Hospitals could make great strides in reducing the cost of delivering health care — particularly when it comes to drug costs — through a tight focus on their processes, especially the instructions that are often detailed in electronic health record systems.
At many hospitals, drug costs are an expense second only to salaries. A 2016 survey of 712 hospitals by the American Hospital Association and the Federation of American Hospitals showed that inpatient drug spending rose 23 percent a year between 2013 and 2015, and by 39 percent on a per-admission basis. For 90 percent of the hospitals surveyed, these increases had a moderate or severe effect on the ability to manage the overall cost of patient care.
Some hospitals are recognizing that a big part of the problem is their inconsistent and widely varying processes for delivering patient care. Those that fix these processes gain an advantage.
Consider what happens when a patient bound for surgery needs acetaminophen. That drug in pill form is one of the few types of medicine that can be taken by mouth before surgery — and at a cost 35 times less than the price of it being given intravenously after the patient is under anesthesia. Yet it’s often given after the patient is put under. Why? Because the clinical processes outlined in many electronic health record systems tell doctors and nurses to do it this way.
If used correctly, electronic health record systems can ensure the right drug is given to the right patient at the right time, and that would ultimately reduce what a hospital pays for drugs.
The cost of drugs is a hot-button topic in our nation’s capital. The current administration and lawmakers recognize that Americans spend about $1,100 per person per year on prescription drugs, more than any other nation. About 17 percent of U.S. health care spending, or more than $500 billion, is for prescription medications.
Policy efforts to contain costs are important, especially since it’s not uncommon for some cancer drugs to cost $10,000 a month. But health systems can reduce their spending on drugs immediately by improving their processes, and can reduce prices over the long term by increasing price transparency.
It’s been almost a decade since the U.S. government approved $19 billion to subsidize the cost of equipping health care providers with modern electronic health record systems. For many hospitals, the transition to electronic records simply meant digitizing their old analog records and their inconsistent manual processes.
Having looked under the hood of countless electronic health record systems, I can attest that the content libraries driving workflows in many health systems are broken. I’ve talked with many hospital executives, and not a single one said he or she leads an organization, or knows of another one, that operates at a so-called Amazon (AMZN) level when it comes to standardizing processes and efficiency. This may be one reason that Jeff Bezos and others in the tech industry are looking at taking on health care and its cost problem.
Key to curbing drug costs in hospitals is ending the traditional approach of having doctors decide what prescriptions to write based on nothing but their professional preferences. There is often much to be gained across an entire health system by making sure that doctors are considering all the options, instead of choosing an expensive treatment when better and cheaper options exist. Health systems should review clinical protocols and update electronic health record systems to include the optimal prescription for the most common diagnoses and scenarios.
Such a system would simplify prescribing but still allow doctors to exercise their judgment when an exception is required. As in the acetaminophen example described earlier, patients would always take the pill before surgery rather than having it administered later intravenously because that’s the way the process is built. There’d be no variation to it — unless a doctor specifically asked for intravenous administration during surgery.
I know of one 50-hospital health system that is using its electronic health record system to improve how physicians prescribe five common drugs: acetaminophen, nitroprusside, vasopressin, regadenoson, and levothyroxine. This effort has already cut drug costs for those five medications by more than $4 million. If all of the approximately 5,000 U.S. hospitals did likewise, the savings could amount to more than $400 million — and that’s for just five drugs properly prescribed and administered.
Another option hospitals have for reducing drug costs is to disclose the negotiated price of medications to patients and the doctors who administer them. Today, when physicians write prescriptions based on their professional preference, they often have no idea what the cost of that drug is. Neither does the patient.
It could make a huge difference if doctors and patients alike were encouraged to ask about less expensive options. Electronic health record systems could check not only that the appropriate, cost-effective drug is being prescribed but that it is a drug covered as a preferred medication of the patient’s insurance, minimizing out-of-pocket costs.
By sharing price information transparently with patients and doctors, health systems and insurers might see the economics of supply and demand work as they do elsewhere in our market economy and possibly help lower the price of more widely used medications.
Regardless of what Washington does, hospitals and big health systems can make a dent in what they spend on drugs by examining more closely which ones they are using and how well-tuned their clinical processes are when it comes to delivering the most cost-effective drug at the right time.
Fixing simple processes has the power today to better control drug costs.
Patrick Yoder, Pharm.D., is co-founder and chief executive of LogicStream Health, a Minneapolis-based company that creates software solutions for improving patient safety, reducing hospital-acquired conditions, and lowering medication spending.