Written by: Jake Thompson, PharmD, MS, SpendMend VP of Pharmacy Services, Growth and Optimization
In the past two years, my team and I have worked with over 50 distinct hospitals on drug spend optimization projects ranging in size from $300K up to $75M. We partner with these organizations to ensure that they are maximizing the savings opportunities in their drug spend with specific emphasis on their 340B program.
Over the course of this work, patterns have begun to emerge, and although I suspect the sample set is still a little too small to draw final conclusions on the matter, the data has revealed the first signs of some noteworthy trends that are worth discussing.
The chart below demonstrates a sample of the data we are tracking and highlights a cross section of the different Covered Entity types with which we work. We measured the total savings the partnership delivered compared to the total drug spend during that same period. It is important to note a few key definitions:
- Total Savings: This is realized savings that the hospital captured after our team identified an opportunity and closed the gap, resulting in direct savings measured down to the exact NDC impacted.
- Drug Purchasing: This is the total drug spend over the same time period the “Total Savings” was measured.
- Savings/Spend: This is the percentage of savings our team delivered when comparing “Total Savings” divided by “Drug Purchasing”.
- Client Names:
- DSH = Disproportionate Share Hospital
- SCH = Sole Community Hospital
- CAH = Critical Access Hospital
CLIENT NAME Total Savings Drug Spend Savings %
DSH – Large Health System $2,509,477 $75,424,689 3.33%
DSH – Academic Health System $1,920,691 $32,523,751 5.91%
SCH – Stand Alone $423,056 $18,868,569 2.24%
DSH – Stand Alone $79,989 $2,677,901 2.99%
CAH – Stand Alone $384,302 $1,216,320 31.6%
When looking across all our engagements, the results are profound. Our clients realized savings ranged from $11K to $2.5M, which equates to 0.49% to 31.6% Savings/Spend. To dive deeper, we broke up the engagement results into four groups (Small, Medium, Medium-High, High) based on the Covered Entity’s total annual drug spend. This helps break down the average savings based on the size of the hospital’s drug spend. Reflecting on these categories, the patterns begin to emerge, as evidenced in the analysis below:
Range Annual Drug Spend Average Savings
Small $0 – $2.5M 13.3%
Medium $2.5 – $10M 4.1%
Medium-High $10M – $20M 1.9%
High >$20M 2.7%
As stated above, we are still likely too early in the data gathering to draw conclusions, however it is evident there are a few interesting trends worth exploring. Most apparent is the trend that savings opportunity as a percentage of drug spend is inversely proportional to annual Drug Spend. Meaning, the more you spend the smaller percentage of opportunity you are leaving on the table. And vice versa – the less you spend the more percentage of opportunity you are leaving on the table. In all cases though, the average savings realized has been significant. In my previous roles, reducing your drug budget 2-4% would gain positive recognition of the executive leadership team.
So why the trend? And what does it mean for your covered entity?
It’s a great question that you may be asking, “Why would the percentage of savings opportunity be inversely proportional to the drug spend?” My experience as a pharmacy leader and a consultant can help to shed some light on why the opportunity reshapes at each level.
Foremost, I observe that companies with a small drug spend simply have a much higher savings opportunity as a percentage than companies with a large drug spend. To be honest I suspected that the opportunity as a percentage would be higher than in the larger hospitals, but I did not expect the difference to be so pronounced.
Without proper research, it is difficult to say exactly why this difference would be so stark, but at this point, with over 18 years in the market I can offer a few theories as to why this would be. I have observed in my career that most covered entities with a smaller drug spend are only budgeted a single person to manage their drug spend and in these instances this person is typically wearing multiple “hats” and only maintaining the process amongst many other pressing issues. Hence the large impact when someone from our team solely focuses on drug spend.
What does it mean to these hospitals? Access to experts: By partnering with expert consultants in 340B drug procurement, you can achieve significant savings (or at minimum validate current purchasing optimization). By partnering with 340B optimization experts, you get access to the country’s most advanced 340B experts without funding a full time FTE and recruiting the expertise to your geographical area.
As we move further up to Medium spend, you will start to see where the program has grown to such a point that a full-time resource becomes necessary. In these facilities, the person leading the 340B program typically is a superstar technician or previous buyer. These individuals are experts in the hospitals’ individual 340B program and positioned perfectly to collaborate with outside consultants. This person often is self-taught 340B through their own organization’s 340B program setup and often is not as well versed on what other organizations are doing. As such, the percentage of opportunity is still significant, but is a lesser percentage than groups with a small spend.
What does it mean to these hospitals? Access to education: By partnering with experts in 340B drug procurement, your dedicated 340B team members are able to learn directly from our consultant team who will share their experience supporting hospitals across the country, in a wide variety of settings. This education helps teach your staff how to prioritize compliance and optimization opportunities. By partnering with a consultant, your internal 340B expert can learn how to identify savings opportunities, but most importantly, provide them with the skillset to help fix financial leakage in the process.
As we climb to the Medium-High drug spend levels between $10M-$20M, these hospitals often have a second 340B team member and the group has invested in additional training on best practices. With the additional resources invested, the internal 340B team has been able to dedicate more time to unearthing savings opportunities and addressed the areas of low hanging fruit. This paves the way for the optimization opportunities of higher complexity to be addressed. As a result, a partnership with our optimization services is still able to drive hundreds of thousands of dollars in savings, albeit a slightly lower percentage than would be seen with the medium-spend level.
What does it mean to these hospitals? Strategic Growth: By partnering with expert consultants in 340B drug procurement, your dedicated 340B team will learn techniques to help maximize and grow your 340B program. These strategies will propel your 340B value and drive practice changes that result in significant financial gains. Through your partnership, you gain insight into opportunity analytics, skilled project facilitation and management, and insightful strategy execution. Because you have partnered with consultants “who have been there, done that” you get strategies implemented much faster than doing it on your own, resulting is more savings faster.
Groups with the highest levels of drug spend experience a modest increase in opportunity percentage similar to the Medium-High group. Although conventional wisdom would suggest that groups at these levels would offer a small savings opportunity percentage, the reality is that the dollars are still very large and impactful to the covered entity. These larger facilities are often a lot more complex and thus need much more organization and structure to their 340B team. Even though organizations with drug spend of over $20M will usually have a whole team to support it, they will still miss many of the more nuanced opportunities.
What does it mean to these hospitals? Solutions to complex problems: By partnering with experts in 340B drug procurement, we will collaborate to mitigate the complex and costly challenges your team has identified, but not yet been able to resolve. By engaging with specialized consultants who focus on generating solutions to close financial gaps, you gain insight into industry techniques that have aided other institutions in resolving similar complexities.
Even though it is easy to get caught up in the decreased percentage of savings, proportionate to drug spend, all of the covered entities we have partnered with have realized significant reductions in drug spend that have had tremendous impact on the organization’s bottom line. No matter the size of organization, there are always opportunities.
Reflecting on past optimization partnerships, the key determinant to covered entity success in realizing meaningful savings has stemmed from our team’s ability to break down complex 340B initiatives into actionable steps. Instead of passing a list of possible action items along, our team synthesizes your comprehensive program data to identify realistic and meaningful opportunities, vetted by our experts.
SpendMend Pharmacy leverages Turnkey Pharmacy Optimization by only hiring experts that have successfully implemented 340B opportunities and strategies within their own covered entities. Our no-risk approach means we only get paid when you realize savings (100% contingency model). If you would like to learn more about the potential savings opportunities at your institution, visit the SpendMend website and schedule a free consultation with one of our team members.