GPO_Inventory PPT

GPO_Inventory PPT - Group Purchasing Organizations (GPO)...

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Unformatted text preview: Group Purchasing Organizations (GPO) and Inventory Management STEVEN L. D’AMATO RPH, BCOP MAINE CENTER FOR CANCER MEDICINE SCARBOROUGH, ME The Oncology Market $16 billion market growing to $40 billion in 2012 1.5 million new patients diagnosed annually 85% of patients treated in community setting In 2004, 75% of medical oncology revenue came from buy and bill of drug products, dropping to 43% in 2007 350,000 patients in chemotherapy Over 770 oncology drugs in the pipeline ( orals) Growing reimbursement challenges The Players Manufacturer Wholesaler/Distributor Group Purchasing Organization Oncology Practice/Hospital Wholesaler – Distributor - GPO $70 Billion $54 Billion $ 3 Billion (swag) $2.7 Billion $9 Billion $ 3 Billion (swag) Other Players Metro Medical – Distributor/GPO Florida Infusion (Oncology Associates) Priority – Moved to Specialty Pharmacy Innovatrix BDI Pharma The Supply Chain-Some History In 1990, Oncology Supply, PRN, and Florida Infusion are it OTN launches in 1990 Bergen launches ASD (Specialty Distributor) in oncology in 1993 Cardinal acquires PRN (Specialty Distributor) and names it NSS State Societies start to form GPO’s (SSGPO’s) to aggregate purchasing power AOR (precursor to USON) enters market and begins acquiring practices and becomes a major drug purchaser OTN enters into joint venture with BMS in 1993 USON partners with Cardinal for distribution in 1994 The Supply Chain-More History ION launches and partners with Oncology Supply around 1997 AmerisourceBergen acquires ION (1997) AOR and PRN (a different one) merge to form USON in 1999 NOA launches in 2001 and partners with OTN BMS sells OTN to One Equity in 2004 NOA and OTN break up in 2005 OTN launches Onmark NOA partners with Cardinal in 2005 NOA buys itself back from Broadlane in 2005 OTN buys Cardinal Specialty (NSS) in 2006 McKesson buys NOA in 2006 McKesson buys OTN from One Equity in 2007 Group Purchasing Organizations (1/2) Practice joins GPO as a member GPO maintains a database of contracts and practices Practice enters into a contract with pharmaceutical manufacturer Manufacturer notifies GPO of practice eligibility GPO loads contract into their database and notifies distributor of contract eligibility Distributor flags their database that practice is eligible for contract price Group Purchasing Organizations (2/2) Practice purchases drug from distributor at contract price Manufacturer pays GPO an administration fee of around 2% Approximately 35% of the practice spend is available under a GPO contract Average oncologist spends around $2.3 million per year in oncology drugs GPO contracts can be a simple straight line discount or include rebates based on volume and market share Community-based oncology is unique in that there is a 1:1 owner relationship between the distributor and GPO Specialty Distributor Owned by AmerisourceBergen, McKesson, and Private Equity Specialty Distributor buys a $10,000 drug from manufacturer May receive a 2% prompt pay discount* *Calculated in ASP May charge manufacturer for distribution services of 0.25% - 3% Specialty Distributor-No GPO Contract Specialty distributor buys a $10,000 drug from manufacturer May receive a 2% prompt pay discount (included in ASP calc) May charge manufacturer for distribution services of 0.25% - 3% May apply a markup Specialty Distributor sells the drug to the oncology practice for $10,000 Freight costs – basis points Specialty Distributor w/GPO Contract Specialty Distributor buys a $10,000 drug from the manufacturer May receive a 2% prompt pay discount* * included in ASP calculation May charge manufacturer for distribution services of 0.25% - 3% May apply a mark-up Specialty Distributor sells $10,000 drug to practice at contract price of $9,000 GPO charges manufacturer 2% administration fee Oncology Practice w/GPO Contract ∼ 2000 US based oncology practices ∼ 6,000 community based medical oncologists/hematologists ∼ 17% owned and managed by USON Several large buying consortiums (CCE, OPR) Oncology practice buys drug from Specialty Distributor for $9,000 May receive prompt pay discount May receive distributor rebate May receive a manufacturer rebate Practice is reimbursed by Medicare at ASP + 6% Assume patient pays their co-pay and/or co-insurance Assume ASP @ $9,300 Practice Drug Spend: GPO vs. non-GPO Contracts GPO Contract, 35% Non-GPO Contract, 65% How to Select a GPO Services and Products Contracting Educational Programs Practice requirements Quality Initiatives Regimen Analyzers/Profilers Practice Analyzers Clinical Trials Technology Pharmacy Dispensing/Inventory Control EMR Financial Services Customer service Inventory Management Why are effective purchasing and inventory management important? Pharmaceutical inventory can represent the single largest investment of the practice Goals of inventory control Minimize the inventory investment Maintain as low an inventory as possible Balance supply and demand Minimize procurement costs and carrying costs Maintain an up-to-date inventory management system Increase inventory turnover without sacrificing service Effective purchasing Avoid expired drugs and waste Formulary Management Important to control costs and improve margin Selection of supportive care formulary can have a drastic effect on finances and reimbursement Maximization of contract incentives and rebates Utilization of generics Contracts within some GPO’s provide financial incentives if majority of generic purchases are through them Purchasing Maximize contracts and obtain lowest possible pricing Utilize more than one purchasing source Not all inventory items deserve the same attention High cost vs low cost goods (e.g. bevacizumab vs dexamethasone) 80/20 rule – the 20% probably accounts for up to 90% of the inventory investment Lead Time The interval between placing the order and having it ready for dispensing Safety Stock Extra units carried a protection against running out of stock Reorder Point Inventory level where stock is replenished Inventory Turnover Rate (1/2) Measures the effectiveness of the inventory management system Inventory turnover rate represents the average number of times the inventory is sold and placed during a defined period A high turnover rate represents indicates effective product management in relation to average inventory on hand A low turnover rate may indicate products are not being used at a rate relative to average inventory Inventory turnover rate is calculated by dividing the inventory cost into annual purchases Inventory Turnover Rate (2/2) Average ITR usually does not exceed 10 turns Inventory Turnover Rate = Annual purchases at cost Average on-hand inventory Example: Clinic purchases $500,000 per month $6,000,000 ($500,000 x 12) = 8 inventory turns per year $750,000 An increase from 8 to 9 turns will drop on-hand inventory to $666,666 resulting in a cash flow savings of $83,334 Inventory Management (1/4) Three Methods Visual System Periodic Perpetual Inventory Management (2/4) Visual System Visual inspection of what is on the shelf Inexpensive, simple, no training Imprecise Focus is on out of stock items rather than excess inventory Monetary amount not calculated Provides no data Inventory Management (3/4) Periodic System Stock on hand is counted at periodic intervals and compared to the desired inventory levels Items that fall below par level are then orders Evaluation of inventory is scheduled and more precise than the visual system Inventory Management (4/4) Perpetual system Most elaborate and accurate method of inventory control Inventory is monitored at all times Number of units in stock at any time Provides the best control in both units and dollars Most labor intensive and expensive Computer technology often employed Inventory Monitoring Tools (1/2) Computerized Inventory Control Pyxis, Lynx Mobile Inventory control systems and more Auto-ordering Par-level or re-order point functionality Reporting capabilities Real-time electronic billing interfaces Waste management Security Inventory Monitoring Tools (2/2) Computerized Inventory Control Not set and forget it Data entry required Requires maintenance on the part of the vendor and user Item selection J-code and billable unit verification Human error factor Interface costs Receiving Pharmaceuticals Chemotherapeutic agents are “hazardous materials” and should be handled as such PPE for staff unpacking and storing agents Contamination of vials from manufacturers is documented Receiving and verification of product Correct dosage form and concentration Verification of product received to packing slip Packing slips should be matched to invoices before payment Procedure for returns/damaged goods Storing Pharmaceuticals Storing pharmaceuticals Expiration dates should be examined Expiration reports can be used to monitor stock Stock rotation Refrigeration units with electronic temperature monitoring Backup power sources Segregate look alike products to avoid errors Insurance for all inventory Based on average of on-hand inventory Other Inventory Issues Controlled substances Specific ordering, receiving, documentation, and storage Special forms (DEA 222) and lead time for ordering required Investigational agents Expired drugs Recalls “Free” drug Summary The oncology market is a rapidly growing segment of healthcare GPO’s can provide practices with valuable services Selection of a GPO is dependent upon contracts, relationships, and services provided Pressures will continue to grow on practices with regard to reimbursement and the ability to provide cost-effective care to all patients Inventory management and control is a critical function for all practices ...
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