Hospital Pharmaceuticals: Managing Supply and Demand

Hospital Pharmaceuticals: Managing Supply and Demand

With growing patient populations and new treatments emerging every day, effectively managing pharmaceutical supply and demand has become increasingly complex for hospital administrators and pharmacies. This article examines some of the key challenges around pharmaceutical supply and demand in hospitals today.

Rising Costs of Drugs
Costs for prescription drugs have been steadily increasing over the past decade, putting pressure on hospital budgets. The average spending per hospital inpatient on prescription medications rose from $245 in 2010 to $403 in 2019 according to a survey by the Healthcare Supply Chain Association. One major factor driving up pharmaceutical costs is the rising prices of specialty and biologic drugs used to treat complex chronic conditions like cancer, rheumatoid arthritis, and multiple sclerosis. These types of drugs can cost tens of thousands of dollars per patient annually. As more of these high-cost specialty drugs enter the market, the average drug costs per hospital patient will continue growing each year. With budgetary constraints tight, hospitals must carefully consider the costs versus benefits of new expensive treatments.

Demand Fluctuations and Drug Shortages
It can be difficult for hospital pharmacies Hospital Pharmaceuticals to accurately forecast drug demand and order the right quantities due to fluctuating patient volumes and changing treatment protocols. An unforeseen rise in demand for a particular drug, such as during an influenza outbreak or if a competing generic drug goes out of stock, can leave a facility short on critical supplies. According to the FDA, drug shortages are on the rise with over 250 new shortages reported in 2020 alone. Shortages hurt patient care if alternatives are not available and can lead to dosing errors if staff must use unfamiliar substitutes. Stocking safety buffers takes up precious funds and shelf space that many cash-strapped hospitals cannot afford. Advanced analytics and collaboration across facilities may help with projecting demand more accurately.

Inventory Management Best Practices
Given the financial risks of overstocking drugs that expire unused versus understocking and causing treatment disruptions, effective inventory management is mission critical for hospital pharmacies. Lean inventory practices include grouping drugs by usage levels, adopting automated replenishment systems based on par levels, tracking expiration dates closely to rotate stock, and pooling purchasing across hospitals for volume discounts. Outsourcing inventory receiving, storage, and distribution to third-party logistics firms is gaining ground to benefit from their economies of scale and expertise. Periodically reviewing top drugs by volume and cost can surface opportunities to standardize on fewer higher-yield products and reap associated cost savings through economies of scale in procurement.

Procurement Strategies and Group Purchasing
As one of the largest buyers of pharmaceuticals, hospitals leverage collective purchasing power through group purchasing organizations (GPOs) to negotiate lower drug prices from manufacturers. GPO contracts specify pricing and lot sizes to align with members' typical needs. Though GPOs help drive down costs, their bargaining leverage varies by drug class based on the degree of treatment alternatives available. For single-source injectable drugs with few substitutes, GPO price discounts may be modest. Meanwhile, commodity products with many generics see deeper discounts. Multi-year strategic contracts also provide budget certainty for hospitals in return for a commitment of a set purchase volume over time. Along with GPOs, inter-hospital collaborations to jointly procure selected high-priced specialty drugs can strengthen negotiation positions versus manufacturers.

Biosimilars and Generic Utilization
In recent years, the increased availability of lower-cost biosimilar and generic versions of branded drugs has presented an opportunity for hospitals to restrain spending growth. Biosimilars are highly similar copies of biologic drugs whose patents have expired and can be 20-30% cheaper than originator brands. A concerted effort is needed across healthcare systems to smoothly transition qualified patients from brand biologics to biosimilars. By standardizing treatment protocols and educating physicians and patients on the safety, efficacy and cost-savings afforded by these "follow-on" biologics, hospitals are realizing sizable savings. Similarly with top off-patent small-molecule drugs, aggressive generic substitution policies coupled with clinician campaigns can boost the generic dispensing rate from 50% currently toward over 80-90% attainable levels.

Supply Chain Digitization and Automation
The final frontier of optimization in hospital pharmaceutical supply chain management is leveraging technology to digitize manual workflows and enable real-time tracking. Examples include electronic order placement with distributors, RFID tagging of assets, robotic process automation for repetitive tasks like inventory cycle counting, AI-aided demand forecasting, and blockchain-powered visibility into drug pedigree. Beyond isolated systems, standards-based interoperability of major clinical and supply chain applications holds promise to more seamlessly synchronize key functional areas across the healthcare enterprise like clinical operations with inventory availability. As hospitals recovering from COVID-19 focus on long-term digital transformation initiatives, a top priority will be modernizing legacy pharmaceutical supply systems to gain true end-to-end visibility and process efficiency.

In summary, managing the pharmaceutical side of operations grows more complex for hospitals each year given continually rising drug costs, fluctuating demand, risks of shortages, and need to tightly control working capital. Multiple levers from procurement and group purchasing to inventory practices, generic substitution programs, and now supply chain digitization are being pulled to offset financial pressures and deliver timely, cost-effective care. It will take an integrated, data-driven, and multi-year strategic approach across all fronts simultaneously to succeed in this high-stakes environment.
 
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