Health Care Reform Aims to Eliminate Medication Waste in LTC

The message was heard loud and clear! Medication waste in long-term care (LTC) costs taxpayers billions of dollars, has major environmental impacts, and encourages the diversion of controlled substance. Legislators are now addressing the issue, as both major Health Care Reform bills now include provisions, including the adoption of shorter dispensing cycles, to reduce medication waste in LTC.

While this is a major milestone in the effort to reduce medication waste, there is some concern the industry. In a recent email to it's members, the American Society of Consultant Pharmacists (ASCP) stated, "these requirements could be imposed without regard to the individualized needs and capacities of nursing homes and long term care pharmacies." Some LTC pharmacies are concerned that legislators will dictate solutions that 1) increase the pharmacy's dispensing costs and 2) reduce their revenue without being properly reimbursed for their investment.


Concern #1: Shorter Dispensing Cycles Increases Costs
When using traditional dispensing methods, such as manually filling patient-specific bingo cards, about 60% of the pharmacy dispensing costs, i.e. wages and supplies, are directly tied to the length of the dispensing cycle. For example, dispensing a 7-day supply costs roughly four times as much in wages and supplies as a 30-day supply. The remainder of the dispensing costs, such as delivery, building and equipment, and insurance are relatively fixed. Therefore, if dispensing costs for a 30-day dispensing cycle are $12.50 per script, costs for a 7-day cycle would be an additional $22.50 per script ($7.5 variable cost x 3 additional dispenses per 30 days). And, what is worse, 7-day cycles do not completely eliminate the waste. Therefore, when using traditional dispensing methods, adopting shorter dispensing cycles could potentially increase dispensing cost by $22.50 per script without adequately addressing the medication waste issue.

Solution:
An innovative new method for dispensing medications in LTC eliminates waste without increasing pharmacy dispensing costs. Remote dispensing leverages proven technology automation to enable on-site, on-demand dispensing of medications at the long-term care facility. Since medications are dispensed on-demand, medication waste is virtually eliminated. These types of systems have traditionally been cost prohibitive, but recent innovations have lowered the cost of ownership to around $3 per script for a typical sized skilled nursing facility. Furthermore, remote dispensing has shown to reduce pharmacy dispensing costs by up to $3 per script, which completely covers the cost of the technology investment. Therefore, remote dispensing is the only cost-neutral solution that virtually eliminates medication waste in long-term care without increasing dispensing costs.


Concern #2: Eliminating Waste Reduces Revenue
Currently under Part D, LTC pharmacies are reimbursed for an entire 30-day prescription, regardless of whether or not all of the medications are consumed. There is debate on the actual costs of medication waste occurs in long-term care, specifically under Part D. In a recent press conference, Joel Gemunder, CEO of Omnicare, indicated that waste represents $1.78 of their revenue per prescription on Part D residents. However, many experts estimate the number is much higher, even as high as $4 to $5 per script. Despite the actual cost, LTC pharmacies will never be incentivized to reduce waste if it means reduced revenue.

Solution:
Centers for Medicare & Medicaid Services (CMS) must allow LTC pharmacies to buy back unused medications from the PDPs at prices below their wholesale value. The pharmacy would still bill the PDP upfront for a 30-day supply, regardless of the number of days dispensed. However, when a prescription is discontinued, the pharmacy could buy back the unused medications from the PDP at a cost less than what they could get from their wholesaler. The pharmacy could then re-prescribe the unused medications without the risk of committing fraud. If overall purchasing and acquisition costs were lower, pharmacies would be incentivized to reclaim unused inventory rather than destroying it and purchasing more from the wholesaler. This is the most simple and effective way to encourage pharmacies to reduce medication waste.

Since the pharmacy is still billing upfront for a 30-day supply, top-line revenue remains the same. Pharmacies that are able to adopt shorter dispensing cycles without incurring additional dispensing and/or return costs (i.e. by leveraging remote dispensing) would benefit the most. Their overall drug acquisition costs would be lower, since they would be able to purchase inventory (by reclaiming unused medications) at a lower cost than wholesale. Most importantly, however, the PDPs would gain additional revenues from the sale of the unused medications and could pass that along as savings to Medicare. Depending on the how prices are set for the unused medications, the savings could easily be two-thirds of the Congressional Budget Office's original estimate of $6.2 billion. The net effect would be a significant reduction in medication waste without any negative impacts to the pharmacy's bottom line, while still providing a $4.1 billion savings to Medicare.


Conclusion:
The solution to the issue of medication in long-term care is simple. CMS must implement a buy-back program that will incentivize pharmacies to reuse rather than waste unused medications. Participation would be voluntary, so pharmacies slow to adopt, would not be forced to employ shorter dispensing cycles at the detriment of their business. However, doing so will encourage LTC pharmacies to invest in innovative technologies, such as remote dispensing, that can shorten dispensing cycles without increasing costs. Therefore, progressive pharmacies that leverage technology to cost-effectively reduce waste would be financially rewarded, ultimately through lowering their drug acquisition costs.