13th PPNC Pharmacy Procurement Practice Overview Richard C. Ponder, Jr., CPhT, CPP, CEPP, BBA, BS(Bio) Pharmacy Supply Chain Supervisor East Jefferson.

13th PPNC

Pharmacy Procurement Practice Overview Richard C. Ponder, Jr., CPhT, CPP, CEPP, BBA, BS(Bio)

Pharmacy Supply Chain Supervisor

East Jefferson General Hospital

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Agenda

Introduction

Knowledge, Skills, & Abilities

Laws & Regulations

Order Cycle

Cost Management Program

1

2

3

4

5Metrics & Tools

Questions

Referances

6

7

8

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Statements about Pharmacy Procurement

Drug-cost containment initiatives must never compromise patient safety or quality of care.

Four primary factors drive growth in overall drug expenditures: price, utilization, mix, and innovation.

Medication cost continue to increase faster than other healthcare expenditure.

Four strategic objectives: procure the most cost-effective drugs in the right quantities, select reliable suppliers of high-quality products, ensure timely delivery, and achieve the lowest possible total cost.

Information is the lifeblood of procurement and is needed at every stage if the procurement process is to be optimal.

Even if appropriate policies and procedures are in place, lack of properly trained staff in key positions can doom any procurement system to failure.

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Procurement - Defined

Complete process of obtaining goods and services from preparation and processing of a requisition through to receipt and approval of the invoice for payment. Also called sourcing, it commonly involves (1) purchase planning, (2) standards determination, (3) specifications development, (4) supplier research and selection, (5) value analysis, (6) financing, (7) price negotiation, (8) making the purchase, (9) supply contract administration, (10) inventory control and stores, and (11) disposals and other related functions.

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Pharmacy Procurement

“Procurement is not simply the acy of buying, but encompasses a complex range of operational, business, information technology, safety and risk amagement, and legal systems, all designed to address an institution’s needs.”

Americal Journal of Health-System Pharmacy, Vol. 66, Issue 5 Supplement 3, s20 -s28, 2009.

Quote by Eva Ombaka

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Procurement – ASHP Policy Position #0524

To support existing laws and legitimate practice that ensure product integrity and allow organized health care settings to purchase drug products and related supplies at prices that minimize health care costs; further,

To support the principle of purchase of pharmaceutical products and related supplies by public and private entities using appropriate professional practice to achieve that end; further,

To encourage government acknowledgement of existing local professional activities already in organized health care settings that are methods of promoting quality and cost-effective pharmacist patient-care services.

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Nine Principles of Pharmacy Procurement

1 – Transparency

2 – Cost Containment

3 – Technical Capability

4 – Operational Principles of Good Pharmaceutical Procurement

5 – Purchasing for Safety

6 – Ensuring Appropriate Selection

7 – Timely, Accurate and Assessable Information

8 – Ensuring Quality Products

9 – Proper Budgeting and Financing

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Pharmacy Procurement

General knowledge of operations, regulations, and terminology

BOK – Accounting, Economics, Business Mathematics, Business Law, Negotiations, Quality Assurance, & Statistics

Interpersonal Skills

Continous Education

1

2

3

4

5

Knowledge, Skills, & Abilities

Supply Chain Management

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Pharmaceutical Supply Chain

Manufacturing

Wholesale Distributors

Pharmacies

Patient

Source of pharmaceuticals: Pfizer, Wyeth, Mylan, Bedford Wholesale Acquisition Cost - WAC Brand, Generic; Dropship; cGMP; Recalls; Failure to Supply

Distributors of pharmaceuticals: Morris and Dickson, Cardinal, Reliance WAC +/- a negotiated %; GPO Contracts Pedigree; VAWD; NCPD; HIDA

Dispences pharmaceuticals: Hospitals, Infusion, Retail, Mail-order Average Wholesale Price – AWP Internal Supply Chain Management System

End User of pharmaceuticals: Inpatient, Outpatient, Family Members AWP +/- a negotiated %; Pharmacy Benefit Managers – PBM PBMs: Caremark, Medco, Express Scripts

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Laws and Regulations

Procurement Pharmacy

Uniform Commercial Code

Sherman Act

Clayton Act

Robinson-Patman Act

Sarbanes-Oxley Act

Federal Trade Commission Act

Uniform Computer Information Technology Act

Local Laws

Pure Food and Drug Act

Harrison Narcotics Tax Act

Food, Drug, and Cosmetic Act

Durham-Humphrey Admendment

Kefauver-Harris Amendment

Comprehensive Drug Abuse prevention and Control Act

Poison Prevention Packaging Act

Drug Listing Act

Drug Regulation Reform Act

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Laws and Regulations

Pharmacy

Orphan Drug Act

Drug Price Competition and Patent Term Restoration Act

Prescription Drug Marketing Act

Omnibus Budget Reconcillation Act

FDA Safe Medical Devices Act

Anabolic Steroids Control Act

Dietary Supplement Health and Education Act

Health Insurance Portability and Accountability Act

FDA Modernization Act

Medicare Prescription Drug, Improvement, and Modernization Act

Isotretinoin Safety and Risk Management Act

Combat Methamphetamine Epidemic Act

Pharmacy

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Laws and Regulations

Agencies

Bureau of Alcohol, Tobacco, and Firearms (ATF)

State Boards of Pharmacy (BOP)

Centers for Medicare and Medicaid Services (CMS)

Drug Enforcement Agency (DEA)

Department of Transportation (DOT)

Environmental Protection Agency (EPA)

Food and Drug Administration (FDA)

Joint Commission on Accreditation of Health-care Organization (JCAHO)

National Association of the Boards of Pharmacy (NAMP)

Institutional Review Boards (IRB)

Agencies

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Contract Fundamentals

Offer – one of the parties made a promise to do or refrain from doing some specified action in the future.

Consideration – Something of value was promised in exchange for the specified action or nonaction. This can take the form of a significant expenditure of money or effort, a promise to or not to perform some service, & reliance on the promise.

Acceptance – The offer was accepted unambiguously. Acceptance may be expressed through words, deeds, or performance.

Four Elemets: Offer, Consideration, Acceptance, & Mutuality

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Contract Fundamentals – Continued

Mutuality – The contracting parties had “a meeting of the minds” regarding the agreement. This means the parties understood and agreed to the basic substance and terms of the contract.

Additional Terminology: Market Basket; Force Majeure; Intellectual Property; Disclaimer Warranty; Indemnification, Errors and Omissions Insurance, Parol Evidence; Jurisdiction, Termination

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Group Purchasing Organization (GPO)

Additioanl Note

Some GPOs return a portion or all of the contract administrative fee (CAF) to its members.

Considerations

Fees; Allowable distribution methods; Payment terms; Return policies; Supplier performance requirements; Rebates; Market-share agreements; Single-agent contracts; Services; Letters of commitment

Standardization of products; Reduction of contract labor cost; Enhancement of member institution’s purchasing program, information sharing, & purchasing expertise; Protected periods of price protection

Advantages

Examples: Amerinet, Broadlane, Consorta, Med-Assets, Novation, Premier

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Procurement Process

Receiving; Accounts Payable; Inventory Control

Creat a RFP; Issue a PO; Select a Supplier; Recieve a Good; Pay an Invoice

Complete Requisition Form; Verify Requirment; Input Data; Create a PO; Sign Documents

Processes

Subprocesses

Individual Tasks

Ana

tom

y of

the

Pro

cess

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Inventory Management

Point of Sale; Reorder Points; Automated

Counting/Filling Device; Dispensing Machines;

System Care and Maintenance; Order

Entry Devices; System Backup

Unit-Dose; Barcoded; Physical Organization; Refrigeration; Point of

Use Stations; Spoilage; Shrinkage; Turnover; Reorder Point - EOQ

Wholesaler; Formulary; Government; Manufactures; Pharmacy,

Automated; Manual; Electronic; Shipping; Material Safety Data Sheets; Pedigrees; Credits/Returns; Receiving; Controls - 222

The search for one solution is a waste of resources.

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The Order Cycle

Validated Computer System; Manage Supplier Base; Stock Profiles up to Date; Monitored Stock and Performance; Audit Trails

Trannsparency; Exception Reporting; Price Validation; Right First Time; Consolidated Deliveries; Invoice with Goods or Electronic

Electronic Process; Complete within 2 days; Electronic Transfer; Prompt Payment

Electronic Process; Minimal Manual Intervention; Electronic Records; Electronic link from Pharmacy Management System to Trransmission; Electronic Audit Trail

Bar Coded Receipt and Expiry Dating; Instant Notification of Discrepancies; Delegation of Authority

Inventory Management

Inventory Management

Order Initiation, Validation,

Transmission

Order Initiation, Validation,

Transmission

Supplier Processes and

Delivery

Supplier Processes and

Delivery

Goods Received Processing

Goods Received Processing

Invoice Clearance and

Payment

Invoice Clearance and

Payment

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Procurement Value –Added Assessment

Strategic (Integrated) Procurement

Total cost, Total value, Strategic suppliers, Optimizing supply base, Aligning with business strategies, Developing organizational strategies to meet future needs, Supply performance and relationship management

Traditional (Transaction) Procurement

Purchase on price alone, Order processing, Target pricing, Multiple sources, Many suppliers, Contract preparation, Order follow-up, Invoice reconciliation

Leverage volume for multiple to single source, Goals for price, quality, and delivery, Supplier reduction programs, Supplier meetings, Technical planning for negotiations, Conducting negotiations, Functional skill development

Tactical (Best Price) Procurement

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Componets of a Cost Management Program

Purchasing

GPO Contracts

Facility Contracts

Wholesaler Contracts

Inventory Management

Wholesaler Ordering Programs

Storage

Waste Reduction

I.V. Waste

Returns

Pharmacy Directed Activities

Medication Utilization Program

Clinical Pharmacy Services

Assessment of Drug Cost

Formulary Management

Therapeutic Interchange

Interventions

Protocol Development

Interdisciplinary Activities

Reimbursement

340B Programs

CMS

Commercial Insurance

Outpatient Infusion Center

Charging

Coding and Processing

Indigent Care Programs

Reimbursement Charging

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Reporting Tools

Report Consideration

Wholesaler/GPO Reports

Direct Reports

Cost per medical service

Cost per adjusted patient day

For 80/20 analysis, by therapetutic class, monthly trends, benchmarks

Available from accounting/finance

Drug-utilization data

Adjusted patient days are calculated with standard formula that modifies patient days with a ratio of outpatient to inpatient revenue to correct for volume changes and severity of illness.

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Reporting Tools – Inventory Management at a Glance

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2005 2006 2007 2008

Total Purchases

$16,078,980 $19,704,733 $21, 703,184 $20,859,723

Year End Inventory

$1,826,846 $2,877,065 $1,667,966 $1,680,824

Turns 8.80 6.85 13.01 12.41

% Change in Purchases

Base Year 22.55% 10.14% -3.89%

% Change in Inventory

Base Year 57.49% -42.03% 0.77%

% Change in Turns

Base Year -22.18% 89.98% -4.62%

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Reporting Tools – Variance Report

Description 2008 Avg Qty/

Month

2008 Avg Spend/ Month

2008 $APD

(109.85)

Feb 09 Qty

Feb 09 Spend

Feb 09 APD

(111.00)

% $ Change

% APDChange

Antineoplastic Agents 509 $307,607.06 $2,800.25 463 $316,009.91 $2,846.94 2.73% 1.67%

Hematopotic Agents 183 $212,645.92 $1,935.78 141 $173,850.31 $1,566.22 -18.24% -19.09%

Antibacterials, Misc. 535 $100,788.21 $917.51 481 $113,425.62 $1,021.85 12.53% 11.37%

Anticoagulations 474 $105,059.17 $956.39 418 $105,066.31 $946.54 0.01% -1.03%

Enezymes 33 $47,859.00 $435.68 51 $77,935.96 $702.13 62.84% 61.16%

Penicillins 445 $59,818.23 $544.54 420 $62,870.95 $566.40 5.10% 4.01%

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2008 Average vs. February 2009 Actual (Therapeutic Classes)

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Pharmaceutical Procurement Summary

Patient Safety > Cost Savings

9 Principle of Pharmaceutical Procurement

Must have trained procurement professionals dedicated to the procurement process

Metrics are a useful tool; however, you must understand how the metric is created

Continuous Education

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Email: [email protected]

Do You Have Any Questions?

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References

American Society of Health-System Pharmacist. ASHP guidelines on medication cost management strategies for hospitals and health systems. Am J Health-Syst Pharm. 2008; 65:1368-84.

American Society of Health-System Pharmacist. Current status of medicines procurement. Am J Health-Syst Pharm. 2009; 66: 5: Supplement 3 s20-s28.

CPSP Study Guide, American Association of Pharmaceutical Sales Professionals, Round Rock, TX, 2007.

CPM Study Guide, 7th edition, Institute for Supply Management, Tempe, AZ, 2001

CPP Study Guide, 6th edition, American Purchasing Society, Aurora, IL, 2007.

Deegan, A. & O’Donovan, T. Management by Objectives for Hospitals 2nd edition, Aspen Publication, Rockville, MD, 1982.

McKeller, John. Evaluating the Purchasing Process. NAPM InfoEdge. 1996; Vol. 1 No. 9.

Moini, Jahangir. Law & Ethics for Pharmacy Technicians. Delmar, Clifton Park, NY, 2009.

Puckett, William. Recruiting a manager for financial activities in pharmacy. Am J Health-Syst Pharm. 2008; 65: 2014-15.

Raedels, Alan. The Supply Chain Process, Institute for Supply Management, Tempe, AZ, 2000.

Sanderson, Edwards. Hospital Purchasing and Inventory Management. Aspen Publication, Rockville, MD, 1982.

Wilson, Andrew. Financial Management for Health-System Pharmacists. ASHP, Bethesda, MD, 2009.

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