Revenue budgeting is challenge for hospital pharmacy directors

Pay attention to reimbursement systems

Expense-based budgeting is traditional; it's comfortable, and it's no longer top of the evolving hospital pharmacy's radar screen.

Hospital pharmacy directors who want to remain vital to their health system's future should now meet the challenge of revenue budgeting and establish strong financial system checks and balances, an expert says.

"We have to pay attention to reimbursement systems and opportunities that might provide us with both expense reductions, as well as revenue opportunities," says Patrick E. Parker, RPh, MS, director of pharmacy and IV therapy for Lawrence Memorial Hospital in Lawrence, KS.

"Some programs have looked at outpatient functions and the potential to do outpatient-based pharmacies, including medication management programming as part of their tactic," Parker says.

This has been a very successful venue for some big organizations because it enables them to reduce health care costs, so their expenses are down, and they've been able to improve quality of care, he explains.

"Both of these pieces reduce expenses, but provide high-quality programming, as well as revenues for a particular side of the program, and that's been a win-win piece," Parker says.

On the expense side, pharmacies have done the basics, such as cutting travel and training costs, he notes.

But these might be shortsighted measures when small investments in travel and training for pharmacy staff could lead to big revenue boosts when staff return with fresh revenue-based ideas or better cost-cutting strategies, Parker suggests.

"One thing we lose sight of is what we are throwing away and why we're doing it," he says. "What is expiring and going out of date? What is our waste stream and the cost in relation to that?"

Pharmacy directors and staff traditionally are hired based on their clinical acumen and experience, but the evolving hospital pharmacy requires much more than these attributes, he adds.

"Everyone I know is having discussions with their finance departments and engendering relationships with them to better understand financing in the organization," Parker says.

For example, Lawrence Memorial Hospital's pharmacy recently had difficulty with how its billing structure maintained a Healthcare Common Procedure Coding System (HCPCS) code set, Parker says.

"Basic information for the chargemaster needed to be updated and reviewed, and we pay more attention to that now," he explains. "It's inherently dangerous to let that be handled by someone else."

If the HCPCS quantities are incorrect then a hospital could be charging more or less than it should, and those mistakes could have huge dollar impacts, he adds.

"We've built-in checkpoints in our pharmacy to reduce that risk," Parker says. "We've worked hard to build selective checkpoints, and the intent is that the bills we send out are much cleaner."

Without checkpoints, a pharmacy director won't know if the systems are working correctly, he says.

"The systems we're working in now are significantly more complex than they were 10 years ago," Parker explains.

Parker offers these suggestions for improving your pharmacy's financial management:

Establish tight documentation requirements: It's very important to have strict documentation requirements at the front end, Parker says.

"You have these systems built around a clinical information system, and within that framework, you have a formulary of medications associated with it," he explains. "So you need to generate a charge with those, and the documentation of all that is a very important issue."

Pharmacy directors need to outline how they will document and what they'll administer to the patient.

"People want to know why this is on their bill, and they want proof that they were given this medication," Parker says. "Errors are inherent, although barcoding has helped with that."

But barcoding systems need to be maintained because the codes change, and if a barcode is not charging correctly, or if it's connected to the wrong product, then there's a system error, he adds.

"It's not at all uncommon for a health system to have a clinical system and different financial system, and they interface but may not match up correctly," Parker says. "If those financials don't match up correctly, and they're not maintained correctly with proper codes, then you can lose a lot of money."

It's easier and less costly to fix a problem that's quickly discovered than to do a six-month, retrospective review, seeking every incidence of error, he adds.

Institute internal checkpoints: "You can have Chargemaster do an internal review and have the pharmacy assess the quality of those chargemasters," Parker says.

"Ten to 15 years ago, that wasn't true," he notes. "Financial folks operated independently of the pharmacy."

Now it's possible for trained pharmacy and technical staff to conduct checkpoints.

The pharmacy can run a series of daily reports that are screened as far as dollar charges and quantity charges, Parker says.

The pharmacy recently was updating the computer system with the assistance of a staff pharmacist who also is an expert in information technology. Through the pharmacist's work the department discovered a million dollar mistake, Parker says.

"It was a huge mistake simply because a factor was put in incorrectly, and it multiplied every dose by 3,500," Parker explains. "Our screening tool picked it up, by showing us how yesterday we charged X amount for this drug, but today it was charging a million dollars."

Checkpoints also provide some reassurance to health care payers.

Third-party vendors and insurance companies continually are questioning the pharmacy department to make certain products and services were appropriate, Parker says.

"If you're making changes in your electronic system right now, which everyone is, then you need to have an ongoing checkpoint," Parker says.

"The revenue cycle is a piece that is relatively new to pharmacy directors, yet it needs their attention," he says.