Learn how Allina Health saved nearly $20 million by leveraging data-driven strategies to optimize its pharmacy supply chain management, improving cost accounting, and deriving actionable insights along the way.
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Editor’s Note: This article is based on the Healthcare Analytics Summit 2024 (HAS24) session titled, A Prescription for Success: Data-Driven Pharmacy Supply Chain Optimization Saves Nearly $20M, presented by Kent Bridgeman, PharmD, MHI, Informatics Pharmacy Manager at Allina Health.
Rising drug costs and incomplete financial data on medications have made it challenging for healthcare providers to rein in their pharmacy supply chain expenditures.
In its aim to boost savings, Allina Health sought to implement a data and analytics solution enabling end users to easily capture accurate drug pricing information and compare these costs to ensure they made the best purchasing decisions. The solution also needed to integrate seamlessly with other data sets, including clinical diagnosis and lab data so that the health system could understand prescription use and costs as they relate to patient outcomes.
Indeed, drug costs can vary significantly, influenced by various factors on the purchasing side, such as the 340B Drug Pricing Program, and on the reimbursement side, such as wholesale acquisition costs and the Centers for Medicare and Medicaid (CMS) average sales price (ASP) and National Average Drug Acquisition Cost (NADAC).
Allina Health's electronic health record (EHR) provided some drug cost information, but it was often incomplete and inaccurate due to package size differences and missing prices. Moreover, the emergence of new departments during the COVID-19 pandemic had yet to be integrated into their electronic database, leading to further gaps in their drug cost data.
Allina Health scoured average wholesale price (AWP) through vendors’ catalogs and scraped public sites like the CMS’s ASP and NADAC programs for up-to-date drug cost data to gain a complete picture. This extensive data gathering marked the initial step to creating a comprehensive understanding of their medication expenses.
Once they acquired this information, the next task was to transform it into a functional model. Allina Health's cost data model included the following key fields:
By structuring data in this way, Allina Health could monitor and analyze drug pricing trends over time, facilitating more strategic purchasing decisions and easily uncover potential areas for cost reduction.
“Building this cost data model — having this data at the ready in our data warehouse – has allowed Allina to build new technology and analysis.”
— Kent Bridgeman, PharmD, MHI, Informatics Pharmacy Manager at Allina Health, during HAS24 session entitled, A Prescription for Success: Data-Driven Supply Chain Optimization Saves Nearly $20 Million.
After gathering the cost data, Allina Health combined it with different types of data to assess usage expenses. This integration included:
This comprehensive data integration allowed Allina Health to accurately correlate drug usage with costs, identifying discrepancies and potential savings in their medication expenditures.
Following the integration of multiple datasets, Allina Health employed two models to calculate savings and identify improvement opportunities in their pharmacy supply chain practices:
The resulting analysis revealed effective cost-saving measures and highlighted areas needing further attention. Yet, they also discovered they could secure a 50 to 60 percent price reduction on select medications, yielding increased savings.
Allina Health's cost data model revealed other potential savings opportunities, leading to the initiation of three additional major projects.
Allina Health discovered that retail dispenses from a mental health hospital were not being captured as 340B, a government program that enables covered entities to purchase drugs at reduced rates. For practitioners in pharmacy supply chain management, the 340B program is the best place to start when seeking to achieve cost savings, as it often yields participants savings in high dollar amounts.
Allina Health reviewed the criteria for 340B qualifications and learned that some of its departments were overlooked. To ensure that all eligible departments were included in the 340B program, they established new covered entities for pharmacy contracts and updated the EHR system. As a result, they achieved roughly $2 million in accumulated annual savings.
After falling short of their forecasted outcomes from the first venture, Allina Health returned to the data and discovered they could qualify more patients and departments for 340B pricing.
They broadened pharmacists' roles and established specialty programs in hospitals where pharmacists provided medication therapy management. Once implemented, the effort saved over $12.2 million in 12 weeks and enhanced patient safety by offering pharmacist-led patient education.
A thorough examination of invoicing and contract data revealed that Allina Health continued to receive bills exceeding the maximum 340B price. Therefore, the initiative required an in-depth review of invoices and contracts to verify adherence to agreed-upon pricing and rectify discrepancies.
Using designated 340B vendor data, Allina Health corrected these discrepancies, leading to $1.5 million in accumulated savings.
“You need robust analytics to do this [work]; there is a lot of tracking and a lot of follow-ups that need to happen. You need really solid analytics to understand your processes and savings.”
— Kent Bridgeman, PharmD, MHI, Informatics Pharmacy Manager at Allina Health, during HAS24 session entitled, A Prescription for Success: Data-Driven Supply Chain Optimization Saves Nearly $20 Million.
These three initiatives jumpstarted a host of additional cost-saving efforts.
Beyond retail pharmacy, Allina Health explored ways to reduce outlays for high-volume, high-cost drugs like glucagon-like peptide-1 (GLP-1) through local government partnerships. They also evaluated biosimilars as alternative drugs for potential savings.
Attempts to reach patients outside Allina Health’s network for specialty services also showed promise. Moreover, integrating reimbursement data with cost data further helped close the cost-accounting cycle, ensuring a comprehensive view of drug expenses and reimbursement opportunities.
Allina Health also learned that data alone isn’t enough to drive meaningful change. They enlisted various stakeholders — buyers, vendors, and programmers — to initiate cost-saving actions, achieving greater buy-in and bolstering accountability.
Allina Health developed analytics tools designed to pinpoint tasks to lowering drug costs and automate notifications across all departments. These alerts, delivered via SMS or integrated with messaging apps like Slack, included information to incite immediate action.
The notifications included action items, such as:
By automating these notifications, Allina Health ensured timely and accurate responses to data insights, helping the Minneapolis-based health system to scale its efforts and drive continuous improvement in pharmacy supply chain management processes.
Allina Health saved nearly $20 million by adopting a data-centric strategy for managing its pharmacy supply chain. By effectively gathering precise drug cost information, integrating data throughout, and executing cost-saving measures, the organization enhanced its prescription supply chain, ensuring better resource allocation and improved patient care.
