The Defense Health Agency is working with the Defense Logistics Agency and the pharmaceutical industry to streamline logistics and better manage medications in the face of spiraling drug costs. They aim to save $3.5 billion on pharmaceutical expenses by fiscal 2024.
In today’s pharmaceutical environment, better medicine comes with higher prices. A new drug for Hepatitis C, for example, is showing a 90-percent cure rate, but DHA will spend $102 million this year just on procurement. “There are newer products coming on the market all the time, and these are innovative products, but they don’t come on the market at a cheaper price,” said Dr. George Jones, chief of DHA’s pharmacy operations division.
Of Jones’s $8 billion annual budget, the vast majority goes to the cost of pharmaceuticals, and the best way to bring down that cost is through better logistics, he said.
DLA managers are looking to hone national contracts as one way to achieve those goals. By promising to buy from specific manufacturers, in specific quantities, the agency could drive substantial savings, said DLA Troop Support Medical Supply Chain Deputy Director Geneva Polini.
“They know the quantities we are going to be ordering, we commit to ordering from them, and the result is a 20-percent savings on drugs,” Polini said. DLA can commit to such specific numbers based on analysis of records compiled over many years. “We are a very data-driven supply chain.”
Monitoring pharmaceutical logistics’ fitness
That same passion for analytics is helping DLA to tackle one of the ongoing challenges to pharmaceutical logistics: the periodic shortages that destabilize the price of medications worldwide. When manufacturers run short on raw materials, for instance, a drug price may rocket up from a couple of pennies to a couple of dollars.
DLA’s Customer Pharmaceutical Operations Center is keeping close tabs on global markets in order to smooth out those bumps. “They monitor the market and whenever they hear a shortage is coming, they start looking for substitutes,” Polini said.
That kind of close monitoring is especially important given the massive scale of the pharmaceutical supply chain. The military health system dispensed 132 million prescriptions in calendar year 2013, including 48 million in military treatment facilities, 19.5 million through mail (home delivery), and 64.5 million through retail, DHA reports.
Given such volumes, it’s important to manage inventory aggressively. “In some cases we need to carry over 2,000 line items to be sure we are meeting the needs of our beneficiaries, so space becomes an issue, particularly if you are a high-volume pharmacy,” Jones said. “You can get a whole lot of money sitting on the shelf real fast and that really reduces your ability to meet patient needs while staying within budget.”
Managing healthy supplies
Logistics managers are working to contain costs by keeping the supply chain lean. At the same time, they also are looking to tame pharmaceutical expenses by holding suppliers accountable for their prices. Specifically, DLA is partnering with medical products supplier Owens & Minor to conduct commercial price benchmarking.
“You want to know that you are paying what a comparable customer in the commercial marketplace would pay,” Polini said.
In the big picture, all these efforts to improve pharmaceutical contracts and contain drug costs may amount to little more than pushing against the tide. “It’s important to realize that even in the most effective, efficient process you can put in place, pharmaceutical costs are most likely going to continue to increase,” Jones said. Still, so long as those drugs keep delivering better outcomes, “the total cost of care is going to go down.”
