Pharmacy Inventory Management & Perpetual Inventory - Pharmacy Purchasing

Learning ObjectivesPharmacy InventoryManagement &Perpetual Inventory Explain the importance of the Pharmacy Buyerregarding inventory management Identify basic causes for inventoryinaccuracies (Receiving, Dispensing,and Refilling) Explain different processes that can beimplemented to greater enhance inventory“turns” and reduce the amount ofwaste/expired medicationsMichael Cushner, CPhTSUNY Upstate Medical UniversityImpact of Inventory ManagementInventory Management .Why We All Care“We want to turn our inventory faster than our people.” BudgetJames Sinegal of inventory managementBudget(Healthcare Expenses)Patient SafetyDrug Traceability (DSCSA) Prices continually increase, meaning that more inventoryturnover is needed to continue to remain profitable Dispensing patterns and drug selection choices may havea direct effect on the affordability of care. Utilizing drugsthat are non-contracted or not on the formulary may bemore costly to the patient or may result in a lower thanexpected reimbursement1. ImportancePatient Safety In a national survey performed by the Institute for Safe Medication Practices,20% of practitioners surveyed reported that adverse patient outcomes occurredbecause of a lack of inventory management and monitoring of supply levels1.Pharmacy Buyers are the front linein communicating shortagesDrug Supply Chain Security Act (DSCSA) “Outlines steps to build an electronic, interoperable systemto identify and trace certain prescription drugs as they aredistributed in the United States. This will enhance FDA’sability to help protect consumers from exposure to drugsthat may be counterfeit, stolen, contaminated, orotherwise harmful. The system will also improve detectionand removal of potentially dangerous drugs from the drugsupply chain to protect U.S. consumers”2.1

Drug Supply Chain Security Act (DSCSA) 3T’s T.I. Audience Engagement-Transaction information T.H.– Transaction history T.S.– Transaction statement Foreach of the following Invoices:Identify the 3 T’s required for DSCSAcomplianceMaintenance of Records Physical copies held for 6 years Electronic copiesNo DSCSA documentationrequired- Not a medicationWhat is unique about thismedication?Perpetual Inventory vs.Periodic InventoryThe measure of ending inventory can be determined by usingone of these 2 varying inventory systems: Periodic Inventory System: There is no daily detailedrecord of inventory. Rather a physical inventory is countedat the end of a set period of time. Perpetual Inventory System: Daily detailed and updatedrecords of transactions in “real-time”. Inventory ismaintained by a transaction to transaction basisthroughout a set period of time.2

Advantages of PerpetualInventory SystemPerpetual Inventory Systems Provides a running count of inventory on handCan constantly record the following: Number of units purchased and cost amount Number of units dispensed to automated dispensing unit Real time QOH and current cost Better Inventory Control: Purchasing and Inventory systems are incorporated withaccounts receivable and sales Physical counts occur once a year A double check method to ensure accuracy ofending inventory Real-time Inventory Accuracy Dependable base for purchasing accuracy Continuous information is provided about thequantity of medications at various automateddispensing machines Provides information necessary to maintainminimum and maximum levels by proper timing ofmedication purchases Transparency in inventory tracking, transactions,and accountability Helps in explanation of Loss/Gain FactorsDisadvantage of PerpetualInventory System Review of Cycle Count VarianceTime consuming Review of daily transactions that send “red-flags” Review of daily cycle counts that are greater than 5 unitsAutomated Unit based Cabinet Automated medication dispensing system supportsdecentralized medication management withvarious features for safety and efficiency.The system helps accurately dispense medication,while supporting pharmacy workflows.3Barcode scanning:-Enabled for all refills into cabinets.-Ensures accuracy of refills, does notensure the accuracy of quantitynor expiration dateAutomated Unit Based CabinetPROS Maintains “standardstock” medication – nodelay in patient careCONS Malfunctions Not every medication islocated in machine – delayin patient care Easy removal ofmedication for patients Size constraints Holds several medications Tracks inventory andexpiration datesRefilled multiple timesdaily3

Refilling Automated Unit Based CabinetsInspections of Automated Unit Based Cabinets Every inpatient unit is refilled twice daily (Batch refills) Hourly Refills – Every hour technicians fill units that havestock outs or new medication loads.Purpose: To verify accurate inventory andexpiration dates in each automated cabinet. Who: Designated Pharmacistor TechnicianLimitations: What: Verify currentinventory and expirationdates – select 10 randommedications to verify Medication may not be available in main pharmacy Sufficient quantities may not be available Human error- Expiration dates may have been enteredincorrectly and when refilling a medication that says“Expected 10 tablets” but there are only 8 tabletsavailable can cause inventory discrepancies. When: Monthly Why: Inventory Managementand Patient SafetyDispensing of MedicationsLoading Medication IntoAutomated Dispensing Cabinets Benefits:Patient Specific Doses Transaction Tracking Limits the delay in patient therapy Prevention of lost medicationsDisadvantages: Requires multiple refills daily Incorrect QOH Incorrect Expiration DatesBenefits: Transaction Tracking Sending of 1 time doses(prevention of unnecessaryloading)Losing of Medication Multiple charges Incorrect DispensationquantitiesWhat Happened?Limitations: Staffing Size of unit Timeframe Number of units to bechecked Human ErrorReceiving of Daily Orders Daily Orders are received and restocked into adecentralized inventory system Pharmacy Buyer helps to put the order away and to helpidentify any shortages/overages that may be sent fromthe wholesaler. Pharmacy Buyer links new NDC #’s(2nd check done by otherPharmacy Buyer) when primary options are not available Sometimes the inventory management software does notdrop the correct quantities into the restock queue,causing inventory discrepancies if not paid attention to.Disadvantages: Procedures That Have Been Implemented Maintaina backorder list on wholesalerswebsite DailyPrimary NDC 100 count boxes(200)Shipped NDC 14 count boxes (84)Discrepancy of 116 packets if scannedw/out changeCycle Counts StaticOrdering 80/20Report UnitDose (UD) vs Bulk Bottle (BB)Prepackaging Evaluation4

Cycle Counts Inventoryof each Medication done Monthly Medications q14 days(Factor Products) Inventory Discrepancies reviewed dailyby Purchaser Approximately 65 cycle counts to becompleted daily Audience Engagement HighComplete the following Cycle CountA. 3,690iuC. 3,320iuCycle Count VarianceB. 3,310iuD. 3,590iu* Based on 1860 items counted monthlyDaily cycle counts off by 1unit or greaterDaily cycle counts 5 unitsCycle Count Variance by Month*Correct Answer: 3,590iu VWFVariance of 5 Units900800450824400821700350600570(3) 470(4) un-17Jul-17Aug-17Sep-17Oct-17Nov-17 p-17Oct-17Nov-17Dec-17Jan-18Feb-18Mar-18Apr-185

Static vs. Dynamic OrderingStatic Ordering Pros: Pros: Hard min/max levels set Ensures QOH of fast-movers Easily changeable toaccommodate change in usage No ordering unnecessarymedicationTriggers medication to beordered that otherwisemay not No guess work involved Minimum & Maximum Par LevelsDynamic OrderingCons: Weekend Ordering Ordering the same medicationsdaily Static Ordering: A set min/max level for each medicationthat is stored in the pharmacy. Once a minimum level isreached the item is queued for re-order. Dynamic Ordering: Min/Max levels for each medication isset, but can be queued for re-order based on historicalpurchases, without reaching a minimum level.Cons: Ordering of medications notneeded at the time Orders received are largerthan needed Medications may no longerbe considered a fast mover “Fast movers”- a medication that moves often and inhigh volume.Line Items ReceivedInterpretationAverage M-F Received Items 5131131132138137A change to hard min/max levels has decreasedthe number of line items received daily143133135126122127128114120 100Benefits: Lessinventory on shelvesGreaterinventory turnover Less waste/spoilage80604020 Lessburden on the stock receiver, technicians puttingaway the order in a timely manner0Jan 2016-December 2016: Dynamic and Static OrderingJan 2017-Present: Static Ordering Only80/20 Report Unit Dose (UD) vs. Bulk Bottle (BB)PrepackagingA report created to rotate stock in the automated unit based system Why: To reduce waste/spoilage, to recycle high medications, prevent fromordering excess amounts of medications What: A Report that shows the top 80% of medications purchased within a settimeframe (Previous Month). How: Filter out the medications that are not located in the automated units,as well as under a set value ( 100 per unit or , i.e. Esmolol PM, Procrit,Dornase) Run report of medication locations throughout the hospital that have not beenused within X amount of days (21) Bring back the product and return to pharmacy inventory Reduces inventory in automated units, and enables same medications to beused on floors with active ordersLimitations: As an institution, the decision was made that any UD product that is within 20%price of BB the change was to be made, to lessen the burden on the MAK technician Pros Maintain the integrity of the product Maintain the expiration date No excess cost involved (prepackaging materials time/labor)Cons Often times more expensive UD more likely to go on B/O rather than a BBWhen does purchasing UD make more sense than ordering a BB or vise versa?Not always done monthly due to staffing constraints6

Levetiracetam 500mg/5ml Oral SolutionManufactured UD Cups Manuf. 1: 40x5ml 142.25 Manuf. 2: 40x5ml 146.65 Manuf. 3: 50x5ml 208.08AMU 475 syringesCheapest cost 1,564.7511 purchases of Manuf. 1 440 syringesAcetaminophen 325mg tabletsAMU:23 (10x100 tablets)Prepackaging of Bulk Bottle Cost of 1 bottle (473ml[ 13.91]) 69.55 Cost of supplies(Syringes[ 0.11], Labels[ 0.02]) 61.75 Cost of technician labor(2hr) 50 Cost of RPh labor(1/2hr) 50 Total Cost: 231.30 for approx. 475 syringes Total Monthly savings 1,333.45 Manuf. 1 3.85 per bottle of1,000 ( 88.55)Manuf. 2 4.81 per bottle of1,000 ( 110.63)Calculating Inventory Turns Cost of goods sold: Sum of all purchases during aspecific time frame (Calendar year, Fiscal year,Quarterly) Total Inventory on hand Formula: Inventory Turns Cost of GoodsSold/Inventory on Hand Total Inventory on hand (Pharmacy Automated cabinets) 4,161,041.43 Inventory Turns for 2017 12.11 Number of days to complete 1 turn 30.14 365(days in a year)/12.11 (# of turns)Goals for 2018 – maintain # of turns, and decrease # ofdays to complete a turn 13.97 per 10x100 tablets Average Monthly Cost: 321.31 Medication cost is but whentime/labor is factored in UD, ismore sensible On Coca-Cola's historical income statement from 2017, thecost of goods sold was 13.256 million. Coca-Cola's averageinventory value between 2016 and 2017 was 2.665 million,found by calculating the average of the balance sheetinventory from two points in time, 2016 and 2017, bysumming the two inventory values together then dividing bytwo4 4.974 inventory turns per year. Compared to: Dr.Pepper 10.75 turns for 20175 Pepsi 9.77 turns for 20176SummarySUNY UPSTATE Medical 2017Total Spend 50,405,385.13 Example Of Inventory TurnsThe resulting figure should be more than 10 Preferred Unit DosedManufacturerBulk Bottle Pharmacy Buyers do more than just buy drugs There are several variables in the pharmacy that cancause discrepancies in inventory Various processes can be implemented to increase thenumber of turns for a pharmacy which allows forgreater profitability7