At the Helm

5 things CEOs need to know about pharmacy

by Lindsay Conway

Welcome to the "CEOs Need to Know" series, where our top experts help hospital and health system CEOs understand the most pressing issues facing the members of their leadership teams.

In our fifth installment, Lindsay Conway, Managing Director of the Pharmacy Executive Forum explains what CEOs really need to know about pharmacy.

1. Drug spending growth continues to accelerate, but the drivers are changing

In the past, substituting generics helped ameliorate rising drug spend; but in the future, fewer high-volume, high-cost drugs are approaching their patent expiration. At the same time, drug manufacturers are consolidating. Many generics are now available from only one or two manufacturers, opening the door to dramatic price hikes on frequently used generic drugs. In addition, new high-cost specialty medications are further driving up costs. As a result, health system drug budgets are growing at 5-15% annually.

To reduce drug expenses, pharmacists are increasingly taking a leadership role in advancing clinical standardization and developing value-driven approaches to evaluating drug therapies. They are collaborating with physicians to develop evidence-based medication guidelines that support cost-effective use of medications and intervene when equally effective, less expensive medication are available.

2. You’re missing opportunities to capture new revenue in retail pharmacy

As care has shifted from the inpatient to the outpatient setting, pharmacy has correspondingly shifted from cost center to revenue generator under fee for service. Many health systems have invested retail pharmacy businesses, but few have maximized the revenue potential.

According to one analysis, a 300-bed hospital with 14,000 discharges, 50,000 emergency department visits, and 161,000 outpatient visits, could generate an additional $25 million in revenue through retail pharmacy.

Others are turning to large pharmacy chains, such as CVS or Walgreens, to partner to provide outpatient pharmacy services. Health systems can benefit from these chains’ expertise in retail pharmacy, but it’s also possible that they may lose opportunities to improve outpatient care and/or contribute to greater care fragmentation.

3. Not every health system needs to be in the specialty pharmacy business, but every health system needs a specialty pharmacy strategy

Despite accounting for only about 1% of prescription volumes, specialty medication spend accounted for one-third of U.S. drug spend in 2014. With even more specialty drugs in the pipeline, they are projected to become the third highest contributor to health care spending by 2020.

Some health systems have invested in specialty pharmacy businesses to capture drug revenues and improve patient care. With sufficient volumes, revenues can climb into the hundreds of millions. But as the transition from fee-for-service to risk continues, the window of opportunity for health system-owned specialty pharmacy is starting to close.

As health systems take on risk for the total costs of patients’ care—including their employees—they will need to ensure that patients can access their medications, their care is coordinated, and that patients have the support they need to follow their treatment regimen.

4. Pharmacists are your most underleveraged population health managers

Preventable medication errors are estimated to account for $21 billion in health care spending each year. Numerous studies have identified opportunities for pharmacists to reduce medication errors, for example, through inpatient rounding, medication reconciliation, and post-discharge phone calls to patients. Yet few health systems have fully committed to these pharmacist roles due to lack of reimbursement for pharmacists’ time.

With the transition to population health, it will be critical to deploy more pharmacists in clinical roles. Given that 20% of readmissions are medication related, deploying pharmacists to improve transitions of care is a great starting point. One randomized controlled trial found that integrating pharmacists into the discharge process reduced 30-day readmissions from 39% to 24.8% while also reducing adverse drug events, reducing emergency department visits, and improving patient satisfaction.

5. Pharmacy executives need a seat at the planning table

Virtually every new health system endeavor—from IT roll outs to new centers of excellence—have implications for pharmacy’s budget, staffing, and workflows. To ensure that patients aren’t subject to avoidable medication errors and delays in care, pharmacy leaders should be included in planning discussions and have a seat at the decision-making table.

Increasingly progressive health systems are recognizing the critical importance of pharmacy to health system strategic initiatives, and they are responding by adding Chief Pharmacy Officers (CPOs) to the executive team. CPOs are typically supported by a bench of Directors of Pharmacy, who manage day-to-day operational concerns, and so enable CPOs to focus on more strategic issues.


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Get your C-suite colleagues on the same page

Hear Rita Shane, Chief Pharmacy Officer at Cedars-Sinai Medical Center, and John A. Armitstead, System Director of Pharmacy at Lee Memorial Health System, discuss the top issues pharmacy leaders face and how executives can better support them.

Watch the presentation