Henry Ford Health

In September 2023, Henry Ford Health opened a $16.6 million centralized pharmacy services center. The facility includes teams to oversee how medications are used across the system, as well as manage vendor contracts and payer agreements.

The center supports 43 outpatient pharmacies, a mail-order pharmacy, 13 hospitals, and 17 infusion sites, along with locations from Henry Ford's joint venture with Ascension Michigan.

Rox Gatia, VP of pharmacy shared services, said that regulatory and financial headwinds — including low reimbursement rates and drug pricing reforms — accelerated the need to centralize.

"We can't do things incrementally and try to tackle each of these things as an individual headwind," Gatia said. "We needed to basically go all-in and fully transform the way that we do business."

Henry Ford's multiyear plan includes ambulatory pharmacy integration, automation, such as dispensing cabinets, and efforts to centralize compounding. The health system estimates $30 million in savings over five years from the initiative.

The bigger picture

Across the country, health systems see pharmacy centralization both as a cost-cutting strategy and a way to build resilience amid industry uncertainty. Leaders say the investments are positioning them to better serve patients, streamline supply chains, and better manage mounting regulatory pressures.

"We're seeing more systemization of hospitals, and as those systems form or mature, there are obvious opportunities for efficiencies, whether it's financial or whether it's for workforce," said Michael Ganio, senior director of pharmacy practice and quality at the American Society of Health-System Pharmacists.

"There are safety requirements and a number of new regulatory changes that call for consistency and accountability in medication management, and so for all of those reasons, [centralization] is a good idea," said Michael Abrams, managing partner at consulting firm Numerof & Associates. "[It's] likely to become better over time."

Centralized pharmacy services: What you need to know

By Gina Lohr and Chloe Bakst

Centralized pharmacy inventory and services are increasingly common strategies for health systems to reduce drug costs, improve supply chain resilience, and drive operational efficiency. This isn’t a novel approach — early  adopters pursued this strategy a decade ago, and the business case has only strengthened due to rising drug costs, supply chain volatility, and the growing role of pharmacy services as a part of health systems’ care delivery.

Reducing pharmacy purchasing costs is core to the business case. With a standard formulary and central purchasing, health systems can reduce drug waste by minimizing expiring inventory and gain time efficiencies across purchasing staff. They can also more easily pursue discounts, both through bulk orders and direct negotiations with manufacturers. A centralized model also enables health systems to more efficiently share drugs in shortage across hospitals and other care sites, saving money and improving patient care.

Still, achieving these outcomes requires a significant financial commitment — centralized pharmacy service centers often require millions of dollars in capital and multi-year planning. To implement such a plan, health systems must grapple with questions like:

• Should the centralized inventory serve only hospitals or also clinics and other sites of care?
• Should we standardize our formulary at the same time as we centralize inventory, or should we phase them in sequentially?
• Where should we locate the site to serve a growing, changing health system footprint, and does it also need to be accessible to patients?
• Will savings be attributed to individual care sites or aggregated at the system level?
• Should we invest in building a courier network or rely on commercial logistics and delivery partners?

Check out our report Five Strategies to Lower Medical Group Drug Spend for guidance and case studies about centralizing purchasing and inventory across health systems.