South Florida Hospital News
Saturday December 16, 2017
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November 2017 - Volume 14 - Issue 5

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Predictive Analytics: New Frontiers in Hospital Pharmaceutical Inventory Management

It’s 3:00 a.m. The administrator on duty gets a frantic call from the pharmacy. “We ran out of cytarabine! This means no treatment for our existing leukemia patients and turning away ten newly diagnosed with appointments tomorrow! My doctors are screaming at me!

Panic sets in. The administrator thinks: “What if we can’t get other hospitals to lend us a supply? Do I dare access the ‘gray market’? Can we compound the drug ourselves?”
 
A good inventory control model can reduce such frenzied situations and:

• Minimize total inventory costs, including holding (interest rate) and order placement 
expenses.
• Support just in time inventory levels – having supplies when you need them and stocking nothing else saves cash outlays, and optimizes storage space. Remember, over-stocking is just as bad as under-stocking.
• Ameliorate out-of-stock situations of the most critical drugs, particularly those with no substitute alternative.
• Minimize expired pharmaceutical waste. “U.S. hospitals and long-term care facilities annually flush approximately 250 million pounds of unused pharmaceuticals down the drain”1 Mismanaged expiration dates is a big cost driver.
 
To build an inventory control model you will at a minimum need to:
• Research the most utilized pharmaceuticals, and those that are the most important to control. (aka, ABC Classification System)
• Analyze the optimal reorder point; i.e., determine the demand rate per period (days/weeks/etc.), and the lead time necessary to receive a shipment.
• Determine the safety stock required.
• Identify available quantity discounts/rebates/return allowances/etc.
 
Predictive analytics is adding to the science of inventory optimization. Basic inventory models, some available for free via the Internet, “rely on adjusting inventory retroactively, reacting to customer purchase habits that have already occurred.”2 Predictive analytics adds to inventory model value. The discipline helps hospitals “anticipate and coordinate inventory acquisitions in response to expected price increases caused by shortages and inflation,” bargain for price decreases created by market gluts, and recognize increased needs driven by seasonal patient intakes. “Predictive analytics can also be used to reveal internal savings opportunities created by use and waste patterns as well as inventory consolidation and standardization.”3
 
The pharmacist’s role increasingly is moving from being a dispenser of pharmaceuticals to one involving medication therapy management and many other analytical activities, such as pharmaceutical inventory management. If colleges of pharmacy want their students to be able to effectively compete in the marketplace, curricula in many of those schools will have to be updated to equip students with the necessary skills to be able to critically analyze data. If they do not do so, if students continue to attend those schools, their graduating pharmacists will have to pursue such skills elsewhere, e.g. one Texas University is initiating an online certificate program in the pharmaceutical area which should help students develop many of these analytical skills. A Midwestern college has a new online pharmacogenomics program, and is looking to expand its offerings in the informatics area, recognizing the need for its students to be able to critically analyze data.
 
One South Florida data analytics company has recognized the increasing need for pharmacy data analytics professionals and is contemplating developing fellowship type opportunities. Unfortunately, this company will probably have to partner with a college or colleges outside of South Florida that will be able to provide graduates in the pharmaceutical space with the necessary data analytics skills.

Paul DeMuro, Of Counsel, Broad and Cassel LLP, can be reached at pdemuro@broadandcassel.com. Richard Klass, Vice President and Co-founder, KCI Partners, Inc., can be reached at rklass@kcipartner.com.

 
2 G. Nakanelua (12/7/15), A Primer on Predictive Analytics & Supply Chain Management. Found at: https://medium.com/@gnakan/a-primer-on-predictive-analytics-supply-chain-management-d13ff459bf6a
3 Hewlett Packard Enterprises (July 26, 2017), Predictive analytics can help hospitals and clinics meet current challenges and plan for tomorrow's healthcare needs. Found at: https://insights.hpe.com/articles/5-ways-to-cut-healthcare-costs-with-predictive-analytics-1707.html
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