Expert Perspectives

Dollars down the drain

Three Ways to Spot a Leak in Your Pharmacy

Gregory Doerr, Managing Consultant, McKesson Pharmacy Optimization® - Christine Clarson, Director, McKesson Pharmacy Optimization®

Make every dollar stretch. Pinch those pennies. Get the most bang for every buck. These are the rallying cries being heard within hospitals and health systems across the nation. Managing shrinking margins while still delivering the highest-quality care has become top priority for most organizations. As many begin their transition to a value-based model, hospital, supply chain and pharmacy leaders are actively strategizing on the most effective ways to streamline operations.

Looking beyond typical cost-cutting methods, leading hospitals have begun to spot revenue opportunities they may have previously dismissed. Through partner relationships, these health systems are helping to mend leaks and seeing pennies that are adding up to millions of dollars — revenue that can help improve margins and lead to a healthier bottom line.

While there are numerous approaches that can help, we’ve focused on three common areas where revenue may be enhanced within the pharmacy:

1. Leveraging JW Modifier Codes

Historically, healthcare organizations have viewed unused drugs from single-use packages as a financial liability. Many pharmacies have tried to create some value from unused drugs by batching unused portions of medications and then dispensing them to other patients. Yet, this process is hardly a silver bullet from a financial perspective. That’s because few drugs can be batched, and batching uses valuable pharmacy resources that could be deployed elsewhere.
An effective alternative that has not yet been widely practiced is the use of JW modifier codes to seek reimbursement for unused drugs. When billing Medicare, pharmacies can use the modifier “JW” to identify unused drugs or biologics from single-use vials or single-use packages that are discarded appropriately.[1] To help maximize reimbursements, hospitals must use a consistent approach when dealing with unused single-dose medications. This includes:

  • Identifying patients who have used a partial dose of a drug or biological from a single-dose vial
  • Documenting the amount of wasted medication
  • Changing billing practices to use JW modifiers for the discarded product

The business of pharmacy is not always as easy to navigate as it sounds. To improve processes, many organizations find it beneficial to work with an expert partner to analyze the nuances of the business and support implementation of workflow and system updates necessary to support JW modifier codes.

2. Ensuring Correct Coding and Billing

Disparate computer systems in the pharmacy and accounting departments can sometimes result in coding and billing errors. When drugs are coded incorrectly, hospitals may not receive the reimbursement to which they are entitled. Drug billing and process analysis is another way hospitals are identifying revenue opportunities related to outpatient drug dispenses.

Examining pharmacy data can be a key way to spotting missed and undercharged outpatient revenue. However, most pharmacies don’t have staff on board with the time or expertise necessary to analyze purchase history information, chargemaster data, revenue and usage reports, and payer information.

3. Get the Most from Patient Assistance Programs

Over 50 pharmaceutical manufacturers offer patient assistance programs (PAPs), which apply to over 2,000 branded drugs and vial strengths. Hospitals dispensing drugs to eligible patients may be able to seek to recover the actual drug, thus recovering significant dollars. If hospitals seek reimbursement of PAPs for all 2,000 of the products where PAPs exist, hospitals can potentially recoup between 2% and 3% of their annual drug spend — a recovery that may measure into the millions of dollars for larger organizations.

A number of hospitals have found it challenging to stay abreast of the shifts in PAP recovery:

  • Hospitals must proactively monitor when manufacturers add or discontinue a PAP
  • The thresholds and patient qualifying criteria differ from program to program
  • Every program has a different application form and all require a variety of supporting documentation, such as proof of patient income
  • Hospitals must find, qualify, enroll and track patients
  • If a manufacturer denies a claim, follow-up may be necessary

Healthcare organizations seeking to recover PAP medications may pursue one of the following options:

  • Dedicate an in-house resource to manage PAPs. This may require one or more staff members to learn and stay current with the intricacies of the numerous PAP programs. Depending on the program, eligibility forms and related paperwork may need to be filed in order to recover the drugs.
  • Implement PAP software. Most PAP software packages pre-populate application forms, but these software packages may not maximize cost recovery. Therefore, the onus still lies on hospital staff to help find, qualify and enroll patients.
  • Partner with a PAP expert. Choose an external partner that has PAP expertise, which can help result in the greatest economic value for hospitals.

These are just a few examples of the ways that pharmacies can help prevent leaks and capture lost revenue. Remember that “money leaks” in the system are often hard to spot. However, finding and addressing them can result in substantial savings. Talk to specialists in revenue enhancement in order to discuss areas you see as potentially problematic or areas you’d like to explore. Consultation with a reputable, trusted partner can help alleviate unnecessary burden on staff and help you to get the most out of every opportunity. Expertise, focus and resources will help you find leaks, prevent them, and in doing so — boost your profits.


[1] Discarded Drugs and Biologicals Update, MLN Matters, Medicare Learning Network.

Note: The information provided here is for reference use only and does not constitute the rendering of legal or other professional advice by McKesson. Readers should consult appropriate professionals for advice and assistance prior to making important decisions regarding their business. McKesson is not advocating any particular program or approach herein. McKesson is not responsible for, nor will it bear any liability for the content provided herein.