Smart Moves in Pharmacy

Taking time to understand how his pharmacy departments operate has paid off for one manager and his IDN.

Blake Jarrell was well on his way to a successful career in finance. Following a VP post at a national bank, he spent three years serving as chief operating officer at a privately held company. But, his father’s untimely cancer diagnosis, resulting in his death, led Jarrell to reconsider his career track. “I knew that I wanted to be part of a nonprofit healthcare organization that was doing important work for the community and was focused on providing patient-centered care,” he says. So, in 2007 he joined Methodist Le Bonheur Healthcare (Memphis, Tenn.) as manager of pharmacy supply chain.

And, despite having had no prior experience in healthcare, it’s been a great fit. “The problem solving skills [from my prior position] were transferable,” says Jarrell. In fact, not having a background in healthcare was actually an advantage. “I had no preconceived notions about what should happen,” he explains.

Instead, he approached his position with a fresh perspective and “asked a lot of questions.” As it turned out, Jarrell asked many of the right questions. Today, he has earned a strong level of trust from the IDN’s pharmacy supply chain, which has adopted a forward thinking, cost-saving approach to pharmaceutical contracting.

The role of pharmacy
From the time he came on board, Jarrell has been aware of the key role the pharmacy plays at Methodist Le Bonheur Healthcare. “The pharmacy department has always been a critical part of the overall supply chain strategy, because drug expenses obviously make up such a large percentage of the overall supply chain costs,” he points out. Still, he initially sensed from both pharmacy and supply chain leadership “that we could do a much better job of measuring our performance and ensuring we were maximizing all of our opportunities,” he says. “From the standpoint of having established robust key performance indicators that were regularly measured and reported as part of the overall supply chain metrics, that largely didn’t exist when I first joined.”

In addition, Jarrell encountered some frustration on the part of supply chain executives with “understanding the uniqueness of the pharmacy business,” he says. “For example, noncontract spending and uncontrollable price increases are abominations to competent supply chain leaders, but they are an everyday part of the pharmacy world. Understanding dynamics such as these and identifying and explaining relevant measurement tools and actionable opportunities were some of my initial key focal points.”

On the plus side, however, Jarrell immediately noted the talent and smarts of executives on both sides of the discussion, and he felt fortunate for the opportunity to benefit from both “their knowledge and willingness” to assist him. He jumped into his new role feet first, taking time to learn the pharmacy business and understand what they needed from him and other supply chain executives. “I learned that the pharmacy department is almost always under intense pressure from a financial standpoint to explain its drug expenditures, so I quickly became adept at pulling detailed reports from the wholesaler and building reports in spreadsheets that explained trends and were easy to use,” Jarrell recalls. And, he was “fanatical” about immediately responding to pharmacy requests, helping the department resolve shortages and acquire special drugs on short notice, and more, he adds.

All the while, the health system’s administrators have showed their support for many initiatives, including “those that have involved spirited clinical discussions,” Jarrell points out. “Our pharmacy steering committee, which the pharmacy finance committee reports to, is championed by a physician,” he adds. “This has been incredibly helpful to us when there is resistance to an initiative. We are always going to make the best clinical decisions, which will take precedence over financial considerations. But when legitimate debates arise, it is wonderful to have brilliant pharmacists and physicians champion the cause.”

Making his mark
Slowly but surely, Jarrell has helped create a trusting relationship between the pharmacy and supply chain executives, and today his efforts have paid off, he says. “Supply chain is now largely viewed by pharmacy as a team that understands the pharmaceutical business and can assist in resolving issues. From a supply chain perspective, as we have invested energy and time to understand the pharmacy business, some of our experts have been better able to assist pharmacy with such areas as improving inventory turns.”

Today, Jarrell plays a key role, chairing the IDN’s pharmacy finance committee and ensuring the health of the pharmacy supply chain. “In my position, I act as a bridge between pharmacy, contract management, supply chain leadership and our health system’s chief financial officer,” he says. “[My team] performs monthly deep dives into our contracts and purchasing trends to seek opportunities and to ensure we are controlling drug expenses. We help the pharmacies control inventory and minimize waste.”

Jarrell also manages Methodist Le Bonheur Healthcare’s 340B purchasing program, a federal program that subsidizes disproportionate-share hospitals’ outpatient drug expenses. “My first charge [upon joining Methodist Le Bonheur Healthcare] was to make sure we were maximizing our 340B savings opportunities, since this was an area of responsibility that fell within the supply chain mission,” he says. “Previously, there had been an assumption that we were doing as well as possible with the split billing software and ordering platform we had been using.” Not being afraid to ask questions, “I frustrated a consulting group that I felt was caught in a no-vortex. By the end of the group’s engagement, we had improved our savings by 225 percent, and we continue to improve upon that every year.

“We now work closely with Premier to ensure not only that we are buying on contract whenever possible, but that even our on-contract purchases are the most cost-efficient,” Jarrell continues. “Collectively, we have created a proactive atmosphere, such that we seek out opportunities to implement cost-saving strategies, even if it means moving away from longstanding practices or vendors. Understanding our purchasing information, wholesaler and GPO reporting tools has given us the opportunity to identify actionable opportunities and move on them.” And the savings have been, and should continue to be, substantial, he notes. He anticipates over $2 million in savings from two initiatives alone. “These are real dollars that directly affect our bottom line,” he says.

Money, talent, resources
Working for a 340B health system has given Jarrell much to think about. Indeed, he is proud to be affiliated with a health system that “commits its money, talent and resources to caring for a demographic segment that many hospitals and practitioners have largely abandoned.” Methodist Le Bonheur Healthcare serves a significant percentage of self-pay and indigent patients who otherwise would go untreated, he points out. “While we have assisted many people in taking advantage of free drugs offered through pharmaceutical companies’ patient-assistance programs, we are in the process of expanding our skills in that area. Eventually, we will capture all patients who qualify under various programs. This will allow us to further expand our opportunities to care for the community we serve. It’s an exciting initiative.”

However, an initiative such as this one could not be accomplished without strong relationships with his vendors, says Jarrell. For him, the best partnerships are grounded in flexibility. “We value partners who understand our needs and try to accommodate us whenever possible,” he says. “We have a supplier who is maintaining a very hard line on a contract, even though our operation has changed. It’s not that we’re buying a competitor’s product. We’re just buying less of theirs. Still, this vendor is going to penalize us with a price increase under the terms of its agreement. The vendor can do this, but it’s a very ill-considered move in the long-term, because we will aggressively find cost-effective alternatives from their competitors for all of the other items we usually buy from [this first vendor]. In contrast, we have another vendor that brought us a price decrease. Not only has this been helpful to us, it was a very smart business move for this vendor.”

A look ahead
Jarrell anticipates that pharmaceutical contracting will take a new direction in years to come, and he plans to be ready when that happens. “I think rebates likely will be replaced with upfront discounts,” he predicts. On a larger scale, however, he foresees “aggressive failure-to-supply clauses, which should become a standard part of any agreement between a drug company and a group purchasing organization.

“Both large and small hospital systems are struggling to adopt to the plethora of shortages that have occurred over the past year,” he continues. “From a contracting standpoint, it doesn’t matter how good the pricing of a product is if you can’t acquire it. Manufacturers will have to meet demand or pay a penalty.” Then there’s the issue of safety, he adds. “The Food and Drug Administration will have to step into the fray and take a much more aggressive stance,” he says.

The pharmacy can and will play a stronger role in the supply chain strategy in years to come, according to Jarrell. “Due to their volume and spend, pharmacy departments are in a terrific position to influence vendors who are directly or indirectly involved in areas outside of pharmacy,” he says. “Vendors silo their various operations and departments just as hospitals often do, and they sometimes claim they have no influence over what another division of their company is doing. However, as the pharmacy becomes an increasingly integral part of the overall supply chain strategy, vendors will no longer be able to take a compartmentalized divide-and-conquer approach.

“Instead, I think bundled agreements that encapsulate both pharmacy and non-pharmacy items will become very common,” he continues. “I also believe hospitals will combine drugs for different therapeutic classes from the same manufacturer into a single agreement to maximize their leverage. With the stroke of a pen, a hospital system will be able to capture six- and seven-figure savings. In short, in the future, the pharmacy will exert much more influence over non-pharmacy areas than ever before.”

About the Author

Laura Thill

Laura Thill is a contributing editor for The Journal of Healthcare Contracting.