Blog Post

How to cut care variation—and save millions in the process

July 26, 2018

    Drug spending is a significant contributor to costs, and executives see it as an unwieldy and growing area of concern. In fact, the majority of health care executives report that their inpatient drug spend significantly increased over the last five years, and 90% report that drug prices negatively affect their budgets.

    Access our system-level P&T committee charter library for support in drafting your own charter

    Unfortunately, the traditional levers for managing drug spend—such as renegotiating purchasing contracts, improving inventory management, and reducing waste—are yielding diminishing returns. In response, health system leaders must expand the scope of their cost-cutting efforts to include care variation reduction (CVR)—a strategy cited by CFOs as a primary cost-savings opportunity for their systems.

    P&T's role in CVR strategy

    System-level Pharmacy and Therapeutics (P&T) Committees play an integral role in reducing variation and waste. However, many organizations are not taking full advantage of the P&T committee's potential to achieve these goals—therefore incurring millions in excess costs a year.

    Here are three ways system-Level P&T committees can reduce costs and improve outcomes:

    1. Create best practice standards for utilization

      System-level P&T committees perform evidence-based medication evaluations to standardize the drug formulary for the entire system. This not only reduces unwarranted, high-cost variation, but it also allows for scaled purchasing, inventory management, and streamlined information systems (e.g., order sets, billing, and coding).

      Representative savings opportunity: $1.18M supply cost savings achieved in 12 months by BJC HealthCare's system P&T committee by aligning their formulary and medication-use protocols.

    2. Analyze market and prescribing trends

      System-level committees with the right monitoring tools can proactively identify drug price and utilization spikes. These instances can then be reviewed by an expert team to determine if they necessitate a change to formulary, use protocols, or contracting—and the expert team can share their recommendations with the P&T committee.

      Representative savings opportunity: $7.2M cost savings achieved by the Cleveland Clinic, when the system implemented a protocol to reduce nitroprusside sodium utilization after identifying a 500% price spike.

    3. Monitor and enforce protocol

      If clinicians don't adhere to system P&T decisions, cost and quality will not improve. Formulary or protocol changes must be closely monitored and enforced for at least a year. Pharmacy can intervene in some cases, but executive leadership must ultimately hold prescribers accountable for upholding decisions made by the P&T committee.  

      Representative savings opportunity: >$100K cost savings realized by a large, multi-hospital system after formulary adherence for a single, high-cost agent was placed on physician scorecards to link it to performance bonuses.

    Organizations that continue to view the P&T committee as simply a regulatory body responsible for evaluating the safety and efficacy of medications will miss opportunities to expand the purview of this group. To see how leading organizations are embracing P&T's critical role in care variation reduction, download our whitepaper or contact us at PEF@advisory.com for more information.

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