Outsourcing staffing can control costs
They also provide technology, mass purchasing
Let’s say you run a hospital pharmacy. Someone comes along and promises to make your life easier. First, they bring in a state-of-the-art computer system. Next, they take over the ordering and dispensing of drugs. They pay the employees making the proper deductions for Social Security and income taxes and even schedule vacations and personal days. And all of these services are provided for a single monthly fee that is, in a best-case scenario, lower than what you were paying before. Oh, and by the way, this company promises that quality will always be job one.
That is, in essence, the allure of outsourcing. It’s marketed as an administrative aspirin tablet for those giant management headaches. And perhaps there’s something to it, if growth is any indication. The client base taking advantage of pharmacy outsourcing has grown tremendously. "Over the last 20 years the average growth has been 20%," says Bill McClintock, RPh, group vice president for Owen Healthcare in Houston, the country’s largest provider of pharmacy outsourcing services. "For a long time there was a stigma to outsourcing," McClintock says. "That seems to have gone away."
For Owen Healthcare, what may have erased that stigma more than anything else was the company’s pick-up of a large, well-known client: Columbia Healthcare. Now "big hospitals in big towns" institutions that a few years ago wouldn’t talk to Owen are calling, McClintock says. All told, Owen provides contract pharmacy services to 330 hospitals nationwide.
At another pharmacy outsourcing firm, Allied Pharmacy Management in Dublin, OH, vice- president for operations Jim Hethcox, RPh, MS, says, "We have more business opportunities before us than we have resources." Allied, which ranks third in the country among pharmacy outsourcers, recently became part of Cardinal Health, a drug wholesaler. Owen also will become part of Cardinal Health, pending approval by the Federal Trade Commission.
The guarantee is the clincher
Why are outsourcing companies doing so well? It’s the guarantee: The outsourcing company pledges to hold the line on pharmacy operations in exchange for the privilege of doing business at the hospital. McClintock suggests that’s a lot more attractive to hospitals than having a pharmacy director say, "I think I can reduce costs."
"No matter how strong the pharmacy director is, they have to control costs," McClintock says. And there’s no doubt outsourcing companies have a leg-up on pharmacy directors in that department especially when it comes to purchasing pharmaceuticals, which, as McClintock points out, is the most expensive part of the pharmacy operation.
But outsourcing companies say you need more than low prices. It takes a medical staff that is committed to reducing the bottom line. That’s where the clinical pharmacy services come in. Hethcox says putting in place clinical programs to drive utilization toward less expensive products is probably what saves more money than anything else.
Owen calls its clinical service a "econotherapeutics" program. "We try to get the physician to use the least costly and most effective drug," McClintock says standard operating procedure at most every hospital in the country, outsourced or not. But the drugs cost less in the first place at an Owen-run hospital, regardless of which one the physician chooses.
Outsourcing companies usually neither impose nor encroach upon existing hospital formularies, but they do make decisions on drugs. "We evaluate what products are on the formulary and what opportunities the formulary mix offers for more cost-effective use," Hethcox says. "We don’t come in and tell the medical staff, Allied’s now managing the pharmacy staff, and this is the only third-generation cephalosporin you’re going to use.’"
"We don’t want to carry every third-generation cephalosporin," McClintock says, "We use the one with the best bid price. But as far as strictly controlling the formulary, it’s a pipe dream."
At Methodist Medical Center in Oak Ridge, TN, an Owen-run facility for the past 10 years, director of pharmacy Janet Nock, BS, says formulary issues are handled much as in any other hospital. If, for example, a physician orders the antibiotic Rocephin (a non-preferred product at Owen), a pharmacist will intervene and see whether the preferred product Claforan can be substituted. If the physician is insistent and provides a good reason to use the more expensive drug, the pharmacy has it on hand. But, Nock says, about 92% of the time physicians agree with the intervention. When drugs are similar, such as with H2-blockers, physicians are now used to approving changes based on price, Nock says.
The dark side of the guarantee
Perhaps the most important question for pharmacists is whether anyone loses a job when a hospital turns to an outsourcing company. The answer, the companies say, is a qualified o. Says McClintock, "In pharmacy, payroll is ot the big cost, drugs are."
In some cases, the only one who loses a job is the pharmacy director. Dissatisfaction with department leadership is a common reason a management company is recruited in the first place, says Owen executive Ellen Gilbert, RPh. Others include out-of-control costs and weak systems for monitoring utilization.
At the Rush Foundation Hospital in Meridian, MS, hospital administrator Ken Purvis says Owen actually has increased staffing during the decade the company has been managing the pharmacy. But at the same time, the hospital’s IV and chemotherapeutic orders also have increased.
Nock, who’s worked for Owen at the same hospital for six years, says the management company has never asked her to pare down the staff to stay within budget, and in fact makes hiring a new pharmacist easy. "I feel I have more autonomy with Owen. For example, if a pharmacist leaves, I don’t have to go through steps to get the position reapproved," Nock says. "I know what the FTEs are, I know what my budget is. I can get the process started."
In many cases, outsourcing companies hire the entire pharmacy staff, though McClintock acknowledges there’s sometimes resistance to this shift in allegiance from hospital to management company. "That’s a big hurdle we have to get over pharmacists not wanting to come with us. We would prefer they all remain on [our] payroll." That way, McClintock says, Owen can have "more control."
But outsource companies usually promise nothing as far as pharmacy jobs are concerned, which makes the pending merger between Owen Healthcare and Cardinal Health especially disturbing from a staff pharmacist and technician point of view. Last year, Cardinal Health purchased Pyxis, the pharmacy automation firm. Pyxis, in turn, owns Allied Pharmacy Management. That means the largest pharmacy outsourcing firm in the country may have a strong interest in seeing Pyxis do well.
Might that mean increased automation? "We think it’s absolutely critical," Hethcox says. "To displace manual costs with automation will enhance pharmacy and nursing. We believe it’s the future, and we try to recommend it to clients." Allied Pharmacy Management, which is one-tenth the size of Owen, will likely be folded into the bigger company if the Owen-Cardinal merger goes through.
Increased automation could, however, be a bonus especially if an outsourcing company enters a small hospital. At the Wheeler (GA) Community Hospital, pharmacy technician Kelly Brown says one big plus of having a contract company run Wheeler’s pharmacy is the computer system they brought in.
With outsourcing companies, the motto is, the more service you buy, the more you’ll likely save. Or, as Owen’s Ellen Gilbert puts it, "The more control we have, the better our financial guarantee."
But hospital pharmacies also can use outsourcing companies sparingly. For example, they might use one on a temporary basis to clean things up before an inspection by the Joint Commission on the Accreditation of Healthcare Organizations or for a particularly troublesome function in the department. Hethcox says Allied provides one hospital controlled substances assistance only: "We have gone in and known we’re working ourselves out of a job."
Nock says that colleagues worry about contract companies taking away their jobs, but she has found they have nothing to fear. "The pharmacy is run just like any other pharmacy or business. We have a budget, and we’re held accountable." Plus, she adds, working for a contract company like Owen offers something else: a sense of job security in a tumultuous market. "They encourage people who work for them to be promoted. That’s a big advantage."
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