Healthcare News & Insights

3 strategies to save money on hospital drug costs

The cost of prescription drugs is one of the most difficult expenses to manage for many hospitals, and prices are steadily rising – even for generics. To get medication spending under control, facilities must consider unique strategies and solutions. 

An article from Managed Healthcare Executive121349418 details three ways hospitals and health systems are reducing their prescription drug expenses.

Monitoring cuts costs

At Ascension, a medical group from Missouri, prices for generic medication were rapidly increasing – as much as 10.5% in one year for some of the older generic drugs – which added up to $70 million in additional spending.

This increase wasn’t sustainable for Ascension, especially since it provides a significant amount of uncompensated charity care to patients.

To cut its costs, the health system took a proactive approach to drug purchases. It started monitoring price changes in real time. That way, executives could take action right away once a drug became more expensive.

Ascension also had doctors and specialists pay close attention to medical research and literature so they could figure out if less costly alternative drugs would still be as effective for patients. Once a new drug is approved and implemented in the health system’s hospitals, it’s monitored closely for 90 days to make sure it’s not causing harm.

If the health system can’t find an appropriate alternative drug for an expensive medication, it changes clinical practices to make sure the drug isn’t wasted. Example: With a pricey cardiac medication, clinicians are careful to dispense it precisely so they can get multiple doses out of each vial.

Ascension’s efforts have started to pay off  – it’s saved around $1.5 million with its more cautious approach.

EHR-assisted orders

Illinois-based Advocate Health Care uses a similar research-based approach to find appropriate alternatives to more expensive medications for patients, but it gets additional assistance from its electronic health records (EHR) system.

Once an acceptable alternative drug is chosen over a more expensive one, the costly drug won’t automatically pop up as an option in the EHR.

Doctors can still order the drug, if absolutely necessary, but it’s noted as “restricted” in the system, and the patient encounter must meet specific criteria before it can be prescribed. EHR pop-up menus relay this information to providers when they’re ordering medication.

And to make sure hospital pharmacies don’t have an unused surplus of drugs going to waste onsite, Advocate digitally monitors the availability of its medications in real time. It keeps all drugs in one large central repository, with smaller versions at its hospitals and other care sites.

If hospitals run low on medication, they order from the central repository, which tracks how much each hospital uses. That way, Advocate has more exact data to determine when it should purchase drugs from manufacturers. In some cases, the health system can wait longer between purchases so it can negotiate better discounts from suppliers based on volume.

Drug management with patient focus

Intermountain Healthcare, headquartered in Utah, experienced back-to-back increases in its general drug costs over two years. In addition, the cost of specialty drugs increased by 20% a year. Although specialty drugs were only used by a small percentage of patients (less than 2%), they accounted for a third of the hospital’s expenses for prescription drugs.

To tackle its growing medication costs, Intermountain used a few tactics that Ascension and Advocate did. It focused on better management of prescription drugs to reduce waste and used evidence-based research to find alternate affordable medicines.

In addition, the health system has an associated payor, Select Health, and it used the carrier’s data on medication use to identify expensive practices that could be updated. Another option it tried was working closely with drug manufacturers under different payment models to make medications more affordable.

Intermountain also opted to focus more on patients’ needs with its cost-cutting approach.

Patients who don’t practice proper medication adherence often face more expensive treatment in the end, and hospitals may end up responsible for a portion of those costs. So Intermountain started making sure that patients know exactly why they need to take their medication as prescribed, and how to do so properly.

Because rising medication costs impact patients just as much as hospitals, Intermountain makes its providers aware of the role finances can play in patients’ medication adherence so they can help patients find monetary assistance for their prescriptions if necessary.

First steps

While each hospital’s approach to reducing medication costs may differ slightly, they share common elements, including an awareness of both how much is being spent on drugs and what other options are available.

To rein in the drug spending portion of your supply chain, hospitals need to start keeping close tabs on usage and market fluctuations, and be prepared to make changes if required. It’s also essential to encourage providers to favor less expensive medications, including affordable generics, when making prescription orders.

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