting Prescribing Habits

While labor costs in hospital pharmacies are significant, drug costs represent 80 percent of the average pharmacy budget. As in any business area, the foundation of your strategic initiatives should be actionable data. Unfortunately, most clinical pharmacies are essentially black boxes when it comes to prescribing habits. In many cases, each location has separate and incompatible IT systems.

Given that many multi-facility organizations also have disparate Pharmacy and Therapeutics (P&T) committees and formularies at their various locations, it’s no wonder that there’s so much difficulty in understanding and controlling this huge and rapidly increasing cost.

hospital pharmacy costs - pills

Systems with rules-based functionality help drive formulary compliance at the time of prescribing through auto-substitutions or clinical interventions. Consolidated reporting and analytics, such as that provided by PipelineRx, covers all of your pharmacy units and can provide actionable information on prescribing habits.

One of the biggest frustrations around rising drug costs is that it means that your pharmacist staff is not able to work on clinical programs like medical reconciliation and anti-microbial stewardship. Telepharmacy frees your pharmacists to work on these programs.

Maximizing Contract Compliance

This centralized view can also serve as a driver to standardize formularies, which can help maximize rebates and other purchasing incentives for both branded and generic drugs by reaching new tiers of contract compliance. When optimized across a system, this could have a substantial impact to the bottom line.

Want to Know More?

We’d be happy to share our staffing calculator that shows how much your organization can save from the consolidation of in-house resources. We’ll even share some sample reporting data, so that you can see the kinds of actionable insights into your organization’s prescribing trends we can offer.

Let’s Talk.