McKesson : Connecting Pharmaceutical Distribution and Supply Chain Management

As the industry transitions to value-based reimbursement, every dollar counts, and for both retail and hospital pharmacies, there are a lot of dollars to be counted in supply chain management.

McKesson asked Brent Wunderlich, senior director for strategic distribution operations at McKesson, to explain the role pharmaceutical distribution plays in supply chain management for pharmacies and hospitals and to discuss ways pharmacies and hospitals can maximize their drug distribution processes.

What industry trends are prompting retail and hospital pharmacies to re-examine their drug distribution processes?

Wunderlich: Whether you're a chain or independent pharmacy, hospital or health system pharmacy or specialty pharmacy, the reasons to take a hard look at the performance of your drug supply chain are the same. First are rising drug prices. We're seeing that across the full spectrum of drug types, and we're seeing prices go up in multiples over relatively short periods of time. Second are reimbursement rates from payers for prescription medications that aren't rising as fast as the prices for the drugs. Third is consolidation among drug manufacturers, which can affect both supply and price.

At the operational level, how do those three trends-rising drug prices, lagging drug reimbursement rates and drug manufacturer consolidation-affect pharmacy drug distribution and the supply chain?

Wunderlich: All three have a direct impact on the cost of running a pharmacy. The pharmacy is paying more for the same drugs-when they're available-yet collecting less. That mix can drive down margins and impact patient care. That makes the performance of the pharmacy's drug inventory management processes extremely important. Pharmacies have to become drug procurement experts to minimize the cost and maximize the revenue of their drug supplies. Their margin of error is slim given the growth in value-based reimbursement models. Pharmacies must be as efficient as possible in ordering, packaging, receiving and storing their medications.

What are some tactics or strategies that pharmacies can deploy to make their drug supply chain processes as efficient as possible?

Wunderlich: From a drug distribution perspective, one of the most critical success factors is inventory. Retail and hospital pharmacies must strive to keep or hold as little drug inventory on site as possible. Given the price and reimbursement pressures they're facing, they need as little cash as possible tied up in medications sitting on a shelf. The last thing they want is their liquidity held captive by drug inventory. That money can drop to the bottom line or be used for other purposes.

How can retail and hospital pharmacies minimize their on-site drug inventory?

Wunderlich: The answer is 'just-in-time' inventory, which means having the right drugs available for the right customers and patients at the right time. Pharmacies that excel at just-in-time inventory get drug deliveries five days a week. They don't have a week of inventory on site. Just-in-time inventory requires pharmacies to have certain competencies and technologies. Pharmacies need pharmacy management systems that can track drug use and prices and forecast what they'll need on a particular day and how much they'll pay for that order. They also need online ordering platforms to make and track purchases. Pharmacies can use their own pharmacy management systems and drug ordering platforms, or they can use the systems and platforms available from distributors and manufacturers.

How do storage and packaging fit into the equation in terms of improving the performance of a pharmacy's drug supply chain processes?

Wunderlich: Less drug inventory on site means less need for storage, especially for maintenance prescriptions that can be filled and stored at central locations until delivery. Less storage space means lower overhead costs, which can be everything from lighting, shelving, signage, heating and cooling to staff who manages the space and inventory. Or, pharmacies can use the space for other clinical and/or revenue-generating activities. Distributors also offer custom packaging options to meet the customer and patient needs of each pharmacy. For example, unit-dose packaging eliminates the need for hospital and health system pharmacies to spend time and money repackaging bulk drug orders themselves for individual patient prescriptions.

What other drug supply chain characteristics do high-performing pharmacies share that other pharmacies can emulate?

Wunderlich: The pharmacies that really get it have a few things in common. They understand what's required of them from a regulatory standpoint and want to get out ahead of the requirements rather than waiting to be told what to do. The Drug Supply Chain Securities Act is a great example. The 2013 law requires every drug to be tracked and traced from manufacturer to end user. The law's provisions are phased in through 2023, but the pharmacies that get it aren't waiting until then to put systems in place to comply with the law. The second thing they have in common is they're always challenging the status quo when it comes to pharmaceutical distribution. They're not comfortable doing things the way they've always been done, and they're always seeking innovative ways to improve their performance. The third thing they have in common is that they never take their eye off of what's most important-the patient. Ultimately, whatever actions they take to improve drug supply chain management also must improve-or at least not negatively affect-patients' medication needs.

Related: Learn more about McKesson's pharmaceutical distribution services for retail and hospital pharmacies.