Paul Troiano, FACHE
Administrative Director, Pharmacy, Asset Management, and Courier Services
Frye Regional Medical Center
Hickory, North Carolina

Organizational Information
Regional Medical Center is a 355-bed, for profit, investor-owned acute care hospital located in western North Carolina. The institution serves a four-county, predominantly blue-collar community with a population of over 250,000 people. In addition, it is a fully accredited facility that provides a broad range of medical and surgical services and has a staff of highly trained and qualified physicians who have an excellent reputation for delivering high-quality medical care to the residents of the four counties that the institution serves.

Summary of the Problem
In June 1999, the institution was faced with a need to significantly reduce supply and salary costs in the Pharmacy department. Staffing issues and subsequent inefficiencies in the Pharmacy's manual medication distribution functions were identified as leading causes of the increased costs. Administration decided to solve this dilemma by fully automating the medication distribution process in anticipation of ultimately eliminating staffing deficiencies, reducing pharmacy supply and salary costs, and improving overall staff efficiencies.

Description of the Problem
As administrative director of Pharmacy, I was charged with redesigning the medication distribution process to enhance efficiency, boost morale, and reduce costs. My attempts at optimizing productivity and quality levels were stymied initially because I had to attend to a more primary and immediate challenge: recruiting a third-shift pharmacist to fill a recent vacancy. Marketplace conditions for recruiting pharmacists are generally difficult, but they were virtually impossible for this unique shift. As a stop-gap measure, my effort at maintaining the high levels of pharmacy services led me to rotate the day-shift pharmacists through the third-shift schedule until I was able to successfully recruit and orient a permanent third-shift pharmacist.

My decision to rotate staff proved financially costly and lowered staff morale on the department. For their willingness to cover the third shift, pharmacists were offered handsome pay premiums and shift differentials. This incentive, however, was a short-term motivator; staff morale began to diminish as the recruitment continued unsuccessfully. Staff members started to believe that we would see no end to our recruitment efforts and to their dictated third-shift responsibilities. The staff also felt that the situation was placing an undue burden on their personal and family lives. An added dilemma was a corroding pharmacy service structure coupled with the threat of staff turnover. As a result of all this, pharmacy services began to suffer.

Both the institution's administration and the Pharmacy's rank and file called for my decisive action to put an end to our problems. A meeting was set up with the vice president of Operations to contemplate our dilemma and possible resolutions. We listed the following options with which we had to work:

· Option 1: Maintain the status quo and risk significant staff turnover. We could not discount the negative patient care ramifications this option posed, and undoubtedly we were aware that an increase in Pharmacy-generated medication errors was possible as more pressure were placed on a workforce that was already fighting burnout and overload.
· Option 2: Revisit our competitive recruitment presence in the pharmacy market. From my evaluation of the job market, I learned that recruiting and retaining a pharmacist for this shift required us to offer significantly larger financial compensation. While a sign-on bonus was once considered a rare offer, this offer now needed to be common and was vital to our recruitment efforts.
· Option 3: Supplement our recruiting activities with the aide of a professional search firm or recruiters. System and market analysis revealed the vainness of our recruiting efforts, so we needed assistance even though recruitment firms have not been used for pharmacist positions in the past. Search firm fees are usually contingent on successful recruitment, so we would not have been charged a fee unless we hired a pharmacist subsequent to the firm's referral. Fees range from 25 percent to 35 percent of the candidate's first-year salary, with a 90-day replacement guarantee.
· Option 4: Implement alternative means of dispensing medications that would effectively decrease dependency on the third-shift pharmacist. An effective way to achieve this option was to automate the dispensing functions, but given the large number of medications being dispensed, we were aware that incorporating automation was by no means a cure-all for our problems.

Automating the distribution functions can greatly improve medication access and provide benefits to Pharmacy, Nursing, and the administration. Additionally, automating the dispensing functions can help maintain those proven staffing strategies that have worked.

Administrative Decisions
The administrative decision for the Pharmacy's dilemmas was to present a proposal to automate the medication distribution process, establishing a user-friendly system that would allow the nursing staff to have ready access to medications and to better focus on patient care. The automated system consisted of 37 units installed at most nursing medication distribution areas. These units were expected to provide unparalleled narcotic control and provide 95 percent of the routine cart-fill medications. To meet the standards set by the Joint Commission on Accreditation of Healthcare Organizations and to comply with all pertinent regulatory agency regulations, Pharmacy staff must monitor and control the system to minimize drug shrinkage, prevent unauthorized medication access, and identify wrong dosage and medications reported missing.

The automated system equipment must be acquired through an operating lease, and the proposed lease must generate the following financial benefits:

1. Eliminate the need for third-shift pharmacists. On-call pharmacists will be used instead to remain in compliance with regulatory agencies' standards and rules
2. Automate quantified pharmacy lost-charge capture in year one
3. Allow a shift in technician scheduling, which will convert overtime hours to regular hours with a combined full-time-equivalent (FTE) savings
4. Provide moderate supply savings as a result of reductions in waste, drug loss, and pilferage
5. Document incremental savings from clinical interventions and nursing efficiencies to exceed $120,000
6. Document earnings-before-interest-taxes-depreciation-and-amortization (EBITDA) increases over the five-year operating lease

Faced with the complexity of the administrative task at hand, I was encouraged by the vice president of Operations to pursue the automated system proposal. However, I had to prove first that this automated system would meet the expectations and provide the benefits as listed, which are measurable by significant reductions in salary and supply costs. Historically, the institution's administration had frowned at the concept of automating the dispensing functions of the Pharmacy department because of difficulties in financially justifying the concept. Despite the pressing need of the Pharmacy department for the system to be in place, I had to justify the cost before this proposal was brought to the CEO, CFO, and chief nursing executive.

I embarked on justifying the proposal by conducting various financial pro-forma assumptions for the automated system equipment both as a rental and as a purchase. Being aware of the restricted cash flow of the institution, I knew that an outright purchase proposal was unattainable, so I pursued only a lease analysis. Also, this transaction would qualify as an operating lease because the term of the lease was less than 90 percent of the useful life of the equipment. The pro-forma assumption established the total system costs specific to equipment lease and support fees, computer interface needs, power and communication expenses, and all renovation expenses where applicable. Applied system benefits in the pro-forma assumption included a net labor benefit specific to Pharmacy and Nursing departments; pertinent reductions in supply expenses; a one-time inventory reduction; additional reimbursable revenue; and some calculated miscellaneous expense reductions in office supplies, computer forms, labels, etc. By listing and comparing the total net benefit to the system cost, the pro-forma assumption revealed that the benefits of the automated system would exceed the total system cost and would produce a sizeable margin that would present a return on investment in less than three years.

Support and nursing staff productivity data were analyzed as part of the pro-forma assumption. Specific to this cost-benefit analysis were statistics on current trends and practices of the workforce and information on how automating the distributive functions would affect staff productivity. The analysis showed a significant redeployment opportunity of nursing FTE hours and an opportunity to eliminate two FTE pharmacist positions. These reduction opportunities represented a potential annual savings worthy of justifying the proposal.

The pro-forma assumptions highlighted the strong savings that the system would provide. Equally important, however, was that the automated system would resolve the pressing staffing issues of the Pharmacy department; that is, the system would release the existing pharmacists from their third-shift rotation duties, and this would allow the pharmacists more time for clinical applications and it would effectively improve staff morale. An acceptable method of covering the third shift would be to use pharmacy technicians and the readily available on-call pharmacist. The Pharmacy department would benefit from this method but so would the Nursing department: As nurses free themselves from the rigors of medication distribution, they too would be able to spend more time with patients. In addition, automating the medication distribution process would provide online patient profiles. This electronic record would reduce the risks of dispensing and administering the wrong medication, which are inherent in manual dispensation.

Results
The chief administrative officers of the institution were satisfied with the proposal and agreed to fully automate the medication distribution process. Our "go-live" date with the automated dispensing units throughout the institution occurred in April 2000, after six full months of exhaustive research, site visits, proposal justification, counter proposals, and evaluation of the reengineering option. After the inception of the automation, we realize that the automated system has enabled us to bring together efficiency and effectiveness with initial costs representing zero dollar outlay or breakeven. To ease the transition period from our manual system to the automated system, we provided a complete set-up and orientation period with full-time support personnel available to help in troubleshooting and problem solving.

Having been in healthcare management for many years, I was aware that involvement in this opportunity presented significant implications for the institution. I was aware that (1) the manual system of medication distribution was inefficient and fraught with possibilities of adverse medication events and (2) in able for us to improve patient care we needed to free up our professional caregiving staff (i.e., nurses) from the distributive functions of medication use. Although I realize that Pharmacy will always be a high-cost area, this did not mean that efficiency could not be attained through reengineering.

The results we have obtained from automation have surpassed expectations from the Pharmacy perspective. Pharmacy now spends more time on clinical challenges with measurable improvements in benchmark data specific to pharmacy labor, productivity, patient outcomes, and supplies. Nursing, meanwhile, appreciates a much shorter response time to medication needs and the ability to spend more time with patients. Administratively, automating the medication distribution process has provided proven financial enhancements and excellent legal and clinical documentation parameters, strengthened the relationship between Nursing and Pharmacy, improved communication with the medical staff, and provided an opportunity to improve patient satisfaction. Post-implementation data indicate that the net gain to the institution will surpass the return on investment estimate. We anticipate significant long-term savings in the future through improved staffing and supply efficiencies and effectiveness. We plan not to rest on these successes, however, because the need for ongoing quality improvements and cost containment and the reliance on automation continue.

References

1. American Society of Health-System Pharmacists, Council on Professional Affairs. 1995. American Journal of Health System Pharmacists 52: 743.
2. Automated Medication Storage and Distribution System Guidelines. Carrboro, NC: North Carolina Board of Pharmacy Administrative Code 2800.1414.

Paul Troiano, FACHE, is administrative director of Pharmacy, Asset Management, and Courier Services at Frye Regional Medical Center in Hickory, North Carolina. Previously, Mr. Troiano has served as director of pharmacy services for Arden Hill Hospital in Goshen, New York, and as a consultant for Middletown Dialysis Center in Middletown, New York. He holds a M.S. in health administration from The New School of Social Research. This case study represents a part of Mr. Troiano's Fellow project. It was voted one of the best case studies in 2000.