Drug Inventory Management

Over the past decade, community-based specialty practices have become a more significant part of the U.S. healthcare system. Even so, many face challenges sustaining operations and staying in business in the current reimbursement landscape.

In McKesson’s extensive work with these types of specialty practices, we have had the opportunity to not only observe the business issues they confront, but also the opportunities that emerge for healthcare IT professionals – and the greatest opportunities revolve around inventory management.

A Unique Sector

Unlike many other healthcare sectors, the primary operating cost for these specialty practices is actually the medications they keep on hand to administer to patients while in the office. Specialty drugs are a low-margin, high-operating expense, but very important to the financial health of a practice, as more than 80% of their revenue comes from drug, infusion and E&M charges.

These medications can range into the thousands – or many thousands – of dollars for a single vial, making the tracking and use of them a significant part of a practice’s attention. As a consequence, inventory is by far the largest operating expense for many of these practices. Managing that inventory is crucial for their financial survival, but at the same time, thoughtful management is an essential element in providing high-quality patient care by ensuring the practice has the drug needed to treat patients.

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These specialty practices, with such a unique intersection of financial and patient-care concerns, need to be especially mindful of drug inventory. Fear of not having enough of any given drug can lead practices to wildly overstock, tying up cash that could be used to grow the business by deepening patient engagement in the practice and expanding into alternate revenue-generating patient-care channels.

Community-based practices need inventory management tools designed for their specialty to help them protect one of their largest assets – their drug inventory – with minimal disruption to their workflow. Using the right inventory management system – one designed with specialty community practices’ needs in mind – is the key to converting a practice’s greatest cost into their biggest asset.

Three Key Benefits

From our observation and studies, it is clear that inventory management systems must deliver three key benefits to a specialty community practice: enhanced purchasing efficiency, improved process economics and maximized revenue through waste capture transparency.

1: Purchasing Efficiency

Since drug costs are relatively fixed, the largest gains in purchasing can be realized through purchasing efficiencies that can help a practice increase cash flow through optimization of their inventory – more closely matching on-hand materials with anticipated patient demand – and by streamlining the staff activities needed to maintain inventory balance.

Recently, a Georgia oncology practice realized $30,000 in savings by using our web-based inventory system. These savings were realized from improved inventory efficiencies such as simplifying restock, as well as through ready access to simple inventory snapshots across multiple sites of care (accessed through a variety of web-access devices across the practice), built-in forecasting of upcoming treatment needs based on anticipated patient demand and real-time integration with the practice’s existing EHR software (with orders flowing from the EHR to purchase only what they really need).

2: Process Efficiency

Process efficiency is a key metric, dealing with another critical aspect of improving systems in a specialty practice: maximizing the utility of what is usually a lean staff in these practices. A recent study conducted at Rocky Mountain Cancer Center (following the installation of our inventory management system) demonstrated concrete examples of the value of a modern and integrated system.

The web-based nature of the system is an essential starting point for this process efficiency, allowing staff to access the application from virtually anywhere (rather than a centralized physical point in the practice), while reports are provided in real-time and accessible from any web-enabled device. In the RMCC example, the system initially streamlined the complete inventory management process to seven steps (from the 16 needed under their previous process, which had not been built specifically for specialty practices).

Overall, there was a 52% improvement in process efficiency from the system change. More telling was the 49% savings in labor costs associated with inventory tracking; costs that could be shifted to work more directly with patients.

3: Waste Capture Transparency

Many practices also face revenue risks when it comes to billable waste on single-dose vials of medications. This places a premium on an inventory management system designed for a specialty practice. Improving charge capture and clinical workflow has helped many specialty practices using our system recognize 3-5% in additional revenue simply by capturing billable waste right at the time a medication is dispensed to a patient. No additional effort is required on the part of the clinical user, but the financial implications have been staggering – we’ve seen as much as $70,000 saved per physician annually due to charge capture improvements.

Virtually all areas of healthcare are wrestling with the changing environment, not least of which is the relatively recent advent of information technology. A significant opportunity can clearly be found with improved inventory management; through readily-accessed web platforms that can serve multiple sites, through better alignment of treatment supply with demand (and seamless integration with ordering) and streamlining the range of labor-intensive inventory-related activities.

Community-based specialty practices face their own distinct challenges, but also have demonstrable opportunities to improve not only their revenue picture, but their ability to better provide care to their patients through information technology.

Kristyn Stroble is Director of Lynx Mobile Services and Jennifer Sawdey is a Lynx Mobile Product Analyst.

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