To centralize pharmacy services and gain efficiencies, healthcare systems must first solve the 340B barrier

BD Institute for Medication Management Excellence

Publish date: Dec. 17, 2019

Shannon Johnson, PharmD, CPHIMSS, Associate Director, Medical Affairs, Becton Dickinson (BD)


Individual hospitals have been joining with other hospitals to form healthcare systems for decades.1,2 Often referred to as Integrated Delivery Networks (IDNs), they are growing larger and more integrated. This trend isn’t slowing down as mergers and acquisitions hit a record high in 2018. Why? As healthcare margins shrink and expenses rise, individual hospitals that comprise the system are looking for ways to impact the bottom line.2,3

Benefits come with economies of scale and centralization of redundant services, offering IDN’s the potential to be more effective at gaining operational efficiencies to save money on labor or by cost avoidance.4 For example, large healthcare systems can negotiate better drug purchasing contracts. And rather than performing the same task at each hospital, a group of hospitals working cooperatively can complete that task once (at scale), at a central location. Benefits of centralization seem to be well understood. A 2018 survey of 35 health-system respondents unanimously agreed cost savings opportunities for centralized pharmacy services include (and were not limited to) standardization of drug formularies, better volume discounts and better group purchasing organization (GPO) system-wide agreements.5 Naturally, with standardization also comes reduction in variability—a fundamental tenant of patient safety and high-reliability.6,7,8

Two centralization models

While some IDN’s are doing pharmacy-related tasks at a single hospital (using a “hub-and-spoke” model), others purchase warehouse space in business parks where real estate can be more affordable and plentiful. Sometimes a warehouse is already operational for hospital supplies and making additional space for the pharmacy is quite feasible.

Ripe for centralization

There are many examples of service lines that have been centralized to some degree or another within healthcare systems. These include central supply, sterile processing, transportation, information technology, nutrition, laundry services, human resources, finance, coding and billing, to name just a few. In addition to these, many pharmacy services are also ripe for centralization including central buying (e.g., volume purchases, purchasing drugs ahead of time to mitigate shortages), sterile compounding, automated dispensing cabinet (ADC) replenishment and unit dose repackaging.5,9

Despite these opportunities, pharmacy has been late to the centralization game: a recent survey estimated that roughly only 15% of IDN’s have some form of centralized services today, while 48% of IDN’s are considering it.9,10

Why is pharmacy late to the centralization game?

Many IDN’s have one or more “340B” hospitals within their network, making centralization of pharmacy services more complex.11 340B is a voluntary federal drug discount program that financially assists non-profit hospitals who treat a larger number of under- or uninsured inpatients by allowing the hospital to buy substantially discounted drugs (“340B discount”) for their outpatients.12 Within the program, there are some very strict, and complex, rules around how these drugs can be purchased, stored, and used.

To illustrate a few of the complexities, let’s begin with the understanding that the 340B discount is limited. The discount is restricted to drugs purchased for qualified outpatients at qualified hospitals, and each hospital is obligated to keep track of the money saved under 340B.12 These limitations mean that only the pharmacy associated with the qualified hospital can make the purchase (as opposed to a central pharmacy that is not directly associated) and any savings must be accounted for separately, independent of all other drug purchases.

When drugs purchased by a 340B hospital are transferred to a central pharmacy for redistribution, the central warehouse is naturally inclined to want to co-mingle them with the rest of the inventory in order to be more efficient. Doing so, however, presents a risk. Under a rule known as “GPO prohibition,” some 340B hospitals are barred from using drugs on their outpatients that have been purchased under an alternate discount program set up for group purchasing organizations (GPOs). Stated another way, GPO discounted drugs can only be used on inpatients in hospitals subject to this rule. When drugs from different hospitals of varying discounts are comingled together, a hospital’s 340B program compliance is subsequently jeopardized.13

Understanding barriers to centralization

In conversations with BD customers, 340B complexity has been identified as a key reason for the delay in meaningful pharmacy centralization.11 Although 340B compliance is complex, the good news is that centralization is not impossible. This is an emerging frontier and although it’s not entirely clear where it will go, two important barriers will likely need to be addressed. First, a central buyer needs the ability to initiate orders quickly and easily for the central pharmacy, while respecting the entitled discounts of the hospitals they serve (some qualified for 340B and some not). And second, a simple method to co-mingle inventory at the central pharmacy without risk to 340B compliance is needed. By addressing these two barriers, we anticipate centralized pharmacy services will experience more wide-spread adoption.*

* This is not intended as legal advice. You should consult an attorney.

Learn more

Each month on the BD Institute for Medication Management Excellence blog, thought leaders explore topics of critical importance to medication management, and provide additional ways to learn.

Now that you’ve read about the barriers to pharmacy centralization, learn how inadequate drug shortage management tools impact hospital-system pharmacies Then, explore how emerging technology may transform antimicrobial stewardship programs.



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  2. LaPointe J. Major Healthcare Mergers and Acquisitions Making Waves in 2019. RevCycleIntelligence. Published 2019. Accessed October 1, 2019.
  3. Advisory Board. Priming For Growth: How To Overcome The Major Barriers To Achieving Outsized Revenue Growth; 2019.
  4. Five Strategies to Lower Medical Group Drug Spend. Published 2019. Accessed October 16, 2019.
  5. Schenkat, D, Rough S, Hansen, A, et al. “Creating Organizational Value by Leveraging the Multihospital Pharmacy Enterprise.” American Journal of Health-System Pharmacy 75, no. 7 (January 2018): 437–49.
  6. High Reliability | PSNet. Published 2019. Accessed October 1, 2019.
  7. What Separates Highly Reliable Organizations From the Rest? Published 2019. Accessed October 1, 2019.
  8. Christianson, M.K., Sutcliffe, K.M., Miller, M.A. et al. Becoming a high reliability organization. Crit Care 15, 314 (2011) doi:10.1186/cc10360
  9. Visante, Inc. Market Insights On The Implementation Of Consolidated Service Centers By Health System Pharmacies. Swisslog Healthcare; 2019.
  10. Navigant Research. Automation in Centralized Pharmacies. Prepared for Becton Dickinson. 2018. Unpublished.
  11. The growing trend of centralization of pharmacy services. Panel discussion at the Council of Pharmacy Executives and Suppliers Conference: 2019; Franklin, Tennessee.
  12. Detailed Overview: 340B Health. Published 2019. Accessed October 1, 2019.
  13. U.S. Department of Health and Human Services, Heath Resources and Services Administration. Statutory Prohibition On Group Purchasing Organization Participation. Office of Pharmacy Affairs; 2013.