Improve pharmacy budgeting by following these successful tips
Variance reports, benchmarking can help
Hospital pharmacies often encounter obstacles in the budgeting process, particularly when it's difficult to obtain the necessary data or when a health care organization is having a difficult year financially.
But there are some tested and successful strategies that any pharmacy director could employ to improve budget predictions and organizational buy-in.
"Directors of pharmacy have the skills needed to do the budgeting accurately, provided they're given the data," says Lee C. Vermeulen, BSPharm, MSPharm, FCCP, director of the Center for Drug Policy at the University of Wisconsin Hospital and Clinics in Madison, WI. Vermeulen co-authors an annual report on projecting future drug expenditures, which is published in the American Journal of Health-System Pharmacists.
"One thing I hear time and time again from pharmacy directors is, 'My chief financial officer and chief executive officer feel threatened when I ask for data, and they won't share data with me,'" Vermeulen says. "I share with them my forecast and say, 'This is in the pharmacy literature; let's dialogue so we can do a better job, but to do that better job, you'll have to give me access to data.'"
At Brigham & Women's Hospital in Boston, MA, the pharmacy director first focused on obtaining good data.
"I took over as director in 1990, and one of the first things we did over the years was focus on changing how we did the budget," says William W. Churchill, MS, RPh, executive director, pharmacy services.
"The times were changing," Churchill recalls. "Drug costs were going up, and more and more expensive drugs were coming into the marketplace, so inflation was hitting us, and utilization was growing."
Add new technology to the mix, and the hospital pharmacy was hit with a triple whammy.
So Churchill helped develop a good budgeting process by improving the pharmacy's ability to analyze current data.
"We were fortunate here because we had a lot of computerization at Brigham & Women's Hospital," Churchill says. "We were able to monitor drug utilization on a line-by-line basis, carving out infusion drugs, operating room drugs, inpatient drugs, and outpatient pharmacy take-home drugs."
Besides obtaining good data, a pharmacy needs to obtain management buy-in for the budgeting report.
"When an organization is doing well financially, it's a lot easier to get a budget with bad news through the process," says Marianne Ivey, PharmD, MPH, FASHP, vice president of pharmacy services of Health Alliance in Cincinnati, OH.
"When the organization is in trouble financially, everyone is under a lot of stress to find ways to reduce costs," Ivey adds. "We employ strategies to control our costs and provide extremely high value pharmaceuticals, and we try to do that no matter what the financial climate is."
By all measures, the Health Alliance pharmacy services in Cincinnati is doing very well with both anticipating the actual budget costs and lowering budget expenditures, Ivey notes.
"We've had some bumps when there's either been a national increase that was significant or when we took on a new group of patients or a new pharmaceutical came out," she says.
For example, when a hospital has an increase in patients with a serious disease that requires expensive medication, this can drive up the costs relatively quickly, Ivey says.
"When we have that kind of data, we look at what happened and look at our processes and decide whether we need to do something differently," she explains.
Here are a few strategies for improving your budgeting process:
• Calculate variance reports: "Look at your utilization over time, over multiple years, and track variance of that to calculate the growth rate," Churchill suggests.
If certain budget areas are increasing at double digits while others rise only 2% a year, then that information suggests where to focus attention, he adds.
"Then we would compare that data with what the predicted inflation and performance were," Churchill says.
Vermeulen's future drug expenditure report is a good tool to use for such a comparison, he notes.
"I've been a reviewer of it, and we use it as a tool to calculate what next year's drug expenses will look like," Churchill adds.
For instance, it's a good idea to look at national trends to predict future growth rates, calculate what the drug costs will be, look at the trended growth rate, and compare the organization's personal growth rates with national projections to see if the hospital's pharmacy budget is above or below the curve, Churchill says.
"Often times you can evaluate the data, and it helps you identify budget targets in terms of whether you appear to be significantly higher in utilization of drug X, which may be growing at a 40% rate," he explains. "So drug X is a budget buster, and you'll need to work on it."
• Stay on top of trends by benchmarking data: "We're a member of the University Hospital Consortium, which has a dataset called CRM Clinical Resource Manager, and that's where hospitals submit costs and utilization data on drugs," Churchill says. "We're a subscriber, and we use the data to help us benchmark how we're performing against other institutions in the UHC group on certain types of drugs and certain DRGs."
For example, the benchmarking information enables the pharmacy director to look at the medication cost for bone marrow transplants, focusing on utilization, total days of therapy, average doses, and other details that give the director an idea of whether the hospital is over-utilizing particular drugs, Churchill says.
The hospital also subscribes to other benchmarking data and uses the information to compare its performance with similar hospitals.
"We look at our performance on a cost-per-case-mix-adjusted discharge or a pharmacy-intensity-adjusted discharge," Churchill says. "Then we look at cost per patient day because it's acuity-adjusted."
The goal is to benchmark the hospital's own performance with other hospitals of similar size and scope.
"Not every hospital has the same volume of patient types, but we try to match up against total admissions, beds, and evaluate the cost per patient day," Churchill explains.
"A good pharmacy manager will have a lot of data and information available to manage the budget in this way," he notes. "And you'll have systems to support that."
• Work with drug policy development committee: A health care organization's drug policy development committee, such as the Health Alliance's system-wide pharmacy and therapeutics committee, determines whether a new drug in a certain therapeutic class of pharmaceuticals has the safety and efficacy and value to justify a change from what the organization currently uses, Ivey says.
Since drugs included in a hospital's formulary often are tied to contracts that were negotiated to ensure the best pricing, any potential changes must be carefully considered.
"The thing we do that's different is we quickly work the change through the system once the physicians agree," Ivey says. "We make sure the new drug is added to the formulary, and we begin to disseminate the information among our clinical pharmacists."
The clinical pharmacists spread the word when on rounds with physicians, she adds.
"Then we move the market share to that drug very quickly and begin to take advantage of the negotiated contract price very quickly," Ivey says. "A lot of organizations and hospitals do well with contracting, but it takes a long time to realize the benefits of that contracting because it takes them so long to implement their decision."
Hospital pharmacies often encounter obstacles in the budgeting process, particularly when it's difficult to obtain the necessary data or when a health care organization is having a difficult year financially.You have reached your article limit for the month. Subscribe now to access this article plus other member-only content.
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