Expert Perspectives

Should you centralize your drug distribution?

Factors to consider when optimizing your medication supply chain

By Barbara Giacomelli, Pharm.D., MBA, FASHP
Area Vice President, McKesson Pharmacy Optimization®

As reimbursement shrinks and operating margin gaps widen in an era of consolidation and increasing drug shortages, hospitals and health systems need to find ways to streamline pharmacy costs without compromising patient care. Those that have embraced strategies such as medication management and drug utilization review are often seeking additional ways to optimize their performance-based care-delivery models. Many are turning to drug centralization to maximize clinical, financial and operational processes in their medication supply chain process while delivering on their patient-care mission. Should you?

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The Opportunities and Concerns of Medication Consolidation

Risk and Waste Factors
Large health systems today face a wide range of inefficiencies in the medication distribution process. The pharmacist’s role is ever-expanding, which increasingly limits availability for non-clinical tasks. At the same time, significant pharmacy resources and costs are required to fill and replenish automated dispensing cabinets (ADCs), along with other distributive functions. The increasing high cost of medication therapy and managing drug shortages puts a strain on pharmacy inventory, which then puts health organizations at risk of medication stock-outs in the ADCs — which can affect patient medication therapy, patient safety and nursing workflow.

Why Centralize?

By centralizing pharmacy operations and distributing most medications from a single location, health systems are better able to improve inventory cost management, standardize formulary, eliminate redundancy, and streamline workflow to improve efficiency and reduce expenses. The full spectrum of advantages may include:

  • Reduce costs
    By replacing task redundancy at a facility level with a single task performed at a system level, you can reduce inventory expenses. Plus, drug centralization helps improve total costs by conserving nursing and technician time, increasing opportunities for clinical pharmacist intervention, and reducing hospital stay and legal costs.
  • Ensure medication availability and compliance
    Consolidating drug services helps you optimize inventory levels, reduce stock-outs, minimize errors related to manual stocking, improve drug shortage management and generic compliance, and increase flexibility with the number of line items and National Drug Codes.
  • Improve patient safety
    Standardizing drugs throughout a medical system helps reduce variation and improve pharmacist and caregiver familiarity with medications — which helps limit medication pick errors, increase patient safety and improve patient care.
  • Streamline resource allocation and workflow
    Automation helps increase efficiency and share data across disparate information systems. With less inventory and labor at each individual site, staff can reallocate resources to patient management that were previously dedicated to medication distribution. This reflects industry best practices established by the American Pharmacists Association’s and American Society of Health-System Pharmacists’ Advancing the Pharmacy Practice Model Initiative.

Key Considerations
If your organization is part of a larger health system with multiple facilities, or is currently outsourcing some of your drug distribution needs, drug distribution centralization could help optimize your medication supply chain. When evaluating your options or establishing a centralization plan, keep these considerations in mind:

  • Know what to expect from your implementation process
    It can take anywhere from three months to a year to centralize your drug distribution, depending on whether you already have a dedicated pharmacy location — and whether you start with a comprehensive program or in a few select areas of your pharmacy, then expand as you go.
  • Anticipate limitations to formulary standardization
    It may not always be possible to fully standardize a formulary across facilities, given that some facilities participate in the 340B program and others do not, and specific patient-care medication therapy needs or having specialized services may not be available at all locations. In addition, variations in formulary could increase complexity and cost by requiring different line items per facility, such as a 10 mg drug dosage in one, and the same drug in a 20 mg dosage in another.
  • Be aware of state medication distribution regulations
    Make sure you understand all relevant state regulations for drug distribution before you centralize. Some states require hospital systems to be licensed as a distributor or wholesaler, even if you’re servicing your own system. There may also be regulatory concerns related to transporting medications across state lines. And if your system has some facilities that participate in the 340B program and others that do not, you must ensure that your technology and formulary for every hospital maintains compliance in the program.
  • Determine what you want to centralize
    It may not benefit your business to centralize all drugs at once — or ever. For example, many hospital systems choose not to centralize Class 2 drugs because the labor and inventory savings don’t warrant the extra regulatory paperwork requirements. Centralizing in phases can help manage costs, but this will require other resources over time. You should evaluate the cost/benefit ratio of each area of your pharmacy based on your patient mix and distributive service to determine what makes sense to centralize, and when.
  • Insource to improve quality and safety
    When the movement to outsource steroid injections recently led to patient deaths in New England, this called outsourcing into question as a safe and effective means of eliminating distributive functions. Today, the trend is for hospitals to handle distributive functions themselves — for better quality control internally, at a lower cost. When considering insourcing, it is also a good time to assess the cost/benefit ratio of centralizing the process.
  • Evaluate whether a consultant can benefit your process
    A consultant can help you evaluate the costs and benefits of consolidating and centralizing pharmacy distribution functions. Depending on your budget and desired level of collaboration, services may range from feasibility assessment to business plan development to implementation support.

Prepare for Success
You can maximize your ROI in centralized drug distribution by defining your success metrics and doing a thorough cost/benefit analysis before you begin. Common supply chain benchmarks and success standards include reductions in stock-outs, redundant inventory, staff time spent on distributive tasks, and missed picks, as well as improved patient care. Additional benefits assessed include the opportunity to standardize formulary. Once you centralize, these metrics can be standardized with policies and procedures, and quality goals, then measured and refined over time.

Author Bio:
Barbara Giacomelli, Pharm.D., MBA, FASHP, is an Area Vice President with McKesson Pharmacy Optimization. She has 30 years of experience in health system pharmacy where she has held various pharmacy management and leadership positions in community, academic medical centers and health systems in Philadelphia and southern New Jersey. Throughout her career, Barbara has facilitated and led numerous projects related to automation, technology, workflow optimization, supply chain management, ambulatory pharmacy and clinical pharmacy services. She is a Fellow of ASHP and Past Chair of the ASHP section of Informatics and Technology. She earned her BS in Pharmacy from the University of Connecticut where she was selected as 2014 Alumni of the Year. She also received her PharmD from the University of Colorado and MBA in Healthcare Administration from Widener University. Barbara has spoken nationally, participated in numerous webinars and published on a variety of topics. She is also a Lean Six Sigma Green Belt.


Strategic Considerations for Centralization of Services Across the Pharmacy Enterprise, American Journal of Health-System Pharmacy, January 1, 2015

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.