Many healthcare systems are creating Consolidated Service Centers (CSC) to help standardize the pharmaceutical experience throughout their system. There are many cost savings and quality improvement benefits to consolidating pharmaceutical practices. Unfortunately, when it comes to centralizing sterile compounding there is a great deal of misunderstanding when it comes to registering with the FDA; specifically, whether to be a state regulated 503A or an FDA regulated 503B. The most common notion is that registering as a 503B is the right approach. Even though that approach might appear to be the safest option, registering with the FDA as a 503B outsourcing manufacturer is not the same thing as operating an inpatient pharmacy following the standard USP 797 regulations. It is better to think of 503B as becoming an actual manufacturer with its own set of rules. To be effective, selecting the 503B path would require a different business model to cost justify such an operation. Fortunately, working within the confines of the 503A classification can still produce a quality product for patients and help keep the high costs associated with Current Good Manufacturing Practice (CGMP) from disrupting certain aspects of a consolidated services approach.
The draft guidance for Hospital and Health System Compounding Under the Federal Food, Drug, and Cosmetic Act: Guidance for Industry dated April 2016 states, “…FDA does not intend to take action if a hospital pharmacy distributes compounded drug products without first receiving a patient-specific prescription or order provided that: (1) The drug products are distributed only to healthcare facilities that are owned and controlled by the same entity that owns and controls the hospital pharmacy and that are located with a 1 mile radius of the compounding pharmacy;” Forcing CSCs to register as 503B because they move compounded product more than 1 mile from the facility that compounded the product is frequently misinterpreted and does not align with the regulations which clearly allow for anticipatory compounding and interstate distribution of products when certain conditions are met.
It is important to focus on the applicable statutes and regulations as found in Section 503A of the Federal Food, Drug, and Cosmetic Act. The guidance documents have limited ability to be enforced when they make statements and claims outside of the applicable statutes and regulations. To reinforce this, many of the Guidance for Industry documents contain in their introductions: “You can use an alternative approach if it satisfies the requirements of the applicable statutes and regulations.” The headers on many of the pages within the documents also state: “Contains Nonbinding Recommendations.”
The key requirements for maintaining 503A compliance for most CSCs are as simple as:
CSCs are in a unique position to receive valid prescription orders for identified individual patients. With the advancements in electronic health records, CSCs can operate as a member of their health system with full access to required documentation and the ability to generate auditable reports to support their practice.
Section 503A and the FDA guidance documents have left opportunities for healthcare systems to take a defensible position on identifying their CSC(s) as 503A. Consolidating sterile compounding can increase safety and decrease costs for patients without taking on the unnecessary burdens of registering with the FDA as a 503B outsourcing manufacturer.
Pharmacy Buyers hold one of the most important financial and supply chain roles within a health system. They are responsible for one of the largest budgets in the hospital and ensuring medications, used for routine and life-saving care, are always in stock. This seemingly simple task, at first glance, is NOT so simple.
Pharmacy Buyers deal with the daily onslaught of new and ongoing drug shortages. They are expected to be the ears on the street for information regarding potential drug shortages and ahead of situations, to reduce the potential risk to their hospital and ultimately the patients. Buyers have thousands of unique line items they monitor and are required to keep in stock. Nevertheless, they also must avoid having too much stock because that is money sitting on the shelf, at risk of expiring. New medications and NDC’s are being added and removed from their formularies and purchasing catalogs every day. Contracts and pricing are in constant flux. Often, they have over a hundred different NDC’s to choose from when ordering a single medication. They place orders to numerous suppliers using a variety of mechanisms. Buyers order by using a vendor’s online catalog, calling customer service, and yes, some suppliers still require the order to be faxed. I know, it’s CRAZY.
On top of that, there’s generally no formal training for a Pharmacy Buyer. They are hired, placed into the buyer position, and told to keep everything stocked…but not overstocked. Buyers are under pressure to make certain they have the medications needed for patient care, and simultaneously stay within budget. They are the first to take the fall when medications are not in stock, and the one to blame when items expire.
Being a Pharmacy Buyer is an impossible task…even for the most amazing and tenured buyers. That’s why we built Trulla (www.trullarx.com). Procurement Software built for the Pharmacy Buyer. Trulla provides Buyers with the tools to make their impossible job possible!
I’ve met many remarkable Pharmacy Buyers from all around the country. I tip my hat to all Pharmacy Buyers and ask that everyone else do the same. Let them know you appreciate them and their work.
This is to you, Pharmacy Buyer…the Unknown Superhero of your hospital.
Centralized Services Centers (CSC) provide a variety of services which could include filling patient-specific prescriptions and non-patient specific order fulfillment. Often CSCs provide service to both 340B covered entities and sites that are not qualified to purchase drugs at 340B prices.
When setting up a CSC, careful consideration should be paid to whether the CSC needs to be registered with Health Resources and Services Administration (HRSA) and the requirements that it must abide by to maintain compliance. For example, if the CSC is not owned by or part of a covered entity (CE) and is using its own National Provider Identifier (NPI) to fill prescriptions, it should consider registering as a contract pharmacy for each CE receiving service. If the CSC is using the dispensing pharmacy NPI, this is considered an in-house or CE dispensation which then would be subject to the GPO Prohibition for certain CE types. Furthermore, in this scenario the CSC must comply with the carve-in-/carve-out status of the CE, should be registered as a ship-to site, and non-eligible prescriptions must be filled using WAC.
When conducting order fulfillment for non-patient specific stock, best practice would be to add the address of the CSC as a ship-to address for each CE. If your CE has questions or concerns related to CSCs and compliance, feel free to email them to firstname.lastname@example.org.
Centralized Services Centers have been implemented or are being considered by numerous health systems to improve efficiency, reduce medication errors, and for the potential cost savings that can be captured. However, inventory management is extremely challenging when the Centralized Services Center (CSC) provides medications to both non-covered and covered entities (CEs). Ensure that the inventory management model selected does not expose the CEs to a GPO prohibition violation if they are required to comply with this requirement.
For example, some health systems have centralized the sterile compounding of products such as TPN and various antibiotics. If any of these products are administered to covered outpatients and purchased on GPO by the CSC, the CE could be at risk for a GPO prohibition violation unless a strategy is in place to prevent this from happening. The 2013 HRSA 340B Drug Pricing Program Notice Release No. 2013-1, Statutory Prohibition on Group Purchasing Organization Participation states, “Organizations that are not part of the 340B covered entity are not subject to the GPO prohibition; however, the 340B covered entity is still prohibited from having organizations purchase covered outpatient drugs through a GPO on its behalf or otherwise receive covered outpatient drugs purchased through a GPO.”
One of several strategies to consider is to place these compounded products on a non-covered outpatient drug list. With this approach, they can be excluded from the 340B program and will not be subject to the GPO prohibition. The downside to this approach is that the individual ingredients cannot be purchased on 340B which could result in lost savings. If your health systems needs help determining a compliant approach, you can find a team of experts at Trulla (www.trullarx.com) or reach out to them directly by emailing email@example.com.
There are various reasons to centralize targeted inpatient pharmacy services. Some of the reasons include process standardization, increased efficiency, medication safety, and the ability to capture cost savings for the company. Sterile, non-sterile, and hazardous compounding services typically top the list of services that are often consolidated. Other services that are centralized include packaging, low unit of measure distribution, cart fill, kit processing, medication order entry, contracting, buying, shortage management, and general pharmacy services for clinics within the system.
How do you know what services make sense for your hospital or health system to centralize?
It can be extremely difficult to fully understand the opportunities associated with a centralized service as well as the obstacles that will need to be faced in order to effectively take advantage of the prospect. We have assembled a team of experts, with this need in mind, that have first-hand experience centralizing a variety of pharmacy services. This diverse team can conduct an in-depth analysis of your hospital or health system to identify both improvement and cost savings opportunities. In addition, they can provide guidance on the best implementation strategy. Some hospitals or health systems will best be served by a consolidated service center while it may be most advantageous to use a hub and spoke model at others. With a well-designed business model which leverages the health systems’ investment in automation and highly trained personnel, consolidation will result in quality products and pharmacy services for the patients that are served while saving the company money. If you would like to learn more about what Trulla has to offer, please reach out by sending an email to firstname.lastname@example.org.
In today’s environment, creating Centralized Service Centers (CSCs) to standardize medication processes, increase efficiency, improve safety, and to save money is quickly becoming a reality for many health systems. Centralized packaging, sterile and non-sterile compounding, and targeted purchasing allows the individual sites in a health system to order EXACTLY what they need instead of being forced to order the pack size available from the manufacturer. These services reduce the workload at the sites, the medication outdates and waste, along with the cost associated with each of these activities. Highly trained individuals that are working in an environment free from interruptions reduces errors and improves medication safety. It is easy to see why this is appealing to health systems as these CSCs have the ability to serve several inpatient pharmacies and outpatient clinics simultaneously.
Since this industry is moving so quickly in this direction, it is easy to forget that centralizing the services that involve controlled substances can be tricky and must be managed carefully. Remember, that the five percent rule remains in effect for CSCs that are registered as a hospital/clinic with the Drug Enforcement Administration (DEA). What this means is that the total number of dosage units of all controlled substances distributed by a pharmacy may not exceed five percent of all controlled substances dispensed by the pharmacy during a calendar year. If at any time the controlled substances distributed exceed five percent, the pharmacy is required to register as a distributor.
In addition, if the controlled substances are manipulated, such as being repackaged or used in compounding, the pharmacy may also need to register as a manufacturer. To add to this burden, distributors and manufacturers have additional record keeping and reporting requirements when compared to a pharmacy.
Remember, it is critical to have the correct DEA registrations in place BEFORE providing centralized services that involve controlled substances! If your health system needs experts to evaluate the activities of their CSC or to analyze their controlled substance compliance, please email email@example.com.
With the grouping of hospitals into health-systems, we are seeing more and more central distribution centers being created to leverage the purchasing power of the group. However, there are many options for what services can be provided, and some are more beneficial than others. It is a case of good, better, or best decisions, and of course there are just some bad decisions. Our team has hands on experience in planning, creating, managing, and leveraging these processes, and we can share this experience with you to ensure you are maximizing your savings sooner than later.
Disclaimer: The information provided in this blog does not constitute legal advice and should not be construed as such. Readers of this document should contact their attorney to obtain advice with respect to any particular legal matter. The views expressed in this document are those of the author and not those of the Trulla LLC. All liability with respect to actions taken or not taken based on the contents of this document are hereby expressly disclaimed. The content in this document is provided “as is;” no representations are made that the content is error-free.