Pharmacy and the
C-Suite: Managing the
Interface
Philip E. Johnson, M.S., B.S.Pharm., FASHP
Pharmacy Advocacy Director
Moffitt Cancer Center and Research Institute
Tampa, Florida
James A. Jorgenson, M.S., B.S.Pharm., FASHP
Vice President and Chief Pharmacy Officer
Clarian Health
Indianapolis Indiana
Learning Objectives
• List three reasons why it is important for pharmacists to
communicate with the C-Suite.
• Identify strategies to work effectively and improve visibility
with C-Suite executives using metrics to support plans and
discussions.
• Describe the priorities of C-Suite executives and explain the
relationship of these priorities to your departmental goals.
• Summarize how to most effectively communicate your
business plans to senior executives and other decision
makers in your organization.
C-Suite Composition
VP of Pharmacy
CIO
Chief Information Officer
CQO
THE CORE
Chief Quality Officer
CEO-Chief Executive Officer
COO-Chief Operating Officer
CFO-Chief Financial Officer
CMO-Chief Medical Officer
CNO-Chief Nursing Officer
CPO
Chief Purchasing Officer
Data on file from CEO interviews and PCAB Surveys.
OTHER
STAKEHOLDERS
CSO
Chief Safety Officer
C-Suite Focus
Finances
Patient Safety/Clinical Quality
Everything Else
Hospitals CEO Leadership Survey. Solucient, LLC, 1007 Church Street, Suite 700, Evanston, IL 60201. 2005.
Data on file from CEO interviews and PCAB Surveys.
Healthcare Trends
• 2008 Projected: $2.4 trillion
and growing
• U.S. population is aging
• Increase in multiple chronic
illnesses and the ability to
treat them
• Increasing medication use
• Government intervention
Source: Centers for Medicare and Medicaid Services.
Woolridge’s Theorem
•
At any given time, somewhere in the world
healthcare reform is happening.
•
Whatever the previous reform was – it is now
considered a failure.
•
Output α 1/Govt. Involvement
Source: Michael Woolridge, M.D.
Health Care Reform and
Non-Profit Hospitals
• Short Term = Potential negative impact with
uninsured patients not eligible until later
• Long Term = Questionable – more insured patients
but increased focus on extracting cost efficiencies
from hospitals with tighter reimbursement and
increased pressure for operating efficiencies
Impact of Current National Economic
Crisis on Hospital Finances
•
•
•
•
•
Debt markets are stressed
Cash reserves are stretched
Reductions in charitable donations
Reductions in investment income
Operating margins challenged
AHA. (March 2009). Rapid Response Survey, The Economic Crisis: Ongoing Monitoring
of Impact on Hospitals.
Response: 9 in 10 Hospitals
Have Made Cutbacks
Percent of Hospitals Making Changes in Response to
Economic Concerns since September 2008
Made changes to address
economic challenges*
90%
80%
Cut administrative expenses
48%
Reduced staff
Reduced services
22%
Considering merger
9%
Divested assets
8%
Other
39%
*Percent of hospitals making at least 1 of above changes to weather the
economic storm
AHA. (March 2009). Rapid Response Survey, The Economic Crisis: Ongoing Monitoring of
Impact on Hospitals.
Percent of Hospitals Reporting
Recession Effects
Reduced Capital
44
Other Margin
50
Govt Insurance
65
Reduced Volume
70
Reduced Elective
72
74
Reduced Margin
87
Bad Debt Rise
0
10
20
30
40
50
60
Percent Hospitals
AHA 2010 Survey
AHA 2010 Rapid Response Survey.
70
80
90
100
Percent of Hospitals That Made
Changes to Weather the Storm
Other
24
Merger
3
8
Divest assets
25
Cut services
53
Staff reduction
73
Capital Delays
76
Admin Costs
0
10
20
30
40
50
Percent Hospitals
AHA 2010 Survey
AHA 2010 Rapid Response Survey.
60
70
80
90
Percent of Hospitals That Have not
Resumed Activities Since 2008 Recession
110
100
90
80
70
60
50
40
30
20
10
0
Services
AHA 2010 Rapid Response Survey
Staff
Percent Hospitals
AHA 2010 Survey
Capital Projects
Safety Remains a Major Problem
1999
2006
• 44,000–98,000 die due to preventable medical errors
• $17–29 billion total cost1
• 15 million cases of medical harm occur in US hospitals each year2
• 913,215 safety events during 38 million medicare hospitalizations
3
2005-07 • $6.9 billion in excess cost
1.
2.
3.
Institute of Medicine: To Err Is Human: Building a Safer Health System. Available at:
http://www.iom.edu/~/media/Files/Report%20Files/1999/To-Err-isHuman/To%20Err%20is%20Human%201999%20%20report%20brief.pdf Accessed September 10, 2010.
Institute for Healthcare Improvement. Available at: http://www.ihi.org/IHI/Programs/Campaign/Campaign.htm?TabId=6. Accessed
September 10, 2010.
HealthGrades. Available at: http://www.healthgrades.com/media/dms/pdf/PatientSafetyInAmericanHospitalsStudy2009.pdf.
Accessed September 10, 2010.
Hospitals That Provide The Best Quality
Also Fare Better Financially
Outcome
Top 100
Hospitals*
Peer Hospitals
Difference
0.85
0.99
14.1%
Average Length
of Stay
4.93 d
5.48
10.3%
Expense per
Adjusted
Discharge
$4,775
$5,503
13.2%
Patient-Safety
Index
*“Top 100 Hospitals: National Benchmarks for
Success” by Thomson Healthcare
Wilson L. Modern Healthcare. 2008;38:26,28-30.
National Quality Forum (NQF)
• Convener of key public and private sector
leaders to establish national priorities to
achieve safe, effective, patient-centered,
timely, efficient and equitable healthcare.
• NQF standards used to measure and report on
the quality and efficiency of U.S. healthcare.
NQF Safe Practice 18
Pharmacy Leadership Structures & Systems
Objective:
Pharmacy leadership is the core of a successful
medication safety program. Pharmacy
leadership structures and systems ensure a
multidisciplinary focus and a streamlined
operational approach to achieve organization
wide safe medication use.
Safe Practice 18 Statement
Pharmacy leaders should have an active role
on the administrative leadership team that
reflects their authority and accountability for
medication management systems
performance across the organization.
Leadership & Culture of Safety
A structure should be established and
maintained to ensure that pharmacy leaders
engage in regular, direct communications with
the administrative leaders and the board of
directors about medication management
systems performance.
NQF Expectations
• Pharmacists should actively participate in
medication management processes, structures and
systems, including at a minimum:
– Establishing a culture of safe medication use
– Identification and mitigation of risk/hazard
– Development of evidence based medication regimens for
all patients
– Identification of medication safety gaps
– Medication Safety Committee that reports data and
prevention strategies to senior leadership
There is a Perfect Storm Brewing . . .
We need a balance of
better safety & quality of
care -- especially chronic
care -- and constraining
costs.
With increased medication use, Pharmacy is
increasingly important for organizational success
in weathering this storm.
How is Pharmacy seen by the C-Suite
•
•
•
•
•
•
Ancillary support service
Drug cost focus
Clinical impact undervalued
Managed as a commodity
Isolated from strategic decision making
Unaware of the opportunities in pharmacy
Example of Pharmacy Cost Mix
Manpower
20%
Other
2%
Total Drug
Spend
78%
Data on file. Clarian Health Partners.
Black Hole Mentality
• Little understanding of
complex functions of a high
performing pharmacy
organization
• Need to aggressively
educate C-Suite on “the
business of pharmacy”
Pharmacy’s Typical Position
• Pharmacy is a departmental outlier:
– Part clinical, part business
– Critical player in the care delivery process but not typically
present at the C-suite table
– Complex operational systems and exception processes that
do not “fit” the average departmental model
– Issues surface AFTER critical medication incidents trigger
doubts regarding operational and financial controls
Pharmacy Challenges
• Medication safety challenges
• Manpower challenges
• Potential negative clinical outcomes when medications
are not managed appropriately
• Increased risk management issues
• Increased compliance liability
• Reduced pharmacy margins threaten care infrastructure
for all patients
Communicating Pharmacy Issues
to the C-Suite
• To establish the pharmacy as a positive contributor to
the challenges
• To create the perception that the pharmacy is material
to the organization’s efforts in terms of
–
–
–
–
Financial management
Patient safety
Clinical care
Regulatory compliance
You are the Most Qualified Person
to Relay this Information
• Pharmacy as the lead in medication safety
• Leverage expert stature/training
• Valued and trusted member of
institution
• Most knowledgeable about medication
expenses
Lacaria K, Balen RM, Frighetto L, Lau TTY, Naumann TL, Jewesson PJ. Perceptions of the Professional Pharmacy Services in
a Major Canadian Hospital: A Comparison of Stakeholder Groups. Longwoods Review. 2004;2(1).
Nurses Shine, Bankers Slump in Ethics Rating, Press Release from the 2008 Gallup Honesty and Ethics Poll, Available at:
http://www.gallup.com/poll/112264/Nurses-Shine-While-Bankers-Slump-Ethics-Ratings.aspx. Accessed on September
10, 2010.
Redefining C-Suite Expectations
for Pharmacy
• Pharmacy accountability for distribution of products and
information across all points of care
• Clear and defined role for pharmacy expertise to be available
at the point of care
• Redefinition of the basic systems and services to meet the
changing organizational model
• Creative and innovative solutions that align with organizational
goals and direction
• “Balancing act” that requires collaboration and new skills
Perception of Pharmacy
Competency
•
•
•
•
•
•
Appear knowledgeable
Seek out crises
Deliver under pressure
Be known for multiple competencies
“Big-picture” thinking
Effortful-effortless principle
Key Principles
Resource Principle: The department that has
more resources has a larger impact
Scarcity Principle: Resources that are scarce are
more valuable - supply/demand
Value Principle: The only resources that really
matter are those that are valued by your CSuite
Match Needs Now Strategy
• Develop resources that are both valuable and
scarce in your organization
• Match those resources to C-Suite needs to
advance your brand and your strategic
pharmacy initiatives
Six Key Questions of the C-Suite
1. Are we buying drugs at the best possible advantage?
2. Are sound business principles and practices being applied to all pharmacy
operations? (i.e., Is the pharmacy business being approached as the large
business enterprise it has become?)
3. Are patient billing and revenue processes for pharmacy sound and routinely
monitored?
4. Are pharmacy resources, including drugs, supplies and manpower, properly
controlled and managed?
5. Are patient outcomes and medication safety concerns properly balanced
with financial considerations in the pharmacy department?
6. Are all pharmacy entrepreneurial opportunities identified, explored, and
pursued when appropriate?
Are we buying drugs at the
best possible advantage?
• Rethink group purchase advantages
• Annual review and challenge of GPO and special pricing
programs
• Negotiate best prime vendor value based upon capital required
and payment terms
• Avoid shorts that require off-contract pricing through innovative
inventory management methods
• Establish comprehensive invoice monitoring systems to validate
accuracy of invoice pricing versus contract
Are sound business principles and practices
being applied to all pharmacy operations?
• Develop a definitive business model, strategy, and tactics
with policies and procedures for all phases of the pharmacy
business including:
– Drugs and supplies purchasing, inventory, receiving, and invoicing
processes
– Proactive pharmacy budgeting, tied to annual goals, projects, and
strategies for the fiscal year
– Use of dashboards and customized pharmacy reports for drug usage,
supplies, and manpower in the context of patient volume and
pharmacy activity
Are patient billing and revenue processes sound
and routinely monitored?
• Develop and maintain an updated drug billing system,
including CDM, and outpatient billing and coding processes
– Increased potential for enhanced revenues
– Reduced potential for billing discrepancies
– Avoid inadvertent inappropriate billing fraud liability
• Develop pharmacy expertise and efficient billing processes for
ambulatory drug billing
• Incorporate ongoing methodologies and processes that will
assure clean, accurate billing, regular internal audits, and fiscal
reviews of all pharmacy billing
Are pharmacy resources, including drugs,
supplies and manpower, properly
controlled and managed?
• Highly effective pharmacy programs focus much of their cost
control efforts on drugs through:
– Collaborative pharmacy efforts with the medical staff
– Objective review of clinical data for safety and effectiveness with
medical evidence of clear advantage
– Direct review of all orders and collaboration by pharmacists with the
prescriber in the patient area regarding appropriate drug selection
Are pharmacy resources, including drugs,
supplies and manpower, properly
controlled and managed?
• Detailed standard reporting of drug expenditures to quickly
identify trends in drug spend
• Daily monitoring of specific high-cost drivers such as antiinfectives and other target drugs by a pharmacist-physician
team to assure appropriate agent is selected based upon
clinical and economic considerations
• Establish monitors and physical controls over all drug
inventories, including controlled, non-controlled, and
expensive agents to ensure fiscal control and avoid diversion
or gray market issues
Are pharmacy resources, including drugs,
supplies and manpower, properly
controlled and managed?
• Detailed ongoing monitoring reports of pharmacy manpower
expenses
– Technicians versus pharmacists hours and costs tracked against pharmacy
and hospital work units
– Utilize established internal benchmarks for productivity monitoring and
management
– If external benchmarks are expected by leadership, pharmacy leadership
proactively accounts for clinical programs, FTEs, hours and scope of services
• All clinical programs, special services, and any unique pharmacy
programs are documented and accounted for regarding ROI
• Pharmacy director routinely communicates with the C-suite so that
unique programs for pharmacy to address patient care demands
are understood, cost justified and rationale for existence is
supported
Are patient outcomes and medication safety
properly balanced with financial considerations?
• Critical balance between sound financial management of
the business and responsibility for patient outcomes
• Successful balance provides financial dividends in patient
safety initiatives and avoiding litigation costs
• Medical Insurance Exchange of California reports
medication errors as the 5th most prevalent misadventure
with 6,517 claims reviewed costing $380 million in
indemnity expense averaging $123,506/claim
www.miec.com/Portals/0/WriteOn/Writeon3_online_09.08.pdf Accessed September 10, 2010 A
Are all pharmacy entrepreneurial opportunities
identified and pursued when appropriate?
• Entrepreneurial opportunities to increase pharmacy
revenues and expand the portfolio of profitable pharmacy
business, for example:
– 340B qualifications and related unique services
(transplant, employee specialty clinics, etc.)
– Retail pharmacy expansion
– Employee prescription benefit plans
– PBM management
– Discharge Rx capture
– Direct clinic programs
– Supply chain
C-Suite Presentation Outline
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
State the problem/opportunity
Solution (or making the opportunity a reality)
Benefits of the proposal
Drawbacks
Limitations
Risks
Cost (overall, not details)
Resources
Expectations for the short and long-terms
Next steps
Case Discussion
Responding to a C-Suite Concern
CFO Posed Drug Cost Concern
• Drug costs are rising at your institution when
compared to the previous year average (up
8%), and the same month the previous year
(up 9%). What are the first metrics that you
will look at to provide your COO and CFO with
an explanation and possible strategy?
Always be Prepared
“In preparing for battle, I have always
found that plans are useless, but
planning is essential.”
Gen. Dwight D Eisenhower
“In practice we plan the work and in the game we work
the plan”
Vic Heyliger
Creating Your Response
Evaluating Pharmacy Supply Expense
•
•
•
•
Comparison to other hospitals
Gauge if our program is “on track”
Set internal organizational goals
Provide key directional information for decision
making:
–
–
–
Service line strategies
GPO decisions
Supply chain partnerships
Utilize a Good Measurement System
1. Accurately measure current status
of performance
(where are we at now)
2. Measurement system provides the
breakdown of opportunities (what
do we need to do to hit target)
3. Able to explain variations
(is the change due to volume, intensity
LOS, price increase)
47
Factors Contributing to Drug Cost
•
•
•
•
Drug price inflation
Patient volumes
Patient mix
Expanded treatment
options
• New drugs
• Legislation
• Patent expirations
• Generic entrants into
the market
• Class of trade issues
• 340B eligibility
• Interruptions in
product availability
Drug Price Inflation
• Traditional overall annual
inflation rate 3%
• Contract portfolio inflation rate
1-2%
• Category inflation rate varies
greatly
• This year health care reform is
likely to drive inflation rate up
due to $80B PhRMA concessions
Drug Company Inflation
• 10-15% increase 1st quarter
’09 vs ’08 Express Scripts
• 2010 rates for several major
PhRMA companies are
currently in the 8 – 10%
range
Volume Changes
• More patients = more drug
use
• More intensive patients =
more drug use e.g. IU
Transplant
• Expanded indications for a
drug = more drug use
New Drugs
• Major source of increased cost
• Over 1,500 new compounds in
Phase 2 or 3 development
• Growth slowing
• Cost to bring a new drug to
market is $800M - $2B
• Patent life
• Blockbusters
– Denosumab
– Oral chemotherapy agents
Patent Expirations 2010
• Generic equivalents
–
–
–
–
–
–
Primaxin® $500M market 30% erosion
Merrem® $300M market 30% erosion
Angiomax®$300M
Hycamptin® $150M
Protonix® $100M
Naropin®$40M
• Therapeutic equivalents
Legislation
• Biosimilars
• Generic “buy outs”
sanofi/Oxaliplatin®
• Donut hole “Fix”
• Expanded Rx Plan options
• Expanded coverage of
orphan drugs
• Patent life extensions
Special Purchasing Considerations
• GPO Issues
• Class of Trade
– For Profit/Not-for-Profit
– Retail
– Acute Care
• Special Purchasing Programs
– 340B
Drug Shortages
• Currently managing
over 250 shortages
– Raw materials
– FDA “shut downs”
– Manufacturer “shut
downs”
– Product discontinuations
Examples of Traditional Metrics
Used by the C-Suite
• Pharmacy Supply Expense as a Percentage of Net Revenue
(contracts, Net reimbursements, etc) is beyond control of supply
chain, as are regional differences in reimbursement
• Pharmacy Supply Expense as a Percentage of Total Expense Other
costs (labor, benefits, malpractice, etc) are beyond control of
supply chain – and vary considerable nationwide
• Pharmacy Supply Expense per Adjusted Patient Day
Misleading because it assumes that LOS is standard across country
• CMI -Using the Case Mix Index (CMI) to “level the playing field”
compounds the problem
Flaws with Traditional Metrics
•
Percentage of Net Revenue – Revenue (contracts,
Net reimbursements, etc) is beyond control of MM,
as are the regional differences in reimbursement
MSDRG 470 Reimbursement
Pacific
$12,651
East South Central
$9,806
Avg 2007 Medicare Reimb by region for MSDRG 470.
Flaws with Traditional Metrics
• Percentage of Total Expense
– Other costs (labor, benefits,
malpractice, etc) are beyond
control of MM, but supply
costs are basically the same
nationwide
Medicare National Wage Index
New England
East South Central
113%
2008 Medicare Wage Index by Region.
84%
Tools and Resources
Pharmacy Information Systems
• Source of pharmacy specific data (orders processed; doses
dispensed; drugs utilized)
– Inpatient system
– Outpatient system
– Nursing system
• Single Platform vs. Best of Breed
– The proof is in the interface
• Data Mining Tools
–
–
–
–
E-MAR (Power Chart)
E-MAR Data Mining and Reports (Power Vision)
Integrated system (Pandora, Pyxis® Connect)
Peripheral system (Sentry, “billing system”)
Tools and Resources
Hospital Information Systems
• Primary source of “non-pharmacy” metrics
• Financial database
–
–
–
–
Payer mix
Contractual & discount rate
Primary billed diagnosis
Drug usage
• Patient database
–
–
–
–
Census
Adjusted patient days
CMI
Payer mix
Pitfalls to Avoid
• Failure to establish clear accountability, structure,
and leadership for pharmacy as a unique business
and clinical department
• Adopting standard benchmarks and “shrinking to
greatness” cost monitors/cost cutting strategies
without considering pharmacy scope of services,
patient types, and related drug costs
• Failure to recognize the ongoing communication with
the C-suite is essential to maintain an understanding
of pharmacy’s role and responsibilities
Pitfalls to Avoid
• Over commitment of resources to technology
advances and projects without adequate planning &
support
• Failure to assure the basics of pharmacy dispensing
and distribution are done well as pharmacy expands
into clinical and other areas and programs
• Establishing clinical initiatives and cost controls
within the pharmacy team without building
adequate credibility and support with medical staff
Conclusion
• Take time to understand C-Suite needs and
expectations
• Create maximum pharmacy value
• Be cognizant of and work to continuously improve
your pharmacy
• Be able to effectively answer the 6 key questions