There are three main models of pharmacy service provision to hospitals in Australia. These are:

• The outsourced pharmacy model is the supply of a full range of pharmacy services under a service agreement with (usually) a specialist hospital pharmacy service provider, which may operate from a pharmacy located on the hospital premises (on-site) or nearby (off-site). The outsourced model is used by Healthscope, St Vincent’s Health Australia and a number of St John of God Health Care hospitals.
• The insourced pharmacy model is the supply of a full range of pharmacy services by the hospital operator, which owns and operates the hospital pharmacy, pharmacy department or dispensary. The insourced model is used by nearly every public hospital in Australia, Ramsay Health Care, Cabrini Health, Mater Health Brisbane and a number of St John of God Health Care hospitals.
• The hybrid pharmacy model is the supply of some pharmacy services (e.g. aseptic compounding, dispensing and clinical pharmacy services) under a service agreement with a hospital pharmacy service provider, with other services (e.g. imprest supply and management) provided and managed by the hospital operator.

The outsourced pharmacy model continues to be preferred by most private hospital operators and the insourced model by most public hospitals.

The drivers or imperatives for choosing the model of pharmacy service provision are different for different hospital operators, hence the variety that exists in Australia today.

Why outsourcing might be considered?

The main reasons hospitals choose to outsource their pharmacy service to a specialist hospital pharmacy service provider may include:

• for operational reasons – to shift the risks in providing the pharmacy service to a contracted provider, including risks inherent in recruiting, training and retaining of staff amid a national shortage of hospital pharmacists
• for financial reasons – to shift the financial risks in providing the pharmacy service to a provider, including the risks from reduced revenue and profit caused by an eroding PBS profit margin (due to ongoing PBS Reforms by the Commonwealth and potentially to chemotherapy medicines supplied under the PBS Efficient Funding of Chemotherapy program), and
• for management reasons – to shift responsibility to the pharmacy service provider for managing compliance with legislative requirements, budget, staffing, the PBS, patient invoicing and payment collection, inventory turnover and stock expiry, quality use of medicine, and hospital accreditation requirements.

Why outsourcing might not be considered?

Hospitals also need to consider the potential risks / disadvantages of an outsourced pharmacy model, which may include:

• limited control over the extent or standard of pharmacy service delivery
• limited control over the prescribing of high-cost non-PBS medicines which aren’t subsidised by the PBS and increasingly unlikely to be subsidised by private health insurers, leaving the cost to be met by the hospital
• limited or lack of integration of the contracted pharmacy service provider into the hospital’s health care team (i.e. medical, nursing, quality and safety, management and administration), and
• the time and skills required to effectively manage the contract with the outsourced provider including the need to periodically test the market via a Request for Proposal process.

In summary

Hospitals need to recognise and weigh up the benefits / advantages and risks / disadvantages of an outsourced pharmacy model. Because the needs of hospital operators vary across Australia, an advantage for one may be a disadvantage for another.

How can PharmConsult help in deciding whether an outsourced pharmacy model is right for your hospital?

PharmConsult specialises in advising on and assisting hospitals and health care providers in matters related to medication management and pharmacy services, in regard to options, value, quality systems, operational matters, risk management and contracts.

PharmConsult has:

• developed comprehensive, first-hand knowledge of the Australian public and private hospital pharmacy markets through working directly with private and public hospitals, health services, private hospital groups, and health departments on many projects related to medicine use, hospital pharmacy, and aseptic compounding
• has undertaken many reviews of hospital pharmacy services, and provided advice to hospital clients in regard to pharmacy services or service model options including the move to or from an insourced or outsourced pharmacy model, and
• has significant experience in, and knowledge of Australian public and private hospital pharmacy and pharmaceutical wholesaling processes, structures and systems.

In almost all of the reviews PharmConsult has conducted of pharmacy services or medication management in private and public hospitals, PharmConsult has provided financial and non-financial analysis associated with either services or medication, and prepared options for services including business cases and / or options analysis.

PharmConsult has a wealth of experience managing tenders for specialist pharmacy services, procurement of pharmaceuticals, preferred wholesaler arrangements and pharmacy automation equipment. All of these involve detailed review of pharmaceuticals purchase data and pricing, procurement arrangements and strategy development, and managing tender processes for a pharmacy service provider.

PharmConsult would welcome the opportunity to discuss whether an outsourced pharmacy model is right for your hospital and would be pleased to assist in the assessment of different models, as well as the end-to-end management of tenders should this be required.