In 2004, the New York Times published an article revealing something curious about Wal-Mart's supply chain forecasting ahead of natural disasters. Wal-Mart executives had used predictive analytics to determine that strawberry Pop-Tart sales increased seven-fold before a hurricane – and they had used that data to stock their stores with additional Pop-Tarts before the storm.
That article was published 14 years ago, and the retail industry was already making immense strides using data to anticipate their customers' needs and their own costs. Today, their understanding of customer behavior is so advanced as to border on invasive: Target knows you're pregnant before you tell your family, and Facebook can predict with troubling accuracy how long your relationship will last.
So why, in 2018, is the healthcare sector still struggling to use data to understand one of the most pivotal costs at every organization: pharmaceuticals?
Pharmaceutical spending is no small issue for most hospitals. Between 2013 and 2015, inpatient drug spending increased an average of 23.4 percent annually. Over 90 percent of hospitals surveyed said that inpatient drug price increases significantly affected their ability to manage the cost of patient care. And growth in unit price, not volume, was the biggest reason for the increase in drug spending.
It's clear that hospitals need a better understanding of the money they're spending on pharmaceuticals in order to better manage their costs. Yet many of the healthcare organizations I encounter haven't begun to tap into the data around their pharma costs. Often, they observe that pharmaceutical costs are technically "in the black" and stop there, rather than digging in to discover where huge financial improvements could be made.
In 2018, my biggest recommendation for healthcare organizations would be to take a complete look at the data around your pharmaceutical costs, and use that survey to understand where opportunities and potential problems exist and how to fix them.
For example, the data may show an increase in medication charges for a particular medication because a new specialty uses the drug a lot. It might be time for your organization to go back to your vendor and say, "We're buying at a much higher volume now, and instead of waiting until the end of our contract, we'd like to renegotiate our rates now, if possible."
Or perhaps the data will reveal that you've been paying slightly more for a medication every year. Your vendor may have increased the cost slightly each year, and three years later you're paying hundreds of dollars more than you were. Being able to visualize this trend will give you more leverage to go back and renegotiate or move to generics.
Perhaps it's as simple as having two drugs indicated for the same diagnosis, but one costs significantly more. Organizations can save millions of dollars through a finding as small as this.
Whatever the outcome, the chances are that your organization is sitting on a gold mine of data that you could leverage to better manage and cut costs. If you don't understand your pharmaceutical costs or charges, you can't negotiate the best reimbursement rates for your business and achieve the financial stability your organization deserves.
And it's not just about your organization's finances; it's also the right thing to do for your patient population. Managing your pharmaceutical costs will ensure you can provide the best patient experience beyond the provision of care, and reduce the likelihood that your patients are saddled with huge medical bills after their encounter.
Make your pharmaceutical costs a priority this year. The data is there; all you need to do is start the work of tapping into it.