Jae Chung, M.B.A., of Sensor Synergy has a background as an industrial engineer designing workflows in high volume manufacturing environments. For the past 10 years he has focused on pharmacy ­- visiting over 500 pharmacies. He brings an emphasis on assessment of workflow, design, and automation, as well as business strategy development. Jae has recently completed a study of the impact of packaging type and dispensing cycle on long-term care (LTC) pharmacy costs and spoke with ComputerTalk senior editor Will Lockwood about his findings.

CT: Jae, give us some background on your study. What motivated it and what were the parameters?

Chung: The background is the health reform regulation that will establish uniform shorter-cycle dispensing requirements for the long-term care pharmacy market by 2013. This is an attempt to reduce medication waste associated with 30-day cycle fills. We don't have a lot of data on the impact this will have on pharmacy costs. My goal was to conduct a pilot study that would help us both to understand the issues better and provide a starting point for pharmacies to understand their costs and understand business strategy options. I say this is a pilot study, which means that the results aren't intended to be representative of the market.  They are a starting point for thinking more about the impact of shorter-cycle dispensing.

Getting to the parameters, this was a six-month study that looked at 12 pharmacies across the United States that dispense oral solids in different refill cycles and packaging formats including bingo cards, unit-dose boxes, multidose reusable cards, unit-dose reusable cassettes, and unit-dose and multidose automation strips. The pharmacies serve on average 3,900 beds, with a range from 1,500 to 9,000 beds. For the sake of comparison, you'd probably see that most LTC pharmacies serve around 2,000 beds. The study measured the average patient costs for these pharmacies, including materials, labor, administration, and waste across the different packaging formats. It looked at refill periods of one month, 14 days, and less than seven days.

CT: Give us a feel for the current state of the market. How common is each of these fill cycles and what are the popular packaging types?

Chung: Most of the LTC market is served on a one-month cycle using unit-dose bingo/punch cards.  Other 30-day cycle packaging types are a unit-dose box and a multidose reusable card system. The 14-day cycle generally uses unit-dose reusable cassettes and the 7-day and less cycle uses automated strip packaging that can be either unit- or multidose.

CT: And these two variables - fill cycle and packaging - form the basis for developing your model of dispensing costs? How are these measured?

Chung: This study takes a different approach to how the pharmacy market usually measures its cost structure. When measuring only the number of facilities and beds, you get limited results. This is how the market usually addresses cost structure. I believe deeper variables better represent pharmacy costs, in particular the number of packages a patient needs filled on average per month. My logic is that a patient has a certain number of pills he/she consumes per month that require a certain number of packages, and this drives work in the pharmacy as well as cost. I subdivided these costs into packaging materials and unburdened labor, medication cost, and waste medication. The goal was to look at these costs across the different packaging types and fill cycles and then normalize them per month per patient.

CT: The 30-day cycle is easy to understand. Explain a little more about the shorter cycles, though.

Chung: Okay. The 14-day cycle is just a shorter version of the 30-day cycle. The 7-day and less system has some interesting options, including 4-3 day and 2-2-3 day. This allows for a just-in-time production and delivery process. For example, in the 4-3 day cycle, the reason the cycle is broken up is to cover the weekend, Friday to Sunday. All of these cycles can be either unit- or multi-dose, depending on the packaging. Multi-dose can offer a productivity gain at administration and a material cost advantage, but it also can present challenges in the pharmacy ensuring that the right pills are in the right pouch and at the final check.

CT: How did you collect your data?

Chung: I did time studies and combined this with source data, which is user reported data. I could have relied solely on source data, but I think the time study methodology puts all of the pharmacies on the most even footing. I also did inventory sampling, counting the number of packages per patient and medications to drive a standard work statistic.

CT: You mentioned an unburdened labor rate earlier. What does unburdened mean?

Chung: This means labor cost without overhead. I used an hourly wage cost without any benefits or other structural costs. The numbers I used were about $54 per hour for pharmacists and $12 per hour for technicians. When reading the study, individuals can add their own burden rates to these costs.

CT: OK. And how about the other cost numbers you are using. How did you arrive at these?

Chung: I used source data for materials costs for both the reusable and the disposable packaging, including replacement costs for reusable packaging. I defined waste as drugs returned to the pharmacy or sent directly from the nursing home to be destroyed. I also did research on the actual cost of the medications for both brands and generics.

CT: Great. Now with these details of the study structure for context, tell us about your key findings.

Chung: Let's start with the fact that I found that the average LTC patient is taking 10 oral solids at any time. I also found that nursing staff at the facility the number of pills administered to the patient by nursing staff per month was about 468. So the next important question is, how many pills is the pharmacy dispensing? It turns out that this varies substantially by the fill cycle. At a 30-day cycle there are going to be a lot of medication changes that generate waste. I found that pharmacies on this cycle dispensed on average 514 pills. The gap between this number and 468 is waste. The medication is either destroyed or sometimes returned to the pharmacy for credit, depending on state laws. An important finding here is that it's not the packaging format but rather the cycle fill period that creates the quantity of waste. That is, in this study I found evidence to support the theory that if a pharmacy produces cycles more frequently, the changes and new orders are captured in a more timely manner and consequently reduces the amount of waste.

CT: How close does the number of pills dispensed get to the number administered in the shorter dispensing cycles?

Chung: On the 14-day cycle, which can account for more of the changes and can be more just-in-time, I found pharmacies were only sending about 490 pills. The 7-day and less cycle produced the least amount of waste. Pharmacies on this cycle dispensed about 470 pills versus 468 administered on average.

CT: The 7-day and less cycle is very efficient then. And overall, you are establishing an important trend here with these data - that as you shorten the dispensing cycle, the number of pills dispensed and the number administered converge, reducing waste. How does the shorter cycle affect the number of packages filled?

Chung: It has a significant impact. As the cycle shortens, the number of packages increases, with an effect also from whether the dispensing is unit- or multidose. For example, with a multidose reusable system, the average number of packages per patient per month is about 7. It's about 13 for boxes, 17 for cards, 33 for cassettes, 444 for unit-dose bags, and 230 for multidose bags.

CT: So in general fewer pills mean more packages.  How does the increase in packaging change the cost equation?

Chung: To assess the packaging component I looked at source data to find out what these different materials cost. Then I applied these costs to the number of packages per month in order to compare apples to apples. What we are seeing here is the true material cost per month. Bingo cards turn out to be cheapest, the unit-dose box is next, followed by reusable unit-dose cassettes, multidose strips, and then resuable card systems. I believe that pharmacists who have worked with different formats have found this out or know this intuitively.

CT: I think the final cost component, then, is labor. You stated the labor rates per hour you used earlier.  How did you apply these in the study?

Chung: For the labor component, I measured the time a technician spent throughout the day on a specific package format, and the same for the pharmacist.

Combining all of these costs, then, what we see is that the strip packaging is the cheapest, next is bingo cards, followed by the unit-dose box, and finally comes the reusable card systems.  Remember this is the cost of both labor time and packaging material cost per patient per month. [See Figure 1]

Figure 1

CT: You're excluding the investment in the technology required to produce some of these formats, such as automation for the strip packaging, right?

Chung: That's right. I leave it to the interested reader to do the ROI on this, for example by looking at the difference in the production and materials costs for different methods and applying that to the investment costs for technology.

There is one more cost item I included in the study, and that's the cost of the medications themselves. I researched for the average prescription cost between brand and generics. From this I came up with $1.38 a pill. Incineration costs for returns destroyed are small, but I included these as well.

CT: So, looking at the costs overall, where did you find savings?

Chung: When I equalized the cycles to a month, it's clear that the dispensing cycle is where the savings are, rather than the particular packaging chosen. This reinforces the rationale behind the legislation. Shortening the cycle saves money. Again this is a pilot study, of course, and there are costs that may influence a pharmacy's strategy around shorter cycle filling. But, I think we can say based on these results that it's important for LTC pharmacies to plan strategically to transition to short-cycle filling, not just to meet the regulatory requirements, but because it's going to make sense for reducing waste and providing dispensing services that are more responsive to patients' changing needs.

Figure 2