Financial Planning and Management

¶ … Change

Describe the methods that will be used to monitor implementation of your proposed change.

The implementation of proposed change needs a systematic method of prioritizing and planning strategies for the cost management of specific drugs. The best method is yearly financial planning. During budgeting, the strategies for management of specific drugs should be taken into consideration. At the same time, longer-term programming and strategic activities are also essential in the management of drug expenditures (ASHP Expert Panel on Medication Cost Management, 2008).

Drug Budgeting: The ability to forecast the drug expenditure of an institution will improve based on experience and availability of better data. No matter how accurate the budget is in the forecast of drug expenditures of the institution, there should be a well-organized drug budget to assist the department in understanding the patterns of drug use and in the identification of opportunities for cost management of drugs. Steps followed in systematically creating the yearly budget include:

Collect data and review it (e.g., data for drug purchase and utilization, data for productivity and workload and financial statements)

Create a budget for the top-priority agents (the first 50 -- 60 drugs). Find new relevant drugs and come up with another agent budget

Budget for lower-priority and non-formulary drugs

Plan a containment strategy for drug cost (identify the non-patent drugs, opportunities for protocol development or therapeutic interchange)

Complete and submit the overall drug budget

Continue the process of budgeting all year by monitoring the use of drugs and being constantly vigilant

• Apply the Pareto Formula: During the yearly process of financial planning, it is essential to find and then concentrate on major drug expenditures. The 80/20 principle (Pareto) should be used in drug budgeting. According to this principle, in almost every situation, some vital aspects are considered important while most of them trivial. A few drugs (between 50 and 60) normally take up 80% of many of the drug budgets in hospitals. Hence, cost-containment and budgeting efforts should focus on those few drugs. The plan for cost-management should mostly focus on the top drugs which can influence the patterns of prescription (ASHP Expert Panel on Medication Cost Management, 2008).

• Prioritization and Assessment: Once cost management opportunities have been pointed out and quantified, prioritization and assessment should follow. Prioritization can be done in many ways, but majority have two main elements: determination of the possible benefit and measuring the relative difficulty or ease of achieving that benefit. In spite of the fact that potential benefit can be precise, the level of difficulty, in most cases is hard to determine. Essential factors to keep in mind when calculating the relative difficulty level and possibility of attaining benefits with regard to a specific opportunity for cost management for a drug include:

• (1) the time pressure level (available time until the costs reduce),

• (2) major stakeholders (e.g., doctor or nurse) sensitivity and readiness to cooperate, • (3) degree of support from leaders for that activity, • (4) required resources, and • (5) the existing degree of expertise in the firm for that particular opportunity for cost-management (ASHP Expert Panel on Medication Cost Management, 2008).

• Maximization of Savings for Generic Drugs Method; the patent expiration on widely utilized branded drugs may lead to a huge decrease in expenditures for drugs. Constant vigil of those opportunities that come from the new introduction of the high-cost branded medicines' generics is important, both during budgeting and in the implementation of effective and rapid generic consumption after introduction (ASHP Expert Panel on Medication Cost Management, 2008).

• Inventory Management: the ordering programs of many wholesalers comprise of systematic asset management methods (i.e., increasing turnover and optimization of inventory value). Representatives of wholesalers can help in the first setup of the programs (Hospital Pharmacy Management). Items in inventory should be classified into low, high, medium, and very high value products. The maximum and minimum levels of inventory for the medium- and high-value products need to be established, along with the reorder quantities and reorder points. Using these programs systematically, allows one to reduce the required time for the process of ordering and improve inventory management. The maximum and minimum levels, and the reorder quantities and reorder points, should be routinely reviewed and when necessary, revised. In the attempt to increase the turns of inventory, the main pharmacy storage and automated cabinets for dispensing should be considered (ASHP Expert Panel on Medication Cost Management, 2008).

• Contracting Procurement: Implement three key avenues for the purchase of pharmaceuticals at discounts: facility contracts, wholesaler own-use and GPO contracts. Pharmacies should work towards maximizing the available savings from the utilization of generics. They should also have additional considerations like 340B or indigent care initiatives. GPOs use the cumulative buying power of several facilities when negotiating agreements for pricing with manufacturers. GPOs can exclusively focus on prescription drugs. They can avail their portfolio of contracts in hard copy from pharmacies. Some GPOs can even avail them on safe internet sites (ASHP Expert Panel on Medication Cost Management, 2008).

Individual contracting can be used in place of GPO contracting. It can be conducted within the facility. At times, better or equal pricing to GPOs may be attained by individual institutions when contracting -- mostly integrated networks for delivery or large facilities. Finally, even wholesalers can exploit the special prices given to specific generic and branded drugs and give them out to pharmacies. Consequently, wholesalers get a margin, which they can use to finance discounts for distribution. Wholesalers also benefit from terms of quick payment and cash discounts from manufacturers in raising their margin as well as giving discounts to their customers (ASHP Expert Panel on Medication Cost Management, 2008).

Examine the relationship between the organization's related processes, systems, and personal or professional roles and their effect on your proposed organizational change.

Many purchasing schedule features in hospital pharmacies affect the expense and revenues of wholesalers. This can lead to a change in the distribution fees, and hence the proposed alteration is positively affected. One main feature is the weekly deliveries. The lower the weekly deliveries from wholesalers facilitated by the pharmacy, the lower are the expenses for wholesalers; which will lower the fees charged when wholesalers deliver their products to pharmacies. Additionally, the frequency and method of payment will also have an effect on the fee charged on distribution. Most wholesalers charge lower fees for distribution to pharmacies when they pay through EFT (Electronic Fund Transfer). The managers of pharmacies work together with the department of accounts-payables to come up with EFT, which, in most cases is more efficient to use in payment, both for the wholesaler and the hospital (ASHP Expert Panel on Medication Cost Management, 2008).

Additionally, the pharmacy mainly buys 80% and above (by dollar measure) of their drug needs from the wholesaler. Therefore, the pharmacies can reduce their costs through making sure that the mark-up for distribution fees is the lowest possible. It is essential to know the expense drivers and revenue streams of wholesalers in order to understand what is charged by wholesalers for drugs, as well as the fee for distribution to be paid by the pharmacy (ASHP Expert Panel on Medication Cost Management, 2008).

Proposed Development is partially influenced by the Medical Support Staff. Any program involving modifications of the prescribing patterns of improved drug therapy and cost-effectiveness requires the engagement and support of the hospital staff. Even though health systems can negotiate discounted prices per unit for drugs, the GPOs' efforts and the increased accessibility of generic drugs have regulated the cost of most high-cost pharmaceuticals utilized in hospitals. Programs for cost-management have therefore turned highly reliant on the ability of the hospital to prescribing and utilization, which will eventually affect drug policy and market share. Favorably, the facility has many effective strategies which can enhance physician's knowledge, create a cooperative relationship, and enhance possession of the medical employees' process. After engaging the medical employees and with active support from top level managers for the management program for medication utilization, a comprehensive procedure for generation of initiatives can be developed (ASHP Expert Panel on Medication Cost Management, 2008).

Identify communication techniques that will be used to address any implementation issues that may arise

Enlist the therapeutic and pharmacy committee to assess the issues in the management of medication utilization as the main agenda item (Wallack, Weinberg & Thomas, 2004). In order to assess any arising issues, hold meetings with major divisions and departments of the medical center, including oncology, infectious diseases, cardiology, and anesthesiology, along with interventionists, intensivists, and hospitalists as suitable. Encourage the hospital to provide the P&T and individual divisions and departments with continuous feedback on the issues of implementation of cost management. To maintain dedication and concentrate on the procedure, it is vital to give consistent feedback about the alterations in the matrix of cost savings to the Pharmacy and Therapeutics committee (ASHP Expert Panel on Medication Cost Management, 2008).