Hospital pharmacies a boost to profit margins

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Hospital pharmacies are business critical to any hospital. Investing in its upliftment will ensure sustainable RoI

Dear hospital executives,

Have you considered viewing your hospital pharmacy services as an active generator of revenue, while scrutinising your revenue cycles?

If you haven’t yet, it’s time to turn your attention towards this oft-overlooked resource for it has a great potential to draw more revenue for the hospital as it seeks a more efficient and controlled means of delivering medications to its patients. It can also be instrumental in creating a value proposition for your hospital.

Let’s find out more….

What onsite pharmacies can mean to your hospital?

Like all times, hospital pharmacies seem to be one of the highest cost centres within a hospital set-up. Each year, the cost incurred in this division increases due to rising drug costs and staffing needs that accounts for the majority of the pharmacy budget. Again, clinical departments of a hospital focus on gaining access to medical advances and newer, more effective treatment options to offer their patients, while the financial department prefers to maintain the status quo in terms of pharmacy spending. Consequently, hospitals tend to overlook the multiple contributions that their on-site pharmacies can offer.

Nevertheless, international experts point out that the hospital pharmacy division is one such resource that can dramatically aid a hospital’s revenue cycle from the point of service to claim submission and more. They can be an integral participant in optimising several hospital processes, improve data management and create innovative patient programmes which in turn can be helpful in boosting overall hospital revenues.

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Dr Suresh Saravdekar

Opines Dr Suresh Saravdekar, Consultant – Medical Procurement, State of Maharashtra & IMS- BHU , Varanasi, “Hospital pharmacy essentially works to strengthen the three important pillars of the hospital. These pillars are 3Ps – namely, Patient Care, Product Care and Profit Care. As regards financial outcomes, the hospital pharmacy works in three ways: at procurement level it works for procuring quality medicines at the most economic price; at storage level it works to save on investment by blocking minimum capital in the medicine inventory and as medicines are procured on bulk basis, the cost involved in buying the medicines is minimum. So, the hospital can easily get 40 per cent RoI on its medicines sold at its retail counter and to the indoor patients. As for clinical aspects, all the medicines are procured from reputed manufacturers, having good track record of observing Good Manufacturing Practices (GMP). Secondly, the bioavailability and clinical efficacy of medicines supplied is also assured. So the clinical outcomes of all the medicines are optimal and the patient’s satisfaction is at its best.”

Moreover, if this division strives for business excellence, it can guarantee a positive impact on the bottom lines, enhance patient care and reduce readmissions thereby increasing profitability for a given hospital.

Experts call this a value-driven strategy for business excellence.

Strategy expert, Michael Porter and innovation expert Elizabeth Olmsted Teisberg in their book — Redefining Health Care: Creating Value-Based Competition on Results write about how striving for business excellence can benefit healthcare organisations in terms of profitability and sustainability. They call it the ‘value agenda’ which speaks of creating a value-based healthcare delivery system by utilising its various resources to be financially healthy and provide the best care to their patients.

This strategy in my opinion can be applied in three significant areas-revenue generation, patient outcomes and supply-chain management to explore the potential of on-site pharmacies within hospitals.

However, at first, let us learn about the global practices and the evolving role of on-site pharmacies in India.

On global front

As per global practices, hospital pharmacies have been an integral unit in the entire clinical and financial functioning of hospitals. “Countries like the US, the UK and Singapore has a very good legal framework for hospitals and pharmacies. A developing country like India can learn a lot from those countries in terms of pharmacy laws and regulations. In the US, all food, drugs, cosmetics and medical devices, for both humans and animals, are regulated under the authority of the Food and Drug Administration (FDA). The Food and Drug Administration and all of its regulations were created by the government in response to the pressing need to address the safety of the public with respect to its foods and medicines. Pharmacy in the UK has been an integral part of the National Health Service since it was established in 1948. NHS pharmacies are governed and paid for their NHS work under a standard contract, which was modified in 2005. This modification-enabled pharmacy contractors to be paid for Medicines Use Reviews are conducted by pharmacists for people with multiple long-term prescriptions. Singapore’s Pharmacy Board is a regulatory body and is separate to the Pharmaceutical Society of Singapore (PSS) that represents the profession. Registration with the Pharmacy Board is compulsory in order to practice as a pharmacist in Singapore and must be renewed annually by the payment of a retention fee,” informs Mohammed Faisal, COO, Primecare India.

Evolving role onsite pharmacies in India

Hospital pharmacy practice in India is still evolving. “After independence, the development of pharmacy profession was mainly in the area of industrial pharmacy. Naturally, all educational institutes were and are still geared to produce industrial pharmacists and not hospital pharmacists. Therefore, unlike international practice, in India, all pharmacy colleges were/ and are still attached to industries and not attached to hospitals. This led to producing the generations of compounders, having very little knowledge about real hospital pharmacy,” shares Dr Saravdekar.

As per a research paper published by the US National Library of Medicine, “India launched the Doctor of Pharmacy (PharmD) study programme in the year 2008 which led to huge discussions about the programme and also on the role of clinical pharmacists (CPs) in the country. Before launching the study programme (i.e. PharmD), the role of a pharmacist in the nation was mostly considered to be “dispensing/manufacturing/marketing of the drugs” and clinical pharmacy education was mostly given under the study programme of Master of Pharmacy (M Pharm) (Pharmacy Practice/ Clinical Pharmacy). Furthermore, there had been “almost no” professional clinical pharmacy services (CPS) provided in the country. As a consequence, the concepts of CP and PharmD are quite new in India.

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Adding on Dr Saravdekar says, “The concept emerged with the development of the private healthcare sector, which led to the demand for services that are of international standards and accredited. Consequently, demand for upgradation of compounders to hospital pharmacists became inevitable. Thus, only after six decades of independence, the profession of hospital pharmacy has been recognised as a profession in its real sense in India. And this opens new avenues for hospitals to offer better pharmacy services to their patients.”

Hospital pharmacies currently contribute around 20-25 per cent to the hospital revenue. The division is involved in procurement of drugs and medical devices, inventory management, dispensing of drugs and patient counselling. However, there are some hospitals who engage their pharmacy services in other clinical processes as well. This role is certainly evolving and with the application of a value-driven strategy, it can transform further.

According to Ron Purkiss, Clinical Director at Sheffield Teaching Hospitals NHS Foundation Trust, who writes for Royal RoPharmaceutical Society, clinical pharmacists with their unique knowledge of medicine are crucial in using pharmacoeconomic analysis to influence expenditure and distribution of resources on medicines. He further writes that hospital pharmacists need to use pharmacoeconomics to assist in making decisions involving formularies and how medicines can be used in a more cost-effective or cost-beneficial manner. This in turn plays a crucial role in managing medicine demand within a hospital as well as bring down healthcare cost to a certain extent.

This directs us to comprehend with the fact that onsite pharmacies can be cost savers and revenue generators.

Boosting profitability

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Parveez Ahmed

“Streamlining the formulary by cost and income, managing the formulary efficiently, along with billing help, means the pharmacy makes a contribution to the hospital’s bottom line. Having this information added into the billing system, it increases revenue and speeds turnover by having the initial bill correct,” informs Parveez Ahmed, Executive Director, Primecare India.

A winning strategy that international experts propose consists of two steps — capture prescriptions on discharge as possible, and generate revenue based on those prescriptions. If those efforts are successful, a hospital may be able to generate enough cash to grow and expand its pharmacy services, leading to ever-increasing revenue in a cycle of investment and return.

Another way to cash on onsite pharmacies, is through excellent patient care and counselling. In the retail environment, there really isn’t an interest in patient education and counselling. In fact, retail pharmacies may not be interested in making sure patients get the medications that they need. Therefore, hospital pharmacies can certainly leverage this opportunity to generate revenue.

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Pradnya Mane

Pradnya Mane, Head Pharmacy, Bhatia Hospital, Mumbai, explains how her hospital utilises this advantage. “At the pharmacy at Bhatia Hospital, we take a few outlined steps for proper revenue generation. We believe that one of the mainstays of increasing revenues is to have proper communication channel with the patients. At the pharmacy, we ensure that we provide streamlined counselling and communication for customers. When patients come to us with due prescriptions, we make it a point to counsel them with the right consumption of the prescribed drugs. For instance, in case of antibiotics, we talk to them about how they need to complete the prescribed course because people have a tendency to discontinue in between. We also help them with indications on the timings — before lunch, breakfast etc. Usually, doctors do mention these, but we try to make sure that patients have understood. We are also very particular about the availability or non-availability of the drugs. We always maintain patient data in a register. In case, the required drug is not available, which is a rare case, we take the customers’ contact numbers. Once we procure the stock, we inform them. If they are willing to come, it’s fine, or else we deliver to their residence,” she reveals.

Going by the example of Bhatia Hospital, it brings us to knowledge that hospital pharmacies can add up to your revenue by way of various clinical and patient engagement programmes that needs collaborative efforts by every service department within a hospital.

Towards value-driven patient care and satisfaction

Hospital pharmacies have a compelling role in optimising patient care by the pharmacy teams working with the physicians and nurses by providing appropriate medications and consumables as per treatment protocols. It ensures better outcomes to patients and thus helps hospitals exceed patient satisfaction.

In 2014, the American Society of Health-System Pharmacists’ conducted a national survey of pharmacy practice in hospital settings that revealed, hospital pharmacists are taking a greater role in patient care, performing more medication-related patient transition-of-care (TOC) interventions, 24/7 medication order review and medication counselling.

The report examined five areas in which pharmacists could enhance coordinated care:

  • Medication management: Pharmacists can help patients with chronic diseases to have better medication adherence and clinical outcomes.
  • Medication reconciliation:Pharmacists help detect and reduce medication discrepancies and increase benefits through comprehensive transition of care programmes, especially among post-discharge patients with an elevated risk of readmission.
  • Preventive care services: Pharmacists can lead in immunisation services and identify vaccine candidates. They can also provide screening services.
  • Education and behaviour counselling: They can provide behavioural counselling, improve medication adherence and therapeutic outcomes in patients with chronic conditions and can play a major role in other types of pharmacist interventions.
  • Collaborative care models: Team-based care that includes pharmacists improve outcomes among patients with chronic conditions, and can alleviate demand for physician-provided care, as well as give access to primary care services related to medication management.
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Suresh Ramu

Suresh Ramu, Co-founder and CEO, Cytecare Cancer Hospitals, draws attention towards important role of onsite pharmacies in pharmacoeconomics.

“Information is the key role that a pharmacy plays within the hospital. Not just with patients but also with clinicians and nurses. Actually, a hospital pharmacy has the potential to become a supplementary nurse station that aids patients with information on medication. They can also play a crucial role in educating patients, healthcare practitioners and nurses on overuse of drugs, the interactions of certain drugs with other drugs or the diet and impact of drugs etc. Infact, the role of a pharmacist is to actually have a counter check between the clinical decision verses all other considerations that a pharmacist should make related to medication,” Ramu informed.

The above mentioned survey of 1,435 pharmacy directors who worked at general and children’s medical-surgical hospitals in the US, also deployed technology to enhance patient care. It was found that the use of smart pumps, barcode-assisted medication administration, computerised prescriber order entry (CPOE) systems and electronic health record (EHR) systems, were utilised to improve patient outcomes and improve satisfaction.


Challenges that need focus

  • Need to upgrade the standards of hospital pharmacy services to global level
  • Need to upgrade the skills in materials and financial management and overall administration of medicine management in the hospital.
  • Need to learn modern communication skills to have effective communication with the patients
  • Need to educate and update pharmacists on day today market trends, legislation, taxation, statutory requirements regarding management of medication
  • Need to educate and update pharmacists on the use of modern technology for the overall management of medication in the hospital.

(Inputs by Dr Saravdekar)


Key areas to focus on best practices pertaining to value-based SCM system:

  • Proper need assessment to ensure that scarce resources aren’t wasted in excessive stocking of expensive items like implants
  • Accurate estimation of cost, both direct and indirect, for optimal pricing
  • Standardised protocols for product identification, ordering, billing etc. to avoid duplicity as well as effective monitoring
  • Collaboration with suppliers for risk sharing and developing “win-win” solutions
  • Leveraging of technology for efficient management of overall process as well as ensuring transparency
  • Effective revenue cycle management keeping in view payable as well as receivables

(Courtesy: IMS Health)


This is true in case of Indian hospitals as well. Digital technologies and automated equipment are utilised to get better patient outcomes and these technologies can be leveraged further to delivery better pharmacy services.

Infact, digital technologies and automation can also be utilised to optimise supply chain management. Having said that, one must understand that the role of hospital pharmacies in the management of supply chain system is most imperative.

In today’s cost-conscience environment, it is a must for hospital pharmacies to evolve their pharmacy supply chains and to make it more collaborative, transparent and efficient. Therefore, a value-based supply chain strategy will be a great opportunity for hospitals to thrive.

So, how can hospital pharmacies achieve this excellence?

An efficient supply chain management system

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Amit Misra

Explains Amit Misra, Head – Consulting Services, North India, QuintilesIMS, “A value-based supply chain system will be strongly linked to clinical outcomes. The focus will shift from cost alone as a criteria for choice to a focus on the overall therapeutic benefit brought to the patients. An approach where therapeutic value is the basis of procurement decisions, demand planning and rationalisation will certainly be good for health outcomes.”

“A combination of internal and external strategies to ensure that patient care is affordable and accessible to a larger population is very important. Quality patient care must utilise the latest technology in order to ensure credible and effective service that has a transformational effect in people’s lives. We need to ensure that this digital transition is coupled with reliable technology and qualified, dynamic professionals who ensure that the net result is always world class products and processes. With the increase in ageing population and the resulting rapidly rising health complications, patient data and diagnosis will be critical criteria for this industry,” spells out revenue cycle expert, Tony Mira, President and CEO – MiraMed Ajuba Solutions.


Bhatia Hospital’s ABC analysis

The supply chain management follow the universal ABC analysis (Always Better Control). ABC analysis is dividing an inventory into three categories- “items” with very tight control and accurate records, “B items” with less tightly controlled and good records, and “C items” with the simplest controls possible and minimal records. At our end, we maintain an excel sheet in which we list down the products first and enter the consumption quantity then check the average consumption. After calculating the value of consumption and the cumulative percentage we actually get the ABC categories. The A category includes drugs which have more than 70 per cent consumption, B category includes drugs with 20 per cent consumption and C category includes those with 10 per cent consumption. We ensure especially for higher consumption or A category drugs that there is never a shortage. This category also includes life saving drugs. It means we should never miss out on any drugs from this category.

If there is a case that a patient comes with the prescription and the drug is not available with us, we take care from our side that the patient is provided with the correct alternative. We connect with the consultants for the alternative and try to ensure that the patient’s family and relatives are not hassled for this. In case, the consultant is not ready for an alternative, we cash purchase the drug from outside and provide it to the patient.

The second category in the supply chain management is the VED (Vital, Essential, Desirable) category. For Vital drugs, we never have any stockout. Essential drugs too are extremely important, but in the rare case that they are not available, we make sure that they are with the patient at the earliest. Of course, there is always a 100 per cent availability. Desirable drugs include things like powders for example an Eno sachet to be consumed for acidity which depends on choice and can have alternatives.

The supply chain management follows the FEFO system which means First expiry, first out. Whatever near expiry drugs are in the pharmacy, we ensure that they are removed immediately. These are segregated and stored in a separate area to avoid them from moving out of the pharmacy. Also, this is done to ensure that there are no confusions and mix ups –  Pradnya Mane, Head Pharmacy, Bhatia Hospital, Mumbai


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Tony Mira

Further on, Dr Mane expounds on the supply chain system followed by her hospital pharmacy division. Referring to the ABC analysis (See box), Dr Mane says,  “At the pharmacy, we always take special efforts to maintain logistics like say which companies to procure the drugs from etc. We also follow good supply chain management practices. We ensure that we maintain a good inventory in such a way that there is no stock-out as far as possible. Also, there should be no over stock. For that, we always maintain an ROL, ie Re-order Level. The order is placed after calculating the ROL.”

Moving forward

Well, the above mentioned techniques to prospect this unexplored good mine can only be possible if hospitals truly invest in strengthening their hospital pharmacy units and upgrading their clinical pharmacists to a leadership role. In doing so, the hospital can be rest assured of optimising the true value of its onsite pharmacies. Challenges such as, training, skill development and lack of accreditation need to be overcome. Above all, investing in its upliftment will certainly bear fruit.

raelene.kambli@expressindia.com

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