The health system pharmacy faces numerous headwinds, from rising drug costs and increasing regulatory complexities to higher rates of staff burnout and evolving patient expectations. Meanwhile, these pharmacies are expected to be active revenue generators, particularly in ambulatory and outpatient settings, and play an outsize role in boosting a hospital’s bottom line.

Trying to stay competitive in this unique ecosystem can feel like chasing a moving target. Pharmacy leaders must continuously optimize operations to not only address today’s challenges but also prepare for the future. Following are four key considerations – related to cost optimization, 340B compliance, employee retention, and patient care – to help health system pharmacies thrive in a rapidly changing environment.

1. To manage margins, strengthen access and process

Much is made of opportunities within the health system pharmacy space to drive revenue and provide continuity of care. On the outpatient side of the business, the focus is on access: to patients, drugs, and payers. Can pharmacy executives help increase their prescription capture rate and reduce leakage? Can they get access to the drugs they want to dispense and to limited-distribution drug networks? And can they access payer networks so that if they do get these drugs, they can sell them and be reimbursed? Ideally, health system pharmacies alleviate the need for patients to fill prescriptions off-site, but with more vertical integration among retail, specialty, and infusion pharmacies – where they function as pharmacy, pharmacy benefit manager/PBM, and payer – it can be challenging for hospitals and health systems to get in network to receive any kind of reimbursement at all. 

Operating a health system pharmacy as efficiently as possible requires optimizing the revenue cycle, from pre-administration authorization to post-administration reconciliation. Are claims being sent to the wrong payers or end users? Do they have missing or incorrect information? If so, the denial rate might be higher than it needs to be, potentially resulting in millions of dollars in losses. Pharmacy administrators should know their denial rate and whether it’s within the normal range of their peers. Generally, it is considered best practice for hospitals and health systems to have a denial rate of less than 3%. It’s also critical that pharmacies stay organized to keep track of denied claims, work quickly to get denials corrected, and have a process to change to alternate therapies if medications are not approved. 

Attempts to grow revenue will be canceled out if health system pharmacies can’t contain costs. The inpatient environment is particularly strained by dramatic increases in the cost of drugs and manufacturing shortages. Here, the process comes into play once again: Pharmacy leaders must make cost-reduction strategies part of the workflow. This includes reviewing contracts and renegotiating wholesale agreements whenever possible versus letting them annually renew (a tactic that could save millions of dollars); reassessing individual direct contracts with pharmaceutical companies for certain high-cost drugs; and better managing the internal formulary – i.e., paying attention to make sure they are only buying drugs at an appropriate price. After all, generic medications might cost a penny from one manufacturer and $10 from another. Or, there might be a prescriber in the hospital system who has been influenced by a sales representative to prescribe a more expensive brand-name medication that’s not necessarily clinically superior to a cheaper generic alternative. This can lead to wasted costs on the in-patient side of the business because the pharmacy isn’t getting reimbursed more for the expensive medication. Finally, managing inventory is yet another way to keep costs down. If there’s too much of a certain drug on hand, that’s a wasted expense and might lead to expired, unused medications.

2. To maintain regulatory compliance, fine-tune 340B spend

Nonprofit hospitals that meet certain eligibility standards can qualify for the 340B Drug Pricing Program to buy certain outpatient drugs at deep discounts. But, these hospitals and covered entities must be very careful about compliance. There are financial penalties for misusing or abusing the program, as well as potential loss of access. As a result of the ever-shifting legal and regulatory landscape around 340B, health systems and hospitals can be very conservative about how they operate the program. But if they are too conservative, they can miss out on opportunities – to the tune of billions of dollars. To get the most benefit, it’s important to have a 340B program that is both compliant – annually recertifying eligibility, conducting regular inventory checks, preparing for audits, and more – and optimized to fulfill the intent of 340B, which is being able to deliver comprehensive services and take care of more patients. 

It’s worth noting that in the November 2023 Genesis ruling, a federal district court made a significant change to the 340B program in expanding what patients are eligible to participate. Therefore, it’s important to assess hospitals’ policies to confirm they’re written in such a way that they can provide service to the greatest number of patients and receive the most benefit under this newly expanded definition. 

3. To tackle staffing issues, rethink workplace culture

Staffing shortages are a hot topic, yet there is no lack of pharmacy technicians and pharmacists. There is, however, a shortage of people who are willing to work in an environment where they’re going to burn out, not be fairly compensated, or endure less-than-ideal working conditions. As the scope of pharmacy practice continues to expand – a trend that started during COVID-19 – pharmacy professionals are feeling the stress of rising demands and limited budgets.

In response to a shrinking workforce, pharmacy leaders must rethink expectations, how they engage with employees, and how they compensate their staff. What types of benefits are being provided? How do salaries compare to that of competitors? As retail pharmacies, in particular, struggle to refill positions in a turbulent climate, a better workplace culture can be a competitive advantage.

4. To improve outcomes, personalize the patient experience

A health system pharmacy’s role goes beyond dispensing drugs and medical devices. The pharmacist is also a clinical partner to the physician and educates the patient on medicine usage, drug interactions, and more. It’s no surprise, then, that patients desire a more meaningful relationship with these trusted care providers. Health system pharmacists have an opportunity to promote adherence, counsel about the safety of vaccines, and help customers access digital health tools for their needs. Technology-savvy patients want their smartphones to be part of their care, whether that’s monitoring the status of their refill prescription, asking questions via text message, or visiting a patient portal on their phone. 

In conclusion

While health system pharmacies have the potential to be high profit centers, they tend to be high cost centers as well. It takes ongoing effort and a strategic plan to make them a sustainable source of value and high-quality care. By optimizing to improve margins, fine-tune 340B compliance strategy, increase workforce retention, and better meet patient needs, pharmacy executives can help set up their business for success.