The Problem with Drug Cost Metrics

June 10, 2011
Take home messages:
  • Drug cost per casemix adjusted admission (inpatient vs outpatient) is a good indicator
  • Drug cost as a percentage of net revenue may be misleading because rebates affect revenue but not costs
  • Check utilisation matches purchasing for risk control
  • Provide feedback to users on costs and alternatives
While CFOs have clear and established metrics for measuring performance in many areas of the hospital, they don’t have black-and-white metrics for evaluating pharmacy and the supply chain, says supply chain veteran Patrick Carroll. “How do you measure how well you’re doing in patient accounting? You use gross days in receivables. But there is no similar measure in the pharmacy or the supply chain,” he says.
There are, nevertheless, a number of measures that may be helpful, Carroll suggests. One is the drug or supply cost per adjusted admission. Drug and supply costs are often measured by patient day. However, the utilization of drugs is not linear; patients tend to use few resources in the last days of hospitalization. “So if you reduce your length of stay and you’re measuring supply and drug costs by patient days, your performance will appear to be worse than it is,” he explains.
The drug and supply cost per admission should also be adjusted by case mix index and inpatient versus outpatient volume. A metric that requires careful investigation is drug purchasing that does not appear to match utilization by the patient. The analysis compares the purchases from the wholesaler against the review and usage report. “That’s a metric you would be looking at to determine if you need to put in controls so products are being used properly,” Carroll says.
A popular but ineffective metric is supply cost as a percentage of net revenue. While net revenue relates to reimbursement, supply cost doesn’t, he says. Carroll’s advice for CFOs is to assess the degree to which the clinical pharmacy and supply chain leader are empowered to work closely with anesthesiologists and nurse anesthetists on the utilization of supplies. “There needs to be a regular dialogue,” he says. “Communication is vital to make sure the right choices are being made.”

Posted in Blog by Douglas Fahlbusch