Pharmacy: Tipping or tripping point for Supply Chain?

What can Supply Chain pros learn from their colleagues across the contracting aisle?


If you’re looking for the closest connection to retail healthcare you can find in a hospital setting, look no further than Pharmacy whose leaders and staffers seem to straddle the great divide between these two divergent, yet closely related settings.

What does Pharmacy also house that Supply Chain could use? Top-tier supply chain expertise. In fact, it’s a fairly common industry acknowledgement that a highly skilled supply chain professional most likely has extensive experience in pharmacy, an R.Ph. or Pharm.D. designation after his or her name, or may oversee the pharmacy as part of the organization’s Supply Chain operations — even all three!

In short, Supply Chain pros can learn a lot from Pharmacy’s supply chain effectiveness and efficiency. Let’s count at least five of the ways:

  1. They’ve been working with drug data standards since the 1970s per the National Drug Code (NDC) system and didn’t need federal regulations to make it happen. Of course, the threat of federal regulations served as influential motivation.
  2. They’ve mastered the “track and trace” system using inventory management information technology. However, many generally rely on their distributor’s system and transactional data as the source of truth to make it happen.
  3. They’ve mastered the art and science of low units of measure — as well as charging for it either under individual product charging or flat procedural fee.
  4. Within the “non-labor” expense realm of products and services, pharmaceuticals represent the largest percentage of the pie in terms of dollar and unit volume.
  5. Pharmacy enjoys closer ties to doctors, nurses and surgeons via clinical pedigree and hands-on relationships with patients.

What else can Supply Chain pros learn about supply chain success from Pharmacy and how it manages its own supply chain? Is there an uneven playing field or is everything level?

Advantage: Pharmacy?

Mary Beth Lang
Mary Beth Lang

Pharmacy enjoys a number of operational and organizational advantages that “Supply Chain would love to have,” noted Mary Beth Lang, RPh, MPM, DSc, CMRP, Executive Vice President, Cognitive Analytics Solutions, Pensiamo, an independent strategic partnership between UPMC and IBM. Three come to the forefront of her mind.

First, a Pharmacy & Therapeutics Committee. This represents a “formalized and sanctioned decision-making body led by physicians,” Lang said. “The P&T is responsible for medication selection and the context of use through system wide medication formulary documents and protocols. This group functions in a similar way as the Value Analysis Team for Supply Chain.”

Second, availability of extensive product research. “Pharmacy benefits from formalized and published primary research on each drug and drug class,” Lang observed. “Pharmacists grade each clinical trial to determine a recommended use of the drug based on study methodology and strength of the supporting evidence or outcomes weighed against risks versus benefits of that therapy. Supply Chain would benefit from a similar formalized research. While Value Analysis teams have come a long way to confirming and supporting the decisions of supply chain products, there is inconsistency from one system to the next based on available financial and staff resources — that are already at a premium.”

Third, active daily involvement with clinicians. This is driven by product formulary management through verification of physician orders submitted through the clinical order entry system, according to Lang. “Most medications require pharmacist verification prior to being sent to the nursing unit or procedure,” she said. “This process is a little different than the process for Supply Chain where supplies are under an open access model or are part of a vendor consignment. In addition to screening the physician orders for formulary compliance, Pharmacists provide several clinical interventions in product selection. Clinical pharmacists round with physicians and make drug selection or protocol recommendations. Pharmacists review orders to make sure the formulary agents in a therapeutic class are dispensed per P&T recommendation. Pharmacists also review the patient status and convert intravenous medications to oral. Pharmacists and pharmacy technicians have been added to coordinated care teams, to patient-centered medical home efforts and have been asked to lead outpatient clinics focused on medication therapy management.”

Clearly, Supply Chain, by and large, remains in observational mode, outside the clinical arena and looking in.

“Imagine if supply chain was consistently included as active members of the care coordination teams,” Lang surmised. “This inclusion could move Supply Chain from best price focus to play a significant role in product selection in care decisions. At Pensiamo, we are utilizing these resources and cognitive analytics to gain insights to patient outcomes, for evidence-based protocols to advance practice.”

Deborah Petretich Templeton
Deborah Petretich Templeton

Aside from their “mature” use of NDC numbers in their supply chain processes, “Pharmacy also has many years of experience with formulary management, akin to what Supply Chain is doing via Value Analysis,” said Deborah Petretich Templeton, R.Ph., Chief, Care Support Services Geisinger Health System, Danville, PA. “They are good at marrying data, clinical information and outcomes to formats that are easily understood by clinicians.”

Templeton agreed that comparative effectiveness data and information about pharmaceutical products far exceeds what’s available for clinical devices and supplies. “[Pharmacists] readily understand the use of the product and tie it to the criticality of patient need,” she added.

Pharmacy certainly operates under a more regimented and structured workflow than Supply Chain, which could adopt and implement a number of those processes to succeed as well, according to Chris Little, PharmD BCPS, Director, Pharmacy & Diagnostic Imaging, ROi.

Pharmacy regulations also stipulate measures for scheduled drug handling and movement, as well as class-of-trade issues, according to Templeton. “Storage conditions often are much more critical, such as keeping product frozen or temperature-controlled, and mishandling of product can result in high-dollar losses when product is rendered unfit for use,” she said.

Further, Pharmacy’s supply chain is “highly vulnerable to theft and counterfeit product activity, controls for which also must be managed,” she added.

Chris Little
Chris Little

“Regulations put in place for both branded and generic drug approval provide a very straightforward equivalency categorization for all drug products,” Little said. “These rules outline what products are bioequivalent or therapeutically equivalent to another. This allows for the interchangeability of generic drugs within your presiding pharmacy practice laws. Many hospitals and health systems will even take this one step further and put into place a standardized formulary with therapeutic interchanges to further align and control medication utilization. Provider and stakeholder engagement in these initiatives is vital to the process and can ultimately provide significant value.

Beyond product standardization, Pharmacy generally designs its workflow arrangements around the patient to “accurately and precisely provide a medication at the optimal time,” he indicated. “To drive this workflow, you must have systems in place and resources available to move product quickly from one point in a hospital to another and a staff available to evaluate and prepare those orders,” Little noted. “Additionally, the pharmacy supply chain is able to intervene with providers at the time of request or order placement to ensure that the patient receives the most appropriate therapy possible.”

Finally, Pharmacy includes experts who know how to break down product to the lowest measurable unit available for dispensing, Little continued. “Oftentimes, this means that they are breaking down large bottles of products into individually packaged dosage forms, dispensing them as appropriate and ensuring that they are charged in the correct fashion,” he said. “As accreditation agencies have strengthened the stance on any bulk dispensing of pharmaceuticals, we see nearly all patient-prepared doses dispensed from pharmacy.”

Mitch Wood
Mitch Wood

Pharmacy also maintains some influence over formularies and prescriptions, according to Mitch Wood, RPh, Managing Director, Consulting Practice, AmerisourceBergen Corp.’s Pharmacy Healthcare Solutions, Chesterbrook, PA.

“With the advanced pharmacy clinical practice models that are in place and growing in U.S. health systems, pharmacists are increasingly able to influence individual prescriber decision-making, as well as consolidation and standardization of formularies,” Wood said. “This translates to pharmacy input and influence at the point of drug demand generation, which is key to lowering drug costs. When a pharmacy takes a proactive posture in the drug supply chain, unnecessary drug cost outlays may be avoided more effectively.

“Pharmacies are inherently well-positioned to monitor the preparation and dispensing processes of high-cost drugs, and actual usage in patient care areas,” Wood noted. “The potential is to prevent or minimize wasted doses and loss of medications due to expiration.”

Data-driven, clinically connected

When it comes to supply chain data science, Pharmacy leads the charge over Supply Chain capabilities.

From a National Drug Code to a therapeutic class coding system and barcoding down to the unit of use, Pharmacy maintains a consistent and complete data pathway by scanning medications from receipt in the pharmacy warehouse through forward stocking locations and ultimately at the point of administration to the patient, Lang indicated. “Having this level of control at the acute care setting stops short of the safety needed to ensure that patients are protected from counterfeit medications,” Lang said. “The intent of the Drug Supply Chain and Security Act is to provide tracking from the time of the active ingredient, through manufacturing, and all points in the distribution chain. Ultimately, the goal is to be able to append the track and trace down to a serialized number to the medication administration note in the patient’s electronic health record.”

At UPMC’s Healthcare Pharmacy operation, pharmacists not only fulfill the required track-and-trace elements, but also track the lot and expiration date next to every packing slip prior to sending a medication to a hospital, clinic, surgery center, pharmacy or physician office, according to Lang who previously oversaw the department. “This level of tracking has helped to streamline product recalls by systematically identifying if the system received the recalled lot and expiration date product and the outbound shipping location,” she added.

Supply Chain leaders have been advocating for healthcare data standards for decades, Lang acknowledged. “The FDA requirement of a unique device identifier has been a good start to having a standard registry (e.g., Global Unique Device Identification Database, GUDID) and consistent product information. As we begin to leverage the GUDID registry, it is possible to add the same level of control for devices as we do for pharmaceuticals as it relates to barcode scanning and recall management,” she added.

Pharmacy also may contribute to contracting issues, according to Wood.

“Drug companies may offer no discount on the highest cost drugs, regardless of the purchase volumes found in a typical hospital, so volume buys may not help,” he said. “In a multi-hospital system, consolidated or centralized purchasing and distribution from a single location will help optimize on-hand inventory of these drugs, eliminate duplicate inventories in multiple hospitals, and free up held cash. Using a consignment option at a consolidated distribution location, when possible, may add benefit.

“If there is potential for an entire hospital system to effectively standardize on single high-cost drugs within therapeutic categories, opportunity may exist to negotiate individualized contracts and drive down cost per unit,” he added. “True integration of system formulary committees, with medical staff engagement and commitment, must be present for success.”

ROi’s Little notes how Pharmacy leaders and professionals are able to straddle the line between clinical and operational functions with their feet firmly planted on both sides, respected by either and actively participating. They can speak clinically with the patient as well as manage the pharmacy supply chain, he said.

“Pharmacists are now working in nearly all parts of our healthcare systems because of their knowledge and abilities in these areas,” Little indicated. “All pharmacists reaching the job market now have a Doctor of Pharmacy degree and have been trained to have a clinical and patient focus. Additionally, we are seeing great expansion on the numbers and types of pharmacy residency programs, which provide additional training. This knowledge base allows pharmacists to speak clinically with providers and guide prescribing at the time of the order or through patient care order sets or pathways that they have assisted in compiling.”

Not too unequal

Todd Ebert
Todd Ebert

Todd Ebert, R.Ph., President and CEO, Healthcare Supply Chain Association, may agree somewhat that Pharmacy outpaces Supply Chain in certain areas, but that “race” is far from finished. With his background in both Pharmacy and Supply Chain as a former group purchasing organization president, Ebert enjoys a unique perspective.

“Pharmacy and the Supply Chain share a number of similar challenges, including navigating procurement for new and expensive products, effectively working with clinicians to ensure that they have the ability to provide the best patient care possible to the patients they serve and supporting the mission of the healthcare institution,” he noted.

Ebert acknowledged that the National Drug Code offers an advantage, but “Supply Chain will take a huge step forward when a standardized numbering system is fully implemented and integrated.”

Further, “Pharmacy has the ability to review and use many clinical studies, including comparative drug and treatment literature, that allows clinicians to work together to determine the best treatment processes and drug protocols. This information allows Pharmacy to work closely with clinicians on formulary management, including therapeutic substitutions.” Supply Chain could adopt and implement something similar.

If anything, “the relationship between Pharmacy and Supply Chain has been a mutually beneficial one with each entity learning lessons and best practices from the other, as well as other industries outside of healthcare,” Ebert added.

Lang concurred. Unlike Supply Chain professionals, pharmacists are not trained in logistics and other supply chain management foundations, she indicated. “Many understand the concepts of inventory turns, PAR stock, min/max forecasting, but lack the automation to properly manage inventory,” she observed. “Supply Chain can assume responsibility for PAR stocking of all of the items controlled through the central warehouse. Many health systems have moved the ordering function to Supply Chain provided they can comply with state and [Joint Commission] requirements for pharmacist oversight. Health systems like UPMC can save millions of dollars annually by properly controlling inventory in the central pharmacy as well as at all forward stocking locations. For example, a hospital pharmacy only needs safety stock centrally and not at every nursing unit or department. Health systems are also adding low-unit-of-measure programs for expensive items. For example, instead of purchasing a bulk bottle of very expensive Hepatitis C drugs, one bottle is purchased and then packaged into individual pills or capsules. When a patient is admitted, a small supply is shipped to the facility.”

Templeton acknowledged that Pharmacy could benefit on Supply Chain’s expertise in inventory control and procurement automation, which would allow “much less dependence on distributor systems alone,” she said. “Technology can allow a three-way match between invoices, payment and contract price. Due to the high unit cost of some drugs, even a small variance in contract price and invoice can make a big difference in pharmaceutical expenditures. Supply Chain also can offer assistance in logistics and movement of product as well as contract negotiations as pharmacies move to more direct relationships with manufacturers.

Supply Chain can help Pharmacy navigate through drug shortages, Lang argued.

“In reviewing a recent shortage report, there were 1,300 shortages requiring pharmacy leaders to have 6,400 alternatives,” she said. “Many systems will change purchasing patterns to stock alternative products in larger supplies to weather the shortage. Supply Chain can help Pharmacy to manage hedge purchases and inventory management to ensure that alternative products are used prior converting back to the original product.”

Templeton acknowledged the complexities in finding suitable alternative products during shortages as replacements may not compare on a one-to-one basis. For most critical shortages involving sole-source products, this can lead to rationing supplies or completely revamping treatment protocols, she said.

Both Pharmacy and Supply Chain understand the power and value of standardized purchasing practices and compliance with contracted agreements, Wood insisted. “Various electronic platforms and techniques may be employed to make certain that the most advantageous NDC of a particular drug is purchased on a consistent basis to diminish variance and to make certain organizations take full advantage of GPO-based and individually negotiated contracts,” he said. “Given the 24/7/365 production demands in a typical health-system pharmacy, ordering practice consistency is an important aspect of minimizing costs.

“Supply Chain leadership understands the value of utilizing automated inventory management platforms with techniques such as bar-coded scanning to remove any human guesswork element from order quantity development,” Wood added. “Coupled with careful management of inventory PAR levels, these techniques can also benefit pharmacy in minimizing inventory levels, driving down expiration losses, and experiencing less frequent stock-out events.”

Any barriers between the two areas must and will dissipate over time, Little indicated. “As you look at the history of pharmacy and supply chain, the perception has been that the two just ‘work differently,’” he said. “Leaders in those departments managed their own products and workflows without necessarily interacting closely. We are now at a time where these two areas need to come together and work collaboratively. The opportunity is now to set up a structure for both idea sharing and best practice identification. Supply Chain has a wealth of knowledge in the management of many additional [stock-keeping units], ordering/procurement logistics and product tracking. This is knowledge that the pharmacy supply chain needs to evaluate and integrate as applicable.”


  1. “Unlike Supply Chain professionals, pharmacists are not trained in logistics and other supply chain management foundations, she indicated. “Many understand the concepts of inventory turns, PAR stock, min/max forecasting, but lack the automation to properly manage inventory,” she observed.” – I found this to be a very profound and true comment from this most interesting and relevant article.

  2. As the need for a “Clinical Supply Chain” continues to evolve there is a growing need for the two departments to work together. About 7 years ago, I had published an article on the potential for Value Analysis and P and T Committees to collaborate and form a Comparative Effectiveness Committee (CEC) and also, the creation of a Comparative Effectiveness Pharmacist position. The goal of a Clinical Supply Chain and where some IDNs that I have spoken to are moving, is to determine what is the best treatment for a patient (device, procedure, drug, etc.) and what are the best diagnostic tools and then how to measure the outcomes and cost of the care. There needs to be the basic function of supply chain, but it needs to move to another level and mimic how P and T Committees have addressed drug treatments, formulary development, standardization of care, use and compliance to patient treatment guidelines using formulary drugs, etc.

    Point of Use machines (Pyxis, Omnicell, etc). were originally created to help control inventory and waste of drugs on each individual patient care unit. Batch runs of IVs by patient were done to eliminate/decrease IV drug waste. Chemo was not prepared unless lab tests were back, to avoid chemo waste. The hospital system I worked in was filling meds for patients at 3 different locations 18 years ago, so models have existed for many years. There is nothing more Physician Preference Item (PPI), then a drug… order, no drug. Not on formulary, no drug. There also needs to be recognition in IDNs with their own health plans, that total cost of drugs, acute and non-acute, will exceed total Supply Chain costs.

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