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      Unit Dose vs. Bulk Oral Solid Medication
       Purchasing Patterns and Repackaging:
              Sampling and Analysis
Executive Summary
In 2009, independent consulting firm Shack & Tulloch, Inc., conducted a survey of 24 hospitals to
ascertain purchasing patterns and rationales pertaining to pre-packaged unit dose oral solid and bulk
oral solid medications.

By far, the single most surprising finding was the purchase level of pre-packaged unit dose solids overall.
While levels were expected to be reasonably high, the survey showed that at 21 of the 24 hospitals,
manufacturer-packaged unit dose medications make up an average of 81% of all oral solid purchases.
In addition, the 14 of 21 hospitals that were consciously maximizing their purchases of manufacturer-
packaged unit dose medications were purchasing an average of 88% of their oral solid medications in
that form. The remaining three hospitals represented unusual cases where purchasing decisions fall
outside the norm based on specifics of the pharmacy operations.

The high levels of manufacturer-packaged unit dose purchases were especially unexpected since
specific medications from any given manufacturer may or may not be available in pre-packaged form
at any given time. This uncertainty was previously thought to have a possible dampening effect on unit
dose purchasing, but the survey results suggest this is hardly the case.

Instead, it may be that the drive toward bedside bar code scanning may be trumping most if not all
objections to pre-packaged unit dose. Certainly, for hospitals that have yet to maximize their unit dose
purchases, the main obstacles are manufacturer labeling considerations such as bar codes that are not
readable by bedside scanning systems, based on format or contrast quality. Furthermore, while hospitals
claim to make unit dose/bulk decisions based primarily on acquisition cost delta, 43% admit to relying
on human judgment rather than hard numbers. So while pre-packaged dose purchasing is already high,
opposition to further growth would seem to be based on technical or relatively “soft” considerations.

Indeed, the survey results seem to suggest that in the great majority of instances, unit doses are
or soon will be the preferred choice whenever available. The question, then, becomes less one of
whether to purchase unit dose versus bulk medications, and more of how to take greatest
advantage of pre-packaged unit dose oral solids within the entire hospital environment, from the
pharmacy to the patient’s bedside.




                                                                                                              2
Introduction
Shack & Tulloch surveyed the Director of Pharmacy at 24 hospitals. The blind sampling study included 11
community hospitals with 150–225 beds and 13 hospitals with more than 225 beds (fig. 1).

Interviews were conducted to discover quantitative and qualitative data pertaining to purchasing patterns.
Participants were asked basic questions related to pharmacy purchasing:

• What percentage of total oral solid medication doses do you purchase already packaged as unit doses?
• What percentage of total oral solid medication doses do you purchase in bulk, then repackage at
  the hospital?
• How much of the bulk purchases could be purchased pre-packaged, if the goal was to maximize unit
  dose purchases?
• What is the reason for NOT maximizing unit dose purchases?
• Is there a cost delta per dose between bulk and unit dose above which bulk purchases are made?



Hospitals in Study by Number of Beds                                                                fig. 1



  11

                             8



                 4

                                          1
150 – 225    225 – 300    300 – 375    375 – 450

NUMBER OF BEDS




                                                                                                             3
NUMBER OF BEDS




Purchasing Patterns
As information and insights were gathered, three distinct groups emerged (fig. 2).


Percentage of Oral Solid Medications Purchased as Unit Dose vs. Bulk                                     fig. 2



GROUP 1            GROUP 2             GROUP 3



  88%

                                                   69%
                      67%




                                33%      31%

            12%



UNIT DOSE   BULK    UNIT DOSE   BULK   UNIT DOSE   BULK




Group 1 consisted of 14 hospitals that consciously               Reasons for Not Maximizing
maximize unit dose purchases, buying 88% of oral                 Unit Dose Purchases
                                                                                                         fig. 3
solids in pre-packaged unit dose form and 12% in bulk.
These hospitals have very few bulk purchase exceptions           GROUPS 1+2

when a unit dose is available. Most Group 1 hospitals
expressed a desire to purchase close to 100% unit dose                   100%
solids and eliminate nearly all repackaging operations if
the price delta was reasonable.

Group 2 included seven hospitals that do not maximize                                          43%
unit dose purchases, buying 67% of oral solids in
pre-packaged unit dose form. The rest are bought in
bulk and repackaged. Price delta is given as the main
consideration by all hospitals in the group. Other factors                PRICE          LABELING: UNREADABLE
                                                                          DELTA          BAR CODE, WRONG NDC
include labeling concerns (bar codes that are not readable
by bedside scanning systems based on format or                   — Respondents could give multiple reasons.
contrast quality), shelf life and dose diversity (fig. 3).

                                                                                                                  4
Unit Dose Volumes vs. Discretionary and Non-Discretionary Bulk Purchase Volumes                           fig. 4



Assumes 890,000 oral solid doses administered per year (average of Group 1 and 2 hospitals)

GROUP 1                                                  GROUP 2



            783

                                                              596




                                                                                                   187
                                107                                             107

          UNIT DOSE       NON-DISCRETIONARY                 UNIT DOSE    NON-DISCRETIONARY DISCRETIONARY
          PURCHASES        BULK PURCHASES                   PURCHASES     BULK PURCHASES   BULK PURCHASES
             88%                 12%                           67%              12%              21%




Assuming 890,000 oral solid doses administered per year,                Group 2 Bulk Purchases
both Group 1 and Group 2 hospitals buy 107,000 doses, or                Available as Unit Dose            fig. 5
12%, as non-discretionary bulk purchases due to very high
cost deltas or other factors. Group 2 hospitals, however,
also buy 187,000 doses in discretionary bulk purchases,                                           88%
21% of their total oral solids buy (fig. 4). If those hospitals
chose to maximize the use of pre-packaged unit doses, they                    67%
could replace 64% of their bulk purchases by doing so. This
would bring them to the same level of pre-packaged usage
as Group 1 (fig. 5).

Only three hospitals made up Group 3. These organizations
also do not maximize unit dose purchases, buying only 31%
of their oral solids as pre-packaged unit doses and 69%
in bulk. They differ from Group 2 by utilizing robotics and                  UNIT DOSE
                                                                        PURCHASES OF GROUP 2
                                                                                               MEDICATIONS
                                                                                               AVAILABLE AS
                                                                            (PRICE, ETC.)       UNIT DOSE
high-speed packagers for operation- and patient-specific
picking of bulk medications for perceived labor efficiency and
                                                                        — 64% of the bulk purchases could be
accuracy. The lower price of bulk medications is not a major              purchased as unit dose
consideration, and is perceived as only an additional benefit.          — Bulk purchases could drop from 33% to 12%


                                                                                                                      5
The Economics of Repackaging
In Groups 1 and 2, the key decision-making factor given was the price delta between discretionary bulk
and unit dose purchases. The determinate cost delta per dose varied (fig. 6). In 14% of the hospitals,
bulk purchases were triggered if the acquisition cost difference was above $0.05 per dose. In 29%, the
figure rose to >$0.10. In another 14%, it was >$0.20.


Cost Delta Per Dose Above Which Bulk Purchases Are Made                                              fig. 6


GROUPS 1+2



                                                           43%


                     29%

    14%                                 14%


                                                       JUDGMENT:
> $.05              > $.10            > $.20          PRICES & USAGE



However, interviews showed that the great majority of hospital pharmacies lack the resources to
conduct a thorough, all-in analysis of repackaging costs. Tellingly, the study found that of Group 1 and 2
hospitals, 43% used “buyer judgment” when determining price and usage, not a strict price delta that
considered repackaging costs.

To determine true cost, Shack & Tulloch comprehensively analyzed all repackaging costs including labor,
equipment and maintenance, packaging supplies and inventory effects. Shack & Tulloch’s comprehensive
approach was able to ascertain each hospital’s repackaging cost per dose by determining the following costs:

•   Packaging labor (FTEs)
•   Pharmacist quality control labor (FTEs)
•   Materials planning/supply chain labor (FTEs)
•   Other labor, e.g., NDC number in sync in various databases, systems, etc. (FTEs)
•   Equipment capital cost (amortized over life)
•   Equipment maintenance
•   Packaging supplies
•   Increased inventory carrying costs
                                                                                                               6
67%


All of these were judged to be “real” costs for the hospital. For example, packaging supplies and
inventory changes represent real cash flows. Packaging equipment must also be replaced and
maintained as necessary. Pharmacist time spent on packaging quality control could otherwise be spent
on clinical UNIT DOSE Technicians AVAILABLE
            intervention.
     PURCHASES OF GROUP 2
                                  MEDICATIONS
                                    could likewise be redeployed to other functions, and so on.
          (PRICE, ETC.)            AS UNIT DOSE


Using this analysis, all-in repackaging costs per dose averaged $0.207 at Group 1 hospitals and $0.140
in Group 2, which benefitted from volume efficiencies (fig. 7). The packaging volume efficiencies were
focused in labor costs ($0.131 versus $0.090) and packaging supplies and inventory ($0.054 versus
$0.020). Group 2 hospitals, which do a greater proportionate amount of self-packaging, had higher
equipment and maintenance costs ($0.030 versus $0.022). As expected, Group 2 hospitals spent
significantly more on repackaging as a percentage of their pharmacy operating budget than Group 1.



Repackaging Cost per Dose                                                                        fig. 7



GROUP 1                                               GROUP 2

                                        $.207




 $.131                                                                                       $.140



                                                       $.090
                           $.054
                                                                    $.030
               $.022                                                             $.020

 LABOR      EQUIPMENT &   PACKAGING     TOTAL           LABOR     EQUIPMENT &   PACKAGING      TOTAL
            MAINTENANCE   SUPPLIES &                              MAINTENANCE   SUPPLIES &
                          INVENTORY                                             INVENTORY




                                                                                                          7
Conclusions
Superficially, there may be a small economic advantage to buying in bulk and repackaging discretionary
oral solid medications when the acquisition cost differential approaches $0.20 or more per dose. However,
this advantage may be offset or more than offset by the increased risk inherent in the additional
packaging responsibility, since any medication packaging error can affect patient care and safety.

In specific cases, there may be large cost differentials between bulk and unit dose that make bulk the
only rational choice. Also, at any given time of purchase, certain specific medications may not be
available in unit dose form from their manufacturer. For these reasons, hospitals would do well to study
their actual need for repackaging equipment or outsourced packaging resources and budget accordingly.

While details within specific organizations may differ, the overriding conclusion of this survey is
the ascendance of manufacturer-packaged unit dose oral solids as the variety of choice at most
hospitals. This appears to coincide with the commitment of many hospitals to the deployment of
bedside bar code scanning initiatives. The challenge now is to find methods that allow the hospital
to realize the greatest efficiencies, productivity and accuracy from the purchase of manufacturer-
packaged unit dose oral solids in all departments involved with the medication distribution process.




McKesson Corporation
Automation Solutions
500 Cranberry Woods Drive
Cranberry Township, PA 16066

1.800.594.9145

www.PROmanager-Rx.com



© 2010 McKesson Corporation product and service names listed herein which bear the ® and ™ symbols are registered with the U.S.
Patent and Trademark Office. All other product and service names are protected by non-registered trademarks or service marks, respectively.

AUTO210_4/10                                                                                                                                  8

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Unit Dose vs. Bulk Oral Solid Medication Purchasing Patterns and Repackaging: Sampling and Analysis

  • 1. White Paper Unit Dose vs. Bulk Oral Solid Medication Purchasing Patterns and Repackaging: Sampling and Analysis
  • 2. Executive Summary In 2009, independent consulting firm Shack & Tulloch, Inc., conducted a survey of 24 hospitals to ascertain purchasing patterns and rationales pertaining to pre-packaged unit dose oral solid and bulk oral solid medications. By far, the single most surprising finding was the purchase level of pre-packaged unit dose solids overall. While levels were expected to be reasonably high, the survey showed that at 21 of the 24 hospitals, manufacturer-packaged unit dose medications make up an average of 81% of all oral solid purchases. In addition, the 14 of 21 hospitals that were consciously maximizing their purchases of manufacturer- packaged unit dose medications were purchasing an average of 88% of their oral solid medications in that form. The remaining three hospitals represented unusual cases where purchasing decisions fall outside the norm based on specifics of the pharmacy operations. The high levels of manufacturer-packaged unit dose purchases were especially unexpected since specific medications from any given manufacturer may or may not be available in pre-packaged form at any given time. This uncertainty was previously thought to have a possible dampening effect on unit dose purchasing, but the survey results suggest this is hardly the case. Instead, it may be that the drive toward bedside bar code scanning may be trumping most if not all objections to pre-packaged unit dose. Certainly, for hospitals that have yet to maximize their unit dose purchases, the main obstacles are manufacturer labeling considerations such as bar codes that are not readable by bedside scanning systems, based on format or contrast quality. Furthermore, while hospitals claim to make unit dose/bulk decisions based primarily on acquisition cost delta, 43% admit to relying on human judgment rather than hard numbers. So while pre-packaged dose purchasing is already high, opposition to further growth would seem to be based on technical or relatively “soft” considerations. Indeed, the survey results seem to suggest that in the great majority of instances, unit doses are or soon will be the preferred choice whenever available. The question, then, becomes less one of whether to purchase unit dose versus bulk medications, and more of how to take greatest advantage of pre-packaged unit dose oral solids within the entire hospital environment, from the pharmacy to the patient’s bedside. 2
  • 3. Introduction Shack & Tulloch surveyed the Director of Pharmacy at 24 hospitals. The blind sampling study included 11 community hospitals with 150–225 beds and 13 hospitals with more than 225 beds (fig. 1). Interviews were conducted to discover quantitative and qualitative data pertaining to purchasing patterns. Participants were asked basic questions related to pharmacy purchasing: • What percentage of total oral solid medication doses do you purchase already packaged as unit doses? • What percentage of total oral solid medication doses do you purchase in bulk, then repackage at the hospital? • How much of the bulk purchases could be purchased pre-packaged, if the goal was to maximize unit dose purchases? • What is the reason for NOT maximizing unit dose purchases? • Is there a cost delta per dose between bulk and unit dose above which bulk purchases are made? Hospitals in Study by Number of Beds fig. 1 11 8 4 1 150 – 225 225 – 300 300 – 375 375 – 450 NUMBER OF BEDS 3
  • 4. NUMBER OF BEDS Purchasing Patterns As information and insights were gathered, three distinct groups emerged (fig. 2). Percentage of Oral Solid Medications Purchased as Unit Dose vs. Bulk fig. 2 GROUP 1 GROUP 2 GROUP 3 88% 69% 67% 33% 31% 12% UNIT DOSE BULK UNIT DOSE BULK UNIT DOSE BULK Group 1 consisted of 14 hospitals that consciously Reasons for Not Maximizing maximize unit dose purchases, buying 88% of oral Unit Dose Purchases fig. 3 solids in pre-packaged unit dose form and 12% in bulk. These hospitals have very few bulk purchase exceptions GROUPS 1+2 when a unit dose is available. Most Group 1 hospitals expressed a desire to purchase close to 100% unit dose 100% solids and eliminate nearly all repackaging operations if the price delta was reasonable. Group 2 included seven hospitals that do not maximize 43% unit dose purchases, buying 67% of oral solids in pre-packaged unit dose form. The rest are bought in bulk and repackaged. Price delta is given as the main consideration by all hospitals in the group. Other factors PRICE LABELING: UNREADABLE DELTA BAR CODE, WRONG NDC include labeling concerns (bar codes that are not readable by bedside scanning systems based on format or — Respondents could give multiple reasons. contrast quality), shelf life and dose diversity (fig. 3). 4
  • 5. Unit Dose Volumes vs. Discretionary and Non-Discretionary Bulk Purchase Volumes fig. 4 Assumes 890,000 oral solid doses administered per year (average of Group 1 and 2 hospitals) GROUP 1 GROUP 2 783 596 187 107 107 UNIT DOSE NON-DISCRETIONARY UNIT DOSE NON-DISCRETIONARY DISCRETIONARY PURCHASES BULK PURCHASES PURCHASES BULK PURCHASES BULK PURCHASES 88% 12% 67% 12% 21% Assuming 890,000 oral solid doses administered per year, Group 2 Bulk Purchases both Group 1 and Group 2 hospitals buy 107,000 doses, or Available as Unit Dose fig. 5 12%, as non-discretionary bulk purchases due to very high cost deltas or other factors. Group 2 hospitals, however, also buy 187,000 doses in discretionary bulk purchases, 88% 21% of their total oral solids buy (fig. 4). If those hospitals chose to maximize the use of pre-packaged unit doses, they 67% could replace 64% of their bulk purchases by doing so. This would bring them to the same level of pre-packaged usage as Group 1 (fig. 5). Only three hospitals made up Group 3. These organizations also do not maximize unit dose purchases, buying only 31% of their oral solids as pre-packaged unit doses and 69% in bulk. They differ from Group 2 by utilizing robotics and UNIT DOSE PURCHASES OF GROUP 2 MEDICATIONS AVAILABLE AS (PRICE, ETC.) UNIT DOSE high-speed packagers for operation- and patient-specific picking of bulk medications for perceived labor efficiency and — 64% of the bulk purchases could be accuracy. The lower price of bulk medications is not a major purchased as unit dose consideration, and is perceived as only an additional benefit. — Bulk purchases could drop from 33% to 12% 5
  • 6. The Economics of Repackaging In Groups 1 and 2, the key decision-making factor given was the price delta between discretionary bulk and unit dose purchases. The determinate cost delta per dose varied (fig. 6). In 14% of the hospitals, bulk purchases were triggered if the acquisition cost difference was above $0.05 per dose. In 29%, the figure rose to >$0.10. In another 14%, it was >$0.20. Cost Delta Per Dose Above Which Bulk Purchases Are Made fig. 6 GROUPS 1+2 43% 29% 14% 14% JUDGMENT: > $.05 > $.10 > $.20 PRICES & USAGE However, interviews showed that the great majority of hospital pharmacies lack the resources to conduct a thorough, all-in analysis of repackaging costs. Tellingly, the study found that of Group 1 and 2 hospitals, 43% used “buyer judgment” when determining price and usage, not a strict price delta that considered repackaging costs. To determine true cost, Shack & Tulloch comprehensively analyzed all repackaging costs including labor, equipment and maintenance, packaging supplies and inventory effects. Shack & Tulloch’s comprehensive approach was able to ascertain each hospital’s repackaging cost per dose by determining the following costs: • Packaging labor (FTEs) • Pharmacist quality control labor (FTEs) • Materials planning/supply chain labor (FTEs) • Other labor, e.g., NDC number in sync in various databases, systems, etc. (FTEs) • Equipment capital cost (amortized over life) • Equipment maintenance • Packaging supplies • Increased inventory carrying costs 6
  • 7. 67% All of these were judged to be “real” costs for the hospital. For example, packaging supplies and inventory changes represent real cash flows. Packaging equipment must also be replaced and maintained as necessary. Pharmacist time spent on packaging quality control could otherwise be spent on clinical UNIT DOSE Technicians AVAILABLE intervention. PURCHASES OF GROUP 2 MEDICATIONS could likewise be redeployed to other functions, and so on. (PRICE, ETC.) AS UNIT DOSE Using this analysis, all-in repackaging costs per dose averaged $0.207 at Group 1 hospitals and $0.140 in Group 2, which benefitted from volume efficiencies (fig. 7). The packaging volume efficiencies were focused in labor costs ($0.131 versus $0.090) and packaging supplies and inventory ($0.054 versus $0.020). Group 2 hospitals, which do a greater proportionate amount of self-packaging, had higher equipment and maintenance costs ($0.030 versus $0.022). As expected, Group 2 hospitals spent significantly more on repackaging as a percentage of their pharmacy operating budget than Group 1. Repackaging Cost per Dose fig. 7 GROUP 1 GROUP 2 $.207 $.131 $.140 $.090 $.054 $.030 $.022 $.020 LABOR EQUIPMENT & PACKAGING TOTAL LABOR EQUIPMENT & PACKAGING TOTAL MAINTENANCE SUPPLIES & MAINTENANCE SUPPLIES & INVENTORY INVENTORY 7
  • 8. Conclusions Superficially, there may be a small economic advantage to buying in bulk and repackaging discretionary oral solid medications when the acquisition cost differential approaches $0.20 or more per dose. However, this advantage may be offset or more than offset by the increased risk inherent in the additional packaging responsibility, since any medication packaging error can affect patient care and safety. In specific cases, there may be large cost differentials between bulk and unit dose that make bulk the only rational choice. Also, at any given time of purchase, certain specific medications may not be available in unit dose form from their manufacturer. For these reasons, hospitals would do well to study their actual need for repackaging equipment or outsourced packaging resources and budget accordingly. While details within specific organizations may differ, the overriding conclusion of this survey is the ascendance of manufacturer-packaged unit dose oral solids as the variety of choice at most hospitals. This appears to coincide with the commitment of many hospitals to the deployment of bedside bar code scanning initiatives. The challenge now is to find methods that allow the hospital to realize the greatest efficiencies, productivity and accuracy from the purchase of manufacturer- packaged unit dose oral solids in all departments involved with the medication distribution process. McKesson Corporation Automation Solutions 500 Cranberry Woods Drive Cranberry Township, PA 16066 1.800.594.9145 www.PROmanager-Rx.com © 2010 McKesson Corporation product and service names listed herein which bear the ® and ™ symbols are registered with the U.S. Patent and Trademark Office. All other product and service names are protected by non-registered trademarks or service marks, respectively. AUTO210_4/10 8