The newsletter provided was designed with the information and topics you need to know to stay current on hospital and Alternate Site Pharmacy affairs. It delivers easy-to-read insights into the key issues that are top of mind for healthcare leaders right now, and is intended to help you engage in discussion around these issues with potential conversation starters.

New this quarter, you’ll find the newsletter provided both within the context of this email for easier smart phone reading, and attached in PDF version. More links have been embedded to outside sources should you want additional information.

Please note that this document is intended for internal use by McKesson sales staff to assist in speaking to current affairs and should not be distributed to customers.

• What are your organization’s top priorities over the next 12 months?
• With revenues and balance sheets under pressure, what are your top focus areas to control costs? What is the pharmacy doing to control costs?
• Some organizations are looking at new revenue sources through outpatient/ambulatory pharmacy enhancement. Is optimizing your outpatient pharmacy on your radar?
• What are your organization’s major initiatives? Major projects and investments?

• Attendees at American College of Healthcare Executives conference realize they haven’t done enough to prepare for ACA implementation.
• Execs must dramatically change their operations.
• Execs are focused on: reducing costs, decreasing errors and readmissions, improving quality, reengineering care delivery.
• Execs need to prepare to move away from fee-for-service payment.

• Much of ACA’s implementation takes place at the state level.
• States have flexibility in deciding what to implement, how, and how fast.
• One analyst categorizes states as:
• Active implementers: California, New York, Maryland, and New England states are creating health insurance exchanges and implementing other aspects of ACA.
• Passive-aggressive implementers: These states dislike ACA but are still preparing to implement it. This includes many southern states.
• “On hold” states: More than 20 states have raised legal challenges to ACA. (In early August one court declared the individual mandate unconstitutional.) Governors in several states, like Florida, are placing implementation on hold, hoping the Supreme Court or 2012 election keeps them from having to implement ACA. If the Supreme Court upholds ACA and if President Obama is reelected, these states will have only a few months to comply.
• Not implementing: Some states, like Oklahoma, disagree with the legislation and have no plans to implement it.

• In March HHS issued proposed regulations on Accountable Care Organizations (ACOs).
• ACOs are a new delivery model where providers coordinate care delivery.
• ACOs are a new payment model where providers can receive “shared savings” for high-quality, lower-cost care.
• ACOs will be required to report extensive quality and cost data.
• 64% of healthcare organizations plan to become an ACO, 39% before 2013.
• 72% of healthcare leaders think ACOs will improve clinical integration; 62% think ACOs will improve quality.
• Becoming an ACO is driving M&A.

• What impact do you believe healthcare reform will have on your organization?
• What changes is your organization making because of healthcare reform? Does the organization have an EMR strategy? How will pharmacy support the strategy?
• What are you considering as you prepare for stage 2 of meaningful use? What is your philosophy of barcoded medication?
• Does your organization plan to become an ACO? Where are you in the process?
• How will becoming an ACO impact your pharmacy operations? Are you considering all of the revenue opportunities of an ambulatory pharmacy?

• 43% of healthcare leaders rank quality/safety their #1 priority; 48% rank it their 2nd through 5th priority.
• 53% of organizations are investing more in patient safety programs.

• Shared savings as an ACO and pay-for-performance programs reward providers for achieving quality benchmarks.
• Providers will receive reduced reimbursements and penalties for high readmissions.
• Quality can affect a hospital’s insurance cost. One Illinois hospital lowered its insurance from $11.5 million in 2006 to $2.4 million in 2010 because of improved quality and patient satisfaction.
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• Philosophy. They see safety and quality as part of their vision, philosophy, and culture.
• Leadership. Improving quality requires strong leadership commitment and support, which may be driven by a hospital’s CEO or a clinical team, which can include pharmacy.
• Process. Many hospitals are implementing Six Sigma, Lean, or Toyota methodologies to decrease defects and improve quality.
• Measurement. Improving quality requires benchmarking, setting goals, measuring results, and holding everyone accountable.
• Technology. 89% of healthcare leaders believe electronic health records and other IT systems will improve quality and safety. One hospital that implemented electronic medication verification systems reduced medical errors 5% over five years.
• Focus. Hospitals are concentrating on specific areas like reducing readmissions, decreasing length of stay, and having fewer patients experience infections.

• National Strategy for Quality Improvement in Health Care. This creates national aims and priorities to improve quality in the U.S.
• Patient Safety Initiative. This is a $1 billion collaborative program to reduce preventable hospital-acquired infections by 40% and preventable complications from care transitions by 20%.

• What specific quality/safety metrics is your organization focused on?
• What major programs, initiatives, and technology is your organization implementing?
• How do you plan to track these initiatives?
• How do these programs/initiatives affect pharmacy? What role does pharmacy play in these programs and initiatives?

• Materials costs represent 30–40% of a hospital’s operating expenses. (Curt - can we look at showing this and other such numbers creatively, i.e. making the numbers pop in BoP style)
• In most organizations, there are opportunities to decrease supply chain costs.
• One approach for savings: “supply utilization management.” This focuses on eliminating waste, inefficiency, and misuse.
• An article in Healthcare Financial Management (HFM) identified eight areas where supply utilization management can yield savings:
• Reassess standardization to promote flexibility to use lower-priced options.
• Evaluate over-specification to stop purchasing products with unnecessary features.
• Find instances of under-specification to stop using the wrong product for a task, thereby increasing costs.
• Decrease the number of hand-offs which wastes time in 34% of a hospital’s activities.
• See the big picture to understand the financial and clinical impact of purchasing decisions.
• Identify value mismatches to find lower-cost functional alternatives.
• Evaluate the performance of new technologies to ensure they meet specifications and warrant the costs.
• Replace “expired” technologies to cut repair costs on equipment at the end of its life.

• Industries (i.e. retail) have used technologies such as UPC codes to save billions.
• Healthcare lacks uniform product identifiers (except for pharmaceutical products). Only 16% of materials processed in healthcare use barcodes and only 10% have RFID.
• A potential solution: global standard identifiers for healthcare products (GTINs) and locations (GLNs). Currently 76% of supply chain organizations are adopting GLNs.
• Standard identifiers can lead to implementation of automated solutions.
• The best opportunities for automation in the healthcare supply chain are barcoding and RFID.
• Automation can produce significant cost savings and gains in patient safety.

• Goal: Secure the supply chain against counterfeiting and diversion.
• The FDA is looking at interoperability, authentication, and data management.
• Pharmacists want track-and-trace systems to be interoperable with existing pharmacy systems and integrated with their workflow.
• Technologies that can improve the security of the pharmaceutical supply chain are barcodes and RFID.

• What opportunities for savings do you see in your supply chain?
• What supply chain technologies have you implemented or will be implementing? What aspects of your supply chain have you automated?
• What are your organization’s major supply chain priorities and initiatives?
• Is your pharmacy considering integration opportunities to streamline operations?

• Short term: If deficit reduction subcommittee can’t agree on cuts by Thanksgiving, automatic triggers could reduce Medicare payments to providers by up to 2%.
• Longer term: Payment models will undergo significant changes, with consequences for providers.
• Medicare reimbursement is likely to be cut and there is uncertainty about future rates since entitlement programs will be cut to reduce the deficit.
• Also, many private payers (providers’ most profitable customers) link their rates to Medicare.
• And healthcare reform will mean an increasing number of low-profit/unprofitable Medicaid patients.

• Shared savings. ACOs may share in savings by meeting quality benchmarks and lowering the cost of care.
• Bundled payment. One lump-sum payment for services related to a procedure or episode of care, i.e. knee replacement.
• Value-based purchasing. In April, CMS announced final Medicare rules to pay providers based on performance. Beginning in fiscal 2013, hospital reimbursement will be cut by 1%. Those funds will be used to reward performance. Performance will be weighted 70% based on 12 clinical measures and 30% based on patient experience measures.
  
  Provider groups like the American Hospital Association support the concept of value-based purchasing but have concerns about the final CMS rules.

• In 2009, CMS spent $4.4 billion for patients injured in hospitals.
• CMS spent $26 billion on readmissions, many of which were unnecessary.
• New payment policies incent hospitals to deliver better care and penalize those that don’t.

• The federal government plans numerous demonstration projects of innovative reimbursement models
• States and private payers are also experimenting with different models
• Different reimbursement models will drive delivery system changes, which could change the role of pharmacy departments and pharmacists

• What are the expectations of your organization for reimbursement changes over the next 12 months?
• How will you address lowering readmission rates?
• Have you looked at your pharmacy as a means to track the continuum of care?
• How prepared is your organization for changes in payment models?
• How might pharmacy be impacted by reimbursement changes?

• 30–40% of all healthcare spending is wasted.
• To reduce wasteful spending, hospitals are improving processes.
• One study found that 53% of hospitals have a Lean initiative and 42% use Six Sigma.
• However, just 4% of these hospitals fully deploy these process-improvement initiatives.

• Automated pharmacy. The University of California San Francisco (UCSF) is adopting an automated pharmacy with advanced robotics, along with bedside barcoding, electronic medical records, and electronic order entry.
  
  Through May 2011, this automated pharmacy picking system had filled 400,000 doses with zero order-fill errors; technician picking would have generated 400 to 4,000 errors. A new automated sterile-fill operation is expected to save $2 million per year and improve compliance.
  
• Paperless pharmacy. Arizona’s Tucson Medical Center has achieved the highest level of EMR adoption and has gone paperless. The EMR is integrated with:
• Clinical decision-support tools to check for drug-drug, drug-food, and drug-lab conflicts.
• A closed-loop medication administration system with CPOE.
• Unit dose barcoding and bedside barcode verification.
• A smart pump system, which is being integrated to improve dose verification. Smart pumps enable producing IV solutions “on demand” instead of in batches, which has saved $3 million in 2 years.

• Social media is changing the relationship between patients and doctors. Patients can be part of online communities.
• Wireless technologies enable information to be captured real-time about a patient’s health status, and data can be transmitted to clinicians. An individual can receive a warning on their smartphone.
• Sensors can be embedded in pills to track medication use by patients.
• Genomics will enable personalized medicine and result in drugs only being prescribed when they are certain to be effective for a particular patient.

• What innovative technologies are being implemented at your facility? In your pharmacy?
• What is your hospital’s EMR strategy? How will the pharmacy play a role?
• What impact do you expect these innovative technologies to have?
• What innovations will have the greatest impact on how pharmacies operate over the next few years?

• U.S. long-term care is a $258 billion market. Demand is strong and the outlook is positive. Market growth of 5–6% is expected each of the next 5 years.
• Occupancy in nursing homes was 88.5% in Jan–Mar 2011, with regional variation.

• According to research firm MHS, most LTC pharmacies operate 6 days/week, are open 9-10 hours/day, and service 25 or fewer facilities in 1 state.
• The “typical” LTC resident receives 4 branded prescriptions,
  5 generic prescriptions, and 3-5 OTC prescriptions
• From October 2009 to September 2010 there was a 5% decrease in the number of LTC pharmacies servicing 2,000 or fewer residents and a 5% increase in those servicing 3,000 to 6,000 residents

• Short-cycle fill was mandated in ACA to reduce pharmaceutical waste.
• Instead of 7-day fills, LTC pharmacies and facilities will be allowed fill cycles of up to 14 days.
• Implementation has been pushed back to January 1, 2013.
• Pharmacies no longer have to take back unused medications for credit and reuse or disposal.
• Pharmacies have to collect data on drugs not used by LTC residents and report it to Part D plans.
• These changes will create costs and require process changes for LTC pharmacies.

• CMS is considering new regulations where LTC facilities would provide beneficiaries with medication therapy management (MTM) beyond the already mandated monthly medication regimen review (MRR).
• ASCP sees this as a positive in promoting MTM.
• But ASCP believes CMS needs to establish criteria for who would benefit from MTM.
• Regulations may require Part D plans to contract directly with LTC facilities, which ASCP disagrees with; ASCP wants LTC facilities to contract consultant pharmacists for MTM.

• Many LTC pharmacies see specialty pharma as a big growth opportunity.
• Specialty pharma has grown 5X the rate of traditional drugs; growth of more than 10% per year is projected.
• Drivers of growth are: increased use of specialty drugs to manage chronic diseases; increased costs of specialty drugs, rapid growth of new products.

• What is your reaction to the new short-cycle rules? What impact will they have on your business?
• What opportunities might MTM represent for your business?
• What role might your pharmacy play in reducing hospitalizations?
• Have you considered specializing in a few select disease states?

Multiple reasons are cited for the rash of shortages, some of which are persistent and some arise unpredictably. Reasons include:

• Manufacturing and supply chain issues. Shortages occur when drug manufacturers have capacity constraints, use the same production lines for multiple products, or experience manufacturing or distribution disruptions. An area with frequent shortages has been sterile injectables, where there is a lack of manufacturing capacity.
• Supply & demand issues. Changes in clinical practice or emergencies can unexpectedly boost demand for a drug, which can occur without a corresponding increase in supply.
• Business decisions. Many shortages occur because a manufacturer decides to no longer produce a product. Because of market consolidation, there may not be suppliers to pick up the slack.
• Raw material shortages. About 80% of the raw materials in pharmaceuticals come from outside the U.S. Raw materials can be degraded or contaminated; global supply chains can be disrupted; and there can be import restrictions.
• Regulatory issues. With drug safety a higher priority for the FDA, inspections and enforcement can result in recalls, plant shutdowns, and production delays.
• Unknown. Frequently, the drivers of shortages are unknown.

In reviewing articles and speaking with directors of pharmacy, the following strategies were cited:

• Monitoring. Pharmacy departments are investing time and resources to closely monitor potential shortages. Pharmacists expressed frustration that there is not one “go-to” resource for shortage information. As a result, they must constantly look at multiple sources.
• Forming multidisciplinary response teams. Pharmacies have created teams that frequently (often weekly, sometimes daily) review drugs with shortages, assess the situation, and develop strategies. This can include identifying alternatives, changing the formulary, modifying care processes, and developing a plan of action. In some instances, the plan can involve rationing, which 80% of hospitals have done.
• Increasing inventory. At the earliest sign of a shortage, pharmacies increase their inventory of a drug. The AHA survey showed that 89% of hospitals have added inventory for important drugs or changed par levels. Some pharmacies have purchased gray-market products.
• Communicating. Directors of pharmacy must communicate the situation and their plan with medical staff and the C-suite. Medical staff must be informed of a shortage, and any changes in products, guidelines, or procedures. Pharmacy directors say C-suite executives are generally supportive, but physicians and medical staff are often angry, blaming the pharmacy for shortages.

Hospitals and pharmacies are experiencing significant financial and non-financial impacts.

• Adverse outcomes. There are often:
• No alternatives. For many drugs, there is no alternative.
• Delays. 82% of hospitals have delayed treatment because of a drug shortage, and patients have received less effective and non-recommended treatments.
• Safety issues. Using substitutes can result in dosing and administration errors and side effects.
• Altered relationships. In a survey by ISMP (Institute for Safe Medication Practices), 55% of respondents have experienced physician anger towards pharmacists and nurses in response to a drug shortage.
• Increased costs. A Premier study estimates increased hospital costs of $200 million from drug shortages. These costs include increased staffing expenses to monitor and deal with shortages. Some pharmacy directors have 1 or 2 FTEs focused on drug shortages, costing the pharmacy thousands of dollars.
  Increased costs are also attributable to: spending more on drugs where there is a shortage (92% of hospitals), high costs for alternatives (more than 75% of hospitals), and costs for maintaining high inventory (85% of hospitals).

Pharmacists are well versed on the reasons for drug shortages. They understand that the issue lies with manufacturers, not wholesalers and distributors. Most pharmacists are focused on finding immediate solutions and value any assistance that McKesson can provide. One customer said his approach is, “To make pharmacy seen as the solution, not the problem.”

Customers are hungry for timely information. They want to know:

• When a shortage exists
• The reason for the shortageis (is a shortage due to lack of an ingredient, or has the manufacturer discontinued the product?)
• How long the shortage is estimated to last (they want to know if they should develop a 2-week plan, or a 2- month plan)

This information (available to MHS Sales in McKesson Connect) will help pharmacists as they work to rapidly develop their plans to deal with the shortage of a drug. Not receiving information can cause customers to feel frustrated. (An AHA survey found that 67% of hospitals say they are never or rarely informed of a drug shortage’s cause and 56% are never or rarely informed of a shortage’s expected duration.)

These shortages are not McKesson’s fault; they are manufacturing issues. But, responding to customers as quickly as possible with the information they need will be seen as valuable as they work to formulate a solution.

• ASHP Drug Shortage Resource Center, Drug Shortages Summit Report, Report: Managing Drug Product Shortages, Press Release “Drug Shortages Harming Patients, Increasing Costs to Hospitals”
• FDA Drug Shortages Page
• CDC Vaccines in Short Supply
• American Hospital Association Survey on Drug Shortages, 7/12/11
• ISMP Medication Safety Alert: Managing the Drug Shortage Crisis, 10/7/10

• What are the most significant drug shortages you have experienced?
• How have you dealt with these shortages? What actions have you taken?
• What organizational structures and processes have you put in place to deal with the drug shortage crisis?
• Are you communicating with other hospitals and health systems in your area to leverage support?