It's amazing how quickly an industry can change. Thinking back to the early 2000s, hospital pharmacy procurement had successfully transitioned from a break-bulk/surplus purchasing style to just-in-time (JIT) purchasing and maintaining minimum inventory on the shelf.

AmerisourceBergen, McKesson, and Cardinal Health (the "big 3") had consolidated much of the wholesale and distribution industry and made improvements to their operations, largely alleviating the pressure of hospitals to maintain a large stock of medications. Pharmacy buyers, in turn, spent a good part of their day calculating inventory turns and working to get them as high as possible, only ordering what they needed to maintain a 72-96-hour on-hand inventory.

The success and capital efficiency of the JIT model along with continued adoption of pharmacy automation helped to reduce the need for medication storage space in most hospitals — so much so that rooms that had been used for storing medication were repurposed or taken by other departments. Health systems were confident that they could rely upon their pharmacy supply chain to distribute the medications they needed across their system in a timely manner, and central operations were focused on repackaging, IV compounding, and other labor-over-drug-cost initiatives where utilizing technician labor could bring medication costs down.

Forced to Adopt a Hybrid Model

Fast forwarding to today, confidence in JIT purchasing has flagged as medication availability disruptions have increased. Recalls, manufacturer shutdowns, bankruptcies, overseas logistics challenges, and even simple market economics have led to major medication outages and pharmacies simply running out of drugs.

This shift in stability is motivating hospitals and buyers to look for ways to create supply guarantees or reserve stock for vital medications, many times opting for additional on-site physical inventory — the exact opposite direction from JIT models. We're seeing a growing number of hospital systems building their own warehouses and taking on the burden of self-distribution to ensure additional days of drug on hand.

Compounding and repackaging efforts have seen a similar reversal of strategy. Given the severe labor shortages in the hospital pharmacy space, many hospitals are eager for a partnership with a 503B compounding pharmacy to outsource labor-intensive IV admixture processes. Similarly, outsourcing repackaging efforts or simply purchasing higher cost pre-mix products over products that require manual labor for manipulation is almost a foregone conclusion. The additional cost of medications is moot if there is no one available to do the work.

Repackaging and compounding channels have shown their own vulnerabilities as quality, supply, and lead-time issues have plagued the industry. In past years, the decision to "build versus buy" an IV product could be thoughtfully approached, and the transition planned and plotted. These days, this decision to insource or outsource a product is immediate and driven by unpredictable factors in both medication and labor availability alongside recurring 503B facility shutdowns.

One thing that has remained consistent: the mindset of reducing costs by better utilizing people and technology is as salient today as it was 20 years ago. Pressure on hospital pharmacy to "do more with less" has always been there, but the context of "supplying more medications at lower costs" has shifted to "performing more services with fewer available people."

The Greatly Changed — and Expanded — Role of Pharmacy Procurement

With these developments, pharmacy procurement jobs have exploded in complexity. Instead of simply walking the shelves, identifying gaps in inventory, and filling in the blanks, today's pharmacy buyer is burdened with managing questions like: Will this hurt my group purchasing organization compliance? Is this product built in our systems? Does this medication need specific accommodations for 340B issues? Are the correct contracts and prices loaded for our class of trade? Will we meet our committed volumes and achieve tier discounts?

A pharmacy buyer today is not only the inventory manager but an operator with proficiency in regulatory and contractual obligations, dynamic inventory flows, channel relationship management, analytics, and business intelligence. With so many responsibilities, it's become more difficult to track where money is moving, and more challenging to keep up with market dynamics that affect purchasing decisions and acquisition.

For these reasons, the role of buyer is no longer a simple add-on responsibility for a technician or pharmacist to complete in their downtime. Despite the lack of formal training options in the market, procurement has become a specialized position requiring significant investments in training, recruiting, and retention. Centralized purchasing — a model health system pharmacies are largely moving toward as hospitals consolidate — places these duties on dedicated buyers to ensure optimal procurement and distribution of drugs. This model has demonstrated that the appropriate authority and accountability invested in proficient pharmacy buyers can result in ongoing and meaningful outcomes at significant scale.

Achieving An Optimal Balance Between People and Solutions

While pharmacy procurement has become more complex over these last two decades, we are seeing health systems navigate these increased responsibilities successfully leveraging technology and partnerships. By identifying solutions that empower a leaner pharmacy team and help them to prioritize and complete their work efficiently, hospitals can eliminate much of the menial analysis from a buyer's job and help to focus on the 20% that really matters. When considering approaches in this space, there are a few approaches seen most commonly.

The most traditional approach is to use outsourced labor to complete the lower impact work. In the growing field of pharmacy procurement where expertise is hard to come by, there is tremendous value in the perspective gained from working with multiple health systems, but the questions remain: How do you ensure third parties work exclusively in your interest? How fast can you turn around someone else's employee to focus on your highest need in a market where hours matter?

Depending on the firm, there may be inherent conflicts between an outsourcing entity's financial interests and those of the health system. Finding objective and impartial assistance can be difficult, and the higher the degree of dependency on external talent, the higher the chances are that system-specific decisions and safeguards are at risk. Loss of control, lack of accountability, and the inability to shift priorities effectively, especially in a health system pharmacy, can feel like a tremendous disadvantage in a fast-paced market.

On the other end of the spectrum, we hear of "total automation" (i.e., "single pane of glass") solutions touted for so many processes, but more often than not these solutions require tremendous technical resources to implement and maintain. For large teams working in revenue cycle, the ratio of technical resource to claims processors have been advantageous. In pharmacy, we've more often seen these additional technical responsibilities piled onto an already-busy EHR, pharmacy IT, or pharmacy operations teams, and the additional channels needed to push change causes delays in execution. If you perform any critical analysis to select medications for a hospital, someone will have to teach the machine why you choose the way you do and how to handle the many exceptions you consider along the way.

Rather than subsidizing labor with low-accountability outsourcing or attempting to replace it entirely with high-complexity, high-maintenance total automation, the key to making progress while maintaining ownership has been identifying crucial touchpoints that cannot or should not be performed by an external vendor or technology and helping employees execute on these touchpoints rapidly with high-context guidance and oversight.

This is not a new idea - to reduce fraud, the group at PayPal was able to scale using automation to screen billions of dollars in transactions, identify those with the highest likelihood of fraud, and pass those transactions to a team for manual review. More recently, Latent Health advertises using artificial intelligence to identify and automate steps for prior authorization that are trivial or duplicative, leaving just those components that require trusted clinician review. Claims processing automation tools that forward exception cases to specialist teams have made tremendous impacts for health systems and spawned several publicly traded and successful companies in the process.

For all these tools, it's all about getting the information that needs to be "touched" to the people who need to see it, while ensuring those same people don't spend valuable time slogging through things they do not need to see. When done right, this makes the people involved more useful, enables them to use more of their valuable skillset, and gives them ownership of these important processes. For the complex, volatile world of pharmacy purchasing, where flexibility, context, and timeliness are paramount for getting medications safely to your patients, choosing the correct path on your quest to "do more with less" will pay significant dividends.

Drug shortages have existed for many decades but not to the extreme that they are today.  The pandemic (COVID) and how we treated patients, highlighted the extreme vulnerability of the whole drug supply chain in the United States, especially for generic injectable drugs, which are some of the most frequently used drugs in a hospital setting of patient care, from neuromuscular blockers, anti-infectives and oncology drugs.   We rely on some of the cheapest drugs and we count on them to be available, to provide patient care for various diseases and indications and to support patient care service lines, such as oncology and pediatrics.

We need to remember, that the generic drugs that are in short supply, are classified as “small molecule drugs” and not “branded drugs or biosimilars” and some, maybe generic for 25 years or more.  Branded Drug Companies own the API source/supply for their small molecule drugs, if they have the patent/NDA. Generic drug companies don’t have medical science liaisons (MSLs) and normally, don’t do any research to expand the FDA approved indication of a drug or develop a different vial size, when they decide to manufacture the generic (this requires a separate ANDA that can take up to 2 years). Generic Drug Companies file for an ANDA (Abbreviated New Drug Application) with the FDA and have their own professional organization, the Generic Pharmaceutical Association, representing them in Washington DC and with the FDA.

As we enter 2024, there are still no solutions that have been implemented policy wise, by the FDA and legislatively, to address the Drug Shortage issue, and the same questions.  There have been many meetings and hearings in Washington DC being held with the FDA and Committees, such as Energy and Commerce, with representatives from many different professional organizations, clinicians who treat patients, and even patients and their families, impacted by drug shortages, but still no actions, policies, or legislation being presented for review and approval, to solve the drug shortage crisis.  There are discussions about the role of the FDA in the approval process of generic drugs, as well as the role of each generic manufacturer and their professional organization, the Generic Pharmaceutical Association.  Drug shortages have been blamed on drug costs being too low for generic drug companies to sustain a profit (race to the bottom), to API shortages and country of API origin, to lack of quality in manufacturing (cGMP), geographical location of manufacturing facilities and exposure to natural disasters, lack of FDA inspections or timely inspections, lack of communication to the FDA on a drug shortage by generic companies and the reason for the drug shortage and the supply chain.  Generic drugs are not only purchased and distributed to hospitals, but physician practices (e.g. oncology), 503Bs for compounding (sterile to sterile), private payer infusion companies and various home infusion companies. Sometimes generic drugs end up in what we call the grey market.  A more recent concern that has arisen, is the impact of geo-political issues on the global supply chain of drugs.

To develop long-term solutions, there needs to be an understanding of the whole process/steps in developing a generic drug and address each step accordingly with a solution, until it gets to the end user to administer to a patient.  Some of the legislation and changes being recommended as solutions, regarding generic drugs, can and will impact the drug supply chain, availability of generic drugs and ability to order drugs to treat patients.  

One program being established by the Center for Drug Evaluation and Research (CDER) is the Quality Management Maturity (QMM) Program.  The Goals of QMM are 1. Foster a strong quality culture mindset. 2. Recognize establishments that have advanced quality management practices and acknowledge establishments that strive to continually improve quality management practices. 3. Identify areas where quality management practices can be enhanced and provide suggestions for growth opportunities. 4. Minimize risks to product availability to assure reliable market supply.

A second program is Senate Bill S.2510, the RAPID Reserve Act (Rolling Active Pharmaceutical Ingredient and Drug Reserve Act”, which addresses building and maintaining reserves of critical medications and their key ingredients, including API (active pharmaceutical ingredients), and reducing reliance on foreign drug manufacturers.

The Pediatric Cancer Drug Supply Act of 2024 was recently proposed and directs the U.S. Department of Health and Human Services (HHS) to establish a program to create a reserve supply of essential pediatric cancer drugs.  HHS would contract with eligible drug manufacturers to produce a stockpile of the most essential pediatric cancer drugs. As part of the contract, drug manufacturers would receive payments from HHS based on the quantity and cost of pediatric cancer drugs held in reserve. HHS would have authority to order manufacturers to distribute drugs from the buffer stocks into the commercial market to alleviate or prevent drug shortages.

As we continue into 2024 my thought is that there will be some reasonable discussion, decisions and appropriate solutions being approved by the FDA and legislatively, so we can get back to delivering patient care, sooner, rather than later.  If there is no drug, there is no Value!

Essential Medicine Shortages have become commonplace throughout the supply chain. This year ASHP reported that 99% of hospital pharmacists encounter more than one drug shortage a day. 2023 was a dire year for drug shortages. Patients from around the country faced a 10 year high of the number of medicines in shortage and they needed help.

A bankruptcy, a quality assurance event, and a tornado caused major disruption, closures, and impact at 3 separate manufacturing plants. These events spotlighted the urgent need to build resiliency and collaboration into the entire supply chain. The pharmaceutical supply chain is fragile. Any setback or disruptions can cause a ripple effect, severely impacting patients. A broken and brittle supply chain cannot fill the physician's hands that save the lives of our people. During each one of these events, Angels for Change was there fostering patient first
solutions, collaboration, transparency, and redundancy to mitigate the shortage and create the resilient healthcare supply chain our citizens deserve. 

Angels for Change (A4C) is the only 501c3 volunteer supported, patient advocacy organization on a mission to end drug shortage through advocacy, awareness, and a resilient supply chain. Laura Bray founded A4C in 2019 after her own child faced three life-saving drug shortages in nine months of pediatric cancer treatment. Each day, A4C advocates on behalf of patients, physicians, and pharmacists in a life-saving drug shortage, while building relationships with members of the pharmaceutical supply chain and policy makers to end drug shortages. We take direct calls from those in a shortage crisis and connect them to supply through our Inventory
Sharing Network. We answer every call. We leave no patient behind. This work has given us a unique view into the supply chain. While it is brittle and broken, it is also filled with supply chain experts and front line care teams willing to perform herculean efforts to treat their patients and save lives. This supply chain is made up of so many champions that can and will unite to end this crisis.

In May of 2022, founder Laura Bray attended Health Connect Partners as a panelist to share about the drug shortage crisis. She discussed real patient drug shortage stories and practical solutions to end drug shortages, such as the launching of the End Drug Shortages Alliance (EDSA) and project PROTECT.

The 340B Program provides eligible hospitals and health systems resources not associated with federal subsidy, to administer comprehensive healthcare to patients and communities disproportionately affected by social, economic and environmental disparities. The program requires drug manufacturers participating in Medicare and Medicaid to provide outpatient drugs to covered entities at significantly reduced prices.

The last three years have placed extraordinary strains on hospitals, and for many smaller hospitals, the 340B program is critical to survival. Without 340B program savings, many smaller hospitals might need to lay off workers and shutter needed programs, such as those that help to detect and treat patients suffering from chronic conditions. Consequently, underserved populations will need to travel further away to receive care.

For smaller hospitals and those serving rural communities, many of which do not operate their own outpatient pharmacy, the only avenue for patients to access drugs covered under the 340B program is through a contract pharmacy arrangement. However, there are several disadvantages to relying solely on contract pharmacies to meet patients’ specialty medication needs. With a robust in-house specialty pharmacy program utilizing 340B savings, financially challenged hospitals can recover funds quickly while reducing the administrative burden on staff and improving patient outcomes. Could more small and rural hospitals fully utilize the 340B drug pricing program?

Perceived Barriers

Some of the perceived barriers for smaller hospitals to open an outpatient pharmacy and recognize the most benefits out of 340B include:

• The belief that starting their own specialty pharmacy is too expensive, risky or complicated considering the perceived restrictions.
• The myth that there is a threshold of pharmacy spend required.
• The myth that specialty pharmacy programs require a large patient base of specialties such as oncology.

Disadvantages of Contract Pharmacy Reliance

Contract pharmacy restrictions that manufacturers placed on 340B hospitals have limited eligible health systems from reinvesting 340B funding into improving their services and communities. These increasing manufacturer restrictions on specialty medications make owning a specialty pharmacy a critical step toward maximizing savings. When dispensed in-house, the hospital saves money on fees it otherwise would pay to the contracted pharmacies. Community-based health systems, especially those serving rural communities, find it difficult to implement integrated specialty pharmacy programs due to payer or PBM restrictions, drug distribution limitations and absence of the necessary resources and infrastructure.

This results in specialty prescriptions being filled by external pharmacies that are unaffiliated with the health system leading to care fragmentation and inconvenience and frustration for patients. Health systems that do not provide retail or specialty pharmacy services also miss the opportunity to achieve healthy financial margins that are often associated with dispensing specialty medications. The improved margin opportunity for health systems who choose to own their own pharmacy is significant and can allow more hospitals to keep their doors open, while providing an expanded service to patients in a familiar care setting.

Overcoming Barriers with Data

When determining if opening an in-house specialty pharmacy is a good fit, there are many unknowns. It is necessary to understand the landscape of the community, the behaviors and demographics of the patient populations and have a long-range view for the needs of the health system and community. Anticipating industry and pharmaceutical pipeline trends provides an additional advantage in projecting the long-term growth and viability of the program. Executives should have access to their organization’s data and the resources needed to analyze the benefit of this investment. Many hospitals and health systems turn to a specialty pharmacy services company with expertise in these assessments for detailed analyses.

Opening an in-house specialty pharmacy helps hospitals provide superior clinical care, increase revenue and better support vulnerable communities. Incorporating specialty pharmacy services and utilizing the 340B program within the hospital’s clinical programs greatly enhances the patient and provider experience -- delivering an integrated program that drives revenue and reduces the total cost of care.

You’ve lost count of how many times patients ended up back at the hospital because they couldn’t afford their medications. You’ve seen how desperate some can get and cringe when you hear that your patients buy medications from foreign countries, risking quality and safety. But you have no answers for them. This is where companies like Mark Cuban’s online discount pharmacy, Cost Plus Drugs, come in.

What is Cost Plus Drugs, and how is it different?

Traditionally, pharmacy benefit managers (PBMs) negotiate drug prices with the manufacturers on behalf of insurance companies, resulting in discounts and rebates for the PBMs. The problem is no one knows how much of those savings actually make it to patients.

So what happens when you cut out the middleman?

That’s the goal of the Mark Cuban Cost Plus Drug Company (MCCPDC), more widely known as simply Cost Plus Drugs, which the billionaire launched in January 2022. It provides high-quality and affordable generic medications with price transparency, and it negotiates prices directly with the manufacturer. Then, it adds a 15% mark-up and $5 pharmacy labor fee for each prescription (with a $5 shipping fee per order), passing the rest of the savings onto the patients.

Even though Cost Plus Drugs now offers more than 1,000 generic drug products, critics say the brand-name medications are what patients struggle to afford the most. Luckily, Cost Plus Drugs seems to be pushing to add those options as well. In April 2023, the company announced it will now carry 3 brand-name medications: Invokana, Invokamet, and Invokamet XR. According to the Cost Plus Drugs and GoodRx sites, patients using Cost Plus Drugs for these medications may save 60 to 80% on the cash price.

Part of affordability is also accessibility. Cost Plus Drugs is aiming to begin manufacturing drugs by the end of 2023. The company wants to manufacture drugs on shortage and partner with hospital systems. This way, buyers like hospitals may purchase products directly from them to increase availability and eliminate price gouging.

While this seems like a win-win for both hospitals and patients, Cost Plus Drugs is still a business that needs to be sustained. And no business is without competition.

How does Cost Plus Drugs compare to Amazon’s RxPass?

Just over 2 years after launching its pharmacy services, Amazon started its prescription savings program, RxPass, which is only available to Prime members. For an additional $5 per month, members can receive more than 50 generic medications for free.

Both RxPass and Cost Plus Drugs are fighting for access to affordable and quality medications, but there are some differences between the two companies:

*Both companies seem to offer a solution for different types of patients, so looking at them as direct competitors is difficult. Additionally, it’s going to take more of these companies to actually see a shift in drug pricing across the market.

What other companies are trying to disrupt drug pricing?

Business models like Cost Plus Drugs and RxPass continue to pop up on both large and small scales:

• DiRx works similarly to Cost Plus Drugs by skipping the middleman and negotiating directly with the manufacturer. You can pay by prescription or sign up for their Annual Savings Plan.
• CivicaScript currently manufactures the prostate cancer drug abiraterone 250 mg tab and sells it to trusted PBMs or pharmacies who will pass on the savings to patients. Patients are paying less than 10% of the cash price set at other companies.
• Walmart partnered with 2 manufacturers to provide lower cash price insulin through Walmart’s private brand ReliOn.

What does this mean for hospital pharmacies?

These new pharmacy business models may give patients better access to vital drugs that can decrease readmission rates, prevent delayed discharges, and improve overall patient health. The impact is only going to improve as Cost Plus Drugs expands its list of brand-name medications.

Down the line, once Cost Plus Drugs can start manufacturing drugs, it may help mitigate the drug shortages and price gouging that hospitals continually face. Ultimately, Cost Plus Drugs could be another resource for you to make it easier to provide exceptional patient care and transition patients’ home.

The Drug Supply Chain Security Act (DSCSA), enacted in 2013 by the U.S. Food and Drug Administration (FDA), aims to usher in significant changes in the pharmaceutical industry to ensure the integrity and security of the pharmaceutical supply chain and protect consumers from counterfeit, stolen, contaminated, or otherwise harmful drugs.

In order to achieve this, the DSCSA set forth technological requirements for ensuring the tracing of pharmaceutical products amongst all trading partners, including pharmacists (both hospital and community). Scheduled originally to go live on November 27, 2023, the FDA recently made an important decision in postponing the enforcement of the DSCSA by one year to allow for stabilization and maturation of systems in hospitals and pharmacies.

New compliance deadline – November 27, 2024; What does this mean for hospital pharmacists?

Hospital pharmacists play a crucial role in the pharmaceutical supply chain as the face of neighborhood healthcare. The delay allows hospital pharmacies another year to prepare and adapt their individual hospital systems to comply with the requirements. But although this brings a sense of relief, it also brings some challenges, as balancing patient care while establishing a comprehensive system is a complex task.

One of the primary concerns is the cost of implementing the necessary systems to comply with the DSCSA requirements. As hospitals work on budgets, pharmacists will need to make strategic investments in software and systems to not only satisfy the technological requirements, but also uphold the quality of patient care. This means that certain medications may take extra time to acquire due to allocating funds to establish a new hospital pharmacy system. However, the compliance date delay allows time for hospital pharmacists to determine what they can do with their present and future budget and plan strategically.

Not only that, but the hospital pharmacy must ensure that adequate staff is available to resolve any potential technological issues and maintain the new system. As hospital pharmacists are responsible for the program, they must ensure staffing is available to continue to provide patient care while also having enough resources to resolve potential technological issues. The additional time announced allows hospital pharmacy staff to ensure they are able to resolve any potential technical issues in their newly integrated system while also maintaining the current care of their patients.

Another concern is the critical aspect of ensuring uninterrupted patient access to prescription medications during the technological integration. As updates within hospital systems require time to initiate and integrate, the potential risk of delaying lifesaving medications for hospital patients poses serious risk for both patients and the institution. Any delays during the integration of the hospital’s system can also potentially slow down or obstruct patient care processes, such as order verification or reviewing patients’ profiles. The delayed enforcement provides additional time for trading partners to adjust their systems without disrupting important patient care needs.

In conclusion, the delayed implementation of the DSCSA provides hospital pharmacists and other trading partners in the pharmaceutical supply chain with additional time to prepare and comply. The FDA’s decision to postpone the enforcement until November 2024 acknowledges the need for further development and refinement of systems and processes. This needed time will ensure a robust supply chain security while maintaining patient access to medications. By extending the timeline, this also opens doors for collaboration, advocacy, and education efforts to support a smooth transition to your newly implemented system. 

VPL TrajectRx empowers outpatient pharmacies by giving them the cloud-based shipping, tracking and compliance solution they need to build cost-conscious, stronger, and smarter last-mile operations. Created for pharmacists by pharmacists, our clinically minded platform gets prescriptions out the door, tracks and traces them to their destination, communicates shipping updates to patients and staff, and compiles necessary reporting for proof of delivery. By minimizing distribution errors, enhancing operational efficiency, and reducing time spent on the phone, TrajectRx ensures a streamlined and effective pharmacy workflow.

Artificial intelligence (AI) has been around since the 1950s, and pharmacy has always found a way to expand its scope of practice every time a technological advancement improves efficiency. So, let’s examine some ways AI could enhance hospital pharmacies.

Fewer Shortages Through Improved Manufacturing Processes

Over the last few years, drug shortages have been a major concern for just about everyone in healthcare. Not only have supply chains failed, but major recalls may have left your hospital scrambling to take care of your patients. With AI, drug manufacturing and supply chain management should become streamlined.

AI can predict when a machine may fail or require maintenance by learning how it normally operates and performs. AI monitors equipment in real time and detects any deviation from normal activity. Earlier detection decreases equipment downtime and increases overall manufacturing productivity.

Similarly, AI can improve batch quality and consistency through more accurate quality control measures. It uses data from current quality test results to detect defects in real time. Fewer batch failures mean fewer recalls.

Lastly, certain AI algorithms work to predict drug demand. So, it can help optimize inventory, production schedules, and distribution, improving the supply chain.

Lower Drug Prices by Reducing Drug Development Costs

You know that the customer ultimately pays for the billions of dollars and more than 10 years it takes drug companies to successfully get a new drug to market. Now, AI may help reduce those costs.

Using large datasets of chemical structures and their related activities, AI may help predict how new drug candidates might behave in the human body. Along the same lines, AI can find patterns in biological data and disease progression to identify potential drug targets. So, drug companies may save on resources in two ways: finding what to target and selecting the optimal drug candidate for that target.

This same concept is also being used for drug repurposing. AI can analyze the structure of an already approved drug and find a potential new indication, which is significantly cheaper than getting a new drug candidate to market.

Beyond drug discovery and repurposing, AI can help optimize clinical trials from recruiting to analyzing data. Finding patients and evaluating protocols and trial designs can happen faster. Getting real-time trends on data means trials can more easily adapt and pivot if needed.

All of this means drug companies have less overhead and expenditure, which could lead to cost savings for hospitals.

Improved Patient Outcomes Through Better PKPD Data

Few things are more frustrating than to research a drug-related question only to find it hasn’t been researched in your patient population. Can this drug be given to someone with kidney disease? Or during pregnancy? Or an infant? AI may be the solution.

Historically, animal studies have been used to evaluate the pharmacokinetic and pharmacodynamic (PKPD) activity of a drug. These studies are time-consuming and with small sample sizes, and they may not accurately predict what will happen in humans.

But now, PKPD activity may be predicted using AI. Some models can analyze how humans would react to the drug. This means an accurate safety, efficacy, and toxicity profile can exist before the drug is even given to an animal or human.

Other models focus on individualized care by analyzing patient-specific data. This can be used to predict how an individual may respond to a particular treatment, including disease management, side effects, and potential toxicity.

The Downside of AI

Like everything, AI has some downsides that you should keep in mind:

• Unintended biases can happen, especially with limited inputted data. Examples of this include rare diseases and under-represented populations (race or gender) in clinical trials.
• Validating and regulating an AI model can be difficult. The industry and FDA provide limited guidance on this.
• Ethical considerations, like patient privacy and rights, need to remain a top concern as AI expands.

Like every technology, AI has its pros and cons. But one thing is certain—it’s here to stay. While most of the benefits hospitals may see are byproducts of other companies utilizing AI, there is no doubt that AI will eventually integrate into hospitals, optimizing your workflows and allowing your pharmacy to grow even more.

With climbing costs and stagnant or decreasing reimbursements, hospital budgets seem to keep getting tighter. Couple that with staffing shortages and increased demand on services, and there’s no wonder your team is feeling the stress. But could there be hope on the horizon?

Earlier this year, the Centers for Medicare and Medicaid Services (CMS) announced it’s going to reimburse 340B hospitals about $9 billion. Still, the remedy affects all hospitals that participate with CMS. So, let’s see how your budget may be affected.

Why is CMS reimbursing 340B hospitals?

In 2018, CMS decided to cut the payment rate for 340B drugs without first surveying hospitals on their actual acquisition costs. Normally, the payment rate for all medications is the average sales price (ASP) plus 6%. CMS decided to change the rate for only 340B drugs to ASP minus 22.5%, an almost 30% decrease in reimbursement.

At the same time, CMS increased payments for non-drug items and services for all hospitals, both 340B and non-340B. This is to maintain budget neutrality as required by the Hospital Outpatient Prospective Payment System (OPPS). This was in effect from 2018 through September 28, 2022, when the Supreme Court unanimously ruled the change was unlawful.

CMS cannot have different payment rates for hospitals without first surveying hospitals on their actual cost of drugs. In this case, CMS failed to perform the survey. In the 4^th quarter of 2022, it adjusted the 340B payment rates back to ASP plus 6%.

However, because it must maintain budget neutrality, it also reduced the payment rates for non-drug items and services by 3.09% in 2023. While this is an adequate solution for current and future claims, it does not address the affected claims from 2018 to 2022.

The Remedy: How CMS is correcting the unlawful payment adjustments for 2018-2022

The first part of the remedy focuses on repaying 340B hospitals the difference between the two payment rates. From 2018 to 2022, CMS paid providers $10.6 billion less. Since some claims in 2022 were processed or reprocessed at the higher payment rate, CMS will be providing a one-time lump sum of $9 billion to about 1,700 affected 340B hospitals.

In the lump sum, CMS is also accounting for beneficiary cost sharing and any missed payments from lower co-pays under the unlawful payment plan. Therefore, hospitals will not be allowed to bill beneficiaries for coinsurance on remedied payments.

The second part of the remedy focuses on maintaining the required budget neutrality. CMS paid $7.8 billion more to hospitals for non-drug items and services from 2018 to 2022. CMS plans to recoup this money by decreasing payment rates by 0.5% yearly, starting in 2026. CMS predicts this will continue for about 16 years. This is in addition to the 3.09% reduction already seen in 2023.

The only ones who are exempt from this payment reduction are providers who didn’t enroll in Medicare until after January 1, 2018. CMS’ reasoning for this is that these providers didn’t fully benefit from the increased payments for non-drug items seen from 2018 to 2022.

There are strong critics of the price reduction, including the American Hospital Association, the organization that brought the original lawsuit against CMS. So, this will likely be challenged in coming years.

What does this mean for your hospital?

This ruling will be financially beneficial for some hospitals but hurt others in the coming years.

If you’re working for a hospital that does not participate in the 340B drug pricing program, you will face payment reductions for non-drug items or services. So, your budget may ultimately become more limited.

As for 340B hospitals, you should expect a lump sum payment by January 1, 2024 if you haven't already received it. While this is money in your hospital’s pocket this year, you may end up losing money once the payment reductions for non-drug items or services are made in the coming years. This will depend on your mix of drug and non-drug items or services.

For now, these lump sum payments will help hospitals keep vital services open to the most vulnerable patients and give them time to budget for the future payment reductions.

To see how much of a lump sum payment your hospital should receive, you may download the NPRM OPPS Remedy for 340B-Acquired Drug Payment Addendum AAA

Jodie Pepin, clinical pharmacy program director at Harbor Health, has dedicated her career to patient safety. She’s worked at several hospitals across the U.S. and each time she’s wanted to start a new program or initiative, she was met with skepticism or push-back from the C-suite.

That’s because she believes that pharmacists aren’t seen with the same level of respect as a physician. As a pharmacist for almost 40 years, she says the industry is under-visualized and underutilized.

“No one gives us the same credit as a physician,” Pepin says. “We're still fighting with Medicare to fully recognize pharmacists as providers of care. When I first started at a hospital, we were all down in the basement, with no windows. That’s when I realized just how underappreciated pharmacists are. We’re seen as an afterthought.”