Pharmacy and the C-Suite: Managing the

InterfacePhilip E. Johnson, M.S., B.S.Pharm., FASHP

Pharmacy Advocacy DirectorMoffitt Cancer Center and Research InstituteTampa, Florida

James A. Jorgenson, M.S., B.S.Pharm., FASHPVice President and Chief Pharmacy OfficerClarian HealthIndianapolis Indiana

Learning Objectives

• List three reasons why it is important for pharmacists to communicate with the C-Suite.

• Identify strategies to work effectively and improve visibility with C-Suite executives using metrics to support plans and discussions.

• Describe the priorities of C-Suite executives and explain the relationship of these priorities to your departmental goals.

• Summarize how to most effectively communicate your business plans to senior executives and other decision makers in your organization.

C-Suite Composition

CEO-Chief Executive OfficerCOO-Chief Operating OfficerCFO-Chief Financial OfficerCMO-Chief Medical OfficerCNO-Chief Nursing Officer

THE CORE

OTHER STAKEHOLDERS

CQOChief Quality Officer

CPO CSO

CIO

Chief Purchasing Officer Chief Safety Officer

Chief Information Officer

VP of Pharmacy

Data on file from CEO interviews and PCAB Surveys.

C-Suite Focus

FinancesPatient Safety/Clinical Quality

Everything Else

Hospitals CEO Leadership Survey. Solucient, LLC, 1007 Church Street, Suite 700, Evanston, IL 60201. 2005.

Data on file from CEO interviews and PCAB Surveys.

Healthcare Trends

• 2008 Projected: $2.4 trillion and growing

• U.S. population is aging

• Increase in multiple chronic illnesses and the ability to treat them

• Increasing medication use

• Government intervention

Source: Centers for Medicare and Medicaid Services.

Woolridge’s Theorem

• At any given time, somewhere in the world healthcare reform is happening.

• Whatever the previous reform was – it is now considered a failure.

• Output α 1/Govt. Involvement

Source: Michael Woolridge, M.D.

Health Care Reform and Non-Profit Hospitals

• Short Term = Potential negative impact with uninsured patients not eligible until later

• Long Term = Questionable – more insured patients but increased focus on extracting cost efficiencies from hospitals with tighter reimbursement and increased pressure for operating efficiencies

Impact of Current National Economic Crisis on Hospital Finances

• Debt markets are stressed• Cash reserves are stretched • Reductions in charitable donations • Reductions in investment income• Operating margins challenged

AHA. (March 2009). Rapid Response Survey, The Economic Crisis: Ongoing Monitoring of Impact on Hospitals.

Response: 9 in 10 Hospitals Have Made Cutbacks

Percent of Hospitals Making Changes in Response to Economic Concerns since September 2008

39%

8%

9%

22%

48%

80%

90%

Other

Divested assets

Considering merger

Reduced services

Reduced staff

Cut administrative expenses

Made changes to address economic challenges*

*Percent of hospitals making at least 1 of above changes to weather the economic storm

AHA. (March 2009). Rapid Response Survey, The Economic Crisis: Ongoing Monitoring of Impact on Hospitals.

Percent of Hospitals Reporting Recession Effects

AHA 2010 Rapid Response Survey.

0 10 20 30 40 50 60 70 80 90 100

Reduced Capital

Other Margin

Govt Insurance

Reduced Volume

Reduced Elective

Reduced Margin

Bad Debt Rise

44

50

65

70

72

74

87

Percent HospitalsAHA 2010 Survey

Percent of Hospitals That Made Changes to Weather the Storm

AHA 2010 Rapid Response Survey.

Other

Merger

Divest assets

Cut services

Staff reduction

Capital Delays

Admin Costs

0 10 20 30 40 50 60 70 80 90

24

3

8

25

53

73

76

Percent HospitalsAHA 2010 Survey

Percent of Hospitals That Have not Resumed Activities Since 2008 Recession

AHA 2010 Rapid Response Survey

110100

908070605040302010

0Services Staff Capital Projects

Percent HospitalsAHA 2010 Survey

Safety Remains a Major Problem

1999

•44,000–98,000 die due to preventable medical errors

•$17–29 billion total cost1

2006

•15 million cases of medical harm occur in US hospitals each year2

2005-07

•913,215 safety events during 38 million medicare hospitalizations

•$6.9 billion in excess cost3

1. Institute of Medicine: To Err Is Human: Building a Safer Health System. Available at: http://www.iom.edu/~/media/Files/Report%20Files/1999/To-Err-is-Human/To%20Err%20is%20Human%201999%20%20report%20brief.pdf Accessed September 10, 2010.

2. Institute for Healthcare Improvement. Available at: http://www.ihi.org/IHI/Programs/Campaign/Campaign.htm?TabId=6. Accessed September 10, 2010.

3. HealthGrades. Available at: http://www.healthgrades.com/media/dms/pdf/PatientSafetyInAmericanHospitalsStudy2009.pdf. Accessed September 10, 2010.

Hospitals That Provide The Best Quality Also Fare Better Financially

Outcome Top 100 Hospitals*

Peer Hospitals Difference

Patient-Safety Index

0.85 0.99 14.1%

Average Length of Stay

4.93 d 5.48 10.3%

Expense per Adjusted Discharge

$4,775 $5,503 13.2%

Wilson L. Modern Healthcare. 2008;38:26,28-30.

*“Top 100 Hospitals: National Benchmarks for Success” by Thomson Healthcare

National Quality Forum (NQF)

• Convener of key public and private sector leaders to establish national priorities to achieve safe, effective, patient-centered, timely, efficient and equitable healthcare.

• NQF standards used to measure and report on the quality and efficiency of U.S. healthcare.

NQF Safe Practice 18Pharmacy Leadership Structures & Systems

Objective:Pharmacy leadership is the core of a successful medication safety program. Pharmacy leadership structures and systems ensure a multidisciplinary focus and a streamlined operational approach to achieve organization wide safe medication use.

Safe Practice 18 Statement

Pharmacy leaders should have an active role on the administrative leadership team that reflects their authority and accountability for medication management systems performance across the organization.

Leadership & Culture of Safety

A structure should be established and maintained to ensure that pharmacy leaders engage in regular, direct communications with the administrative leaders and the board of directors about medication management systems performance.

NQF Expectations

• Pharmacists should actively participate in medication management processes, structures and systems, including at a minimum:– Establishing a culture of safe medication use– Identification and mitigation of risk/hazard– Development of evidence based medication regimens for

all patients– Identification of medication safety gaps– Medication Safety Committee that reports data and

prevention strategies to senior leadership

There is a Perfect Storm Brewing . . .

We need a balance of better safety & quality of care -- especially chronic care -- and constraining costs.

With increased medication use, Pharmacy is increasingly important for organizational success in weathering this storm.

How is Pharmacy seen by the C-Suite

• Ancillary support service• Drug cost focus• Clinical impact undervalued• Managed as a commodity• Isolated from strategic decision making• Unaware of the opportunities in pharmacy

Example of Pharmacy Cost Mix

Total Drug

Spend78%

Man-power20%

Other2%

Data on file. Clarian Health Partners.

Black Hole Mentality

• Little understanding of complex functions of a high performing pharmacy organization

• Need to aggressively educate C-Suite on “the business of pharmacy”

Pharmacy’s Typical Position

• Pharmacy is a departmental outlier:– Part clinical, part business– Critical player in the care delivery process but not typically

present at the C-suite table– Complex operational systems and exception processes that

do not “fit” the average departmental model – Issues surface AFTER critical medication incidents trigger

doubts regarding operational and financial controls

Pharmacy Challenges

• Medication safety challenges• Manpower challenges• Potential negative clinical outcomes when medications

are not managed appropriately• Increased risk management issues• Increased compliance liability• Reduced pharmacy margins threaten care infrastructure

for all patients

Communicating Pharmacy Issues to the C-Suite

• To establish the pharmacy as a positive contributor to the challenges

• To create the perception that the pharmacy is material to the organization’s efforts in terms of– Financial management– Patient safety– Clinical care– Regulatory compliance

You are the Most Qualified Personto Relay this Information

• Pharmacy as the lead in medication safety• Leverage expert stature/training• Valued and trusted member of

institution• Most knowledgeable about medication

expenses

Lacaria K, Balen RM, Frighetto L, Lau TTY, Naumann TL, Jewesson PJ. Perceptions of the Professional Pharmacy Services in a Major Canadian Hospital: A Comparison of Stakeholder Groups. Longwoods Review. 2004;2(1).

Nurses Shine, Bankers Slump in Ethics Rating, Press Release from the 2008 Gallup Honesty and Ethics Poll, Available at: http://www.gallup.com/poll/112264/Nurses-Shine-While-Bankers-Slump-Ethics-Ratings.aspx. Accessed on September 10, 2010.

Redefining C-Suite Expectations for Pharmacy

• Pharmacy accountability for distribution of products and information across all points of care

• Clear and defined role for pharmacy expertise to be available at the point of care

• Redefinition of the basic systems and services to meet the changing organizational model

• Creative and innovative solutions that align with organizational goals and direction

• “Balancing act” that requires collaboration and new skills

Perception of Pharmacy Competency

• Appear knowledgeable• Seek out crises• Deliver under pressure• Be known for multiple competencies• “Big-picture” thinking• Effortful-effortless principle

Key Principles

Resource Principle: The department that has more resources has a larger impact

Scarcity Principle: Resources that are scarce are more valuable - supply/demand

Value Principle: The only resources that really matter are those that are valued by your C-Suite

Match Needs Now Strategy

• Develop resources that are both valuable and scarce in your organization

• Match those resources to C-Suite needs to advance your brand and your strategic pharmacy initiatives

Six Key Questions of the C-Suite

1. Are we buying drugs at the best possible advantage?

2. Are sound business principles and practices being applied to all pharmacy operations? (i.e., Is the pharmacy business being approached as the large business enterprise it has become?)

3. Are patient billing and revenue processes for pharmacy sound and routinely monitored?

4. Are pharmacy resources, including drugs, supplies and manpower, properly controlled and managed?

5. Are patient outcomes and medication safety concerns properly balanced with financial considerations in the pharmacy department?

6. Are all pharmacy entrepreneurial opportunities identified, explored, and pursued when appropriate?

Are we buying drugs at the best possible advantage?

• Rethink group purchase advantages

• Annual review and challenge of GPO and special pricing programs

• Negotiate best prime vendor value based upon capital required and payment terms

• Avoid shorts that require off-contract pricing through innovative inventory management methods

• Establish comprehensive invoice monitoring systems to validate accuracy of invoice pricing versus contract

Are sound business principles and practices being applied to all pharmacy operations?

• Develop a definitive business model, strategy, and tactics with policies and procedures for all phases of the pharmacy business including:

– Drugs and supplies purchasing, inventory, receiving, and invoicing processes

– Proactive pharmacy budgeting, tied to annual goals, projects, and strategies for the fiscal year

– Use of dashboards and customized pharmacy reports for drug usage, supplies, and manpower in the context of patient volume and pharmacy activity

Are patient billing and revenue processes sound and routinely monitored?

• Develop and maintain an updated drug billing system, including CDM, and outpatient billing and coding processes

– Increased potential for enhanced revenues – Reduced potential for billing discrepancies – Avoid inadvertent inappropriate billing fraud liability

• Develop pharmacy expertise and efficient billing processes for ambulatory drug billing

• Incorporate ongoing methodologies and processes that will assure clean, accurate billing, regular internal audits, and fiscal reviews of all pharmacy billing

• Highly effective pharmacy programs focus much of their cost control efforts on drugs through:

– Collaborative pharmacy efforts with the medical staff– Objective review of clinical data for safety and effectiveness with

medical evidence of clear advantage – Direct review of all orders and collaboration by pharmacists with the

prescriber in the patient area regarding appropriate drug selection

Are pharmacy resources, including drugs, supplies and manpower, properly

controlled and managed?

• Detailed standard reporting of drug expenditures to quickly identify trends in drug spend

• Daily monitoring of specific high-cost drivers such as anti-infectives and other target drugs by a pharmacist-physician team to assure appropriate agent is selected based upon clinical and economic considerations

• Establish monitors and physical controls over all drug inventories, including controlled, non-controlled, and expensive agents to ensure fiscal control and avoid diversion or gray market issues

Are pharmacy resources, including drugs, supplies and manpower, properly

controlled and managed?

Are pharmacy resources, including drugs, supplies and manpower, properly

controlled and managed?• Detailed ongoing monitoring reports of pharmacy manpower

expenses– Technicians versus pharmacists hours and costs tracked against pharmacy

and hospital work units– Utilize established internal benchmarks for productivity monitoring and

management– If external benchmarks are expected by leadership, pharmacy leadership

proactively accounts for clinical programs, FTEs, hours and scope of services

• All clinical programs, special services, and any unique pharmacy programs are documented and accounted for regarding ROI

• Pharmacy director routinely communicates with the C-suite so that unique programs for pharmacy to address patient care demands are understood, cost justified and rationale for existence is supported

Are patient outcomes and medication safety properly balanced with financial considerations?

• Critical balance between sound financial management of the business and responsibility for patient outcomes

• Successful balance provides financial dividends in patient safety initiatives and avoiding litigation costs

• Medical Insurance Exchange of California reports medication errors as the 5th most prevalent misadventure with 6,517 claims reviewed costing $380 million in indemnity expense averaging $123,506/claim

www.miec.com/Portals/0/WriteOn/Writeon3_online_09.08.pdf Accessed September 10, 2010 A

Are all pharmacy entrepreneurial opportunities identified and pursued when appropriate?

• Entrepreneurial opportunities to increase pharmacy revenues and expand the portfolio of profitable pharmacy business, for example:

– 340B qualifications and related unique services (transplant, employee specialty clinics, etc.)

– Retail pharmacy expansion– Employee prescription benefit plans – PBM management– Discharge Rx capture– Direct clinic programs– Supply chain

C-Suite Presentation Outline

1. State the problem/opportunity 2. Solution (or making the opportunity a reality) 3. Benefits of the proposal 4. Drawbacks 5. Limitations6. Risks 7. Cost (overall, not details) 8. Resources 9. Expectations for the short and long-terms10. Next steps

Case DiscussionResponding to a C-Suite Concern

• Drug costs are rising at your institution when compared to the previous year average (up 8%), and the same month the previous year (up 9%). What are the first metrics that you will look at to provide your COO and CFO with an explanation and possible strategy?

CFO Posed Drug Cost Concern

Always be Prepared

“In preparing for battle, I have always found that plans are useless, but

planning is essential.”Gen. Dwight D Eisenhower

“In practice we plan the work and in the game we work the plan”

Vic Heyliger

Creating Your Response

Evaluating Pharmacy Supply Expense

• Comparison to other hospitals• Gauge if our program is “on track”• Set internal organizational goals• Provide key directional information for decision

making:– Service line strategies– GPO decisions– Supply chain partnerships

Utilize a Good Measurement System

1. Accurately measure current status of performance (where are we at now)

2. Measurement system provides the breakdown of opportunities (what do we need to do to hit target)

3. Able to explain variations (is the change due to volume, intensity LOS, price increase)

47

Factors Contributing to Drug Cost

• Drug price inflation• Patient volumes• Patient mix• Expanded treatment

options• New drugs• Legislation

• Patent expirations• Generic entrants into

the market• Class of trade issues• 340B eligibility• Interruptions in

product availability

Drug Price Inflation

• Traditional overall annual inflation rate 3%

• Contract portfolio inflation rate 1-2%

• Category inflation rate varies greatly

• This year health care reform is likely to drive inflation rate up due to $80B PhRMA concessions

Drug Company Inflation

• 10-15% increase 1st quarter ’09 vs ’08 Express Scripts

• 2010 rates for several major PhRMA companies are currently in the 8 – 10% range

Volume Changes

• More patients = more drug use

• More intensive patients = more drug use e.g. IU Transplant

• Expanded indications for a drug = more drug use

New Drugs

• Major source of increased cost• Over 1,500 new compounds in

Phase 2 or 3 development• Growth slowing• Cost to bring a new drug to

market is $800M - $2B• Patent life• Blockbusters

– Denosumab– Oral chemotherapy agents

Patent Expirations 2010

• Generic equivalents – Primaxin® $500M market 30% erosion– Merrem® $300M market 30% erosion– Angiomax®$300M– Hycamptin® $150M– Protonix® $100M– Naropin®$40M

• Therapeutic equivalents

Legislation

• Biosimilars• Generic “buy outs”

sanofi/Oxaliplatin®• Donut hole “Fix”• Expanded Rx Plan options• Expanded coverage of

orphan drugs• Patent life extensions

Special Purchasing Considerations

• GPO Issues• Class of Trade

– For Profit/Not-for-Profit– Retail– Acute Care

• Special Purchasing Programs– 340B

Drug Shortages

• Currently managing over 250 shortages– Raw materials– FDA “shut downs”– Manufacturer “shut

downs”– Product discontinuations

• Pharmacy Supply Expense as a Percentage of Net Revenue (contracts, Net reimbursements, etc) is beyond control of supply chain, as are regional differences in reimbursement

• Pharmacy Supply Expense as a Percentage of Total Expense Other costs (labor, benefits, malpractice, etc) are beyond control of supply chain – and vary considerable nationwide

• Pharmacy Supply Expense per Adjusted Patient Day Misleading because it assumes that LOS is standard across country

• CMI -Using the Case Mix Index (CMI) to “level the playing field” compounds the problem

Examples of Traditional Metrics Used by the C-Suite

• Percentage of Net Revenue – Revenue (contracts, Net reimbursements, etc) is beyond control of MM, as are the regional differences in reimbursement

MSDRG 470 Reimbursement

Pacific East South Central

$12,651 $9,806

Avg 2007 Medicare Reimb by region for MSDRG 470.

Flaws with Traditional Metrics

• Percentage of Total Expense – Other costs (labor, benefits, malpractice, etc) are beyond control of MM, but supply costs are basically the same nationwide

Medicare National Wage Index

New England East South Central

2008 Medicare Wage Index by Region.

113% 84%

Flaws with Traditional Metrics

• Source of pharmacy specific data (orders processed; doses dispensed; drugs utilized)

– Inpatient system– Outpatient system– Nursing system

• Single Platform vs. Best of Breed – The proof is in the interface

• Data Mining Tools– E-MAR (Power Chart)– E-MAR Data Mining and Reports (Power Vision)– Integrated system (Pandora, Pyxis® Connect)– Peripheral system (Sentry, “billing system”)

Tools and Resources Pharmacy Information Systems

• Primary source of “non-pharmacy” metrics• Financial database

– Payer mix– Contractual & discount rate– Primary billed diagnosis– Drug usage

• Patient database– Census– Adjusted patient days– CMI– Payer mix

Tools and Resources Hospital Information Systems

Pitfalls to Avoid

• Failure to establish clear accountability, structure, and leadership for pharmacy as a unique business and clinical department

• Adopting standard benchmarks and “shrinking to greatness” cost monitors/cost cutting strategies without considering pharmacy scope of services, patient types, and related drug costs

• Failure to recognize the ongoing communication with the C-suite is essential to maintain an understanding of pharmacy’s role and responsibilities

• Over commitment of resources to technology advances and projects without adequate planning & support

• Failure to assure the basics of pharmacy dispensing and distribution are done well as pharmacy expands into clinical and other areas and programs

• Establishing clinical initiatives and cost controls within the pharmacy team without building adequate credibility and support with medical staff

Pitfalls to Avoid

Conclusion

• Take time to understand C-Suite needs and expectations

• Create maximum pharmacy value

• Be cognizant of and work to continuously improve your pharmacy

• Be able to effectively answer the 6 key questions