Amid rising drug and healthcare costs, an increasingly complex regulatory environment, and other challenges, health systems continue their quest to reduce costs, improve revenue, and operations all while working toward the shared goal of providing top-notch care and helping to improve patient outcomes.
At the same time, drug expenses continue to account for more and more of total hospital operating expenses each year1, putting pharmacy leaders in a precariously visible position – and one which inherently comes with the burden of proof. Fortunately, there is no shortage of evidence for making a case that the pharmacy is (and should be recognized as) a fundamental cornerstone of health systems – providing a critical foundation for patient care and improved outcomes while supporting the organization’s bottom line.
The room where it happens
When outlining your pharmacy’s positive influence on both the health of the patient and the financial health of the system, it pays to encourage leadership to think outside the box – or, in this case, outside the hospital itself. Brad Myers, PharmD, MBA Vice President of McKesson Health Systems Advisory and former Executive Director of Pharmacy and Lab Services for University of Missouri Health Care, estimates that, “In some cases, as much as 90-95% of pharmacy care and revenue may live outside the four walls of the hospital.”2
Something special about it
Expanding outside the physical hospital environment into specialty and retail pharmacy has proven to be beneficial for health systems and their patients. Specialty pharmacy, in particular, has been at the forefront of the conversation for the last decade, thanks in part to a surge in the number of specialty drugs available, the number of patients in need of those medications, and the spend on these high-cost, high-touch drugs during that time – a trend that doesn’t seem to be slowing.3
This staggering combination of growth has amounted to a unique opportunity for health systems and patients alike. To paint an even more compelling picture of how specialty pharmacy is poised to play a headlining role in pharmacy and health system revenue, the National Association of Specialty Pharmacy plugs in the numbers: “[…] a moderately sized health system with $2 billion to $3 billion in annual revenue stands to gain $20 million to $30 million annually by operating its own specialty pharmacy.”4
And with hospital-owned specialty pharmacies, patients have yet another much-needed means of breaking through barriers to access, receiving personalized care sooner, and adhering to their medications – three primary pillars of positive patient outcomes.
A closer connection
In retail pharmacy, there are also a number of proven opportunities for growth through the capture of new patient populations, expansion of services and offerings, addition of off-property locations, and others. Perhaps most important, however, is the pivotal role that hospital retail pharmacies play in clinical outcomes and patient satisfaction. With a “meds-to-beds” approach, hospital retail pharmacies not only obviate the need for patients to fill prescriptions elsewhere (an added convenience), but they also close a potentially dangerous gap in care that can lead to medication nonadherence, readmissions, and declining conditions.5 Additionally, hospital retail pharmacies allow for a more seamless and integrated course of care, giving the pharmacist, patient, and provider a more complete and readily available picture of the patient’s treatment course, medical history, potential drug interactions, and other information that may be more difficult to access – or missed altogether – in another setting.
The road less traveled
While there’s much to be said for driving revenue and bettering outcomes through expanded pharmacy offerings, it’s unequivocally worth exploring enhanced revenue integrity management, unique savings opportunities, and strategies for capturing or recapturing what would otherwise be money left on the table – as much for their financial impact as their contribution to quality of care. Discounts received through the 340B program in 2019, for example, led to an average annual savings on drug spend of $11.8 million per participating hospital at an operating expense of $100,000-200,000 to ensure compliance with program regulations.6
Not only that, but 340B savings allow thousands of hospitals, federally qualified health centers (FQHCs), or CHCs, clinics, and other covered entities to provide critical patient care programs that would not be possible otherwise, such as free vaccinations, mental health services, free or low-cost care for uninsured patients, and others.7 O’Mally Monahan, Vice President of Operations at McKesson RxO, says health systems can also be saving between 1% and 10 % of their pharmacy drug spend with patient assistance programs. “To achieve this, a system-wide strategy should be taken into consideration – from the emergency room to the retail pharmacy and the catheterization lab to the oncology suite. In addition, all areas of PAP should be investigated, including (but not limited to): free drug, co-pay assistance, and 501(c)(3) foundational programs.”8
Making better care possible
Establishing a retail or specialty pharmacy, dissecting charge and reimbursement audits, and navigating the intricacies of 340B and PAP aren’t without challenges, but the dividends – for both patient and provider – are worth the lift.
Visit our page to find out how our industry experts and comprehensive suite of solutions available at McKesson can help you improve return on investment, stay competitive through the extension of operations and processes, and achieve more for your business of pharmacy.
1. Final Report: Recent Trends in Hospital Drug Spending and Manufacturer Shortages. NORC at the University of Chicago. January 15, 2019.
2. Myers, Brad PharmD. (2023, August 16). Personal communication. [Corporate meeting/guest speaker].
3. Myshko, Denise. “Specialty Medications Are Now More Than Half of Drug Spend, Says Doug Long 2022 | PBMI Annual National Conference.” Managed Healthcare Executive. September 12, 2022.
4. Murphy, Brooke. “6 ways health systems can drive revenue and reduce costs through strong supplier partnerships.” Becker’s Health Review. April 25, 2018.
5. Gilchrist, Allison. “In-Hospital Retail Pharmacies Aim to Reduce Readmissions.” Pharmacy Times. May 19, 2015.
6. HOSPITALS REPORT USING 340B DRUG DISCOUNT SAVINGS TO CARE FOR LOW-INCOME, RURAL PATIENTS. 340B Health. June 22, 2018.
7. Fact Sheet: The 340B Drug Pricing Program. American Hospital Association (AHA). March 2023. Last accessed August 30, 2023.
8. Monahan, O’Mally MPH. (2023, September 6). Personal communication. [E-mail].