THE SUPPLY CHAIN EXECUTIVE S ROLE IN MANAGING RISING PHARMACY EXPENSE. Marv Feldman, MS, RPh Pharmacy Executive, Retired

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1 THE SUPPLY CHAIN EXECUTIVE S ROLE IN MANAGING RISING PHARMACY EXPENSE Marv Feldman, MS, RPh Pharmacy Executive, Retired

2 OBJECTIVES Overview the current trends in pharmacy supply expense with a focus on the health-system environment (acute care and ambulatory clinics) Discuss many of the contributing factors for this change including drug pricing, medication utilization and availability of new products Present the strategies being used to manage pharmacy supply cost including the associated impediments to full implementation Provide suggestions for the Supply Chain Executive to position their expertise in helping to control overall pharmacy supply expense increase

3 LET S START BY GETTING TO KNOW YOU How many of you work in a health-care provider setting and at an executive level in supply chain leadership? How many of you work in the health-care supplier industry and have some interest in the changing pharmaceutical field? How many of you are now (have been) close to the pharmacy leadership in a hospital or health-system? Who has actively participated in organized cost management? Who here has the complete solution to rising drug expense?

4 CEO MISCONCEPTIONS ABOUT COST MANAGEMENT Hospital formularies are open and getting more lax Closing an open formulary will save significant dollars Prescriptive patterns cannot be changed ( black box ) Clinicians don t pay attention to supply cost The most costly product always works better There is always an alternative product We spend more for drugs when our census rises We spend more for drugs so we can save more in drugs

5 EDUCATE STAKEHOLDERS TO GAIN THEIR SUPPORT Therapeutic Interchange Generic Interchange Brand Interchange Specialty Drugs and Biosimilars

6 SAVINGS STRATEGIES MUST CONSIDER THE LIFE CYCLE Maturation Limited Competition & Minimal Discounts if Contracted Formulary Stages Non Formulary Status Restricted Formulary Prescriptive Guidelines Launch & Acceptance Therapeutic Substitution Utilization Management Formulary Interchange Dosing and Frequency Competition of non-chemically equivalent drugs Marketshare and committed volume drive pricing Generic Substitution AutoSub Over the Counter ( OTC ) Generics Firm pricing and deep discounting Shortages

7 CAN UNDERSTANDING DRUG COST BE THIS SIMPLE? Price X Quantity Used Extended Expense probably not

8 EXAMPLE OF PRICE AND UTILIZATION RELATIONSHIP TOP 20 DRUGS BY SPEND VARIANCE (SIX HOSPITAL HEALTH SYSTEM)

9 Price Impacted by contracting (GPO, sole-source, aggregated, etc.) Formulary considerations (preferred product, one-of-many) Clinician preference (bias, unusual clinic/patient need) Third party payers (restrictive and preferential coverage) Access to specialty and limited distribution medications

10 UNPRECEDENTED PRICE INCREASES >100% CY14/15 CALCITONINSALMONSYNTHETIC VIAL MIACALCIN MIACALCIN 1255% CEFAZOLIN SODIUM VIAL GENERIC CEFAZOLIN SODIUM 850% MIDDRINE HCL MIDODRINE HCL 718% HYDROCORTISONE CREAM PROCTOZONE-HC PROCTOZONE-HC 711% AMIODARONE TABS PACERONE PACERONE 468% ALLOPURINOL SODIUM VIAL ALOPRIM ALOPRIM 371% PAPAVERINE HCL PAPAVERINE HCL 305% CHLORPROMAZINE HCL TABLET CHLORPROMAZINE HCL 250% FLUCYTOSINE GENERIC FLUCYTOSINE 248% LEUPROLIDE ACETATE ELIGARD ELIGARD 214% MITOMYCIN MITOMYCIN 200% LIDOCAINE HCL SOLUTION LIDOCAINE HCL 153% CEFEPIME HCL MAXIPIME MAXIPIME 151% NYSTATIN NYSTOP NYSTOP 139% TOLTERODINE TARTRATE DETROL LA DETROL LA 129% PHYTONADIONE AMPUL VITAMIN K1 128% NEOSTIGMINE METHYLSULFATE VIAL BLOXIVERZ BLOXIVERZ 127% NALOXONE HCL SYRINGE NALOXONE HCL 120% PHENOBARB/HYOSCY/ATROPINE/SCOP DONNATAL 112% ALBENDAZOLE ALBENZA 105% AMINOCAPROIC ACID VIAL AMINOCAPROIC ACID 100% CEFTAROLINE FOSAMIL ACETATE TEFLARO 100% FENOLDOPAM MESYLATE CORLOPAM CORLOPAM 100%

11 WHO WANTS TO LEARN MORE ABOUT THIS? NEJM

12 Quantity Used Selection of most appropriate therapy (right drug therapy-right patient) Accurate and timely comparison of the cost to treat (source of truth) Drug shortages may impact selection (more expense option) Deployment of clinical pharmacists to influence smart shopping Adherence to Formulary and prescribing guidelines (evidence based)

13 CHANGING PRESCRIPTIVE GUIDELINE GIVES SAVINGS Visible Savings Drug A costs $45 per dose. The price drops by $5 through a new contract. Utilization remains constant. Annualized savings (based on 1,000 doses given) total $5,000. Invisible Savings Pharmacy target program educates physicians to prescribe this drug once daily instead of twice. Consumption then drops to 500 doses annually with no change in price. Annualized savings of $22,500 without any change in price.

14 WHAT ADDITIONAL SITUATIONS IMPACT YOUR COST? Expansion of your ambulatory care foot print (oncology practices, retail) DESI (Drug Efficacy Study Implementation) review Drug expiry and discard (Fact or Fiction?) Value-based Pharmaceutical Contracting Predatory Corporate pricing (Acthar, Isoproterenol, IV Acetaminophen) Regulatory changes (Chapter 797 and 800; 503B Compounding; 340B) Washington DC environment and changes in ACA?

15 HEALTH SYSTEMS OPERATE TWO DIFFERENT BUSINESSES Inpatient Pharmacy Budget Drug costs are often capitated. Focus on reducing cost. Increase in Cost of Goods Sold is compressing operating margin. Overall trend has been flat lined through recent flurry of generics. Pharmacists impact utilization and expense through Formulary. Ambulatory Pharmacy Budget Drug costs are not fully capitated. Focus on revenue margin. Increase in Cost of Goods Sold is likely producing revenue. Overall trend is seeing proliferative year over year growth. Finance should optimize revenue cycle processes and billing.

16 HOW CAN THE SUPPLY CHAIN EXECUTIVE HELP? Understand the challenges (meet regularly with Pharmacy Leadership) Provide analytic support to compare contracts (do not usurp the process) Empower the pharmacy to own daily on-site inventory replenishment Enable C-Suite visibility for the pharmacy leader to explain expense trends Help pharmacy document specific facts of extraordinary budget busters Help negotiate true business agreements (prime vendor, capital) Monitor and forward important articles from WSJ, Modern Healthcare, etc

17 ASSUME YOUR PHARMACY LEADER WON T SEE THESE What is driving up my health care costs? (WSJ July 12, 2017) Novartis Defends Therapy s Price (WSJ August 31, 2017) Pfizer Files Antitrust Lawsuit Against J&J (WSJ September 21, 2017) This State Is Taking On Drug Makers (WSJ September 29, 2017) Abb Avie, Amgen Settle Humira Patent Fight (WSJ September 29, 2017) Drug Prices Expected to Rise nearly 8% Next Year (MH July 25, 2017) Providers Reduce Waste to Work Around Ballooning Drug Prices (MH Sept 11, 2017)

18 QUESTIONS AND CONCLUDING THOUGHTS?