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  • 1. Pharmacy Management Essentials forAll P ractic e Settings
  • 2. NoticeMedicine is an ever-changing science. As new research and clinical expe-rience broaden our knowledge, changes in treatment and drug therapy arerequired. The authors and the publisher of this work have checked withsources believed to be reliable in their efforts to provide information that iscomplete and generally in accord with the standards accepted at the time ofpublication. However, in view of the possibility of human error or changes inmedical sciences, neither the authors nor the publisher nor any other partywho has been involved in the preparation or publication of this work war-rants that the information contained herein is in every respect accurate orcomplete, and they disclaim all responsibility for any errors or omissions orfor the results obtained from use of the information contained in this work.Readers are encouraged to confirm the information contained herein withother sources. For example and in particular, readers are advised to checkthe product information sheet included in the package of each drug theyplan to administer to be certain that the information contained in this workis accurate and that changes have not been made in the recommended doseor in the contraindications for administration. This recommendation is ofparticular importance in connection with new or infrequently used drugs.
  • 3. Pharmacy Management Essentials forAll P ractic e Settings S ec ond Ed it ion Shane P. Desselle, PhD, RPh, FAPhA David P. Zgarrick, PhD, RPh Professor and Associate Dean for John R. Ellis Distinguished Chair Tulsa Programs of Pharmacy Practice Chair, Department of Clinical and Professor of Pharmacy Administration Administrative Sciences-Tulsa Drake University University of Oklahoma College of Pharmacy and Health Sciences College of Pharmacy Des Moines, Iowa Tulsa, Oklahoma New York Chicago San Francisco Lisbon London Madrid Mexico City Milan New Delhi San Juan Seoul Singapore Sydney Toronto
  • 4. Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. Manufactured in the United States of America. Except as permit-ted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means,or stored in a database or retrieval system, without the prior written permission of the publisher.0-07-164327-3The material in this eBook also appears in the print version of this title: 0-07-149436-7.All trademarks are trademarks of their respective owners. Rather than put a trademark symbol after every occurrence of a trademarked name,we use names in an editorial fashion only, and to the benefit of the trademark owner, with no intention of infringement of the trademark. Wheresuch designations appear in this book, they have been printed with initial caps.McGraw-Hill eBooks are available at special quantity discounts to use as premiums and sales promotions, or for use in corporate training pro-grams. For more information, please contact George Hoare, Special Sales, at or (212) 904-4069.TERMS OF USEThis is a copyrighted work and The McGraw-Hill Companies, Inc. (“McGraw-Hill”) and its licensors reserve all rights in and to the work. Useof this work is subject to these terms. Except as permitted under the Copyright Act of 1976 and the right to store and retrieve one copy of thework, you may not decompile, disassemble, reverse engineer, reproduce, modify, create derivative works based upon, transmit, distribute, dis-seminate, sell, publish or sublicense the work or any part of it without McGraw-Hill’s prior consent. You may use the work for your own non-commercial and personal use; any other use of the work is strictly prohibited. Your right to use the work may be terminated if you fail to com-ply with these terms.THE WORK IS PROVIDED “AS IS.” McGRAW-HILL AND ITS LICENSORS MAKE NO GUARANTEES OR WARRANTIES AS TO THEACCURACY, ADEQUACY OR COMPLETENESS OF OR RESULTS TO BE OBTAINED FROM USING THE WORK, INCLUDING ANYINFORMATION THAT CAN BE ACCESSED THROUGH THE WORK VIA HYPERLINK OR OTHERWISE, AND EXPRESSLYDISCLAIM ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MER-CHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. McGraw-Hill and its licensors do not warrant or guarantee that thefunctions contained in the work will meet your requirements or that its operation will be uninterrupted or error free. Neither McGraw-Hill norits licensors shall be liable to you or anyone else for any inaccuracy, error or omission, regardless of cause, in the work or for any damagesresulting therefrom. McGraw-Hill has no responsibility for the content of any information accessed through the work. Under no circumstancesshall McGraw-Hill and/or its licensors be liable for any indirect, incidental, special, punitive, consequential or similar damages that result fromthe use of or inability to use the work, even if any of them has been advised of the possibility of such damages. This limitation of liability shallapply to any claim or cause whatsoever whether such claim or cause arises in contract, tort or otherwise.DOI: 10.1036/0071494367
  • 5. Professional Want to learn more? We hope you enjoy this McGraw-Hill eBook! Ifyou’d like more information about this book,its author, or related books and websites,please click here.
  • 6. D E D I C AT I O N To Deborah and Brittney (S.P.D.) and To Michelle, Miles, Grace, and Elle (D.P.Z.)Copyright © 2009 by The McGraw-Hill Companies, Inc. Click here for terms of use.
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  • 8. For more information about this title, click hereCONTENTS Contributors ix Preface xiiiI. W H Y S T U D Y MA NAG E M E NT I N PH A R MAC Y SC HO O L ? 1Chapter 1 Pharmaceutical Care as a Management Movement 3Chapter 2 Management Functions 19II. MA NAG I N G O PE R AT IO N S 29Chapter 3 Strategic Planning in Pharmacy Operations 31Chapter 4 Business Planning for Pharmacy Programs 47Chapter 5 General Operations Management 63Chapter 6 Managing Technology and Pharmacy Information Systems 79Chapter 7 Ensuring Quality in Pharmacy Operations 97III. MA NAG I N G PE O P L E 123Chapter 8 Organizational Structure and Behavior 125Chapter 9 Human Resources Management Functions 149Chapter 10 Performance Appraisal Systems 165Chapter 11 Customer Service 185Chapter 12 Contemporary Workplace Issues 197Chapter 13 Time Management/Organizational Skills 211Chapter 14 Leadership in Pharmacy 233IV. MA NAG I N G M O N EY 245Chapter 15 Financial Reports 247Chapter 16 Third-Party Payer Considerations 265Chapter 17 Medicare Part D 285Chapter 18 Budgeting 303Chapter 19 Personal Finance 317 vii
  • 9. viii C O N T E N T SV. MA NAG I N G T R A D I T IO NA L GO O D S A N D S E RV IC E S 333Chapter 20 Marketing Theory 335Chapter 21 Marketing Applications 361Chapter 22 Purchasing and Inventory Management 383Chapter 23 Merchandising 401VI. MA NAG I N G VA LU E - A D D E D S E RV IC E S 415Chapter 24 Appraising the Need for Value-Added Services 417Chapter 25 Implementing Value-Added Pharmacy Services 429Chapter 26 Compensation for Value-Added Pharmacy Services 453Chapter 27 Evaluating the Outcomes of Value-Added Pharmacy Services 467VII. MA NAG I N G R I S K S I N PH A R MAC Y P R AC T IC E 485Chapter 28 Risk Management in Contemporary Pharmacy Practice 487Chapter 29 Compliance with Regulations and Regulatory Bodies 503Chapter 30 Preventing and Managing Medication Errors: The Pharmacist’s Role 519VIII. MA NAG E M E NT A P P L IC AT IO N S I N S PE C I F IC PH A R MAC Y P R AC T IC E S E T T I N G S 539Chapter 31 Entrepreneurship 541Chapter 32 Applications in Independent Community Pharmacy 553Chapter 33 Applications in Chain Community Pharmacy 577Chapter 34 Applications in Hospital Pharmacy Practice 591 Index 611
  • 10. CONTRIBUTORS Michelle Belsey Vice President for College Relations and Professional Recruitment, Rite-Aid Corporation, Camp Hill, Pennsylvania John Bentley, PhD Associate Professor, Department of Pharmacy Administration, School of Pharmacy, University of Mississippi, University, Mississippi Joseph Bonnarens, PhD Dean of Student Affairs, Associate Professor, Pharmacy Administration, School of Pharmacy, Pacific University, Hillsboro, Oregon Michelle A. Chui, PharmD, PhD Associate Professor of Pharmacy Administration, Midwestern University of Wisconsin, College of Pharmacy, Glendale, Arizona Bartholomew E. Clark, RPh, PhD Associate Professor Pharmacy Sciences Department, School of Pharmacy and Health Professions, Creighton University, Omaha, Nebraska Edward Cohen, PharmD Director, Clinical Services, Clinical Education and Immunization Services, Walgreens Health Services, Deerfield, Illinois Michael R. Cohen, RPh, MS, ScD, FASHP President, Institute for Safe Medication Practices, Horsham, Pennsylvania Shane P. Desselle, PhD, RPh, FAPhA Professor and Associate Dean for Tulsa Programs, Chair: Department of Clinical and Administrative Sciences-Tulsa, University of Oklahoma, College of Pharmacy, Tulsa, Oklahoma William Doucette, PhD Associate Professor, College of Pharmacy, University of Iowa, Iowa City, Iowa Kevin Farmer, PhD Associate Professor, University of Oklahoma College of Pharmacy, Oklahoma City, Oklahoma Karen B. Farris, PBS Pharm, PhD Associate Professor, Division of Clinical and Administrative Pharmacy, College of Pharmacy, University of Iowa, Iowa City, Iowa ixCopyright © 2009 by The McGraw-Hill Companies, Inc. Click here for terms of use.
  • 11. x CONTRIBUTORSBill G. Felkey, MS, RPhProfessor, Department of Pharmacy Care Systems, Auburn University, Auburn, AlabamaCaroline A. Gaither, BS Pharm, MS, PhD, FAPHAAssociate Professor and Director of Graduate Studies, Department of Clinical, Social and AdministrativeSciences, College of Pharmacy, University of Michigan, Ann Arbor, MichiganDavid A. Gettman, RPh, MBA, PhDAssociate Professor, Pharmaceutical, Administrative, and Social Sciences, University of Appalachia College ofPharmacy, Oakwood, VirginiaVincent J. Giannetti, PhDProfessor, Social and Administrative Sciences in Pharmacy, Mylan School of Pharmacy, Duquesne University,Pittsburgh, PennsylvaniaWilliam A. Gouveia, MS, FASHP, DHLDirector of Pharmacy, Tufts-New England Medical Center; Associate Professor of Medicine, Tufts UniversitySchool of Medicine, Boston, MassachusettsMatthew Grissinger, RPh, FASCPMedication Safety Analyst, Institute for Safe Medication Practices, Huntington Valley, PennsylvaniaDana P. Hammer, RPh, MS, PhDUniversity of Washington School of Pharmacy, Seattle, WashingtonDonald Harrison, BS, MS, PhDAssociate Professor, Department of Clinical and Administrative Sciences, College of Pharmacy, University ofOklahoma, Oklahoma City, OklahomaDavid A. Holdford, RPh, MS, PhDAssociate Professor, Department of Pharmacy, School of Pharmacy, Virginia Commonwealth University,Richmond, VirginiaDavid A. Latif, MBA, PhDProfessor and Chair, Department of Pharmaceutical and Administrative Sciences, University of CharlestonSchool of Pharmacy, Charleston, West VirginiaFrank Massaro, PharmDPharmacy Practice Manager, Tufts-New England Medical Center, Boston, MassachusettsRandal McDonough, MS, PharmD, CGP, BCPSCo-owner and Director of Clinical Services, Towncrest and Medical Plaza Pharmacies, Iowa City, Iowa
  • 12. Contributors xiRashid Mosavin, RPh, PhD, MBAAssociate Professor, Department of Pharmacotherapy and Outscome Science, School of Pharmacy, Loma LindaUniversity, Loma Linda, CaliforniaGlen T. Schumock, PharmD, MBA, FCCPAssociate Professor, Department of Pharmacy Practice; Director, Center for Pharmacoeconomic Research,University of Illinois at Chicago, Chicago, IllinoisVirginia (Ginger) G. Scott, PhD, MS, RPhProfessor and Director of Continuing Education, Department of Pharmaceutical Systems and Policy, WestUniversity School of Pharmacy, Morgantown, West VirginiaKathleen Snella, PharmD, BCPSAssistant Dean, Vice-Chair and Associate Professor, Division of Pharmacy Practice, University ofMissouri-Kansas City School of Pharmacy, Columbia, MissouriMargaret R. Thrower, PharmDAssistant Professor, Auburn University Harrison School of Pharmacy, Auburn, AlabamaBradley P. Tice, PharmD, RPh, CDM, PMPChief Clinical Officer, PharmMD Solutions, LLC, Brentwood, TennesseeDavid J. Tipton, PhDAssociate Professor, Mylan School of Pharmacy, Duquesne University, Pittsburgh, PennsylvaniaJulie M. Urmie, PhDAssociate Professor, Program in Pharmaceutical Socioeconomics, College of Pharmacy, University of Iowa, IowaCity, IowaTerry L. Warholak, PhD, RPhClinical Assistant Professor, Pharmacy Practice and Science, University of Arizona College of Pharmacy, Tuscon,ArizonaDonna West, RPh, PhDAssociate Professor, Division of Pharmaceutical Evaluation and Policy, University of Arkansas for MedicalSciences College of Pharmacy, Little Rock, ArkansasNoel E. Wilkin, RPh, PhDInterim Vice Provost, Pharmacy Administration; Research Associate and Professor, Research Institute ofPharmaceutical Sciences; Director, Center for Pharmaceutical Marketing and Management, University ofMississippi School of Pharmacy, Oxford, Mississippi
  • 13. xii C O N T R I B U T O R SGodwin Wong, PhDVisiting Associate Professor, Lester Center for Entrepreneurship and Innovation, University of CaliforniaBerkeley Haas School of Business, Berkeley, CaliforniaDavid P. Zgarrick, PhD, RPhJohn R. Ellis Distinguished Chair of Pharmacy Practice, Professor of Pharmacy Administration, DrakeUniversity College of Pharmacy and Health Sciences, Des Moines, Iowa
  • 14. P R E FA C E ■ W H AT ’S N EW I N T H I S E D I T IO N ! ! In planning for the second edition, we started by listening to our fellow educators, pharmacists, and students. Through surveys, e-mails, and conversations we learned about what users liked about the first edition, and what they would like to see added or changed in the future. Using what we learned, we worked with the chapter authors not only to improve the ease of use for faculty and students, but also to reflect the changes in pharmacy practice and management that have occurred in the last 4 years. t Every chapter has been updated to reflect the fluid nature of their respective management topic. t New content has been added to reflect major events in our profession, such as the implementation of the Medicare Modernization Act and subsequent addition of an outpatient prescription drug benefit (Medicare Part D). t New trends in the management literature and research studies are reflected in each of the chapters. t Four chapters have been added to the second edition. Since effective managers must also have leadership skills, We have added a chapter on the role of leadership in management. Medicare Part D represents probably both the biggest challenge an opportunity to pharmacy practice in the last 20 years. We have added a chapter dedicated to the management implications of this program, as well as updated other chapters to describe the impact of this program on other areas of practice. Pharmacy practice and health care delivery inherently involves risk. We have added a chapter devoted to describing and managing the risks commonly seen in operating a pharmacy practice. The ability to take advantage of the opportunities in today’s pharmacy practice requires not only management skills but also a mindset that can think strategically about the risks and benefits of new programs. We have added a chapter on entrepreneurship to describe how having an entrepreneurial spirit can improve a pharmacy practice and to describe how entrepreneurship skills can be acquired. ■ W H Y D I D W E C R E AT E T H I S T E XT B O O K ? This is a very exciting time for pharmacists, pharmacy students, educators, and others associated with the profession of pharmacy. A number of factors have come together to provide new opportunities for pharmacists, especially in patient care and expanded professional roles. But with the new opportunities also comes challenges, including the challenge of how to manage the personal and professional resources necessary to succeed in today’s ever-changing environment. Educators must not only keep up with changes in pharmacy practice, but also anticipate and prepare our students for opportunities and contingencies that will arise throughout their professional careers. In our efforts to best prepare students, pharmacy management educators have increasingly had to gather teaching materials from a variety of textbooks, journals and other educational resources. This is due to the fact that many resources only focus on a specific management function (marketing, personnel, accounting and finance) or a specific practice xiiiCopyright © 2009 by The McGraw-Hill Companies, Inc. Click here for terms of use.
  • 15. xiv P R E F A C Esetting (independent pharmacies, hospital pharmacies). We believed that there would be value in a comprehensivepharmacy management textbook that covered many content areas and gathered a variety of resources into one text.We also wanted to develop a resource that could be applied in a wide variety of practice settings. Our colleaguesthroughout the profession also agreed that a comprehensive management textbook was needed. Our desire tomeet these needs sparked our interest to develop this text.■ W H AT H A S C H A N G E D F RO M T H E F I R S T E D I T IO N ?In planning for the second edition, we started by listening to our fellow educators, pharmacists, and students.Through surveys, e-mails, and conversations we learned about what users liked about the first edition, and whatthey would like to see added or changed in the future. Using what we learned, we worked with the chapter authorsnot only to improve the ease of use for faculty and students, but also to reflect the changes in pharmacy practiceand management that have occurred in the last 4 years. Every chapter has been updated to reflect the fluid nature of their respective management topic. In manycases, new content has been added to reflect major events in our profession, such as the implementation of theMedicare Modernization Act and subsequent addition of an outpatient prescription drug benefit (Medicare PartD). New trends in the management literature and research studies are reflected in each of the chapters. Four chapters have been added to the second edition. Since effective managers must also have leadership skills,we have added a chapter on the role of leadership in management. Medicare Part D represents probably both thebiggest challenge an opportunity to pharmacy practice in the last 20 years. We have added a chapter dedicatedto the management implications of this program, as well as updated other chapters to describe the impact of thisprogram on other areas of practice. Pharmacy practice and health care delivery inherently involves risk. We haveadded a chapter devoted to describing and managing the risks commonly seen in operating a pharmacy practice.The ability to take advantage of the opportunities in today’s pharmacy practice requires not only managementskills but also a mindset that can think strategically about the risks and benefits of new programs. We have addeda chapter on entrepreneurship to describe how having an entrepreneurial spirit can improve a pharmacy practiceand to describe how entrepreneurship skills can be acquired.■ W H AT W I L L T H E R E A D E R F I N D I N T H I S T E XT B O O K ?This textbook is organized to reflect all of the major management functions performed by pharmacists in anypractice setting. The book is divided into sections representing each function, and is further divided into chaptersthat detail the various components of each function. Our experience as educators has taught us that students are the most effective learners when they are “ready”to learn. Many students selected pharmacy as a major in part from the desire to help people, but also due totheir fascination and intrigue with how such small amounts of various medicinal substances have such profoundeffects on the body. Many of these students also believe that they only need to learn about management afterthey graduate, and then only if they take on a managerial or administrative position at their pharmacy. Thefirst section of this book makes the case that management skills are important for all people and pharmacists,regardless of their position or practice setting. After establishing the need for management in both our personaland professional lives, the next four sections describe the management functions and resources that are commonto all pharmacy practice settings (operations, people, money, traditional pharmacy goods and services). Chapterswithin each section focus on important aspects of each function or resource.
  • 16. Preface xv As pharmacy practice evolves from a product to a patient orientation, there are unique challenges that arisein managing the value-added services that pharmacists are developing to meet patient needs (e.g., cholesterolscreening, diabetes education, drug therapy monitoring, etc.). A section of this book is dedicated to the planning,implementation, reimbursement and evaluation of these new patient care services offered by pharmacists. Several chapters are dedicated to describing the risks inherent in pharmacy practice, and the impact thatlaws, regulations, and medication errors have on pharmacy management. The final section outlines the role ofentrepreneurship, and how management functions are applied in specific pharmacy practice settings (independent,chain, and hospitals).■ HOW E AC H C H A P T E R I S O RG A N I Z E D ?Each chapter is divided into several sections to facilitate the reader’s understanding and application of the material.Chapters begin with a list of learning objectives that outline the major topics to be addressed. A brief scenario isused to describe how a pharmacy student or pharmacist may need or apply the information described this chapterin their daily lives or practice. Questions at the start of each chapter provide direction and assist the reader inunderstanding what they can expect to learn. The text of each chapter provides comprehensive coverage of the content and theory underlying the majorconcepts. References to the management and pharmacy literature are commonly used to provide readers withlinks to additional background information. Explanations and applications are also used to help readers betterunderstand the need to master and apply each concept. Questions at the end of each chapter encourage readersto think about what they have just learned and apply these concepts in new ways.■ W H AT W E HO PE YO U W I L L G A I N F RO M T H I S B O O KIf you are a pharmacy student, we hope that using this book will help you gain an appreciation for the rolesof management in pharmacy practice, regardless of your future position or practice setting. This book will alsoprovide you with a variety of management theories and tools that you can apply in your daily life as well. We realize that many pharmacists have not had much management coursework in their formal education orprofessional training. We hope that this book serves as a valuable guide to pharmacists who may require someassistance dealing with matters they did not anticipate when embarking on their careers. For those pharmacistswith formal management education and experience, we hope that this book serves as a valuable reference or as asource of new ideas that can be applied in daily practice. For educators, this book has been designed as a comprehensive pharmacy management textbook. As a whole,it is meant to be used in survey courses that cover many areas of pharmacy management. The section formatalso allows the book to be used in courses that focus on specific pharmacy management functions or topics. Thesections and content of each chapter are meant not only to provide valuable information that is easy for studentsto understand, but also to stimulate further discussion and motivate students to learn more on their own.■ W E WO U L D L I K E TO H E A R F RO M YO U !Textbooks today have great deal in common with computer software programs. The creators of each have put agreat deal of time and effort into getting their final outputs ready for consumers, but it rarely can be considered a
  • 17. xvi P R E F A C E“finished product”. Textbooks, like computer software, are “works in progress” that can always be improved. Thebest way to improve these products is to seek input from their users. As you use this book, we would like to learnwhat you like about it, what could be improved, and what topics or features you would like to see to be included inthe future. Please feel free to share your thoughts at any time by reaching us through plan to improve this book over future editions by listening to your feedback and continuing to reflect changesin the management sciences and pharmacy practice.
  • 18. AC K N OW L E D G M E NT S We would like to thank the pharmacy administration colleagues who have played an important role in our development throughout our undergraduate and graduate studies, as well as at our institutions. Over the years, we have also come to know many other colleagues in our discipline who have shared their knowledge and provided advice. We have learned a great deal about our discipline and about teaching from our colleagues, and feel fortunate that they have been willing to share their knowledge and experience with us. Thanks must also go to all the faculty, staff and administrators at the University of Oklahoma and Drake University who have provided an environment that makes this type of endeavor possible. We would also like to thank all of the students we have taught who have inspired us to continue to strive to become better educators. We would like to thank everyone at McGraw-Hill, and in particular the editor of the first edition, Michael Brown, and of the current edition, Michael Weitz, for working with us to make our idea for a comprehensive pharmacy management textbook a reality. Finally, we would like to acknowledge of efforts of each of our chapter authors. We chose our authors not only because of their expertise, but also because of their dedication to teaching and the professional development of pharmacy students and pharmacists. There is no way in which we could have completed this textbook without their efforts. xviiCopyright © 2009 by The McGraw-Hill Companies, Inc. Click here for terms of use.
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  • 20. SECTION I Why Study Management in Pharmacy School?Copyright © 2009 by The McGraw-Hill Companies, Inc. Click here for terms of use.
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  • 22. 1 Pharmaceutical Care as a Management Movement Shane P. Desselle A bout the Author: Dr. Desselle is Professor, Associate Dean for Tulsa Programs, and Chair, Department of Pharmacy: Clinical and Administrative Sciences—Tulsa at the University of Oklahoma College of Pharmacy. Dr. Desselle received a B.S. degree in pharmacy and a Ph.D. in pharmacy administration from the University of Louisiana at Monroe. He has practice experience in both community and hospital pharmacy settings. Dr. Desselle teaches courses in American health care systems, health care economics, social and behavioral aspects of pharmacy practice, and research methods. His research interests include performance appraisal systems in pharmacy, quality of work life among pharmacy technicians, direct-to- consumer prescription drug advertising, Web-based pharmacy services, and pharmacy benefit design. Dr. Desselle won the Duquesne University School of Pharmacy’s President’s Award for Teaching in 2003 and President’s Award for Scholarship in 2004 and was recognized for his contributions to pharmacy by being named a Fellow of the American Pharmacists Association in 2006. ■ LEARNING OBJECTIVES After completing this chapter, students should be able to 1. Identify changes in the roles of pharmacists since the early 1900s. 2. Describe how pharmacy practitioners and educators viewed the need for manage- ment skills as the roles of pharmacists evolved. 3. Identify principal domains of pharmacy care. Describe the practices of pharma- ceutical care and medication therapy management as a series of management functions. 4. Identify myths surrounding the practice of pharmacy and health care as a business. 5. Evaluate the need for a management perspective to better serve patients and im- prove outcomes to drug therapy. 6. List the managerial sciences, and describe their use as tools to assist pharmacists in practice. 3Copyright © 2009 by The McGraw-Hill Companies, Inc. Click here for terms of use.
  • 23. 4 WHY STUDY MANAGEMENT IN PHARMACY SCHOOL?■ SC E NA R IO few decades? What roles and functions do pharma- cists perform today?Mary Quint has just completed the first 2 years of 2. What is the significance of management within thea doctor of pharmacy curriculum, and despite many context of the pharmaceutical care and medicationlong hours of hard work and a few anxious moments therapy management movements? Why has its sig-preparing for examinations, she has been pleased with nificance typically been overlooked by pharmacistsher educational experience thus far. She also perceives and pharmacy students?that as she continues progressing through the curricu- 3. What are some of the myths surrounding the con-lum, the upcoming courses will be more integrated fluence of business practices and the provision ofand directly applicable to pharmacy practice. She is es- patient care by pharmacists?pecially excited about taking courses in pharmacology 4. What evidence exists that a business perspective isand therapeutics so that she can “really learn about critical to providing effective pharmacy services tohow to be a pharmacist.” She glances down at her patients?schedule and sees that she is enrolled in a required 5. What are the managerial sciences, and how cancourse in pharmacy management, and her enthusiasm pharmacy practitioners use them effectively?becomes somewhat tempered. She immediately con-sults with fellow students on what they have heard ■ I NT RO D U C T IO Nabout the course, and they tell her that the course isabout “finance, accounting, and marketing.” Despite The preceding scenario, though perhaps overly sim-some positive comments provided by students having plistic, properly captures the feelings of many studentsalready completed the course, she is concerned. “What who select pharmacy as a major. They generally are in-do I have to take this course for? I did not come to terested in science, have a desire to help people in need,pharmacy school for this. I’m very good at science. If I and prefer a career offering long-term financial secu-liked this kind of stuff, I would have majored in busi- rity. Given that the pharmacy curriculum consists ofness. How is this going to help me to become a better courses that apply knowledge from physics, chemistry,pharmacist?” she asks herself. anatomy, physiology, and therapeutics, most pharmacy After some thought, she comes to realize that, at students achieved success in science and math coursesworst, taking this course will not be the end of the throughout their prepharmacy studies. Second, stu-world, and even better, it simply might be a moderate dents selecting pharmacy as a major typically are at-intrusion in her Monday-Wednesday-Friday routine. tracted to health care fields and may have contem-She begins to focus on other issues, such as her part- plated nursing, medicine, or other health professions.time job at Middletown South Pharmacy. Lately, she Research has demonstrated that people in health carehas dreaded going to work there. The staff consistently are caring and empathic and seek personal reward andseems rushed and impatient. There always seems to be self-actualization through the helping of others (Bell,conflict among the employees, and as soon as one fire McElnay, and Hughes, 2000; Carmel and Glick, 2001;has been put out, another larger one begins to burn. Fjortoft and Zgarrick, 2003; Kunyk and Olsen, 2001).She regrets her decision to quit her job at Middletown Finally, many pharmacy students have also consideredNorth Pharmacy 3 months ago, even though it took the relatively high salaries of their chosen profession20 minutes longer to get there. Things always seemed prior to making their 6-year educational run smoothly at Middletown North. While few fields guarantee graduates a job, and cer- tainly not one with entry-level salaries approaching■ C H A P T E R QU E S T IO N S a six-digit figure, pharmacy students take comfort in knowing that employment in their profession will pro-1. How have pharmacists’ roles in delivering pharma- vide them with a generous and steady stream of income. ceutical products and services evolved over the past It comes as no surprise that pharmacists and pharmacy
  • 24. Pharmaceutical Care as a Management Movement 5students have been shown to be risk-averse individuals ting. This chapter and all succeeding chapters use anwho do not deal with uncertainties particularly well evidence-based approach to discuss pharmacy manage-(Curtiss, 1980; Gaither, 1998a; Latif, 2000). This fur- ment, relying on recent literature and research findingsther explains their gravitation toward science-oriented to describe and explain what is happening in practicecourses that offer straightforward solutions to prob- today. Students are encouraged to explore readings oflems. interest among the references cited throughout the text. Unbeknown to many pharmacy students is thatthe actual practice of pharmacy does not present asuccession of problems that can be resolved along ■ A B R I E F H I S TO R IC A Lsuch clear demarcations. While the sequential pro- OV E RV I EW O F PH A R MACYcesses involved in community pharmacy practice have P R AC T IC Eremained the same—patients present with prescrip- Pharmacy Practice Prior to the 1940stions, pharmacy personnel fill them, and the necessarycounseling is offered or provided by the pharmacist—a There have been several noteworthy efforts to describecareful introspection reveals that the profession has un- the evolution of pharmacy practice. Some have de-dergone a rapid, head-turning transformation over just scribed the process within the context of “waves,” orthe past few decades. Pharmacists now are increasingly shifts, in educational and industrial forces (Hepler,involved with providing services in addition to medica- 1987), another through identifying stages of profes-tions and are taking greater responsibility for patients’ sional identity (Hepler and Strand, 1990), and stilloutcomes arising from drug therapy. Pharmacists have another through describing momentous occurrencesbecome more integrated into health care delivery teams in the health care delivery system whose effects rip-that coordinate patient care through the implementa- pled throughout the pharmacy profession (Broesekertion of guidelines and treatment algorithms. Pharma- and Janke, 1998). While these approaches appear quitecists operate as part of a health care delivery system disparate, their descriptions of the principal drivers oflargely driven by reimbursements from third-party pay- change closely mirror one another. The approach takeners who insist on obtaining high-quality patient care at here is simply to describe these changes in the early,the lowest possible cost. middle, and late twentieth century. For pharmacy students to better understand theway that pharmacy is practiced today, time should be Pharmacy in the Early Twentieth Centurydevoted to understanding the major forces that have Pharmacy in the United States began in the twentiethshaped the profession. This chapter begins with a brief century much like it existed in the latter 1800s. Phar-history of the evolution of pharmacy practice in the macy was, at best, a “marginal” profession. Most prac-twentieth century. This history, coupled with a snap- titioners entered the occupation through apprentice-shot of contemporary pharmacy practice, will make ship rather than formal education. The pharmacist’sit clear that the pharmaceutical care and medication principal job function was described as the “dailytherapy management movements are as much about handling and preparing of remedies in common use”management as they are about clinical pharmacy prac- (Sonnedecker, 1963, p. 204). Pharmacists, or “apothe-tice. The chapter proceeds by pointing out some myths caries,” often were engaged in the wholesale manufac-about the exclusivity of the pharmacy business and pa- ture and distribution of medicinal products. Pharma-tient outcomes and by providing evidence that what is cists’ roles during this time were considerably differentbest for the operation of a pharmacy business often is from what they are today. In the early twentieth cen-what is best for the patients that it serves. The chap- tury, pharmacists’ primary roles were to procure rawter concludes with a brief discussion of the managerial ingredients and extemporaneously compound themsciences—tools that every practitioner will find useful into drug products for consumer use. While pharma-at one point or another regardless of the practice set- cists had not yet achieved recognition as health care
  • 25. 6 WHY STUDY MANAGEMENT IN PHARMACY SCHOOL?professionals, they often had considerable autonomy in Survey and Construction (Hill-Burton) Act of 1946their practice. There was no clear distinction between provided considerable funding for the renovation and“prescription” and “nonprescription” drugs. Although expansion of existing hospitals and the constructionphysicians were engaged in the process of writing pre- of new ones, primarily in underserved inner-city andscriptions, pharmacists were not precluded from dis- rural areas (Torrens, 1993).pensing preparations without a physician’s order. Con- Ironically, pharmacists began to see their roles di-sumers commonly relied on their pharmacists’ advice minish during this era of expansion. Among the factorson minor ailments and often entrusted the nickname responsible for this decline were advances in technologyof “doc” to their neighborhood pharmacist (Hepler, and the pharmaceutical sciences and societal demands1987). that drug products become uniform in their composi- Pharmacists had little choice but to have sharp tion. These brought changes about the mass produc-business acumen to survive. Because few of the tion of prefabricated drug products in tablet, capsule,products they dispensed were prefabricated by man- syrup, and elixir dosage forms, thus significantly reduc-ufacturers, pharmacists had to be adept at managing ing the need for pharmacists to compound prescrip-inventories of bulk chemicals and supplies used in com- tion orders. The passage of the Durham-Humphreypounding the preparations they dispensed. They also Amendment to the Food, Drug, and Cosmetic Act inhad to have a keen sense of how to manage time and 1951 created a prescription, or “legend,” category ofpeople to accomplish a series of complex tasks through- drugs. Pharmacists did not have the ability to dispenseout the workday. these drugs without an order from a licensed prescriber. A series of studies commissioned by the U.S. gov- Finally, pharmacy’s own Code of Ethics, promulgatedernment in the early 1900s produced what became by the American Pharmaceutical Association (APhA),known as the Flexner Reports in 1915. These reports stated that pharmacists were not to discuss the thera-were critical of health care professionals and their edu- peutic effects or composition of a prescription with acation, including pharmacists. The reports questioned patient (Buerki and Vottero, 1994, p. 93). This com-the validity and necessity of pharmacists as health care bination of forces relegated the role of the pharmacistprofessionals. Shortly thereafter, the American Associ- largely to a dispenser of preprepared drug products.ation of Colleges of Pharmacy (AACP) commissioned The response of schools and colleges of pharmacya study directed by W. W. Charters that ultimately to these diminishing roles was the creation of curric-served as the basis for requiring a 4-year baccalaureate ula that were more technical, scientific, and content-degree program for all colleges of pharmacy (Hepler, driven. A fifth year of education was added to the 4-year1987). These and other forces led to dramatic changes baccalaureate degree by colleges and schools of phar-in pharmacy in the coming years. macy during the late 1940s and early 1950s following the AACP Committee on Curriculum report entitled, “The Pharmaceutical Curriculum” (Hepler, 1987). ItPharmacy in the Middle of the was during this time that pharmacology, pharmaceu-Twentieth Century tics, and physical chemistry matured as disciplines andThe 1940s through the 1960s often have been referred became the fabric of pharmacy education. Pharmacyto as the “era of expansion” in health care (Relman, students were required to memorize an abundance of1988). The Flexner Reports paved the way for a information about the physical and chemical naturemore scientifically sound, empirically based allopathic of drug products and dosage forms. Courses in thebranch of medicine to become the basis by which health business aspects of pharmacy took a secondary role,care was practiced and organized. The federal govern- whereas education in patient care (e.g., communica-ment invested significant funds to expand the quan- tions and therapeutics) was for all intents and purposestity and quality of health care services. The Hospital nonexistent.
  • 26. Pharmaceutical Care as a Management Movement 7 With the Code of Ethics suggesting that phar- tion and dissatisfaction among practitioners was be-macists not discuss drug therapies with their patients, ginning to affect students (Hepler, 1987, p. 371). Thethe profession lost sight of the need for pharmacists to clinical pharmacy movement evolved in the 1970s tocommunicate effectively with patients and other health capture the essence of the drug use control concept for-care professionals. As the number of hospital and chain warded by Brodie (1967) and promoted the pharma-pharmacies expanded, resulting in pharmacists being cist’s role as therapeutic advisor. The clinical pharmacymore likely to be employees rather than business own- movement brought about changes in pharmacy edu-ers, the importance of practice management skills was cation and practice. After being introduced in 1948,not stressed in schools of pharmacy. Ironically, studies the 6-year Doctor of Pharmacy (Pharm.D.) degree be-such as the Dichter Report commissioned by the APhA came the only entry-level degree offered by a smallrevealed that consumers regarded pharmacists more as number of colleges of pharmacy during as early asmerchants than as health care professionals (Maine and the late 1960s and early 1970s. The additional yearPenna, 1996). was devoted mostly to therapeutics or “disease-oriented courses” and experiential education. Eventually, the Doctor of Pharmacy degree become the entry-levelPharmacy in the Latter Part of the degree into the profession, and colleges of pharmacyTwentieth Century eventually began to phase out baccalaureate programsThe era of expansion slowed in the 1970s when soci- (American Association of Colleges of Pharmacy, 1996).ety began experiencing “sticker shock” from the monies The trends begun by leaders and academiciansbeing spent on health care. Congress passed the Health in the field toward a more clinical practice approachMaintenance Act of 1973, which helped to pave the may appear to be an ill-conceived response to recentway for health maintenance organizations (HMOs) to changes in the delivery of health care. These changesbecome an integral player in the delivery of health care emphasize a heightened concern over spiraling costsservices. Governments, rather than the private sector, and have resulted in the deinstitutionalization of pa-took the lead in attempting to curb costs when they im- tients and the standardization of care using such toolsplemented a prospective payment system of reimburse- as protocols, treatment algorithms, and critical path-ment for Medicare hospitalizations based on categories ways. It also may appear to fly in the face of changesof diagnosis-related groups (Pink, 1991). in the organization of the pharmacy workforce and The Millis Commission’s report in 1975, Pharma- current market for pharmaceuticals. With the propor-cists for the Future: The Report of the Study Commission tion of independently owned community pharmacieson Pharmacy (Millis, 1975), suggested that pharma- at an all-time low in the year 2000, chain, supermar-cists were inadequately prepared in systems analysis ket, and mass-merchandiser pharmacies had garneredand management skills and had particular deficien- nearly 64 percent of the outpatient prescription drugcies in communicating with patients, physicians, and market (National Association of Chain Drug Stores,other health care professionals. A subsequent report 2003). Studies have long suggested that pharmacistssuggested including more of the behavioral and social willing and clinically knowledgeable enough to pro-sciences in pharmacy curricula and encouraged more vide pharmaceutical care face significant barriers whenfaculty participation and research in real problems of practicing in a chain environment (Miller and Ort-practice (Millis, 1976). meier, 1995). Additionally, two relatively new venues Prior to these reports, the American Society of for outpatient pharmacy services that virtually excludeHospital Pharmacists had published Mirror to Hospital face-to-face consultation with patients have evolved.Pharmacy, stating that pharmacy had lost its purpose, In the year 2005, mail-order pharmacy operations hadfalling short of producing health care professionals ca- secured 19.1 percent of the market share (in salespable of engendering change and noting that frustra- revenue) for outpatient prescription drugs (National
  • 27. 8 WHY STUDY MANAGEMENT IN PHARMACY SCHOOL?Association of Chain Drug Stores, 2006). The new of punitive action by state boards of pharmacy, andmillennium also saw the implementation of Internet the loss of social esteem enjoyed by the profession as apharmacy sites, many of which are owned and oper- whole. Risk management suggests that risk cannot beated by traditional “brick and mortar” chain pharmacy avoided entirely but rather that it should be assessed,corporations. measured, and reduced to the extent feasible (Tootelian and Gaedeke, 1993, p. 163). The idea that pharmaceutical care should be■ PH A R MAC E U T IC A L C A R E A S viewed strictly as a clinical movement has been called A MA NAG E M E NT into question (Wilkin, 1999). Evidence that pharma- M OV E M E NT ? ceutical care exists in part as a management movement was provided in a recent study that sought to identifyWith these changes in mind, adopting pharmaceuti- standards of practice for providing pharmaceutical carecal care as a practice philosophy would appear “a day (Desselle and Rappaport, 1996). A nationwide panellate and a dollar short” for both the profession and of experts identified 52 standards of pharmacy prac-the patients it serves. Indeed, this may be the case if tice, only to have a statewide sample of pharmaciststhe concept of pharmaceutical care were entirely clini- judge many of them as infeasible to implement in ev-cal in nature. The originators of the concept fervently eryday practice (Desselle, 1997). Of the practice stan-stressed that pharmaceutical care is not simply a list dards that were judged to be feasible, further researchof clinically oriented activities to perform for each and yielded a system of “factors” or “domains” in whichevery patient but is, in fact, a new mission and way of these standards could be classified (Desselle and Rap-thinking that takes advantage of pharmacists’ accessi- paport, 1995). These practice domains can be foundbility and the frequency to which they are engaged by in Table 1-1. Figuring very prominently into this clas-patients—a way of thinking that engenders the phar- sification was the “risk management” domain, whichmacist to take responsibility for managing a patient’s included activities related to documentation, drug re-pharmacotherapy to resolve current and prevent future view, triage, and dosage calculations. However, the con-problems related to their medications. tributions of the managerial sciences do not stop there. It has been argued that the focus on preventing The remaining four domains connote significant in-and resolving medication-related problems is simply an volvement by pharmacists into managerial processes.extension of risk management (Wiederholt and Wieder- Two of the domains (“services marketing” and “busi-holt, 1997; see also Chapter 28). Risks are an inherent ness management”) are named specifically after man-part of any business activity, including the provision of agerial services. Common risks to business practiceinclude fire, natural disasters, theft, economic down-turns, and employee turnover, as well as the fact that ■ F RO M PH A R MAC E U T IC A Lthere is no guarantee that consumers will accept or C A R E TO M E D IC AT IO Nadopt any good or service that is offered to them. The T H E R A P Y MA NAG E M E NTpractice of pharmacy involves additional risks, specifi-cally the risk that patients will suffer untoward events While the pharmaceutical care movement made an in-as a result of their drug therapy. delible mark on the profession, its terminology is be- These events are significant because they may re- ing replaced with more contemporary language thatsult in significant harm and even death to a patient reflects pharmacists’ growing roles in the provision ofand can also pose serious detriments to pharmacists, public health services. In recognizing the morbiditysuch as feelings of guilt and stress, the potential for and mortality resulting from medication errors as alitigation from patients and their families, the threat public health problem, the profession has begun to
  • 28. Pharmaceutical Care as a Management Movement 9 Table 1-1. Pharmaceutical Care Practice Domains I. Risk management Devise system of data collection Perform prospective drug utilization review Document therapeutic interventions and activities Obtain over-the-counter medication history Calculate dosages for drugs with a narrow therapeutic index Report adverse drug events to FDA Triage patients’ needs for proper referral Remain abreast of newly uncovered adverse effects and drug–drug interactions II. Patient advocacy Serve as patient advocate with respect to social, economic, and psychological barriers to drug therapy Attempt to change patients’ medication orders when barriers to compliance exist Counsel patients on new and refill medications as necessary Promote patient wellness Maintain caring, friendly relationship with patients Telephone patients to obtain medication orders called in and not picked upIII. Disease management Provide information to patients on how to manage their disease state/condition Monitor patients’ progress resulting from pharmacotherapy Carry inventory of products necessary for patients to execute a therapeutic plan (e.g., inhalers, nebulizers, glucose monitors, etc.) Supply patients with information on support and educational groups (e.g., American Diabetes Association, Multiple Sclerosis Society) IV. Pharmaceutical care services marketing Meet prominent prescribers in the local area of practice Be an active member of professional associations that support the concept of pharmaceutical care Make available an area for private consultation services for patients as necessary Identify software that facilitates pharmacists’ patient care–related activities V. Business management Use technicians and other staff to free up the pharmacist’s timeembrace the concept of medication therapy manage- MTM movement has been especially strengthened byment (MTM). MTM represents a comprehensive and language in the Medicare Prescription Drug, Improve-proactive approach to help patients maximize the ben- ment and Modernization Act (MMA) of 2003 (Pub-efits from drug therapy and includes services aimed to lic Law Number 108-173), which mandates paymentfacilitate or improve patient compliance to drug ther- for MTM services and proffers pharmacists as viableapy, educate entire populations of persons, conduct health professionals who may offer such services. Aswellness programs, and become more intimately in- such, MTM is now considered a key component involved in disease management and monitoring. The the provision of pharmacy care services.
  • 29. 10 W H Y S T U D Y M A N A G E M E N T I N P H A R M A C Y S C H O O L ?■ MY T H S C O N C E R N I N G T H E nation’s gross national product and cost over $5000 C O N F LU E N C E O F BU S I N E SS per person (Kaiser Family Foundation, 2005), health P R AC T IC E A N D PH A R MACY care consumers have little choice but to become more discerning shoppers of health care services. BecauseDespite evidence that would suggest otherwise, the resources are limited, the number of services andneed for a management perspective in pharmacy is of- products provided to consumers cannot be bound-ten overlooked and even shunned by some pharmacy less. Conscientiousness in the allocation of resourcesstudents and practitioners. Common misconceptions helps to ensure that more of the right people re-about the need for a management perspective have been ceive the right goods and services at the right timedocumented (Tootelian and Gaedeke, 1993, p. 23): and place. Many people do not stop to think that if a company in the health care business is not ablet The practice of pharmacy is ethically inconsistent with to pay its own workforce and cover its other costs good business. The origin of this myth probably of doing business, it will have little choice but to evolved from the unethical business practices of some close its doors, leaving a void in the array of services organizations. Scandals involving abuses by corpo- previously afforded to consumers. Even nonprofit rate executives at large international firms in the entities have to pay the bills because if they can- early 2000s have done little to mitigate these percep- not break even, they too have to shut down opera- tions. The incident involving a pharmacist in Kansas tions. Students may be surprised to learn that most City, Missouri, diluting chemotherapeutic drugs to nonprofit companies in health care compete quite spare inventory costs demonstrated that health care fiercely against companies that are structured on a professions are not without unscrupulous members for-profit basis. (Stafford, 2002). Furthermore, some people believe t The good pharmacist is one who is a “clinical purist.” that companies involved in the sale of health care This is perhaps a manifestation of the other mis- goods and services should be philanthropic in nature conceptions, in addition to a false pretense that the and are upset that companies profit from consumers’ complexities of modern drug therapy do not allow medical needs. Despite occasional examples of mis- time for concern with other matters. On the con- conduct, most companies and persons involved in trary, a lack of knowledge on how to manage re- business operations conduct themselves in an ap- sources and a lack of understanding on how to work propriate manner. within the current system of health care deliveryt Business is not a profession guided by ethical standards. will only impede the pharmacist’s goal to provide Pharmacists and pharmacy students generally are MTM services. Pharmacists who “don’t want to be cognizant of the vast number of rules and regula- bothered with management” face the same logisti- tions that govern pharmacy but are less aware of the cal constraints, such as formularies, generic substi- standards governing practice in advertising, account- tution, prior authorizations, limited networks, em- ing, and interstate commerce. Many of the rules and ployee conflict and lack of productivity, breakdowns regulations governing pharmacy practice were bor- in computer hardware and software, budgetary lim- rowed from legislation existing in sectors other than itations, and changes in policy that all other phar- health care. macists face. The problem with the “don’t want tot In business, quality of care is secondary to generating be bothered with management” pharmacists is that profits. This misconception likely results from the they will be less likely to operate efficiently within efforts by payers of health care and by managers to the system, becoming frustrated and ultimately less control costs. In light of the fact that in 2005 health clinically effective than the pharmacists who accept care accounted for approximately 16 percent of the these challenges as part of their practice.
  • 30. Pharmaceutical Care as a Management Movement 11 The United States has been facing an acute short- career burnout or impairment through the abuse ofage of pharmacists in the wake of an ever-increasing alcohol and drugs.number of prescription drugs dispensed (Gershon,Cultice, and Knapp, 2000). At the same time, the pro-fession has come under more intense pressure to reduce ■ GO O D MA NAG E M E NTthe incidence of medication errors in both institutional P R AC T IC E A N Dand ambulatory settings (Thompson, 2001; Institute M E D IC AT IO N T H E R A P Yof Medicine, 2006). This is placing a burden on phar- MA NAG E M E NT — A W I N N I N Gmacists to be especially productive, efficient, and error- C O M B I NAT IO Nfree. Productivity is a function of a pharmacist’s abilityto manage workflow, technology, the quality and ef- Evidence of the success of a management perspectiveficiency of support personnel, phone calls, and other in pharmacy practice abounds. A series of studies ex-problems that arise in day-to-day practice. amined the use of strategic planning by pharmacists Moreover, pharmacy administrators reward phar- in both community and hospital settings (Harrisonmacists who can manage a pharmacy practice. New and Bootman, 1994; Harrison and Ortmeier, 1995,graduates often obtain entry-level administrative posi- 1996). These studies showed that among communitytions (e.g., pharmacy department manager, area man- pharmacy owners, those who fully incorporated strate-ager, or clinical coordinator) after just 2 to 3 years in gic planning saw higher sales volume and profitabilitypractice. It is not uncommon to see pharmacy grad- than did those who did not or who did so just partially.uates move up into even higher-level administrative Pharmacies owned by “strategic planners” also were sig-positions (e.g., district or regional manager of a chain nificantly more likely to offer clinical or value-addedor associate director or director of a hospital pharmacy services than pharmacies run by owners who were not.department) within 5 to 10 years of graduation. Phar- Likewise, better administrative, distributive, and clin-macists who can manage a practice successfully (i.e., ical performance among hospital pharmacies also wasincrease volume, reduce errors, engender customer sat- associated with their respective directors’ involvementisfaction, improve profitability, and reduce employee in the strategic planning process.turnover) are in the best position for promotions. Another study pointed out that support from su- A final point to consider is that even if a pharma- pervisors and colleagues had a positive impact on thecist does not ascend to an administrative position, he commitment that pharmacists display toward theiror she inherently “manages” a practice the instant he or respective organizations, thus enhancing the likeli-she takes a position as a pharmacist. Staff pharmacists hood that these pharmacists would not quit their jobsin every practice setting manage technicians and clerks (Gaither, 1998b). Other studies suggest that pharma-every hour of every day. They also manage the flow cists’ perceived ability to adhere to standards of phar-of work through their sites and the use of medications macy practice hinged considerably on the effectivenessby patients. Closely tied to this issue is the issue of of supervisors to provide them with feedback and facil-personal job satisfaction. The pressures on the modern itate their satisfaction on the job (Desselle and Tipton,pharmacist are unmistakable. Satisfaction with one’s 2001). The same study also demonstrated that phar-job and career is important because they are closely re- macists designating themselves as “managers” were lesslated to one’s satisfaction with life (Sumer and Knight, satisfied with their own jobs, likely as a result of their2001). Pharmacists’ ability to manage their work envi- lack of training in such areas.ronment can have a significant impact on their ability Surveys of pharmacists commonly indicate thatto cope with the daily stressors of practice, increas- looking at their practices today, they wish they hading job satisfaction, and diminishing the likelihood of more training in management during their professional
  • 31. 12 W H Y S T U D Y M A N A G E M E N T I N P H A R M A C Y S C H O O L ?education. One study suggested that a business/work Table 1-2. Factors Affecting the Delivery oforientation was the skill most critical in implement- Pharmacy Products and Servicesing a successful practice (Speedie, Palumbo, and Leav-itt, 1980). It was suggested in another survey that Patient demographicslack of time and poor communication were primary Aging populationobstacles to delivering pharmacy care services (Cian- Females as decision makerscanglini, Waterhouse, and D’Elia, 1994). Still another Ethnic composition of patientsstudy concluded that it would benefit practicing phar- Attitudes and belief systemsmacists to seek continuing education in management, Beliefs about disease, sick role, andhealth care systems and policy, and pharmacotherapeu- medication-takingtics (Desselle and Alafris, 1999). It has been argued that Trust in the health care delivery systemto achieve excellence in the implementation of MTM Direct-to-consumer advertising of prescriptionservices, pharmacists must obtain and properly allocate drugsresources, design efficient distribution systems, select Third-party payers and coverage issuesand train adequate support staff, develop systems for Complexity/differences among payers’ policiesdisseminating knowledge on new drugs and technol- Formulariesogy, and document and evaluate the cost-effectiveness Limited networksof the services provided—all of which are tasks that Limited access for some patientsrequire management skills (Smith, 1988). Lack of knowledge by patients Table 1-2 summarizes many of the principal fac- Competitive marketstors that affect the delivery of pharmacy care services Diminished marginsand is used to further illustrate the existing synergy be- Diversity in the types of providers offeringtween pharmacy care and good business practice. First, products and servicesthe demographic composition of the patient popula- Technologytion has changed dramatically. The mean age of Ameri- Softwarecans continues to increase, as does their life expectancy. Automated dispensing technologyThis results in a greater proportion of patients present-ing with multiple disease states and complex therapeu-tic regimens. Although many of our nation’s seniors is rendered useless if pharmacists lack basic knowledgelead normal, productive lives, their visual acuity, hear- about the patients whom they serve. Even the mosting, mobility, and ability to use and/or obtain viable carefully devised and therapeutically correct pharma-transportation may be comprised. Pharmacists must ceutical care plan will not work if the patient does nottake on additional responsibilities in managing these put faith in the pharmacist’s recommendations. Goodpatients’ care and coordinating their services. Also, the pharmacists are able to relate to patients of all persua-population of patients that pharmacists serve is becom- sions and convince them to put faith in the consulta-ing more ethnically diverse. Good pharmacy managers tion they provide. An additional consideration is thewill benefit from a heightened sensitivity toward the increased marketing of health care products directly toneeds of all patients and efforts to carry products that consumers. This has resulted inevitably in an increaseappeal to specific populations. in the frequency of medication-specific queries from The shift in the demographic composition of pa- patients. Good pharmacists do not bias their answerstients also brings to bear the varying beliefs people have but are able to triage their patients’ requests with ap-about treating their disease states and taking medica- propriate information and recommendations.tions and their trust in the health care delivery system. A management perspective is indispensable whenAll the clinical and scientific knowledge in the world it comes to issues dealing with third-party payers (e.g.,
  • 32. Pharmaceutical Care as a Management Movement 13private insurers, government-sponsored programs; see tient care and perform other practice and managementChapter 16). Unlike other countries, whose health care are founded on single-payer reimbursement The arrival on the scene of MTM and the com-structures, practitioners in the United States face a plexities of Medicare legislation further underscore themix of payers, including individual patients, private in- need for practice management skills among pharma-surers, employers, and government health plans. Each cists. In addition to knowledge required to help patientspayer differs in its formularies (list of approved drugs), navigate the health care system, pharmacists must berules for reimbursement, and the network of pharma- able to maximize efficiency in human, capital, and tech-cists qualified to accept its coverage. The management- nological resources to serve patients, provide services,minded pharmacist is able to identify payers that and take advantage of the unique opportunities to gainafford the pharmacy the opportunity to provide qual- reimbursement for MTM services.ity patient care while maintaining an appropriate levelof profit. Pharmacists must provide appropriate infor-mation about coverage to patients, who often do not ■ T H E MA NAG E R I A L SC I E N C E Sknow about the intricacies of their plans and the healthcare system (Fronstin, 2000). Additionally, pharma- Although mentioned throughout this chapter, a morecists must coordinate therapeutic plans for cash-paying formal examination of the managerial sciences shouldpatients whose financial situation may preclude them put into perspective their use as tools to implementfrom receiving certain therapies and services. pharmacy services effectively. The managerial sciences An additional challenge facing pharmacies and are summarized in Table 1-3. The reason they are re-pharmacists is that of shrinking profit margins. A phar- ferred to as sciences is because their proper applicationmacy’s profit margin is the excess of revenues after cov- stems from the scientific process of inquiry, much theering expenses that it secures as a percentage of its total same as with other pharmaceutical sciences. The sci-revenues. As the percentage of prescriptions paid for by ence of accounting (see Chapter 15) involves “keepingsources other than patients has increased, profit mar- the books,” or adequately keeping track of the busi-gins have decreased. In addition to selecting the right ness’s transactions, such as sales revenues, wages paid tomix of plans in which to participate, the management- employees, prescription product purchases from sup-minded pharmacist looks for other opportunities to pliers, rent, and utility bills. This must be done tobring in additional revenues and decrease expenses, ensure that the company is meeting its debts andsuch as implementing cognitive services, selling an- achieving its financial goals. Accounting is also used tocillary products, effectively purchasing and maintain- determine the amount of taxes owed, to make reportsing proper levels of inventory, effective marketing, and to external agencies and/or auditors, and to identifyhaving the appropriate amount and type of person- areas where the company’s assets could be managednel needed to do the job. This is especially important more efficiently. While accounting is used to evaluatein light of the fact that consumers have more choices a company’s financial position, finance is more con-than ever in seeking health care solutions, ranging from cerned with the sources and uses of funds (e.g., Wherenontraditional sources (e.g., complementary and al- will the money come from to pay for new and exist-ternative medicine) to more traditional sources (e.g., ing services? Which services are most likely to enhancegrocery stores, convenience stores, gift shops, and the profitability for a pharmacy?).Internet). The other managerial science commonly associ- The management-minded pharmacist also main- ated with managing money is economics. However, thetains software and automated dispensing technologies use of economics transcends financial considerations.that free up time formerly spent in the dispensing pro- Economics is a tool to evaluate the inputs and outcomescess. This gives pharmacists more time to provide pa- of any number of processes. It can be used to determine
  • 33. 14 W H Y S T U D Y M A N A G E M E N T I N P H A R M A C Y S C H O O L ? Table 1-3. The Managerial Sciences the right mix of personnel and automated dispensing technologies, the optimal number of prescriptions dis- Accounting pensed given current staffing levels, whether or not a Keep the books pharmacy should remain open for additional hours of Record financial transactions business, and how much to invest in theft deterrence. It Prepare financial statements is also used to determine the most appropriate drugs to Manage cash flows place on a formulary or to include in a critical pathway. Analysis of profitability Human resources management (see Chapter 9) is Determine business strengths and weaknesses used to optimize the productivity of any pharmacy’s Compute taxes owed to federal, state, and local most critical asset—its people. It involves determin- governments ing the jobs that need to be done, recruiting people for Finance those jobs, hiring the right persons for those jobs, train- Determine financial needs ing them appropriately, appraising their performance, Identify sources of capital motivating them, and seeing that they are justly re- Develop operating budgets warded for their efforts. It also involves issues such as Invest profits determining the right mix of fringe benefits and retire- Manage assets ment programs, setting vacation and absentee policies, Economics assistance with career planning, ensuring employees’ Determine optimal mix of labor and capital on-the-job safety, and complying with laws and rules Determine optimal output established by regulatory bodies. Determine optimal hours of business operation It may be easy to assume that marketing is simply Determine levels of investment into risk another word for advertising (see Chapters 20 and 21). management However, while promotional activities are a significant Human resources management Conduct job analyses component of marketing, its activities include iden- Hire personnel tifying the company’s strengths over its competitors, Orient and train personnel properly identifying consumer bases to which market- Motivate personnel for performance ing strategies will be directed, carrying the right mix of Appraise personnel performance goods and services, arranging these products for opti- Allocate organizational rewards mal “visual selling,” and establishing the right prices for Terminate employment goods and services. Price setting is critical not only for Marketing products but also especially for services. It is here that Identify competitive advantages pharmacists often make mistakes when trying to estab- Implement competitive advantages lish cognitive or value-added services. Services priced Identify target markets too low are unprofitable, perhaps even a money-losing Evaluate promotional strategies proposition, whereas services priced too high will fail Implement promotional strategies to attract customers. Evaluate promotional strategies Operations management (see Chapter 5) involves Select proper mix of merchandise establishing policy delineating the activities of each Properly arrange and merchandise products employee on a day-to-day basis, what tools they will Price goods and services use to accomplish their tasks, and where those tasks Operations management will be performed (i.e., workflow design). It also en- Design workflow tails maintaining the proper inventory of prescription Control purchasing and inventory and nonprescription products so that, on the one hand, Perform quality assurance initiatives the pharmacy is not consistently running out of drug
  • 34. Pharmaceutical Care as a Management Movement 15products that patients need and, on the other hand, and external forces that shape the practice of phar-there are not excess amounts of products reaching their macy. The managerial sciences of accounting, finance,expiration date prior to sale or otherwise taking up economics, human resources management, marketing,valuable space that could be used for other purposes. and operations management are indispensable tools for today’s practitioner.■ “ S M O OT H O PE R AT IO N S ” — R EV I S I T I N G T H E SC E NA R IO ■ QU E S T IO N S F O R F U RT H E RThe preceding discussion of the managerial sciences, D I SC U SS IO Nespecially the issue of workflow design in operations 1. Would you be willing to extend your commute ormanagement, brings us back to the scenario involving make other similar sacrifices to work at a place whereMary Quint. Pharmacy students questioning the sig- you enjoyed your job? Why or why not?nificance of management and the importance of hav- 2. How do you feel about the role that managementing a management perspective need not look much plays in the practice of pharmacy?further than this case. Mary is faced with a dilemma 3. Can you identify someone in a managerial positionprobably all too common to pharmacy students and who is very good at what he or she does? What is itpractitioners. Students who have worked in numerous that makes him or her effective?environments probably can recall that in some of these 4. Do you believe that you are going to be an effectiveplaces things just seemed to be “going well.” Both the pharmacist? What makes you think so?customers and the employers were happy, and it was 5. Do you think that you are going to ascend even-not completely unpleasant to have to show up at work. tually to a managerial position? Why or whyAt other places, there always appears to be a crisis. Im- not?mediately on waking up in the morning, one’s firstthoughts are of dread at having to go to work that day.While this may be somewhat of an oversimplification,the latter places are not being managed well, whereas REFERENCESthe former ones probably are. The tremendous vari-ability that exists from one workplace to another is American Association of Colleges of Pharmacy. 1996. Paper from the Commission to Implement Change in Phar-indicative of how critical management is for both the maceutical Education: Maintaining our commitmentemployees working there and the patients they serve. to change. Am J Pharm Educ 60:378.Now ask yourself, Where do you think that you would Bell HM, McElnay JC, Hughes CM. 2000. Societal per-rather work, and where do you think that patients are spectives on the role of the community pharmacist andreceiving the best care, Middletown North Pharmacy community-based pharmaceutical services. J Soc Adminor Middletown South Pharmacy? Pharm 17:119. Belluck P. 2001. Prosecutors say greed drove pharmacist to dilute drugs. New York Times, August 18.■ C O N C LU S IO N Brodie DC. 1967. Drug-use control: Keystone to pharma- ceutical service. Drug Intell 1:63.Contrary to popular belief, good business and good pa- Buerki RA, Vottero LD. 1994. Ethical Responsibility in Phar- macy Practice. Madison, WI: American Institute of thetient care are not mutually exclusive. In fact, they are History of Pharmacy.almost entirely mutually dependent. Superior patient Broeseker A, Janke KK. 1998. The evolution and revolutioncare and the implementation of clinical services are of pharmaceutical care. In McCarthy RL (ed), Introduc-made possible by pharmacists who are skilled in man- tion to Health Care Delivery: A Primer for Pharmacists,agement. Pharmacists must be attuned to the internal p 393. Gaithersburg, MD: Aspen.
  • 35. 16 W H Y S T U D Y M A N A G E M E N T I N P H A R M A C Y S C H O O L ?Carmel S, Glick SM. 2001. Compassionate-empathic physi- Hepler CD. 1987. The third wave in pharmaceutical edu- cians: Personality traits and social-organizational factors cation: The clinical movement. Am J Pharm Educ 51: that enhance or inhibit this behavior pattern. Soc Sci 369. Med 43:1253. Hepler CD, Strand LM. 1990. Opportunities and respon-Ciancaglini PP, Waterhouse GA, E’Elia RP. 1994. Pharma- sibilities in pharmaceutical care. Am J Hosp Pharm ceutical care skills evaluation. Paper presented at the 47:533. American Association of Colleges of Pharmacy Annual Institute of Medicine. 2006. Preventing Medication Er- Meeting, Albuquerque, NM, July 8. rors: Quality Chasm Series. Washington, DC: NationalCurtiss FR. 1980. Job stress, job satisfaction, anxiety, de- Academy of Sciences. pression, and life happiness among female versus male Kaiser Family Foundation. 2005. United States spends more pharmacists. Contemp Pharm Pract 3:264. per capita than other nations study finds. Available atDesselle SP. 1997. Pharmacists’ perceptions of pharmaceuti- dailyreports; accessed on April cal care practice standards. J Am Pharm Assoc NS37:29. 25, 2007.Desselle SP, Alafris A. 1999. Changes in pharmacy education Kunyk D, Olson JK. 2001. Clarification of conceptualiza- sharpen counseling skills. US Pharmacist 24:78. tions of empathy. J Adv Nurs 35:317.Desselle SP, Rappaport HM. 1996. Establishing standards Latif DA. 2000. Relationship between pharmacy students’ of care in the community setting. J Pharm Care 1:1. locus of control, Machiavellianism, and moral reason-Desselle SP, Rappaport HM. 1995. Feasibility and relevance ing. Am J Pharm Educ 64:33. of identified pharmaceutical care practice standards for Maine LL, Penna RP. 1996. Pharmaceutical care: An community pharmacists. Paper presented at the Amer- overview. In Knowlton C, Penna R (eds), Pharmaceuti- ican Association of Pharmaceutical Scientists Annual cal Care, p 133. New York: Chapman & Hall. Meeting, Miami, FL, November 7. Miller MJ, Ortmeier BG. 1995. Factors influencing the de-Desselle SP, Tipton DJ. 2001. Factors contributing to the sat- livery of pharmacy services. Am Pharm NS35:39. isfaction and performance ability of community phar- Millis JS. 1975. Pharmacists for the Future: The Report of the macists: A path model analysis. J Soc Admin Pharm Study Commission on Pharmacy. Ann Arbor, MI: Health 18:15. Administration Press.Fjortoft N, Zgarrick D. 2003. An assessment of pharmacists’ Millis JS. 1976. Looking ahead: The Report of the Study caring ability. J Am Pharm Assoc 43:483. Commission on Pharmacy. Am J Hosp Pharm 33:134.Fronstin P. 2000. Confidence and confusion: The health care National Association of Chain Drug Stores. 2006. 2006 system in the United States. Stat Bull 81:18. Foundation Industry Profile. Alexandria, VA: NationalGaither CA. 1998a. Investigation of pharmacists’ role stress Association of Chain Drug Stores. and the work/nonwork interface. J Soc Admin Pharm Pink LA. 1991. Hospitals. In Fincham JE, Wertheimer AI 15:92. (eds), Pharmacists and the U.S. Healthcare System, p 158.Gaither CA. 1998b. Predictive validity of work/career-related Binghamton, NY: Pharmaceutical Products Press. attitudes and intentions on pharmacists’ turnover be- Relman AS. 1988. Assessment and accountability: The third havior. J Pharm Market Manag 12:3. revolution in medical care. N Engl J Med 319:1220.Gershon SK, Cultice JM, Knapp KK. 2000. How many Smith WE. 1988. Excellence in the management of clinical pharmacists are in our future? The Bureau of Health pharmacy services. Am J Hosp Pharm 45:319. Professions Projects Supply to 2020. J Am Pharm Assoc Sonnedecker G. 1963. Kremers and Urdang’s History of Phar- 40:757. macy. Philadelphia, PA: Lippincott.Harrison DL, Ortmeier BG. 1995. Levels of independent Speedie SM, Palumbo FB, Leavitt DE. 1974. Pharmacists’ community pharmacy strategic planning. J Pharm Mar- perceptions of the antecedents of success in pharmacy. ket Manag 11:1. Contemp Pharm Pract 3:189.Harrison DL, Ortmeier BG. 1996. Predictors of community Stafford M. 2002. Ex-pharmacist gets 30 years for diluting pharmacy strategic planning. J Pharm Market Manag cancer drugs. Associated Press, December 5. 11:1. Sumer HC, Knight PA. 2001. How do people with differentHarrison DL, Bootman JL. 1994. Strategic planning by in- attachment styles balance work and family? A person- stitutional pharmacy administrators. J Pharm Market ality perspective on work-family linkage. J Appl Psychol Manag 8:73. 86:653.
  • 36. Pharmaceutical Care as a Management Movement 17Thompson CA. 2001. Health care system needs overhaul, Torrens PR (eds), Introduction to Health Services, 4th ed, IOM report says. Am J Health Syst Pharm 58:556. p 3. Albany, NY: Delmar.Tootelian DH, Gaedeke RM. 1993. Essentials of Pharmacy Wiederholt JB, Wiederholt PA. 1997. The patient: Our Management. St. Louis: Mosby. teacher and friend. Am J Pharm Educ 61:415.Torrens PR. 1993. Historical evolution and overview of Wilkin NE. 1999. Pharmaceutical care: A clinical move- health service in the United States. In Williams JS, ment? Mississippi Pharm 26:13.
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  • 38. 2 Management Functions David P. Zgarrick A bout the Author: Dr. Zgarrick is John R. Ellis Distinguished Chair of the De- partment of Pharmacy Practice and Professor of Pharmacy Administration at Drake University’s College of Pharmacy & Health Sciences. Dr. Zgarrick received a B.S. de- gree in pharmacy from the University of Wisconsin and an M.S. and Ph.D. in pharmaceutical administration from The Ohio State University. He has practice experience in both independent and chain community pharmacy settings. Dr. Zgarrick teaches courses in pharmacy operations management, business planning for professional services, and drug literature evaluation. His research interests are in pharmacist compensation and workforce issues, professional service development, and the use of evidence-based medicine by pharmacists. ■ LEARNING OBJECTIVES After completing this chapter, students should be able to 1. Define the terms management and manager. Describe how concepts in manage- ment figure into our everyday lives. 2. Compare and contrast management and leadership. 3. Compare and contrast classical views of management with modern views. 4. Describe the management process within the contexts of what managers do, re- sources they manage, and levels at which managers perform their roles. 5. Integrate modern views of management with the management process. 6. Apply the management process to all personal and professional activities. ■ SC E NA R IO Krista Connelly is a second-year pharmacy student. Like most second-year students, she de- scribes her life as “incredibly stressed out.” A typical day consists of getting up at 6 a.m., getting 19Copyright © 2009 by The McGraw-Hill Companies, Inc. Click here for terms of use.
  • 39. 20 W H Y S T U D Y M A N A G E M E N T I N P H A R M A C Y S C H O O L ?dressed and running out the door by 7 a.m., and driving my exam schedule,” said Krista. “I don’t see how beingto school to get to her first class by 8 a.m. (making sure a manager can help me do the things I want to as ato avoid the accident on the expressway that she heard pharmacist.”about on her way out the door). While at school, shefinds time to squeeze in cups of coffee and snack bars ■ C H A P T E R QU E S T IO N Sbetween the lectures, labs, and workshops that usuallylast until at least 4 p.m. She also makes a point to go to 1. Why is it that all pharmacists should be consideredthe library to prepare upcoming assignments, as well managers regardless of their titles or positions?as to meet with her professors to review how she did 2. Why should pharmacy students study manage-on her exams. ment? After class today, Krista has an Academy of Stu- 3. What is the difference between management anddents of Pharmacy (ASP) meeting. Krista is the vice leadership?president of her chapter. As vice president, she is in 4. How does management affect every aspect of ourcharge of working with all the committee chairs. In the daily lives?past few weeks she has had to help the new professional 5. Will the same approach to management be effectiveservice chairperson develop a brown bag seminar, talk for all types of situations encountered by pharma-her fund-raising chairperson out of quitting, and write cists?a report on each committee’s activities for the chapterWeb site. While she really enjoys her leadership role in ■ W H AT I S MA NAG E M E NT ?ASP, she finds some of the people she works with to befrustrating and wonders how she can motivate them to For many people, a distinct set of images comes todo a better job. mind when they hear the word management. First and After her meeting, Krista drives to a fast-food foremost, they think of a person (or possibly a grouprestaurant to grab a quick dinner on her way to her of people) who is “the boss” to whom they report atpart-time pharmacy technician job. If she’s not work- work. While some people view their relationships withing, she’ll head to a friend’s house to study for an up- management as positive, many of us have had expe-coming exam. She usually gets back to her apartment riences where this has not been the case. This is whyby 10 p.m. and mentally prepares for what she needs when you ask people what they think of management,to do in the next few days. She might catch a little bit they often provide negative views and experiences. Askof TV before heading to bed by midnight. pharmacy students what they think about entering ca- On weekends, Krista catches up on what one reers in pharmacy management, and you’ll likely getmight call “activities of daily living.” She’ll do her laun- answers similar to those provided by Krista Connellydry, pay her bills, surf the Internet, call her parents and and her friends in the scenario.friends back home, and get together with her friends Perhaps it may be better to start by looking a biton Saturday night. When Krista and her friends (most more closely at the term management. The stem of theof whom are also pharmacy students) go out, they’ll word is manage, which according to Webster’s Dictio-often talk about their plans after they graduate from nary is a verb meaning “to control the movement orpharmacy school. They talk about how exciting it will behavior of, to lead or direct, or to succeed in accom-be to counsel patients, work with other health care pro- plishing” (Allee, 1990). Think about how this defini-fessionals, and finally start making those high salaries tion applies to your daily life. Have you ever controlledthey have heard so much about. None of them says the movement or behavior of someone or somethingthat they want to be pharmacy managers. “The phar- (even if it was just yourself )? Have you ever succeededmacy manager at my store is always on my case about in accomplishing a task (even if it was just getting tocoming in late or having to arrange my hours around an examination on time)?
  • 40. Management Functions 21 According to Tootelian and Gaedeke (1993), man- that all managers also have leadership skills, they doagement is “a process which brings together resources not necessarily go hand in hand.and unites them in such a way that, collectively, theyachieve goals or objectives in the most efficient man- ■ C L A SS IC A L A N D M O D E R Nner possible.” Contrary to what many people believe, V I EW S O F MA NAG E M E NTmanagement is a process, which is simply a method ofdoing something. Processes are used to perform simple While management and managers have been with useveryday tasks (e.g., swinging a golf club or driving to since humans have had tasks to perform and goals toschool) as well as more complex activities (e.g., hiring accomplish (e.g., gathering food or finding shelter),a pharmacy technician or dosing an aminoglycoside the study of management as a scientific and academicdrug). People perform processes because they want to curriculum is relatively new. Before the industrial rev-achieve a goal or objective. Goals and objectives can olution of the eighteenth and nineteenth centuries,be personal (e.g., a low golf score or getting to school most people lived and worked alone or in small groups.on time) or professional (e.g., a smoothly operating While people at that time still had goals and objectivespharmacy or high-quality patient care). Because pro- that needed to be accomplished efficiently, there wascesses require resources, and resources are scarce (they little formal study of the best ways to do so. The adventare not present in unlimited supply), it is important of the industrial revolution brought together groups ofthat resources be used in such a way as to achieve goals hundreds and thousands of people who shared a com-and objectives in the most efficient manner possible. mon objective. In order to get large groups of people toWhile one could achieve one’s goal of getting to school work together effectively, industrialists and academicson time by driving 90 miles an hour, one also could established hierarchies and systems that allowed largeargue that this would not be the most efficient use of industrial organizations to accomplish their goals (es-the driver’s resources, especially if there is a sharp turn pecially those related to growth and profitability).ahead or a police officer waiting around the corner. Around the turn of the twentieth century, an Managers are simply people who perform man- American industrialist and a French engineer began toagement activities. While people whom we think of publish observations in what would become known asas “the boss” and those with administrative appoint- the classical, or administrative, school of managementments within an organization certainly are managers, thought. F. W. Taylor, an executive with Bethlehemthe fact is that anyone who has a task to accomplish or a Steel, published The Principles of Scientific Managementgoal to achieve is a manager as well. Pharmacy students in 1911. He was among the first to espouse applyingand pharmacists who say that they do not want to be scientific principles to management of the workplace.managers may not desire the authority and responsi- Henri Fayol, a French mining engineer and corporatebilities of having an administrative position, but there executive, published Administration Industrielle etis no getting around their need to use resources effi- Generale in 1916. Both Taylor and Fayol argued that allciently to perform the tasks related to their jobs. Thus organizations, regardless of size or objective, had to per-all pharmacists, regardless of their job responsibilities form a standard set of functions to operate efficiently.or position, should view themselves as managers. Fayol’s five management functions (i.e., forecasting Another term that is used commonly when think- and planning, organizing, commanding, coordinating,ing about management is leadership. While some peo- and controlling) became widely accepted throughoutple use the terms interchangeably to describe charac- the industrialized world. Both Fayol’s five managementteristics that are expected of people who are “in charge” functions and 14 principles for organizational designof organizations, leadership is a distinctly different skill (Table 2-1) are still used by managers today. Forfrom management. Leadership involves the ability to example, while in the scenario Krista Connelly hasinspire or direct others. While it certainly is desirable the responsibility for working with her ASP chapter’s
  • 41. 22 W H Y S T U D Y M A N A G E M E N T I N P H A R M A C Y S C H O O L ? Table 2-1. Classical Management Theory (Fayol) Fayol’s 5 management functions: 1. Forecast and plan 2. Organize 3. Command 4. Coordinate 5. Control Fayol’s 14 principles for organizational design and effective administration: t Specialization/division of labor. People should perform tasks specific to their skills. No one person should be expected to perform all the skills needed to run an organization. t Authority with corresponding responsibility. People with responsibility also have sufficient authority within an organization to ensure that a task is performed. t Discipline. People should follow rules, with consequences for not following rules. t Unity of command. The organization has an administrator who is recognized as having the ultimate authority (e.g., CEO or president). t Unity of direction. The organization has a sense of direction or vision that is recognized by all members (e.g., mission statement). t Subordination of individual interest to general interest. The goals of the organization supercede the goals of any individuals within the organization. t Remuneration of staff. Employees should be paid appropriately given the market for their skills and their level of responsibility. t Centralization. Performing similar tasks at a single location is more effective than performing these tasks at multiple locations. t Scalar chain/line of authority. Each employee has one, and only one, direct supervisor. t Order. Tasks should be performed in a systematic fashion. t Equity. Supervisors should treat employees with a sense of fairness. t Stability of tenure. Benefits should go to employees who have stayed with an organization longer. t Initiative. Organizations and employees are more effective when they are proactive, not reactive. t Esprit de corps. Teamwork, harmony.committee chairs, she cannot be effective in her ability higher levels of education (almost always men) gen-to carry out her responsibilities unless her position erally were given administrative positions. They wereprovides her with authority that is recognized by the expected to supervise large numbers of less educatedcommittee chairs. Chapter 8 provides more informa- production-line employees. In this hierarchy, the roletion on Fayol’s principles of organizational design. of administrators generally was to command and con- Much of Taylor’s and Fayol’s work was developed trol their employees, and the role of workers was tobased on the workplace conditions of the eighteenth, carry out the tasks at hand without question.nineteenth, and early twentieth centuries. The great in- On the other hand, the workforce and workplacedustries of those times focused primarily on the mass of the late twentieth and early twenty-first centuriesproduction of tangible goods. Very few people were ed- have evolved into something quite different. Accordingucated beyond grammar school. The few people with to the U.S Bureau of Labor Statistics (2007), more than
  • 42. Management Functions 23five times the number of people are involved in the Individualprovision of services than in the production of tangible Interpersonal Organizationalgoods. Today’s workforce is much better educated andmore highly skilled than workers had been in the past. PlanIn many cases, today’s administrators have less formaleducation and fewer technical skills than the people Organizethey are supervising. These trends have led many to question the rel- Leadevance of classical management theories in today’srapidly changing world. Walk down the “Business” Controlaisle of practically any bookstore and you’ll find liter- Money People Time Materials Infoally hundreds of books written by management “gurus”such as Covey, Drucker, Peters, and many others es- Figure 2-1. The management process.pousing modern management techniques and offering“hands on” advice about how to deal with day-to-day to get them done), all managers (which means all ofworkplace issues. Researchers apply scientific methods us!) perform each of these activities every day, whetherto the study of management and publish their results in we are thinking of them or not.scholarly journals, similar to what we see in pharmacy The first of these four activities is planning. Plan-and medicine. These books and research studies make ning is predetermining a course of action based on one’simportant contributions to management science, given goals and objectives. Managers must consider manythe continued need to use scarce resources to achieve factors when planning, including their internal and ex-goals and objectives in an ever-changing business cli- ternal environments. The chief pharmacist at a com-mate. However, as will be discussed below, classical munity pharmacy or the director of a hospital phar-management theory still has a place in today’s pharma- macy will develop plans to predetermine which drugcies, as well as in our personal lives. products he wishes to carry or what professional ser- vices he might offer. Some pharmacists will even go so■ T H E MA NAG E M E NT far as to develop formal strategic and business plans for P RO C E SS their pharmacies (see Chapters 5, 6, and 24 through 27). On the other hand, planning can also be very infor-Figure 2-1 describes one way in which Fayol’s man- mal. Anyone who goes to work or school in the morn-agement functions can be adapted to describe what ing develops a plan for how they will get there (i.e.,managers do in today’s world. There are three dimen- What time do I need to arrive? What form of trans-sions of management: (1) activities that managers per- portation should I take? What route should I follow?).form, (2) resources that managers need, and (3) levels The next management activity is organizing. Or-at which managers make decisions. Every action taken ganizing is the arrangement and relationship of activ-by a manager involves at least one aspect of each of the ities and resources necessary for the effective accom-three dimensions. plishment of a goal or objective. Once a pharmacist has decided which drug products or services she shouldManagement Activities offer, she needs to ask herself what resources she needsFayol’s five management functions have been adapted to provide them, how she will go about obtaining theseto describe four activities that all managers perform. resources, and then determine when she will need to ob-While managers who hold administrative positions in tain them. Once the person going to work or school hastheir organizations may have formal ways of perform- a plan, he needs to think about what else he may needing these activities (and are evaluated on their ability to do to accomplish his goal (e.g., check the weather
  • 43. 24 W H Y S T U D Y M A N A G E M E N T I N P H A R M A C Y S C H O O L ?and traffic reports, get gas in his car, drop his kids offwith a child care provider, etc.). The next step is the leading or directing step. This Planstep combines Fayol’s command and coordinate stepsto provide a better description of what managers actu-ally do in today’s world. Leading or directing involvesbringing about purposeful action toward some desired Control Organizeoutcome. It can take the form of actually doing some-thing yourself (the person going to work or school justneeds to get up and go) or working with others to leadthem to where you want your organization to be. A Leadpharmacist eventually may offer the goods and servicesdescribed in her plans, but almost certainly she will Figure 2-2. Management activities cycle.need to work with a number of other people within herorganization to accomplish this task. In the scenario, Management activities should be performed inKrista Connelly, in her role has vice president of her order, starting with the planning step. They are alsoASP chapter, is responsible for seeing that the chapter’s meant to be cyclic, meaning that what a manager learnscommittees work effectively to accomplish their ob- in the control and evaluation step should be incorpo-jectives. Working with others often requires leadership rated into the planning step the next time she needsskills, which will be discussed in Chapter 14. to accomplish that objective (Fig. 2-2). For example, The fourth step is the control or evaluation step. if a pharmacy student receives a score on an examina-Control or evaluation involves reviewing the progress tion that did not meet his goal, he should use what hethat has been made toward the objectives that were set learned in the evaluation step (e.g., what questions heout in the plan. This step involves not only determin- got wrong, time spent studying, etc.) to help him planing what actually happened but also why it happened. for the next examination.Performing quality-control checks to help ensure thatpatients are receiving the desired medication in the Resources That Are Managedappropriate manner is a very important function of Regardless of their level or position within an organiza-a pharmacy practice. Pharmacists can also ask them- tion, managers must use resources to achieve their goalsselves if the goods and services they offered met their and objectives. Keep in mind that resources are scarce,goals. These goals can be from the perspective of their meaning that they are not available in unlimited supply.patients (e.g., Did the goods and services result in high- Both organizations and individuals must use resourcesquality patient care or improved clinical outcomes?), efficiently to achieve their goals and well as from other perspectives (e.g., Did the ser- The first resource that many managers think of isvice improve the pharmacist’s job satisfaction? Did it money. Customers generally provide money to phar-improve the profitability of the pharmacy or organiza- macies and pharmacists in exchange for goods and ser-tion?). The person going to work or school not only vices. Employers generally pay their employees moneyshould ask himself if he arrived on time but should in exchange for the services they provide to the organi-also know why he did or did not (e.g., the traffic acci- zation. Managing money is important to any organi-dent on the expressway, hitting the snooze button that zation or individual, and several chapters of this bookthird time before getting up, etc.). Chapters 9 and 28 are dedicated to explaining how pharmacies and phar-review some of the methods that pharmacists use to macists manage money and use economic informa-help ensure the quality of their operations and reduce tion to make decisions (see Chapters 15 through 19).the occurrence of medication errors. Money in and of itself can be an important yardstick for
  • 44. Management Functions 25measuring the success of an organization or an individ- While the eighteenth and nineteenth centuriesual. However, most managers value money for its abil- were known as the time of the industrial revolution,ity to allow them to obtain additional resources that the twenty-first century certainly will be known as theare necessary to achieve other goals and objectives. information age. The advent of the computer and the Another resource that is very important to man- Internet in the late twentieth century has resulted inagers is people. In pharmacy practice, there is very an explosion of information that is literally at mostlittle that any one person can accomplish on his or people’s fingertips. This already has had a tremendousher own, regardless of the practice setting. Pharmacists impact on pharmacy practice, providing pharmacistsmust work with other employees in their pharmacies, with information about drugs and patients that theyother health care professionals, and especially the pa- did not have only a few years ago. While it is not certaintients and customers they serve. Given the importance what implications this will have for pharmacy practiceof this topic, an entire section of this book (Chapters 8 in the future, it is certain that information manage-through 14) is dedicated to the management of people. ment is becoming an important job for pharmacists. How many times have you heard someone say, Chapter 8 provides an overview of technologies that“I’d have got that done if I’d have had more time”? Of pharmacists use to manage information, as well as in-all the resources managers have at their disposal, time sights into what role information management maycan be the most limiting. After all, there are only 24 have in the future of pharmacy practice.hours in a day! Time management is essential for to-day’s busy pharmacist, as well as for most other people. Levels of ManagementIn the scenario, Krista Connelly is a great example of When managers perform management activities, theya pharmacy student who could benefit from time and can do so at a number of levels with a variety of dif-stress management. Chapters 13 and 14 are dedicated ferent purposes in mind. While some people think ofto time management, stress management, and organi- management activities as only occurring at a corporatezational skills that can help you to get the most out of or organizational level, management activities occurthis precious resource. much more frequently at lower levels. When many people think of pharmacy, they still There is not a person reading this book who hasthink of a pharmacist standing behind a counter com- not performed self-management activities. Just the factpounding drug products and dispensing prescriptions. that you are a pharmacy student or pharmacist attests toWhile pharmacy practice continues to evolve from a the fact that you have performed a number of activitiesproduct to a patient orientation, managing material re- on your own just to get to this point. Self-managementsources is still a very important function in a pharmacy. is the most frequently occurring level of management, ifCommunity pharmacies filled 3.4 billion prescriptions for no other reason than that practically every decisionin 2005, an increase of almost 70 percent over the past we make every day (both professional and personal)decade (NACDS, 2006). The costs of these drug prod- requires self-management. For example, pharmacistsucts, as well as the costs of the equipment and supplies must prioritize and manage their time efficiently sonecessary to dispense them safely and efficiently to pa- that they can accomplish the wide variety of tasks, fromtients, continues to rise in all practice settings. Just as ensuring that every prescription is dispensed accuratelypeople need to assess their needs and supplies of ma- to making sure that they have time to counsel theirterial goods (e.g., food, clothing, household supplies, patients.etc.) before going on a shopping trip, pharmacies need Next to self-management, the most frequent levelto make the same assessments before purchasing drug on which managers find themselves performing is theproducts, equipment, and supplies. Chapters 7, 22, interpersonal level. Interpersonal management occursand 23 are all designed to help readers learn more about between the manager and one other person. In a phar-managing material resources. macy, this might involve a pharmacist counseling a
  • 45. 26 W H Y S T U D Y M A N A G E M E N T I N P H A R M A C Y S C H O O L ?patient about a medication or training a technician on Health care organizations such as hospitals andhow to adjudicate a claim with a third-party payer. Our pharmacies present a number of managerial challengespersonal lives are full of interpersonal relationships, in- to administrators. Unlike the workers of Taylor’s andcluding those with our parents, siblings, spouse, chil- Fayol’s day, most health care workers are highly edu-dren, friends, and significant others. cated and skilled professionals. Trends toward special- The level of management that occurs less fre- ization among health care professionals often createquently is organizational management. This involves situations where staff-level health care workers haveactions that affect groups of people. We frequently more knowledge and expertise of their particular areathink of this occurring at work, especially when a phar- than their administrators. As you can imagine, admin-macist needs to develop a policy or make a decision that istrators of health care professionals who attempt to usemay affect many people at the pharmacy. High-level their authority to command and control these employ-administrators in large organizations (e.g., pharmacy ees may find this not to be an effective way to achievechains, hospitals, etc.) often make decisions that affect organizational goals and objectives.everyone within the organization. Keep in mind that Modern views of management suggest that man-people who hold administrative positions are not the agers must adapt their management activities to theironly ones who perform organizational management. workers. These functions generally occur in additionAnyone who has ever had to make an “executive de- to the classical management functions. According tocision” among a group of classmates who are studying Nelson and Economy (2003), today’s manager alsofor an examination or deciding where to go for lunch needs tocan relate to the kinds of organizational-level decisionsthat business leaders make every day. t Energize. Today’s managers need to have a vision of what they want to create and the energy to make■ I NT E G R AT I N G M O D E R N it happen. When you think of good managers with A N D C L A SS IC A L V I EW S O F whom you have worked in the past, they are probably MA NAG E M E NT not the kind of people who just want to keep doing the same thing every day for the rest of their lives.Much of what was first described by Taylor and Fayol They generally have ideas about what they wouldat the beginning of the twentieth century is still applied like to see their organizations become in the futuretoday by managers at all levels of administration in all and the energy to attract others who want to jointypes of organizations. However, much has changed in in. They are always trying to make the best of whatboth pharmacy practice and the workplace over that often can be stressful situations, especially when thetime, and management science has exploded to keep level of resources available may be less than they de-up with those changes. sire. In pharmacy today, good managers are often One hundred years ago, the relationship between pharmacists who want to see the profession movean administrator and a worker was very hierarchical. forward by developing new professional services andThe authority of the administrator generally went un- opportunities to provide pharmaceutical care. Theirquestioned, and workers simply did what they were energy and enthusiasm generally attract motivatedtold. In today’s workplace, there is much more of a part- pharmacists and other personnel who share their vi-nership between administrators and workers. While sion and want to work with them. These managersadministrators are still responsible for achieving or- also seem to find the resources they need to carryganizational goals and objectives, workers generally out their vision or make the most of what they al-expect to have input as to how goals and objectives ready have. Not only does the power of energy andwill be accomplished and also expect to share in the enthusiasm work for pharmacists, but it also benefitsrewards when those goals are accomplished. pharmacy students as well. Do you think that Krista
  • 46. Management Functions 27 Connelly would be as an effective leader if she did a good job, as well as helping them to learn when not have a high level of energy and enthusiasm for things are not going so well. Even pharmacy students ASP’s goals and objectives? like Krista Connelly know that a few kind words tot Empower. If you are a highly educated and skilled her committee chairpersons will help her ASP chap- health professional, the last thing you probably want ter in the long run. is to have an administrator questioning your deci- In providing support, managers must also be sions and telling you how you should do your job. mindful to balance the needs and resources of their In today’s environment, managers should empower organizations with what their employees need. As their employees to do what needs to be done. In much as a manager may wish to give a valued em- many ways, today’s manager is very much like the ployee a big raise, the manager must also consider coach of a team. Coaches develop a game plan; se- how much money is available for a raise and other lect players; provide them with training, resources, potential uses of his financial resources. and advice; and then step back and let the players t Communicate. In today’s information-laden environ- execute the game plan. Good coaches empower their ment, communication between managers and em- players to carry out their game plan. Managers who ployees is more important than ever. While man- empower their employees provide them with train- agers can energize, empower, and support their ing, resources, and advice and then let the employ- employees, if they cannot communicate their mes- ees get the job done. Krista Connelly can empower sages, they will not be effective, and their organiza- her ASP committee chairpersons by providing them tions will suffer. The cornerstone of communications with goals, resources, and advice and then letting in any environment is trust. If employees feel that them get to work. they can bring up any question or concern to a man- This is not to say that managers do not need to ager, they probably will be much more receptive to supervise their employees. Managers are still respon- what the manager has to say. sible for seeing that their organizations’ goals are met, One major challenge for managers and employ- which may mean having to intervene with workers. ees today is the vast number of ways in which they Just as coaches need to provide resources and advice can communicate with each other. Communication to their players during a game, and occasionally re- that used to take place between managers and em- place a player who is not executing the game plan, ployees in person now can take place over the tele- managers need to provide resources, advice, and oc- phone, via voice mail, or even by means of text mes- casionally discipline to see that their organizations’ saging and e-mail. While these additional methods goals are met. can make it easier for managers and employees tot Support. After a manager has empowered her em- communicate with each other, care must be taken in ployees to do their jobs, she should not just leave using these methods. As you can imagine, not every them on their own, especially when things start to method of communication is appropriate for every go wrong. Today, good managers need to be coaches, type of message (e.g., disciplining or firing an em- collaborators, and sometimes even cheerleaders for ployee in a text message on a cell phone is not a good their employees. Providing support for employees idea). does not mean that managers should be willing to do their employees’ work or always agree with the decisions their employees make on the job. It does ■ W H Y S HO U L D I S T U DY mean that managers need to provide their employees MA NAG E M E NT ? with the training, resources, and authority needed to do their jobs. Managers also need to be good coaches, After reading the first two chapters of this book, you letting their employees know when they have done still may be asking yourself, “Why should I study
  • 47. 28 W H Y S T U D Y M A N A G E M E N T I N P H A R M A C Y S C H O O L ?management?” You may think that being a good man- all, they are living pharmacy practice management onager just involves using your common sense and apply- a daily basis! The information provided in this booking the Golden Rule (act toward others as you would should help to provide pharmacists with the skills theyhave others act toward you). After all, you probably will need to better meet the challenges they face everyhave done a good job managing yourself up to this day. In addition, the last four chapters of this bookpoint without taking a management course or reading (Chapters 31 through 34) describe how pharmacists ina management textbook. Can managing a pharmacy a variety of practice settings apply management skillspractice be that much different? on a daily basis. While there is certainly a role for applying self-management skills, most pharmacy managers agree ■ QU E S T IO N S F O R F U RT H E Rthat managing a pharmacy practice successfully re- D I SC U SS IO Nquires a unique set of skills. Some of these skills can bequite technical [e.g., financial management (see Chap- Listed below are three scenarios that represent howters 15 through 19) and marketing (see Chapters 20 pharmacists use the management process on a dailythrough 23)], requiring a knowledge base that goes be- basis. For each scenario, please describe (1) the level ofyond what many pharmacists bring to their practices. management being performed, (2) the type of manage-These skills should be studied just as one would study ment activity being performed, and (3) the resourcesmedicinal chemistry, pharmacology, or therapeutics. that the pharmacist needs to perform this activity. Something else to keep in mind is that in today’sworkplace, what might be common sense to you may Scenario 1: Sabin Patel, R.Ph., is trying to decide whatnot make sense at all to the other people you encounter. form of education (nontraditional Pharm.D., cer-Pharmacists today work with employees, other health tificate program, continuing education) would bestprofessionals, and especially patients who come from a allow her to maintain her practice skills.wide variety of racial, ethnic, cultural, and educational Scenario 2: Doug Danforth, Pharm.D., is training abackgrounds. People from diverse backgrounds bring technician regarding information that needs to bewith them an incredible amount of insight and expe- collected during an initial patient interview.rience. Pharmacists who do not take this into account Scenario 3: Casey Kulpinski, Pharm.D., is reviewingwhen working with diverse groups of people may find her pharmacy’s financial statements to determine ifthemselves frustrated and not able to achieve their goals her diabetes care center met her chain’s financialand objectives effectively. goals. In this book we make an effort to present materialthat is relevant to both pharmacy students and phar-macists. Pharmacy students who use this book will find REFERENCESthat many of the scenarios that start each chapter aredirected toward experiences to which they can relate. Allee JG (ed). 1990. Webster’s Dictionary. Baltimore: Otten-There may be some of you right now who think that heimer Publishers.your life has a lot in common with Krista Connelly’s. National Association of Chain Drug Stores (NACDS). 2006.We anticipate that this is the case. The information The Chain Pharmacy Industry Profile: 2006. Alexandria,provided in each chapter not only will help students VA: National Association of Chain Drug Stores. Nelson B, Economy P. 2003. Managing for Dummies, 2d better deal with management issues they are cur- New York: Wiley.rently experiencing but will also help to prepare them Tootelian DH, Gaedeke RM. 1993. Essentials of Pharmacyfor what to expect in the future as pharmacists. Management. St Louis: Mosby. Pharmacists who use this book often have a good U.S. Bureau of Labor Statistics. 2007. of why they need to have management skills. After release/empsit.nr0.htm; accessed on April 11, 2007.
  • 48. SECTION II Managing OperationsCopyright © 2009 by The McGraw-Hill Companies, Inc. Click here for terms of use.
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  • 50. 3 Strategic Planning in Pharmacy Operations Glen T. Schumock and Godwin Wong A bout the Authors: Dr. Schumock is a graduate of Washington State University (B.Pharm.), the University of Washington (Pharm.D.), and the University of Illinois at Chicago (MBA). He also completed a residency and a research fellowship. Currently, Dr. Schumock is Director of the Center for Pharmacoecomic Research and Associate Professor in the Department of Pharmacy Practice at the University of Illinois at Chicago. Dr. Schumock teaches in courses on pharmacy management, pharmacoeconomics, and business planning for pharmacy services. Dr. Schumock has published over 100 articles, book chapters, and books. He is on the editorial boards of the journals Pharmacotherapy and PharmacoEconomics. Dr. Schumock is a board-certified pharmacotherapy specialist and is a Fellow in the American College of Clinical Pharmacy. Dr. Wong has been on the faculty of the Haas School of Business at the University of California, Berkeley, for 20 years. His areas of interests are corporate strategic planning, en- trepreneurship, information technology management, and venture capital. He has conducted leadership and strategic planning workshops for various health care groups, hospital adminis- trators, and pharmaceutical companies and has lectured to executives in 20 countries. He has served on the boards of directors of several California banks, Silicon Valley companies, and international corporations. He received a B.S. from the University of Wisconsin, an M.S. from UCLA, and a Ph.D. from Harvard University. ■ LEARNING OBJECTIVES After completing this chapter, students should be able to 1. Provide an overview of planning activities conducted by pharmacy and health care organizations. 2. Describe the general process common to all types of planning. 3. Describe the purpose of strategic planning, and illustrate the specific steps to develop a strategic plan. 31Copyright © 2009 by The McGraw-Hill Companies, Inc. Click here for terms of use.
  • 51. 32 M A N A G I N G O P E R A T I O N S 4. Differentiate a vision statement from a mission statement. 5. Highlight examples of strategic planning in pharmacy organizations. 6. Identify barriers and limitations to planning.■ SC E NA R IO over the next 5 years. To accomplish this, the DOP has determined that over the next several months, theTed Thompson graduated from pharmacy school department will undergo a strategic planning effort.magna cum laude 2 years ago with a doctor of phar- This effort will begin with a selected group of indi-macy degree and successfully passed the licensing ex- viduals from within the department, each represent-amination, making him a registered pharmacist. After ing key functions and constituencies. Ted was asked tograduation, Ted completed a pharmacy practice res- be part of this group because of his clinical role andidency at a prestigious teaching hospital with a rep- expertise and because expansion of the clinical phar-utation for having an excellent pharmacy department macy services provided by the department is recog-and advanced clinical pharmacy services. Following his nized as a goal that likely will be part of this strategicresidency, Ted took a job as a clinical pharmacist in a hospital in his hometown. In hiring Ted, Having no real management training or experi-the hospital pharmacy department fulfilled an interim ence, Ted recognized the need to learn more about theobjective toward their goal of developing contempo- purpose of strategic planning and the process that willrary pharmacy services. be required to develop the departmental strategic plan. The hospital is located in a town of approximately100,000 people, and a large portion of the population ■ C H A P T E R QU E S T IO N Sis elderly. Partly because of both the favorable payer mix(mostly Medicare) and the fiscal savvy of the chief fi- 1. What are the different activities that pharmaciesnancial officer (CFO),1 the hospital has done very well and health care organizations engage in when theyfrom clinical and economic perspectives. The pharma- plan for the future?cy department has a good drug distribution system and 2. What is the purpose of strategic planning, and howa director of pharmacy (DOP) who, while not trained is it different from other types of planning?clinically, understands the value of these services. 3. What are the steps typically taken by a pharmacy The hospital is growing rapidly and, as such, has organization when developing a strategic plan?become increasingly reliant of pharmacy services. Be- 4. What is a vision statement, and for whom is it writ-cause of the many opportunities that confront the phar- ten?macy department, the DOP has decided that the de- 5. What is a mission statement, and for whom is itpartment should develop a plan to guide its priorities written? 6. What are the barriers or limitations associated with planning that should be kept in mind while under-1 In a business or organization, the CFO is the individual taking this process?who is responsible for the financial decisions and invest-ments made by the company. In a hospital or health system,the CFO is likely to have several departments and functions ■ I NT RO D U C T IO Nreporting to him or her, including general accounting, ac-counts receivable and accounts payable, payroll, budgeting, The scenario illustrates an important activity withinand finance. pharmacies and health care organizations that is rarely
  • 52. Strategic Planning in Pharmacy Operations 33considered by new pharmacy graduates. In this sce- duties of managers. Planning has been described asnario, Ted is asked to participate in the development one of the four key functions of managers (along withof a strategic plan. Strategic planning is one of the most organizing, leading, and controlling). In fact, of thecommon types of planning that is conducted by health four functions, planning is crucial because it supportscare organizations. However, strategic planning is not the other three (Stoner, Freeman, and Gilbert, 1995).unique to pharmacies or health care organizations; in However, planning may involve more than just man-fact, it represents a core management activity that is agers at high levels; in fact, in smaller companies or inemployed by all businesses. companies with fewer levels of management, front-line This chapter begins with a general discussion employees often are involved in planning.of management planning by pharmacy organizations. Many different types of planning activities occurPharmacies and health care organizations, like many within pharmacy organizations. The most commonbusinesses, are involved in, or should be involved in, types include business planning, financial planning,many different types of planning for different pur- operational planning, resource planning, organiza-poses within the organization. This chapter provides tional planning, and strategic planning. The purpose ofan understanding of where the responsibility of plan- each type of planning is different. It is not the intent ofning lies within organizations and the general structure this chapter to cover all these types of planning. Instead,or process involved in planning efforts. These general a brief description of the purpose and characteristics ofconcepts are applicable to all types of planning in all each is outlined in Table 3-1. Some of these types ofdifferent types of organizations, including pharmacies. planning activities have subtypes within them. For ex- Next, this chapter discusses one specific type of ample, one type of resource planning deals specificallyplanning—strategic planning. The intent of this dis- with human resources (Smith, 1989). Another typecussion is to provide a general understanding of the of resource planning that has gained increasing impor-role of strategic planning and to identify its key steps tance is information technology planning. This type ofor components. While the material in this chapter is planning focuses specifically on the present and futureapplicable to almost any type of organization, examples information needs of an organization and the tech-pertinent to the profession of pharmacy or pharmacy nologies and systems to meet those needs (Wong andpractice within health care organizations are provided. Keller, 1997; Breen and Crawford, 2005).For readers interested in a more complete understand- Because of the importance of effective planning,ing of planning, there are many options for obtaining many organizations invest significant time and re-information beyond what is presented here. There are sources in these efforts. Ultimately, the chief execu-literally hundreds of textbooks addressing both gen- tive officer (CEO) or president of a company is re-eral and specific topics within this field. Several good sponsible for making certain that the organization istexts are included in the reference list at the end of this successful—ensuring that success largely depends onchapter (Koteen, 1997; Martin, 2002; Porter, 1980, planning that occurs within the organization.2 How-1985; Stoner, Freeman, Gilbert, 1995; Thompson and ever, in large companies, given the scope of planningStrickland, 1983). activities that must take place, much of the work in- volved in planning is delegated to a special depart-■ PLANNING IN GENERAL ment dedicated entirely to planning. Often, outsideIn the broadest sense, planning represents the purpose-ful efforts taken by an organization (for our purposes, a 2 The CEO is the top administrator of an organization, re-pharmacy organization) to maximize its future success. porting only to the board of directors. The CEO is respon-Planning, as it is referred to here, is sometimes called sible for the overall success of the organization and is the keymanagement planning because it is typically part of the decision maker.
  • 53. 34 M A N A G I N G O P E R A T I O N S Table 3-1. Types of Planning Type Purpose Characteristics Strategic To ensure that the organization is doing the Long term (5–20 years); scope includes planning right things. Addresses what business the all aspects of the organization; organization is in, or ought to be in, viewpoint is external—how the provides a framework for more detailed organization interacts with or controls planning and day-to-day decisions. its environment. Operational To ensure that the organization is prepared Short term (1–5 years); scope is specific planning perform the immediate tasks and to the immediate actions that need to objectives to meet the goals and strategy be taken to move the organization of the organization. To ensure that the forward; viewpoint is organization is doing things right. internal—day-to-day accomplishment of tasks. Business To determine the feasibility of a specific Short term (1–5 years); can be used to planning business or program. Business planning is make decisions to start a new used to make a decision about investing business, expand a business, or in and moving forward with a program. terminate a business. Resource To ensure the resources necessary to achieve Midterm (1–10 years); scope is specific planning the goals and strategy of the organization. to the resource or resources defined in Resource planning can be comprehensive the plan—specific resources may (all resources needed to achieve goals and include human resources, strategic plan of the organization) or can information/technology resources, focus on a specific type of resource. financial resources, capital and facilities, and others; viewpoint is internal—the resource needs of the organization. Organizational To ensure that an organization is organized Midterm (1–10 years); scope specific to planning appropriately to meet the challenges of the structural aspects of the the future. Key elements include organization including divisions, reporting relationships, definition of reporting relationships, coordination, responsibilities, and definition of control; viewpoint is internal—how authorities. the company organizes itself. Contingency To provide a fallback option or direction Short to long term (1–20 years); scope is planning should the original strategy of the specific to the particular situation that organization fail or should something may occur; viewpoint is both external unexpected occur. Contingency planning (if the situation is created in the can occur for a specific anticipated environment) and internal. situation, the most common of which are business-related crises (such as a labor strike), natural disasters, and changes in management personnel.
  • 54. Strategic Planning in Pharmacy Operations 35consultants are employed to assist organizations in their condensed depending on the situation or presented inplanning efforts. a slightly different fashion. Nevertheless, the key com- The actual process of planning may vary by the ponents of understanding the purpose, assessing thetype of planning being conducted and by the size of situation, establishing goals, and devising a method tothe organization or system. Here, the term system refers accomplish those goals should be common to all plan-to the entity for which planning is being conducted. ning activities.That entity may be the entire pharmacy organization As shown in the table, the planning process shouldor a program or function within it. Programs can begin with consideration of the purpose of the orga-be considered subunits or specific services within an nization or system and of the planning effort itself.organization. An example of a program within a phar- This is followed by an analysis of the present situationmacy organization would be a clinical pharmacy ser- or status of the system. Next, specific future goals arevice program. A function is an activity that cuts across determined, and then a strategy for bridging the gapdifferent subunits of an organization. An example of between the present and future is developed. Interima function within a pharmacy organization would be objectives that measure progress toward the goals arethe function of information management. then identified, and responsibilities and timelines for Regardless of the system for which planning is each objective are assigned. The plan then needs to bebeing conducted, planning varies in terms of sophisti- communicated, implemented, and monitored.cation. In some cases, planning can be relatively sim-ple and straightforward. In other cases, it may involve ■ S T R AT E G IC P L A N N I N Gextensive analyses of data with complicated forecast-ing, decision-making models, and algorithms. Never- The purpose of strategic planning is to ensure thattheless, all planning processes share a few basic charac- the organization is doing the right things now andteristics, as shown in Table 3-2. in the future. Strategic planning addresses what busi- The eight steps shown in Table 3-2 define the gen- ness the organization is in or ought to be in and helpseral process that is followed in most planning efforts. to determine long-term goals for the organization. ForThese general steps in some cases may be expanded or example, what is the business of a particular commu- nity pharmacy? Does the pharmacy want to be in the “prescription business” or the “health care business”? Does a health system want to be in the “hospital busi- Table 3-2. Steps in the Planning Process ness” or a “business that provides a continuum of care”? Obviously, how a pharmacy organization answers these 1. Define or orient the planning process to a questions may influence how it views itself and how it singular purpose or a desired result (vision/ conducts its business, thus providing a framework for mission). more detailed planning and day-to-day decisions. 2. Assess the current situation. Strategic planning has been defined as the process 3. Establish goals. of selecting an organization’s goals, determining the 4. Identify strategies to reach those goals. policies and programs (strategies) necessary to achieve 5. Establish objectives that support progress specific objectives en route to those goals, and establish- toward those goals. ing methods necessary to ensure that the policies and 6. Define responsibilities and timelines for each strategic programs are implemented (Steiner, Miner, objective. and Gray, 1982). More broadly, strategic planning can 7. Write and communicate the plan. be considered an effort that enables the optimal de- 8. Monitor progress toward meeting goals and ployment of all organizational resources within cur- objectives. rent and future environmental constraints. The result
  • 55. 36 M A N A G I N G O P E R A T I O N Sof this optimization is to increase the likelihood that ponent of strategic planning is to identify time periodsthe organization will survive, and preferably thrive, in within which goals are to be reached.the future. The time horizon for strategic planning may be as In evaluating the performance of a company, it long as 10 to 20 years or as short as 2 years. In a sur-is often informative to look at its strategy histori- vey conducted by the Net Future Institute, managerscally over time. While many factors can influence or- were asked what time period they considered to be longganizational performance, companies that engage in term (Martin, 2002). The most common response waslong-range strategic planning are often more success- 2 years (40.2 percent), followed by 5 years (32.7 per-ful than those that do not. Again, this is true for phar- cent) and 1 year (17.9 percent). Admittedly, many ofmacy organizations as well as other types of businesses. the companies involved in this survey were in high-techStrategic planning can be either reactive or proactive. industries, where rapid change may impair longer-termReactive strategic planning is not the ideal, but it is planning. However, health care is also an industry ofoften necessary, especially in industries that are chang- rapid change, and thus planning must be done similarlying rapidly (such as health care). Preferably, proactive to that in other fast-growing industries.strategic planning enables an organization to control The problem with strategic planning, even inits environment instead of vice versa. 5-year time periods, is that it is not likely to result Beyond proactive planning, organizations that are in any truly sustainable competitive advantages or aable to think and plan in a provocative or “out of the significant organizational metamorphosis. Further, be-box” manner may position themselves not only to con- cause strategic goals are based on the company’s visiontrol the business environment but also to actually cre- for the future, goals that incorporate new paradoxesate or recreate the business environment. This type of or visionary changes may be difficult for employees tostrategic thinking has been considered the pinnacle of believe if the time period for accomplishing those goalsplanning efforts by organizations—ideal for companies is too short. Nevertheless, these are the types of goalsto position themselves to be most competitive. Using that should be created in strategic planning, so it is thestrategy to create an environment that puts the com- time period that must be congruent with these goals,pany at an advantage compared with its competitors is not vice versa. The worst mistake would be to “dumbintegral to this effort (Porter, 1980, 1985). An example down” the goals to make them consistent with a shorteroutside the health care industry is Apple, Inc., and its time period.iPod product. The October 2001 introduction of theiPod was the direct result of Apple’s strategy to create Vision and Missiona whole new category of portable entertainment—a An important part of the process of strategic planning isstrategy that obviously has been extremely successful. to create momentum and to motivate personnel withinA similar example is that of the Web site Facebook, the pharmacy organization. Strategic planning has a lotwhich, together with similar sites, has developed a new to do with defining what a company is all about andmarket for interaction via the Internet that did not exist creating a “story” about the organization. The com-previously. munication of the organization’s story occurs across a The time horizon of strategic planning helps to number of different statements that may be products ofdistinguish it from other types of planning. Strategic strategic planning. Most essential of these statementsplanning has also been called long-term planning. The are the vision statement and the mission statement.actual timeline used by organizations may vary or in The vision is what the pharmacy organizationsome cases may not be known. Because the future is wants to be at some future time point. The visionunknown, it is often difficult to predict with any accu- may be complex and multidimensional, but the visionracy the amount of time it will take for an organization statement should be short. The vision statement shouldto reach its long-term goals. Nevertheless, a key com- make people think and should motivate people to strive
  • 56. Strategic Planning in Pharmacy Operations 37for something greater. A company vision statement most exceptional customer service in the industry.” (seeshould inspire employees to create a different future for kerr.html). The missionthe organization. The vision of the organization is used statement of the Wyeth ( Pharma-in the strategic planning process as both the beginn- ceutical Company emphasizes the benefits incurred toing point and the end point. That is, once the vision its customers. It reads, “We bring to the world phar-is set, then strategic planning is about how to reach maceutical and health care products that improve livesthat end point. The vision is also used to define the and deliver outstanding value to our customers andmission of the organization. For example, the vision shareholders.” Similarly, the mission of Novartis (www.statement of Baptist Health Care in Pensacola, Florida, “To be the best health system in America” (see www. Pharmaceuticals is to “discover, develop and This vision fully market innovative products to prevent and curedrives both the mission of the organization and its diseases, to ease suffering and to enhance the qualityvalues, and presumably, these together guide the daily of life.”business decisions made by Baptist Health Care. As noted earlier, the mission statement creates a The mission is the purpose of the company. The sense of purpose for both the employees and customersmission statement defines what the company does or of the organization. Employees of Kerr Drug know thatis. It is a statement of the present going ahead into their customers will expect reliable and comprehensivethe near future. It is a document written to create a services and therefore that they should strive to providesense of purpose for customers and employees. The that each day. This chapter later discusses how pharma-mission statement should be short—usually no more cies such as Kerr Drug that have well-defined missionsthan two sentences. It focuses on the common pur- and that engage in strategic planning are more likelypose of the organization and may draw from the values to be successful.or beliefs held by the organization. The mission state- In addition to the mission statement, some busi-ment should help to differentiate the company from nesses use a company slogan to convey a message to cus-others that provide the same products or services. Some tomers about the organization. The company sloganorganizations include in the mission statement not generally is more marketing-driven than is the missiononly what the company does but also how it does it— statement, but in some cases the company slogan servesessentially the differentiating point. a similar role. Like the mission statement, the company The following elements have been suggested in slogan sends a message to both customers and employ-developing a mission statement for a community phar- ees, and it must be congruent with the actions of themacy: the intended (or target) customers, the core val- organization or else it will not be credible. A great exam-ues of the pharmacy (such as compassion, respect, and ple of a company slogan is that of the Nike Company.confidentiality), the key services and products provided The slogan “Just Do It!” has energy and a sense of ac-by the pharmacy, the benefits incurred by customers tion. It is easy to see how the slogan and the company’s(such as improved health and improved safety), and the mission, “To bring inspiration and innovation to everydesired public image of the pharmacy (Hagel, 2002). athlete in the world,” combine to create a powerful All pharmacy organizations should have a mission image of what this company is all about. A good ex-statement. Kerr Drugs, a chain of pharmacies in ample of a slogan for a pharmacy organization is thatthe Carolinas, provides a good example of a mission of the Walgreens Company, which reads, “Walgreens.statement that focuses on the key services of the orga- The Pharmacy America Trusts.” Again, this slogan isnization. The mission of Kerr Drugs is “To be the most brief yet conveys a meaningful message.comprehensive provider of community pharmacy and The vision, mission, and other statements thatrelated health care services, offering our customers form the company story are critical elements in strate-quality merchendise, value for their money and the gic planning. If these elements already exist in the
  • 57. 38 M A N A G I N G O P E R A T I O N Sorganization, then the process of strategic planning process, it is usually best to start with the destinationstarts with these as its foundation or modifies them as in mind, as in planning a trip by viewing a map. Oncenecessary. If these elements do not already exist, then the destination is clear, one must find the starting placethe process of strategic planning must include their on the map. The next step is to determine the differentconception. routes or options to get from here to there. Among the different routes, one should select that which bestProcess of Strategic Planning meets the needs within the constraints of limited re-The process of strategic planning does not vary sig- sources. If speed is important, then one selects thenificantly from the process used in other types of quickest route. If scenery is important, then one selectsplanning. This chapter highlights only the aspects of the most scenic route. Besides the route, the mode ofthe steps shown in Table 3-2 that are distinctive to transportation needs to be determined. Options mightstrategic planning compared with other types of plan- include taking a train, driving a car, or flying in anning efforts. airplane (or a combination of any of these). Once the route and method of transportation are known, onePreplanning Phase selects key milestones, or places to stop, along the way.Preplanning can be defined as the steps necessary to Knowing these intermediate points helps to keep theorganize the strategic planning effort—or “planning journey on track. The process of strategic planningfor the planning.” Strategic planning is a significant is very similar, except strategic planning is, or shouldundertaking that consumes much time and energy. A be, a group effort involving all levels of the organiza-pharmacy organization choosing to engage in a strate- tion.gic planning effort should not take this lightly. Strate- In strategic planning, the “destination” is the vi-gic planning is a financial investment—in the person- sion of the organization in the future. However, it isnel time required and in the payment of consultants, also necessary to identify where, what, and how theif used. These costs should be weighed against the organization is in the present. This is called situationvalue to be gained by the effort. If strategic planning is analysis, and it should consider both the past perfor-performed correctly, its value will greatly exceed any mance and the current situation. This is the startingcosts. On the other hand, if strategic planning is done point on the journey. Based on the vision (destination),in a superficial or hurried manner, its costs will ex- along with the present situation (starting point), plan-ceed its benefits. Preplanning should include a careful ners next should identify the goals for the organization.assessment of this balance. These goals could be considered synonymous with the Preplanning should also define the objectives of things considered important in the map example, suchthe planning efforts and the procedures that will as speed and scenic beauty. Once the goals are identi-be used to accomplish those objectives. Preplanning fied, the course is plotted to get from the present to theshould define who should be involved, where the plan- future. For this, it is crucial to identify and select pre-ning process will occur, and how much time will be ferred strategies that will accomplish the goals. Strate-allotted to the effort. Preplanning should also consider gies are synonymous with the routes and the modesany political purposes and ramifications of the under- and costs of transportation in the travel example. Last,taking. In laying out the scope of the planning effort, one should determine objectives that will help to reachpreplanning should orient the activity to the vision of the goals. Objectives are like the intermediate points,the organization, if one exists. or places to pass through on the map. These objectivesPlanning Phase provide a shorter-term milestone and, in implemen-In the planning phase of strategic planning, ideas are tation, help to measure progress toward the goal. Theactively generated for the pharmacy organization. This relationship between vision, goals, strategy, and objec-may be referred to as strategizing. As in any planning tives is shown graphically in Fig. 3-1.
  • 58. Strategic Planning in Pharmacy Operations 39 Vision Goal #1 Goal #2 Goal #3…etc. Objective #1C #1 gy Objective #1B te ra -tasks -tasks St -tasks Objective #1A Present time Figure 3-1. Relationship between vision, goals, objectives, strategy, and mission. To reach a certain vision, or future state, the organization must set and reach one or more goals. Each goal is associated with a specific strategy or method of reaching that goal. The strategy can be defined by the objectives that are necessary intermediate accomplishments toward the goal. A set of tasks, or actions, may be associated with each objective. Collectively, these tasks are also called tactics that the organization employs to meet an objective. (Adapted from Coke, 2001, with permission from the publisher.) Considering the preceding overview, the steps in competition from other pharmacy organizations, thethe planning process can be examined more closely. availability of technology, regulations that may help orAfter crafting a vision statement, planners must ana- hinder the business, availability of reimbursement forlyze and define the current situation. As is the case with services provided (i.e., clinical or cognitive pharmacyany system, history helps to define the present. There- services), costs incurred by the pharmacy organization,fore, part of the situation analysis is to evaluate the political issues having an impact on health delivery, andpast performance of the organization. This evaluation changes in the market and types of customers servedshould include all measures of performance, including by the organization.customer satisfaction and financial indicators. By comparing the results of the situation analysis The situation analysis also should define the with the desired future state (vision), the extent andpresent. A common method for conducting the sit- nature of the gap between the two begins to becomeuation analysis is to evaluate the internal strengths clear. The next steps in the planning phase attemptand weakness of the organization and the external op- to bridge that gap. First, strategic planning serves toportunities and threats to the organization. This is define goals for the organization that are consistentknown as a SWOT (Strength, Weaknesses, Opportunities, with the vision. These goals should also capitalize onThreats) analysis. Categories of internal strengths and the organization’s strengths and opportunities whileweaknesses to consider may include profitability, qual- minimizing the threats and mitigating the weaknesses.ity of pharmacy service, customer service, competence The last part of the planning process deals with or-and ability of pharmacy staff, and the efficiency of the ganizing to operationalize the strategy. Because the goalspharmacy operations. Categories of external opportu- and vision are a desired future state that may be un-nities and threats to consider may include the extent of achievable in the short term, intermediate objectives are
  • 59. 40 M A N A G I N G O P E R A T I O N Sneeded to help advance toward that target. In the plan- Table 3-3. Example Strategic Planning process, the objectives pertinent to each goal areidentified and usually are accomplishable in the short Strategy: The department will achieve an organizedterm (1 year), whereas goals are in the longer term (3 approach to cost containment and costto 5 years). Because objectives are short term, a budget, reduction.schedule, and responsibility can be assigned to each. Goal: Develop an ongoing workload-monitoring There is no common or standard way to organize system based on a system of pharmacy servicethe written strategic plan. However, most contain the units.following key elements: (1) the organization’s vision, Objectives:(2) strategies, (3) goals for each strategy, (4) objectives t To develop a workload-monitoring system thatrequired to meet those goals, and (5) tasks or action identifies distributive and clinical workload byplans to compete the objectives. Examples of strategic satellite areaplans for pharmacy organizations can be found in the t To use the workload statistics to predict staffingreferences listed at the end of this chapter, and Table 3-3 needsis an excerpt from one of those references (Hutchin- t To evaluate overuse and underuse of staff basedson, Witte, and Vogel, 1989). The original strategic on the need for the activities performedplan published by these authors included eight major Tasks/action plans:strategies with multiple goals for each. Note that the t Determine what distributive and clinicaltasks listed also should include a planned date for com- indicators will be usedpletion of the task and a party responsible for each task. t Develop a method for collecting the workload statisticsPostplanning Phase t Collect hours worked by staff category andOnce the major pieces of the planning phase have been satellite areadeveloped, the postplanning phase begins. This phase t Develop a monthly productivity report by areaincludes three vitally important steps: (1) communi- t Analyze staffing patterns in comparison withcating the plan, (2) implementing the plan, and (3) workload statisticsmonitoring progress once the plan is implemented. While strategic planning is a process, the strategic Source: Adapted from Hutchinson, Witte, and Vogel,plan is a document that communicates the plan. The 1989, with permission from publisher.strategic plan should be written such that it commu-nicates all aspects of the plan effectively. The actual implementation of the strategic plan ciency). In other words, strategic planning defines whatrequires managers and executives of the pharmacy or- to do, and operational planning defines how to do it.ganization to understand the long-range goals while The operational plan is an outline of the tacticalat the same time determining and taking the steps activities or tasks that must occur to support and im-necessary to accomplish the shorter-range objectives. plement the strategic plan—sometimes called tactics.The process of mapping out the actions necessary to The relationship between tasks or tactics (operationalaccomplish short-term objectives is called operational planning) and the key elements of strategic planningplanning, which focuses on determining the day-to-day is shown in Fig. 3-1. Managers in an organization fo-activities that are necessary to achieve the long-term cus their day-to-day work on tactics. Their perspective,goals of the organization. One can differentiate strate- therefore, tends to relate to the short term. Yet it is im-gic planning from operational planning by viewing portant that, on a periodic basis, an attempt be made tothe primary focus of each. Strategic planning focuses step back from day-to-day activities and reorient one-on doing the right thing (effectiveness), whereas op- self to the bigger picture (the vision, goals, and strategyerational planning focuses on doing things right (effi- of the organization). For example, a pharmacy manager
  • 60. Strategic Planning in Pharmacy Operations 41may receive a request from a physician or a nurse to Table 3-4. Steps Used in the Strategic Planninghave the department begin to provide a new service in Process by Community Pharmaciesa hospital. Before agreeing to do so, it is important thatthe manager consider how this new service fits into the Step Percentage∗vision and goals of the pharmacy department. Develop mission statement 76.9 Another key element of the postplanning phase is Identify strengths and weaknesses 94.2monitoring. A plan for monitoring should be created. Identify threats and opportunities 90.2This monitoring should evaluate the extent of imple- Formulate and select strategies 83.8mentation in comparison with the planned schedule. Review pharmacy structure and 60.1Monitoring should also evaluate the effectiveness of the systemsorganization in meeting its objectives and ultimately its Implement strategies 86.1goals, especially in the deployment of limited resources, Evaluate implemented strategies 76.3both human and financial. In other words, have both ∗the plan and its implementation been effective? Intrin- N = 173 community pharmacies that reported use ofsic to this monitoring process is the possibility that strategic planning; values represent the percentage that incorporate each specific step of the strategic planningchanges to the plan may be necessitated by changes in process.the environment or by changes in the organization. As Source: Adapted from Harrison and Ortmeier, 1996,such, the strategic plan should be considered a fluid with permission from the publisher.document.■ S T R AT E G IC P L A N N I N G ported having conducted strategic planning in their E X A M P L E S I N PH A R MACY pharmacies (Harrison and Ormeier, 1996). For those O RG A N I Z AT IO N S that did conduct strategic planning, an average of 5.9 (of 7) different steps in the strategic planning processThere are plenty of published examples and descrip- were used, and 45.7 percent incorporated all seventions of strategic planning in pharmacy organizations, steps (Table 3-4). The authors also reported that com-although a majority come from the hospital practice munity pharmacies that conducted strategic planningsetting (Anderson, 1986; Birdwell and Pathak, 1989; had significantly higher self-rated performance on clin-Guerrero, Nickman, Bair, 1990; Harrison, 2005, 2006; ical services, dispensing services, and financial perfor-Harrison and Bootman, 1994; Harrison and Ormeier, mance—suggesting that strategic planning can im-1996; Hutchinson, Witte, Vogel, 1989; Kelly, 1986; prove organization success. In 2005, an update of theLinggi and Pelham, 1986; Newberg and Banville, survey showed little change. As in the previous sur-1989; Portner et al., 1996; Shane and Gouveia, 2000). vey, increased use of strategic planning was associatedFor chain drug stores, independent pharmacies, or with improved organizational performance (Harrison,other for-profit pharmacy organizations, it would be 2005, 2006).counterproductive to publish, and thus make available A similar study conducted in the hospital phar-to competitors, the company strategy and objectives. macy environment found that 63 percent of respon-Rather, these plans frequently are guarded fiercely so dents (hospital pharmacy directors) conducted strate-that they do not fall into the hands of competitors. Nev- gic planning in their pharmacies and followed 4.7 (ofertheless, there are some general publications designed 6) steps in the strategic planning process. This sup-to assist community pharmacies in strategic planning ported the belief that strategic planning within hos-(Hagel, 2002). pital pharmacies is more commonplace than previ- A survey of 1,500 randomly selected commu- ously thought (Harrison and Bootman, 1994). In thenity pharmacies published in 1996 found that only hospital environment, many published descriptions ofa small proportion (30.8 percent) of respondents re- strategic planning activities have focused specifically on
  • 61. 42 M A N A G I N G O P E R A T I O N Splanning for clinical pharmacy services (Anderson, medication errors promoted by the Joint Commission,1986; Kelly, 1986; Linggi and Pelham, 1986). the body responsible for accrediting hospitals and other Strategic planning, when used by hospital phar- health care organizations. By monitoring the literature,macy departments, appears to have positive results. A successful hospital pharmacy departments were able tostudy was conducted of pharmacy directors at hos- predict this movement and then developed and imple-pitals in the United States to determine if more so- mented plans to establish the technologic and humanphisticated planning resulted in improved departmen- resources necessary to improve patient safety (Shanetal outcomes (Birdwell and Pathak, 1989). Pharmacy and Gouveia, 2000).departments were categorized into levels of strategicplanning sophistication based on different steps in thatwere employed the planning process. In departments ■ BARRIERS ANDwith high levels of planning, outcomes such as sat- L I M I TAT IO N S TO P L A N N I N Gisfaction by hospital administrators, professional im-age among hospital administrators, number of clin- Effective planning requires a serious commitment ofical pharmacy programs, and the quality of clinical time and resources. For a variety of reasons, organiza-pharmacy programs were rated higher by pharmacy tions may not be successful in their planning efforts.directors than in departments with lower levels of so- Lack of success may stem from failure to recognize andphistication in planning. In other industries, strategic minimize common barriers to planning efforts or fail-planning also has been shown to improve company ure to understand inherent limitations in planning.performance and has yielded positive results (Hodgesand Kent, 2006–2007). Barriers Consistent with these findings was another study Organizations must overcome several barriers to ensurethat described the impact of strategic planning con- a successful strategic planning process, as shown in Ta-ducted in the Department of Veterans Affairs Medical ble 3-5. The most serious barrier is lack of endorsementCenter pharmacies. Strategic planning resulted in more by the top executive(s). Buy-in and participation byVeterans Affairs Medical Centers with increased phar- top corporate executives and the board of directors aremacist involvement in patient care, increased involve-ment in specific types of clinical services, more efficientdrug distribution systems, and increased involvementin pharmacy education (Portner et al., 1996). Table 3-5. Barriers to Effective Planning Strategic planning in pharmacy is particularly im- 1. Failure to commit sufficient time to theportant when there are changes that occur in the prac- planning efforttice environment. The Medicare Modernization Act 2. Interpersonal issues such as struggles over(MMA) of 2003 is a good example of such a change. power or politics and individual or groupThis legislation, which went into effect in 2006, created resistance to changethe Medicare prescription drug benefit (also known as 3. Lack of planning skillsMedicare Part D) and established the requirement that 4. Failure to plan far enough into the futuremedication therapy management (MTM) be provided 5. Constantly changing environmentto high-risk Medicare beneficiaries (see Chapter 17). 6. Failure to implement owing to lack of time orSuccessful pharmacy organizations used strategic plan- lack of resourcesning to predict the impact of the MMA and to develop 7. Failure to monitor progresspractice plans for provision of MTM (Lewin Group, 8. Lack of support of top executive and/or board of2005). Another example of change in the pharmacy directorspractice environment is the increased emphasis on
  • 62. Strategic Planning in Pharmacy Operations 43critical to strategic planning. Without these, the whole ees of the pharmacy organization. Written plans mustplanning effort could be a waste of time and resources. be drafted in such a way that the messages are com- A frequent barrier to effective planning is fail- municated clearly to the appropriate audience. Planure to commit sufficient time to the planning process. documents sometimes have the tendency to use jargonGood planning requires significant management and or terminology, so-called plan-speak, that is not consis-staff time. Ideally, some of the more creative aspects tent with that which would be most beneficial to clearof planning should be accomplished during uninter- and accurate interpretation by the audience. Besidesrupted time. Pharmacy organizations commonly hold the written document, verbal presentations and otherretreats, where those involved in the planning process forms of communication are often in a location outside the usual work environment. The most common barrier to effective planning isThe time and expense associated with such events re- failure to implement, so-called analysis but no action.quire a huge commitment on the part of both the or- Three causes of failure to implement plans include theganization and the personnel involved. unavailability of resources, lack of time, and failure to Sometimes interpersonal issues, such as organiza- monitor or measure progress. Implementation of strat-tional culture or struggles for power and politics, be- egy often involves the mobilization of resources. If or-come barriers to effective planning. Individuals who are ganizations do not have the necessary resources or areinvolved in planning or implementation may be resis- unwilling to commit those resources, then implemen-tant to change (for a variety of reasons) and thus con- tation will be jeopardized. In today’s ever-increasingsciously or subconsciously sabotage the planning effort. speed of business, managers often cannot find the timeLikewise, if the organization or personnel lack the skills to use adequately the results of planning already con-necessary to conduct planning, the results may be less ducted to guide their daily activities. The term man-than optimal and even harmful to the organization. In agement by crisis is used often to describe the modusthe same context, failure to plan far enough into the fu- operandi of busy managers, meaning that their workture can be problematic, especially for certain types of is directed more by the problems they face at the im-planning. Strategic planning in particular is intended mediate moment than by any careful consideration ofto guide the organization over the long term. the actual goals of the organization. In the long term, The environment also can pose a barrier to effec- this may result in failure of the company to meet itstive planning. In an environment such as health care, goals (Martin, 2002). Finally, the failure to monitor,where things are changing constantly or are ambigu- for whatever reason, the progress made toward goalsous, effective planning is more difficult and uncertain. developed in the planning process can be a significantFor example, consider all the changes that may affect barrier to success of the planning organizations that make planning for thefuture difficult. These include changes in technology Limitationsand automation, new drugs and therapies, changes in Besides the barriers to planning just listed, certainpayment rates of prescriptions and availability of reim- limitations to planning must also be acknowledged.bursement for clinical pharmacy services, changes in Managers often are caught up in the notion that plan-regulations, and fluctuations in the labor market for ning is a magic bullet for the ills of an organization.pharmacists. They must acknowledge the fact that planning is no Organizations operating in rapidly changing en- cure-all.vironments may put off or avoid planning altogether. First, planning is, to some degree, guessworkUnfortunately, failure to plan, even when it is difficult, (but educated and experienced guesswork, hopefully).may be even more detrimental in the long term. While decisions are based on evidence available about Another barrier to the planning effort is failure the past and the likelihood of events in the future, riskto communicate the plan effectively to the employ- is still involved. Nothing is certain. Even with good
  • 63. 44 M A N A G I N G O P E R A T I O N Sdata and good strategy, negative things may happen ers to understand the process involved in establishingthat were unpredictable and thus unavoidable. and maintaining the viability of the organization for Second, plans and predictions are only as good as which they work. A good understanding of manage-the data and information that go into them. Poor data ment concepts, and planning in particular, will allowwill result in poor strategy. What pharmacy organiza- the pharmacy practitioner to better appreciate the con-tions get out of the planning activity will be correlated text from which management operates. This will thendirectly with the degree of effort, creativity, time, and better enable pharmacy practitioners to have input intoresources they put into it. Organizations that adopt and be able to influence the direction and decisions ofboilerplate or “cookie cutter” approaches to planning a pharmacy organization.most likely will fail. Two additional limitations of planning deal with ■ QU E S T IO N S F O R F U RT H E Rhow an organization implements the plan. Planning is D I SC U SS IO Nnot a substitute for action. Organizations that are allabout planning but neglect to take the actions dictated 1. Select a specific pharmacy practice setting (i.e., hos-will not be successful. To the opposite extreme, the plan pital practice, community practice, or managedshould not be considered as static or unyielding. Plan- care). What barriers do you believe would limit thening should be a continuous process, and plans should ability of pharmacists and pharmacy managers tochange as the environment dictates. To follow a plan conduct effective planning in that setting?blindly without consideration of changes in the envi- 2. Write a vision statement for a hypothetical phar-ronment that may make the plan obsolete is foolhardy. macy organization. Explain how you selected the language and message of the statement.■ C O N C LU S IO N 3. Conduct an Internet search of vision and mission statements of health care organizations. Identify andThe scenario of Ted Thompson that began this chapter compare the statements from at least three differentillustrates how knowledge of planning-related concepts organizations. What are the strengths and weaknessmay be applicable to the work activities of a recent phar- of these statements?macy graduate. Knowledge of concepts in the chapter 4. Describe changes that have occurred in the practiceshould better position Ted to participate in the strategic of pharmacy over the past 20 years. How wouldplanning initiative being organized by the DOP. Ted strategic planning have enabled a pharmacy orga-should now clearly appreciate the importance of this nization to better position itself for those changes?type of planning to the future of the hospital and tothe pharmacy department. Ted should also be able to REFERENCESanticipate the process that might be followed. Ted alsoshould anticipate certain questions that will need to be Anderson RW. 1986. Strategic planning for clinical services:addressed in the planning process. For example, given The University of Texas M.D. Anderson Hospital andthe pharmacy described in the scenario, what might be Tumor Institute. Am J Hosp Pharm 43:2169.a suitable vision for the department? What goals and Birdwell SW, Pathak DS. 1989. Use of the strategic-planningobjectives might the department establish during its process by hospital pharmacy directors. Am J Hospstrategic planning exercise? Pharm 46:1361. Breen L, Crawford H. 2005. Improving the pharmaceutical The concepts discussed in this chapter become supply chain: Assessing the reality of e-quality throughonly more important as one advances through a ca- e-commerce application in hospital pharmacy. Int Jreer and assumes higher levels of leadership and re- Qual Reliab Manag 22:572.sponsibility in a pharmacy or health care organization. Coke A. 2001. Seven Steps to a Successful Business Plan. NewIt is also important for students and new practition- York: American Management Association.
  • 64. Strategic Planning in Pharmacy Operations 45Guerrero RM, Nickman NA, Bair JN. 1990. Using phar- services: St Joseph Hospital and Health Care Center. macists’ perceptions in planning changes in pharmacy Am J Hosp Pharm 43:2164. practice. Am J Hosp Pharm 47:2026. Martin C. 2002. Managing for the Short Term: The New RulesHagel HP. 2002. Planning for patient care. In Hagel HP, for Running a Business in a Day-to-Day World. New York: Rovers JP (eds), Managing the Patient-Centered Phar- Doubleday. macy. Washington, DC: American Pharmaceutical As- Newberg DF, Banville RL. 1989. Strategic planning for phar- sociation. macy services in a community hospital. Am J HospHarrison DL. 2006. Effect of attitudes and perceptions of Pharm 46:1819. independent community pharmacy owners/managers Porter ME. 1980. Competitive Strategy: Techniques for Ana- on the comprehensiveness of strategic planning. J Am lyzing Industries and Competitors. New York: Free Press. Pharm Assoc 46:459–64. Porter ME. 1985. Competitive Advantage: Creating and Sus-Harrison DL. 2005. Strategic planning by independent com- taining Superior Performance. New York: Free Press. munity pharmacies. J Am Pharm Assoc 45:726–33. Portner TS, Srnka QM, Gourley DR, et al. 1996. Compar-Harrison DL, Bootman JL. 1994. Strategic planning by in- ison of Department of Veterans Affairs pharmacy ser- stitutional pharmacy administrators. J Pharm Market vices in 1992 and 1994 with strategic-planning goals. Manag 8:73. Am J Health-Syst Pharm 53:1032.Harrison DL, Ortmeier BG. 1996. Strategic planning in the Shane R, Gouveia WA. 2000. Developing a strategic plan for community pharmacy. J Am Pharm Assoc NS36:583. quality in pharmacy practice. Am J Health-Syst PharmHodges H, Kent T. 2006–2007. Impact of planning and 57:470–4. control sophistication in small business. J Small Bus Smith JE. 1989. Integrating human resources and program- Strat 17:75. planning strategies. Am J Hosp Pharm 46:1153.Hutchinson RA, Witte KW, Vogel DP. 1989. Development Steiner GA, Miner JB, Gray ER. 1982. Management Policy and implementation of a strategic-planning process at and Strategy. New York: Macmillian. a university hospital. Am J Hosp Pharm 46:952. Stoner JAF, Freeman RE, Gilbert DR. 1995. Management,Kelly WN. 1986. Strategic planning for clinical ser- 6th ed. Englewood Cliffs, NJ: Prentice-Hall. vices: Hamot Medical Center. Am J Hosp Pharm 43: Thompson AA, Strickland AJ. 1983. Strategy Formulation 2159. and Implementation: Tasks of the General Manager.Koteen J. 1997. Strategic Management in Public and Nonprofit Plano, TX: Business Publications. Organizations, 2d ed. Westport CT: Praeger. Wong G, Keller U. 1997. Information technology (IT)Lewin Group. 2005. Medication therapy management ser- outsourcing: An alternative to re-engineer your IT. vices: A critical review. J Am Pharm Assoc 45:580–7. In Berndt R (ed), Business Reengineering. Heidelberg:Linggi A, Pelham LD. 1986. Strategic planning for clinical Springer-Verlag.
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  • 66. 4 Business Planning for Pharmacy Programs Glen T. Schumock and Godwin Wong A bout the Authors: Dr. Schumock is a graduate of Washington State University (B.Pharm.), the University of Washington (Pharm.D.), and the University of Illinois at Chicago (MBA). He also completed a residency and a research fellowship. Cur- rently, Dr. Schumock is Director of the Center for Pharmacoeconomic Research and Associate Professor in the Department of Pharmacy Practice at the University of Illinois at Chicago. Dr. Schumock teaches courses on pharmacy management, pharmacoeconomics, and business planning for pharmacy services. Dr. Schumock has published over 100 articles, book chapters, and books. He is on the editorial boards of the journals Pharmacotherapy and PharmacoEco- nomics. Dr. Schumock is a board-certified pharmacotherapy specialist and is a Fellow in the American College of Clinical Pharmacy. Dr. Wong has been on the faculty of the Haas School of Business at the University of California, Berkeley, for 20 years. His areas of interests are corporate strategic planning, en- trepreneurship, information technology management, and venture capital. He has conducted leadership and strategic planning workshops for various health care groups, hospital adminis- trators, and pharmaceutical companies and has lectured to executives in 20 countries. He has served on the boards of directors of several California banks, Silicon Valley companies, and international corporations. He received a B.S. from the University of Wisconsin, an M.S. from UCLA, and a Ph.D. from Harvard University. ■ LEARNING OBJECTIVES After completing this chapter, students should be able to 1. Describe the purpose of business plan planning. 2. Discuss the important components of a business plan. 3. Review important aspects of communicating and implementing a business plan. 4. Highlight examples of business plan planning within pharmacy organizations. 47Copyright © 2009 by The McGraw-Hill Companies, Inc. Click here for terms of use.
  • 67. 48 M A N A G I N G O P E R A T I O N S■ SC E NA R IO ■ C H A P T E R QU E S T IO N SThe scenario begun in Chapter 3 continues here. In 1. What is the primary objective of business planningbrief, Ted Thompson is a clinical pharmacist at a in the pharmacy environment?medium-sized community hospital. Ted has just fin- 2. What are the important components of a businessished participating in the process of developing a strate- plan of a proposed clinical pharmacy service?gic plan for the pharmacy department. Included in the 3. What are the principal factors to include in an anal-5-year plan is a goal for the department to develop suc- ysis of the potential financial performance of a pro-cessful clinical pharmacy service programs and, where posed new program?possible, to generate revenue from those programs. 4. For whom is a business plan written? After his first year at the hospital, Ted has formu-lated several ideas for new clinical pharmacy services ■ I NT RO D U C T IO Nthat the department could offer that might generaterevenue. During his annual performance evaluation, Chapter 3 discussed general concepts of planning byhe discusses these ideas with his boss, the director of pharmacy organizations and reviewed a specific type ofpharmacy (DOP). The DOP is happy that Ted has planning—strategic planning. This chapter discussescome forward with his ideas and encourages him to another key type of planning that is used by phar-investigate these options further. One idea that is of macy organizations. The distinguishing characteristicparticular interest is to develop a service or business to of business planning is that it focuses on a specific pro-provide “consultant pharmacy services” to area nursing gram or business within the organization. Here thehomes. term business is used synonymously with program. For As a clinical pharmacist serving the general example, in a pharmacy organization, the business ormedicine area of the hospital, Ted has developed a program may be a new clinical service. In a large corpo-high level of interest and expertise in the care of the el- ration, such as a chain pharmacy, the business or pro-derly. His duties often involve contacts with area nurs- gram may be a drive-through prescription service or aing homes, especially when patients are discharged to disease management program in selected stores. Busi-these facilities and when there are issues with continu- ness planning also can be used for startup companies,ity of drug therapy. Because of this, and because of his where the proposed program or business comprises theconcern for patients, Ted has developed a good repu- totality of the organization.tation with the physicians and nursing staff not only The purpose of business planning is to providein the hospital but also within area nursing homes. data and proposed actions necessary to answer a busi-Ted tells the DOP that during his contacts with these ness question, usually in the form, “Should we investhomes, he has heard that most are unhappy with the in the proposed business?” As this question illustrates,quality of the medication reviews currently provided by business planning is used most commonly when an or-an outside consultant pharmacist. They have asked re- ganization wishes to project the future risks and bene-peatedly if he or the hospital would consider providing fits of a proposed new business venture. For example, inthese services. the scenario faced by Ted, the business question relates The DOP indicates that he thinks that the consul- to the proposed new program that will provide con-tant pharmacy service idea is a good one. He suggests sultant pharmacy services to nursing homes. However,that Ted develop a “business plan.” Ted has heard of business planning also may be used to make decisionsthe term business plan before but really does not know about expanding or terminating an existing program.1what it entails. However, he is willing and prepared tolearn and to do whatever is necessary to accomplish the 1 Here it may be useful to distinguish the terms business Plan,proposed idea. business planning, and business plan planning. Business plan
  • 68. Business Planning for Pharmacy Programs 49 As with strategic planning, the process of business patient needs and generate profits. Pharmacists shouldplanning produces a written plan. A key point to clarify not lose the “entrepreneurial” spirit that is necessary tohere is that the business plan needs to be written with promote and nurture pharmacy business and that hasthe “audience” in mind. If the decision maker is the driven many of the advances in the profession. Busi-chief executive officer (CEO) and/or chief financial ness planning is a means by which pharmacists can doofficer (CFO), then the plan should be written so that is applicable to and appropriate for that audience. The place to start with any new business idea is toBusiness plans that do not consider the audience are conduct a preliminary evaluation. This is called explor-less likely to be acted on favorably. A common mistake ing the business concept. The purpose of this preliminaryby authors of business plans (including pharmacists) is exploration is to determine if the idea merits the de-to write in a manner that is too technical or detailed, velopment of a complete business plan. As with otherthus failing to hold the attention of executives, who planning processes, business planning is a not a trivialmight be the decision makers. undertaking. For this reason, it is advisable to be sure This chapter will discuss practical issues in the that the concept is one that is reasonable prior to in-development of a pharmacy-related business plan. Be- vesting time and energy into developing the businesscause business planning is an activity that is commonly plan.employed by organizations of all sizes, there are ample The preliminary evaluation usually begins with aresources on this topic. Some excellent general guides literature search. Literature searches yield the best re-to business planning are listed in the reference sec- sults when conducted using electronic databases suchtion of this chapter (Bangs, 1998; Cohen, 2001; Coke, as that of the National Library of Medicine, which can2001; O’Hara, 1995; Pinson and Jinnet, 1999). There be searched using PubMed. Other databases and searchare also several references specific to business planning engines are also available in most medical pharmacy organizations (Hagel, 2002; Phillips and Search terms should be consistent with the area of inter-Larson, 2002; Schneller, Powell, and Solomon, 1998; est. For example, to identify articles that describe con-Schumock, Stubbings, and McBride, 2004; Tipton, sultant pharmacy services in nursing homes, Ted (from2001). A more detailed, workbook-style resource for the scenario) might use the following search terms: clin-business planning for clinical pharmacy services is also ical pharmacy, consultant pharmacy, pharmacy services,available and may be especially useful to those who are nursing homes, and long-term care. Literature searchesin the position of developing an actual business plan can be made more specific by limiting the search to(Schumock and Stubbings, 2007). certain date ranges, types of articles (i.e., reviews or descriptive reports), or specific journals of publication (i.e., pharmacy journals), if appropriate.■ T H E BU S I N E SS C O N C E P T Another way to identify primary literature of in- terest is to obtain systematic literature reviews that haveThe practice of pharmacy is a unique combination of been published. These reviews usually provide exten-the provision of patient care and the running of a busi- sive citations and may categorize articles based on typesness, and there are many opportunities for pharmacists of pharmacy services or other classifications that are ofto create new and innovative services that both fulfill interest. A number of very comprehensive reviews have been published and are included in the reference listplanning culminates in the development of a business plan of this chapter (Hatoum and Akhras, 1993; Hatoumand is the primary topic of this chapter. Business planning et al., 1986; Plumridge and Wojnar-Horton, 1998;encompasses not only the development of the business plan Schumock et al., 1996, 2003; Willett et al., 1989).but also the ongoing monitoring and review of the success of A further source of information is the Internet.a program. Using the search terms listed earlier, it is possible to
  • 69. 50 M A N A G I N G O P E R A T I O N Sidentify additional resources pertinent to the subject Besides gaining experience from literature, explo-of interest. For example, by typing consultant phar- ration of the business concept should consider the sizemacy services into a search engine such as Google, Ted and receptivity of potential customers of the service.will identify the Web site of the American Society of A preliminary analysis of the demand that may existConsultant Pharmacists (ASCP), which will lead to for the service should be conducted. This should in-a host of resources available on this topic. However, clude a clear description of the need for the service andas most experienced Web users will recognize, Inter- the number of potential customers that may exist innet searches can produce an inordinate amount of the market. Information about the market can come“noise” in the form of unrelated sites or references and, from a variety of sources. Demographic data relatedfrom that standpoint, may be inefficient. Some Web to trends in the population in the community usuallysites will have links to other related sites that are very are available from county or city Web sites or from thehelpful. U.S. Census Bureau. Local, state, and federal public One Web site that may be particularly useful for health agencies will be able to provide information ongaining access to information on many different types disease patterns and statistics. Information can even beof clinical pharmacy services is maintained by the Cen- gathered from existing or potential customers by con-ter for Pharmacoeconomic Research at the University ducting interviews or surveys. Consulting companiesof Illinois at Chicago College of Pharmacy. The site also may be available to assist in assessing the marketis called VClinRx, short for “The Value of Clinical for the proposed program.Pharmacy Services,” and it is a searchable database Once information on the market is obtained, itof literature on clinical pharmacy services. It can then can be used to consider the revenue that maybe accessed at be generated by the program. It should be noted thatpharmacoeconomic research/. some programs will not generate revenue; rather, they Primary and secondary literature identified in may reduce costs—which can be equally important.these searches can provide a variety of information to Further, while most programs are required to provide aassist in exploring the business concept. First, some financial benefit, in some cases other, nonquantifiablepublications will serve primarily to describe the expe- benefits may be considered of equal or greater impor-riences of others in providing the program or service. tance (i.e., clinical benefits).Other publications may provide an actual evaluation Given that the proposed program appears to haveof the program or service. For example, an article may a potential market and that it may create a financialevaluate the impact of the service on the health out- benefit (or some other form of benefit) for the organiza-comes of patients or may provide evidence of the finan- tion, the remaining issue is the ability of the program tocial impact of the program. Obviously, this type of in- address a specific goal(s) in the organization’s strategicformation will be extremely valuable to anyone propos- plan. For example, if a hospital’s strategic plan includesing to implement similar services. In fact, part of the a goal of expanding vertically into related health careprocess of exploring the business concept may include markets, such as long-term care, then the pharmacy’sthe generalization of results found in the literature. For proposal to initiate a consultant pharmacy serviceexample, it is possible to combine the results of pub- would be consistent with and supportive of that goal.lished studies and estimate the clinical and economic Having conducted the preliminary exploration ofoutcomes that may be expected if the service were to be the business concept, it is probably prudent to seekimplemented in a different setting (Schumock, 2000; the advice of others before moving forward with theSchumock and Butler, 2003; Schumock, Michaud, and complete business planning process. Here, Ted mayGuenette, 1999). Resources are also available for devel- consider discussing the idea with key stakeholders inoping and establishing certain types of pharmacy ser- the organization, including the individual or individ-vices (American College of Clinical Pharmacy, 1994; uals who will make the ultimate decision to more for-Cooper, Saxton, and Cameron, 2004). ward with the concept. For example, Ted should broach
  • 70. Business Planning for Pharmacy Programs 51the idea of the consultant pharmacy service proposed in the scenario, Ted would want to identify the differentthe scenario with senior executives in the hospital, such nursing homes in the region surrounding his the CEO and CFO. Ted may also wish to get input For each nursing home, he will also want to identify thefrom key stakeholders in the local nursing homes, such number of patients, the types of patients, and the dif-as the physician medical directors, nursing directors, ferent characteristics of each facility. These homes andand administrators of those facilities. If the reception the patients within them will comprise the potentialto the concept is positive, the development of a com- market for the service.plete business plan can begin. In addition to the information on area nursing homes, Ted should also be interested in demograph- ics of the population in the region. Ted will want to■ STEPS IN THE know the number and percentage of elderly people in D EV E LO P M E NT O F A the region and the trends with respect to the age of the BU S I N E SS P L A N population. If he finds that the people in area are grow- ing older or that older people are moving into the area,The process of business planning is similar to other then this would bode well for the proposed business.types of planning and, as such, is consistent with the It is important to note that the term customers isgeneral steps discussed in Chapter 3. This section de- not always synonymous with patients when speakingscribes the usual steps taken in the business planning of health care programs. In particular, the customersprocess. of pharmacy programs may be something or someone other than patients. In many cases, the customers ofDefine the Business or Program pharmacy programs are physicians or other health careAs with other types of planning, the initial step of busi- professionals. In the scenario, the customers are actu-ness planning is to define the business or service pro- ally the individual nursing homes because the proposedposed. After exploring the business concept (see above), service would be paid for by the homes. In analyzing theTed likely already will have developed a clear idea of market, Ted should identify the segment of the marketthe business proposal. To formalize a definition of the to which the program or business is most apt to, he should develop a specific statement of the This is commonly known as the target market. The tar-purpose of the program. This statement is also called a get market may be based on a special market niche thatmission statement and was discussed in Chapter 3. The the program fulfills and/or a special customer need.mission will crystallize the aims of the program andhelp to steer the direction taken in other steps of the Conduct Competitor Analysisplanning process. A key component of analyzing the external environ- ment is to identify and gauge potential competitors.Conduct Market Research and Analysis The goal of the competitor analysis is to understand theThe next steps in business planning (evaluating the characteristics of other providers so that the businessmarket, evaluating competitors, and assessing clini- can be positioned favorably compared with competi-cal and quality requirements) are part of the situation tors. Data about competitors sometimes are difficult toanalysis described in the general planning process (see obtain. Surveys of customers, price comparisons, andChapter 3). The term market refers to the customers of publicly available information (i.e., Web sites) shouldthe program. An analysis of the potential customers of be investigated.the business is clearly an important exercise, and this A comparison should be made of the character-can be done in a number of ways. First, the market can istics and market share of each competitor with thosebe described geographically. For example, the organi- of the proposed program. Characteristics such as yearszation may collect data that would give projections of in business, number of customers, percentage of thethe number of customers in different local regions. In market (i.e., market share), and product or service
  • 71. 52 M A N A G I N G O P E R A T I O N Sniche should be compared. The strengths and weak- statutes, and regulations that must be followed whennesses of each competitor should also be reviewed and applicable.compared with those of the proposed business. Cate- In the proposed consultant pharmacy service (sce-gories of strengths and weakness to consider include nario), there are many different sources of regulatoryservice quality, staff competence and credentials, cus- guidelines. First, regulations of the Centers for Medi-tomer service, customer access, price, technology or care and Medicaid Services (CMS) require that long-innovation, and delivery mechanisms. term care facilities employ consultant pharmacy ser- In health care, our definition of competitors some- vices in order to be eligible for Medicare reimburse-times has to be broadened beyond that which is most ment. Clearly, this and similar state regulations shouldobvious. For example, in the hospital environment, a be reviewed. Because the practice of pharmacy is reg-new pharmacy program actually may compete with ulated primarily at the state level, the state pharmacyother professions within the hospital. Many of the practice act must be complied with. Some states pro-advanced clinical services that pharmacists provide vide regulations that specifically deal with consultantreplace functions of other health care professionals, pharmacy services in nursing homes, whereas othersespecially physicians. This is true even in the outpa- address the nondispensing services of pharmacists moretient environment. For example, a pharmacy-run im- generally. Last, the ASCP provides guidelines and othermunization clinic may compete with physician offices resource materials (i.e., practice standards or guide-that also administer vaccines. lines) to it members (Cooper, Saxton, Cameron, 2004). In the case of the proposed consultant pharmacy Assessing clinical and quality requirements of theservice (scenario), Ted should consider as competitors proposed program also means planning for how toany other organizations that provide the same service comply with these standards. Compliance should be(consultant pharmacy service). In the nursing home en- considered both on an initial basis and over the longvironment, local retail pharmacies or large regional or term. Clinical and quality requirements may necessi-national long-term care pharmacies that provide med- tate the hiring of certain (qualified) staff, the devel-ications to nursing homes may also provide consultant opment of work processes to monitor quality, and thepharmacy services. In some cases, individual pharma- implementation of technology or procedures to ensurecists provide these services to one or two homes on an compliance.independent consultant basis. Define Processes and OperationsAssess Clinical and Quality Requirements The business planning process shifts from the initialThe health care market more than most others is highly situation analysis to more of a projection and goal-regulated. Clearly, anyone proposing a new business in setting approach in the next four steps. Defining thea regulated environment must be aware of these regula- details associated with the planned operations of thetions and have a plan to comply with them. Thus part business is the first of these steps. This step includesof the business planning process is to analyze applicable planning of the optimal organizational structure (withregulations and requirements. This analysis should ex- a link to the larger organization), the staffing levels, per-tend beyond just the mandatory legal rules or require- sonnel requirements, and the reporting relationships ofments. It should include voluntary standards, such as the program. Personnel job titles, job descriptions, andthose endorsed by professional organizations and so- the number of full-time equivalents2 (FTEs) needed incieties; it also should include standards of accrediting each position should be determined.bodies and any other guidelines or expectations withrespect to the service proposed. Obviously, pharmacy 2 A full-time equivalent (FTE) is a value used to measureis not immune to regulations. On the legal side, there the actual or budgeted work hours in an organization. Oneare federal, state, and city/county ordinances, laws, FTE is equal to 2080 hours per year (or 40 hours per week,
  • 72. Business Planning for Pharmacy Programs 53 Coag Test Presentation Area Educational PamphletsFigure 4-1. Diagram of work area of a proposed pharmacy-run anticoagulation monitoring clinic. Planning should also elicit the physical structure, sufficient to determine the workload capacities of theequipment, and resources required to operate the pro- program. From this, strategies should be devised to dealgram. This includes planning for the types of equip- with extremes in demand (either insufficient or excessment, physical layout, furniture, and information sys- workload).tems. Last, the work processes should be planned. This Planning of the processes and operations helpscan be done using flowcharts and other tools to design to clarify the practical, day-to-day activities that willthe customer interface and delivery of the proposed ser- occur in the program. This type of planning providesvice. Diagrams can be used to show workflow within critical information needed in later steps of the busi-a space, if appropriate; an example of a workspace for ness planning process (i.e., for development of financiala pharmacy-run anticoagulation monitoring clinic is projections).shown in Fig. 4-1. The planned operations should be In the consultant pharmacy proposal, planning of processes and operations will include estimation of the number and types of pharmacists (or other staff ) that52 weeks per year). Part-time employees are counted as less will be needed to provide the proposed services. Tedthan a full FTE. For example, an employee who works 20 will also need to determine the job requirements (i.e.,hours per week is equal to 0.5 FTE. must have completed a geriatrics certificate program)
  • 73. 54 M A N A G I N G O P E R A T I O N Sand have a rough idea of the job descriptions for each likely that the market comprises all the nursing homesposition. With respect to the organizational structure, in a limited geographic region surrounding the hospi-he will need to determine to whom the consultant phar- tal. However, it may be Ted’s wish to target the servicemacist(s) should report and where within the hospi- only to the largest homes (i.e., those over 500 beds)tal pharmacy department organizational structure this or to those with the highest acuity (or some other tar-business will reside. The work processes of the consul- get characteristic). Usually, nursing home administra-tant pharmacists will need to be defined, along with tors make the decision to contract with a consultantany work aids that may be required in this process pharmacy service (with input from medical and nurs-(i.e., electronic drug information or documentation ing staff ); therefore, the communication plan shouldsystems). Important policies or procedures that gov- focus on those individuals. The best method of com-ern the activities and decision making of the program municating information about the program likely willand staff also should be determined. Methods for com- be face-to-face visits by Ted with those administratorsmunication between the consultant pharmacist(s) and responsible for homes in the target market. The mar-the nursing home personnel (i.e., physicians, nurses, keting plan may call for obtaining contracts with onlyand administrators) should be defined. This planning a couple homes in the first 6 months of the programprocess should also include identification of a system but then to increase gradually by one home every 6for workload monitoring and for billing the nursing months. The ongoing marketing strategy would be inhomes for the services provided. Many other details accordance with this.of the operation also will need to be developed in thisplanning process. Develop Financial Projections Perhaps the most critical step in the business planningDevelop a Marketing Strategy process is the development of financial projections forThe second of the goal-setting steps is to define a mar- the program. Most programs that do not have a posi-keting strategy. The marketing strategy should be based tive benefit-to-cost ratio usually will not be approved.on information gathered in the previous steps of the That is, the program must be profitable. While it isbusiness planning process, especially the market and preferable that programs generate revenue, it is possi-competitor analyses. The marketing strategy should ble that pharmacy services are justifiable based on re-identify the target market for the program and develop ducing expenditures. For example, a clinical pharmacya plan for gaining the business of that market. This antibiotic dosing service in a hospital may reduce ex-plan should include the means of communicating to penditures on antibiotics and reduce patient length ofcustomers and the message that should be communi- stay but generate no revenue. If the financial benefit ofcated to them. The strategy for a new business should the dosing service (i.e., reduced expenditures) exceedsbe separated into the initial marketing plan and the the costs associated with providing the program (i.e.,ongoing marketing plan. The initial marketing plan pharmacist salary), then the program can be considereddefines the promotional activities and market goals for financially viable. Obviously, there may be additionalthe period directly before and immediately after im- benefits from the dosing service, such as improved pa-plementation of the new program. The ongoing mar- tient outcomes, that also would favor its approval.keting plan defines the promotional and market goals The business planning process must include anover the longer term. Resources are available to assist in analysis of both the costs that will be incurred tothe development of pharmacy-related marketing plans provide the service and the financial benefits that may(Doucette and McDonough, 2002; Holdford, 2003). occur as a result of the program. More detailed de- The marketing strategy for the consultant phar- scriptions of the methods to project these figures aremacy service (scenario) largely will depend on the cur- available elsewhere (Schumock, 2000). The calcula-rent status of such services in area nursing homes. It is tions involved in this planning process may be aided
  • 74. Business Planning for Pharmacy Programs 55by the use of financial spreadsheets. A set of financial the program. A Gantt chart is one method to depictspreadsheets designed for creating financial projections the action plan visually. An example of a Gantt chartis available to those in the position of having to develop for a long-term consultant pharmacy services is showna business plan (Schumock and Stubbings, 2007). The in Fig. 4-2.revenue and expense statement, which lists revenue bycategory, expenditures by category, and net profit each Assess Critical Risks and Opportunitiesyear for a 3- to 5-year period, is the most useful of Another key step in the business planning process isthese. An example of a revenue and expense projection to determine the critical risks and opportunities of thefor consultant pharmacy services (scenario) is shown proposed program. This is essentially the same as thein Table 4-1. SWOT analysis presented in Chapter 3, except that In developing the financial projections, revenue the business being evaluated is proposed rather than(if it exists) should be based on the anticipated vol- already existing. While it may seem more reasonableume of business, changes to that volume expected over to conduct the SWOT analysis earlier in the businesstime, and the income per unit of service. Informa- planning process, as was done in strategic planning,tion on billing for pharmacy services may be helpful because the program is in the proposal stage, some ofin estimating potential revenue of the proposed service the key considerations for this analysis must come from(American College of Clinical Pharmacy, 1999; Lar- the previous steps, such as the financial analysis, andson, Uden and Hadsall 2000; Vogenberg, 2006). Dis- thus it is done later in the process.counts to income (contractual agreements) should be An example of a SWOT analysis for a proposedfactored into these calculations, as should future in- long-term care consultant pharmacy services programcreases in the amount charged for the service. Expen- is shown in Tables 4-2 and 4-3. Strengths and weak-ditures must also be projected. If the program requires ness are internal characteristics, whereas opportunitiessignificant capital investment, those expenditures and threats are characteristics of the external businessshould be depreciated over the life of the item and ac- environment. A number of factors can be consideredcounted for appropriately. Other investments required when conducting this analysis. The factors consideredto initiate the program also should be shown in the will vary based on the nature of the business and thefinancial estimates. Ongoing costs, such as salaries and business environment.benefits, minor equipment, supplies, rent, and otheroverhead, should be categorized and accounted for. Establish an Exit PlanCosts that are considered variable should be increased The last step of the planning process is to develop anproportionate to the changes in volume expected. All exit plan. The exit plan is a formal protocol for deter-costs should be increased annually based on inflation, mining when and why a decision would be made to ter-the consumer price index (CPI), or other evidence of minate the program. The exit plan also defines the stepsexpected increases in the costs of goods or services. that would be taken if such a decision were to be made. A decision to exit a program usually is based onIdentify an Action Plan failure of the business to meet predetermined goals (fi-The next step in the business planning process is to de- nancial or otherwise). Typically, any new business isfine major milestones and an action plan of implemen- given a certain amount of time to meet its goals (18 totation and operation of the program. This action plan 24 months). Many organizations fail to have a mech-should detail the start and finish dates and list responsi- anism in place to make a termination decision and in-ble individual(s) for each task necessary to accomplish stead let the business flounder and perhaps continue tothe objectives of the business plan. The action plan lose money. It is much more preferable to have a defini-should include periodic monitoring and assessment of tive benchmark to which the program can be comparedthe performance (i.e., clinical, financial, or other) of and a decision made promptly and decisively.
  • 75. 56 Table 4-1. Example Revenue and Expense Projections for Consultant Pharmacy Services Program, Most Likely Scenario, Years 1–5 Year 1 Year 2 Year 3 Year 4 Year 5 Total Operating revenue Patient revenue 504,000 1,008,000 1,176,000 1,260,000 1,764,000 5,712,000 Deductions from revenue 0 0 0 0 0 0 Net patient revenue 504,000 1,008,000 1,176,000 1,260,000 1,764,000 5,712,000 Operating expenses Salaries 312,000 426,400 561,600 595,296 1,017,120 2,912,416 Employee benefits 81,100 110,900 146,000 154,800 264,500 757,300 Medical director 0 0 0 0 0 0 Medical supplies 6,000 6,890 7,420 7,950 8,500 36,760 Office supplies 0 0 0 0 0 0 Education and travel 0 0 0 0 0 0 Maintenance/repair 300 318 337 357 757 2,069 Consulting 0 0 0 0 0 0 Contracted services 0 0 0 0 0 0 Marketing 5,000 2,500 2,650 2,809 5,300 18,259 Dues and subscriptions 3,585 3,780 3,975 3,975 4,170 19,485 Rent 12,500 12,700 13,500 14,300 15,150 68,150 Postage 3,500 4,200 4,800 5,300 6,900 24,700 Equipment expense 13,000 1,272 1,348 0 1,515 17,135 Utilities/telephone 8,300 8,798 9,326 9,886 10,479 46,789 Insurance 900 1,166 1,248 1,323 1,826 6,463 Other expenses 16,500 3,090 3,285 12,423 8,894 44,192 Bad debt expense 0 0 0 0 0 0 Building depreciation 0 0 0 0 0 0 Equipment depreciation 0 0 0 0 0 0 Total operating expenses 462,685 582,014 755,489 808,419 1,345,111 3,953,718 Net income (loss) 41,315 425,986 420,511 451,581 418,889 1,758,282 Net assets at beginning 350,000 391,315 817,301 1,237,812 1,689,393 4,485,821 Net assets at end 391,315 817,301 1,237,812 1,689,393
  • 76. Business Planning for Pharmacy Programs 57 Step Description Duration Months 1-18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 1 Plan service 2 month 2 Hire and train staff 1 month 3 Implement 2 month information system for documentation and billing 4 Contract with first 1 month LTCF 5 Provide service to Indefinite first LTCF 6 Measure clinical and 1 month economic outcomes in first LTCF 7 Measure customer 1 month satisfaction in first LTCF 8 Market services to Indefinite target facilities 9 Contract with second 1 month LTCF 10 Provide service to Indefinite second LTCF 11 Hire and train 1 month additional staff 12 Contract with third and fourth LTCFs 13 Provide service to Indefinite third and fourth LTCFs 14 Compare 1 month performance of program to objectives 15 Make decision to 1 month continue or discontinue program based on performance to-date 16 If decision in step 15 1 month to continue, then contract with fifth LTCF 17 If decision in step 15 2 months is to discontinue, then inform LTCFs, notify staff, discontinueFigure 4-2. Example of a Gantt chart for a log-term consultant pharmacy services program. If a decision is made to terminate a program, other capital (capital will be discussed in Chapter 18)then there should be clear actions for how the busi- will be sold or transferred. An exit plan for a programness will be dissolved. First, there should be a plan for could involve transferring the control of the programwhen and how customers will be notified. Further, in from one organization or one administrative unit tosome cases it may be important to provide customers another.with information about others who can provide theservice and then schedule a seamless transition. Sec- ■ C O M M U N IC AT IO N O F T H Eond, there should be a plan for how employees will be BU S I N E SS P L A Nnotified. The plan may include efforts to place employ-ees in other areas of the organization or what, if any, Typically, there are two key components to commu-compensation package may be available. Third, there nicating the work accomplished in planning. The firstshould be a plan for how the facilities, equipment, and is to create a written document—the actual business
  • 77. 58 M A N A G I N G O P E R A T I O N S Table 4-2. Internal Strengths and Weaknesses of Consultant Pharmacy Services Program Factor Strength Weakness Profitability As a new program associated with a hospital, overhead expenses are minimal and thus profitability is high. The program is also able to share staff with the hospital, thus reducing salary expenses. Quality As a new program, the organization has limited experience specific to the long-term care environment. This may jeopardize quality initially. Customer service Because the program is small (at least initially), it will be able to provide more attention to customers and thus better-quality service. Staff Because the pharmacist(s) included in the program have hospital experience, their level of clinical knowledge is beyond that of most competitors. Operations Because the program is associated with a Because the program is small and hospital, it can rely on the hospital new in this business, efficiency pharmacy department for backup during may be limited. off hours.plan. The second is to present the business plan orally, based on the industry, the business proposed, and theusually as part of a formal decision-making process. needs of the organization. More detailed plans may be required in certain industries.∗Writing the Business Plan The business plan should begin with an executiveAs stated previously, writing the business plan is an summary. This summary should be short (one or twoextremely important part of business planning. The pages) but should hit the main points of the plan should be informative and balanced in its The executive summary needs to capture the attentionpresentation of the proposal. The document should be of the reader. In a poorly written business plan, thewritten with a specific audience in mind (the financial reader may form a negative opinion of the programdecision maker). It should be both easy to read and easyto understand and therefore must possess proper orga- ∗ As another example, the proposed contents of a businessnization, grammar, punctuation, and sentence struc- plan for a for-profit venture include executive summary,ture. introduction/synopsis, venture idea, overall industry, mar- The contents of a business plan typically follow ket research/competition, production/sourcing plan, service/a sequence of items that are unique to this type of delivery plan, marketing/sales plan, management plan, hu-planning. An example of the table of contents of a man resources plan, ownership/organization plan, financialsimple business plan is shown in Table 4-4. It should plan, financing plan, growth/exit plan, implementation plan,be noted that the contents of the business plan will vary contingency plan, and assessment/evaluation plan.
  • 78. Business Planning for Pharmacy Programs 59 Table 4-3. External Opportunities and Threats of Consultant Pharmacy Services Program Factor Opportunities Threats Competition Because the competitors also provides Competitors are well established, pharmaceutical products, they large, and financially sound. could be considered biased in the Competitors also provide clinical recommendations they pharmaceutical products, which make. Alternatively, the proposed may be desirable. New competitors program does not provide may enter the local market in the pharmaceutical products and is future. therefore more objective. Technology Competitors have advanced information systems and experience with these systems. Regulation Consultant pharmacy services are mandated by state law. Thus nursing homes must contract with a provider of these services. Reimbursement With worsening of the economy, both the federal and state governments may cut back on Medicare and Medicaid reimbursement to nursing homes. Thus these facilities may go out of business or have insufficient funds to reimburse us for the services of the program. Costs Pharmacist salaries are rising rapidly due to a labor market shortage. These salaries will drive up costs, making it more difficult for the program to generate profit. Market/customers The population continues to age, and as such, there may be more nursing homes in the fulture.and read no further than the executive summary. This The second section of the business plan is the back-illustrates the importance of a writing style that is en- ground and description. Here, in a logical sequence, thegaging and error-free. Because of its position in the plan should define the rationale for the program ordocument, the executive summary is clearly the most service (i.e., the patient care need) and provide an ex-critical section of the plan. In addition to the execu- planation of why the organization is prepared to filltive summary, the plan should also begin with a table this need. The service opportunity provides the readerof contents. This will both help the writer organize the with a picture of the purpose of the proposed programplan and assist the reader in navigating the document. and should lead directly to a description of the formal
  • 79. 60 M A N A G I N G O P E R A T I O N S Table 4-4. Typical Table of Contents of the The fifth major section of the plan is the financial Business Plan projections or financial pro forma. This section identifies the estimated expenditures and revenue over the first 1. Executive summary 3 to 5 years of the program. Investments required to 2. Background and description begin and operate the program should be described 3. Market analysis and strategy as either startup costs or ongoing costs (or operating 4. Operational structure and processes costs) and should be organized by cost categories (e.g., 5. Financial projections salaries, equipment, capital, etc.). The financial data 6. Milestones, schedule, and action plan are best presented in a revenue and expense statement 7. Critical risks and opportunities (sometimes referred to as the profit and loss statement), 8. Exit strategy as shown in Table 4-1. 9. Conclusion The sixth section of the business plan defines the 10. Supportive documents (include financial milestones, schedule, and action plan for the program. pro forma statements, letters of support) A timeline should be defined that includes the major accomplishments and goals of the program for imple- mentation and through the first 3 to 5 years and maymission of the business. Last, this section should pro- include long-range growth and expansions objectives.vide other details that will help to illustrate the service, The action plan may also include responsibility assign-including data that may have been obtained from lit- ments and is often presented as a Gantt chart.erature or other sources. The next section of the business plan defines the The next section of the business plan is the mar- critical risks and opportunities of the business. Here, theket analysis and strategy. In some cases, the market plan should outline the major strengths and weaknessanalysis is presented as a separate section from the of the proposed business and describe the opportunitiesmarketing strategy. In either case, the market anal- and risk associated with the program if implementedysis is part of the situation analysis conducted dur- (as formulated in the SWOT analysis). This informa-ing planning, whereas the marketing strategy is part tion, both positive and negative, must be presented inof the goal-setting and strategy-development elements an unbiased manner so that an informed decision canof planning. In the business plan document these are be made about moving forward with the program.sometimes presented together because they address the The business plan should include a brief discus-same general topic. sion of what will happen if the business should fail. The fourth major section of the business plan This exit strategy or contingency strategy should defineis the operational structure and processes. In brief, this specifically when and how a decision would be madesection describes how the program will be run. This to exit the business. The section then should outline asection of the document should provide details on how plan for exiting the business. This plan might includethe service will be provided and by whom—in other issues such as what to do with existing patients or cus-words, the work processes that will occur. It should tomers (i.e., refer to other providers), what will hap-include information on how customers will interface pen with existing staff (i.e., reassign to other divisionswith the program. The organizational structure, num- of the organization or terminate), and how equipmentber and types of employees, and equipment and other and resources may be disposed of.resources used in operation of the program should be The last section of the business plan is the conclu-described. This section should also include definitions sion. The conclusion should be short. It should quicklyof the regulatory, clinical, and quality requirements that summarize the document. Most important, the con-may be applicable to the business and a description of clusion should provide a recommendation with re-how these requirements will be met. spect to the proposed business decision. Following the
  • 80. Business Planning for Pharmacy Programs 61conclusion are any attachments or additional materials. temporary pharmacy services. New pharmacy gradu-Supportive documentation, tables, figures, financial ates must understand and be able to write businessstatements, and/or letters of support should be attached plans that will justify new or continued investmentsto the business plan to collaborate the written text or in these services. It is very likely that most new grad-to present the material in a more detailed fashion. uates will be expected to develop or help to develop a business plan for a pharmacy program at some pointPresenting the Plan in their careers. Clearly, the ability to do so will benefitThe oral presentation of the business plan may be as the pharmacist, the employer, and patients. If accepted,important as the written document. In most organiza- the new program may be an opportunity to providetions, those seeking to implement new programs must new or unique services—thus heightening job satisfac-present the business plan before a group, usually con- tion. Likewise, the new program may generate revenuesisting of senior leaders in the company. or save costs elsewhere in the system—thus benefiting A good oral presentation can go a long way to- the employer. Patients, physicians, nurses, and othersward garnering positive support for the business plan. who are the recipients of the program will also benefit.The personal nature of the oral presentation may adddynamics to the decision-making process that do not ■ QU E S T IO N S F O R F U RT H E Rexist with the written document. These issues, which D I SC U SS IO Ninclude politics, group dynamics, and personal inter-actions, can be either positive or negative. In either 1. Conduct a literature search to identify articles thatcase, these dynamics should be anticipated and either may be pertinent to the business proposal describedreinforced or preempted depending on the situation. in the scenario. How many articles did you find, and how useful are they to understanding the business■ C O N C LU S IO N concept? 2. Conduct a hypothetical market and competitorAfter reading this chapter, our friend Ted Thompson analysis, and develop a marketing strategy for theshould be prepared to address the charge given him in consultant pharmacy services program. What arethe scenario. Ted, being an intelligent person, will rec- the market segments that may be important to thisognize quickly that developing a business plan for the business? What are the strengths and weaknessesproposed consultant pharmacy services program will be of the proposed service compared with those of itsa significant undertaking. Ted would be well advised to potential competitors?seek assistance from others as he begins this planning 3. What are important costs that would be incurred ifprocess. For example, Ted may want to establish a team the consultant pharmacy services program were im-that would include representatives from the hospital plemented? Classify these costs as fixed or department, other pharmacists who might be 4. Explain why you think an understanding of busi-involved in the program, and perhaps even a physician ness planning is important for pharmacists. Whator nurse with experience in long-term care. The assem- changes are occurring in the health care environ-bled team then could begin the business plan planning ment that make business planning even more im-process as outlined in this chapter. When this process portant?is complete, Ted and his boss (the DOP) will need tofollow the appropriate administrative channels within REFERENCESthe organization to gain approval from key hospitaldecision makers. American College of Clinical Pharmacy. 1994. Establishing Obviously, business planning is an important tool and evaluating clinical pharmacy services in primaryfor gaining further acceptance and penetration of con- care. Pharmacotherapy 14:743–58.
  • 81. 62 M A N A G I N G O P E R A T I O N SAmerican College of Clinical Pharmacy. 1999. How to Bill for Pinson L, Jinnet J. 1999. Anatomy of a Business Plan, 4th ed. Clinical Pharmacy Services. Kansas City, MO: American Chicago: Dearborn. College of Clinical Pharmacy. Plumridge RJ, Wojnar-Horton RE. 1998. A review of theBangs DH. 1998. The Market Planning Guide: Creating a pharmacoeconomics of pharmaceutical care. Pharma- Plan to Successfully Market Your Business Product or Ser- ceconomics 19:1349. vice, 5th ed. Chicago: Upstart Publications. Schneller LW, Powell MF, Solomon DK. 1998. Using theCohen DJ. 2001. The Project Manager’s MBA: How to Trans- business plan to propose revenue-generating pharmacy late Project Decisions into Business Success, 1st ed. San services. Hosp Pharm 23:806. Francisco: Jossey-Bass. Schumock G. 2000. Methods to assess the economic out-Coke A. 2001. Seven Steps to a Successful Business Plan. New comes of clinical pharmacy services. Pharmacotherapy York: American Management Association. 20:243S.Cooper JK, Saxton C, Cameron KA, eds. 2004. Developing Schumock G, Stubbing J. 2007. How to Develop a Business a Senior Care Pharmacy Practice: Your Guide and Tools Plan for Pharmacy Services. Lenexa KS: American Col- for Success. Alexandria, VA: American Society of Con- lege of Clinical Pharmacy. sultant Pharmacists. Schumock G, Butler M. 2003. Evaluating and justifying clin-Doucette WR, McDonough RP. 2002. Beyond the 4Ps: Us- ical pharmacy services. In Grauer D, Lee J, Odom T, ing relationship marketing to build value and demand et al. (eds), Pharmacoeconomics and Outcomes: Applica- for pharmacy services. J Am Pharm Assoc 42:183. tions for Patient Care, 2d ed. Kansas City, MO: AmericanHagel HP. 2002. Planning for patient care. In Hagel HP, College of Clinical Pharmacy. Rovers JP (eds), Managing the Patient-Centered Phar- Schumock G, Michaud J, Guenette A. 1999. Re-engineering: macy. Washington, DC: American Pharmaceutical As- An opportunity to advance clinical practice in a com- sociation. munity hospital. Am J Health-Syst Pharm 56:1945.Hatoum HT, Catizone C, Hutchinson RA, Purohit A. 1986. Schumock G, Stubbings J, McBride SJ. 2004. Business plan- An eleven-year review of the pharmacy literature: Doc- ning and marketing. In Developing a Senior Care Phar- umentation of the value and acceptance of clinical phar- macy Practice: Your Guide and Tools for Success. Alexan- macy. Drug Intell Clin Pharm 20:33. dria, VA: American Society of Consultant Pharmacists.Hatoum HT, Akhras K. 1993. A 32-year literature review Schumock G, Meek P, Ploetz P, Vermeulen LC. 1996. Eco- on the value and acceptance of ambulatory care pro- nomic evaluations of clinical pharmacy services: 1998– vided by clinical pharmacists. Ann Pharmacother 27: 1995. Pharmacotherapy 16:1188. 1108. Schumock G, Butler M, Meek P, et al. 2003. Evidence of theHoldford DA. 2003. Marketing for Pharmacists. Washing- economic benefit of clinical pharmacy services: 1996– ton, DC: American Pharmaceutical Association. 2000. Pharmacotherapy 23:113.Larson TA, Uden DL, Hadsall RS. 2000. Practice models Tipton DJ. 2001. A tool for corporate decision making about used by pharmacists in rural Minnesota to obtain Medi- cognitive pharmaceutical services. J Am Pharm Assoc care reimbursement. J Am Pharm Assoc 40:554. 41:91.O’Hara PD. 1995. The Total Business Plan: How to Write, Vogenberg FR. 2006. Understanding Pharmacy Reimburse- Rewrite, and Revise, 2d ed. New York: Wiley. ment. Bethesda, MD: American Society of Health Sys-Phillips CR, Larson LN. 2002. Creating a business plan for tem Pharmacists. patient care. In Hagel HP, Rovers JP (eds), Managing the Willett MS, Bertch KE, Rich DS, Ereshefsky L. 1989. Patient-Centered Pharmacy. Washington, DC: American Prospectus on the economic value of clinical pharmacy Pharmaceutical Association. services. Pharmacotherapy 9:45.
  • 82. 5 General Operations Management Noel E. Wilkin A bout the Author: Dr. Wilkin is Interim Associate Provost, Associate Professor of Pharmacy Administration, and Research Associate Professor in the Research Institute of Pharmaceutical Sciences at The University of Mississippi. He received a B.S. in pharmacy in 1989 and a Ph.D. in 1996, both from the University of Maryland, Baltimore. Dr. Wilkin has generated substantial grant and contract support, has published in numerous peer- reviewed and professional journals, and teaches at both the graduate and undergraduate levels. His areas of research include practical reasoning and its role in decision making, pharmacy entrepreneurship and management, issues facing professional education, and mechanisms to enhance optimal drug therapy. ■ LEARNING OBJECTIVES After completing this chapter, students should be able to 1. Describe the concepts of operations and operations management. 2. Identify typical inputs and outputs involved in pharmacy operations. 3. Describe the operations used by a pharmacy to transform inputs into out- puts. 4. Identify decisions that need to be made in typical pharmacy operations. 5. Describe the relationship between efficient operations and profitability. ■ SC E NA R IO Marie Lassiter just left her doctor and does not feel well. She stops at Cataldo’s Pharmacy to have the prescription that the doctor wrote for her filled. Joe Cataldo is a pharmacist who owns Cataldo’s Pharmacy. The pharmacy fills prescriptions for patients, helps diabetic patients manage their disease, offers a full line of durable medical equipment, and fills prescriptions 63Copyright © 2009 by The McGraw-Hill Companies, Inc. Click here for terms of use.
  • 83. 64 M A N A G I N G O P E R A T I O N Sfor a local nursing home. Joe or one of his two ■ I NT RO D U C T IO Nstaff pharmacists order their goods from a wholesaler.The wholesaler delivers these goods—over-the-counter Businesses exist to offer goods and services to con-(OTC) products, prescription drugs, and the other sumers.∗ Busineses must use resources (inputs) to createproducts sold in the pharmacy—on a daily basis. When the goods and services (outputs) that are offered. Thisthe medications are delivered, the prescription medi- creation process is referred to as transformation (Heizercations are placed on the shelf by one of the pharmacy and Render, 1999; Johnson, 1998). The resources aretechnicians. One of the three store clerks places the transformed into things that are needed, wanted, andOTC items on the displays in the front of the pharmacy. demanded by consumers. Consumers then pay forWhen Marie enters the pharmacy to have a prescrip- these outputs because the desire to satisfy their wanttion filled, she approaches the counter and is greeted or need is equal to or greater than the amount of valueby a clerk. The clerk gathers information from her and they place on the money used to buy it. This process ofgives the information and written prescription to the creating goods and services is referred to as operations.technician. The technician enters the information into It encompasses the activities or operations performedthe computer, which connects to another computer to by the organization to transform resources into valued,verify Marie’s insurance coverage and the amount of profit-generating goods and services. To manage thesemoney that she should pay. The pharmacy’s computer activities is to perform operations management.then prints a label that will be placed on the prescrip-tion vial, which is placed in a staging area to be filled. ■ THE LINK BETWEENIn this instance, Marie’s prescription is a compounded O PE R AT IO N S A N Dprescription, a prescription that must be prepared by P RO F I TA B I L I T Ymixing several ingredients together. One of the phar-macists prepares the prescription and places it into a Given that businesses perform many operations to pro-special vial. The pharmacist then checks it for accuracy duce goods and services, the efficiency of those oper-and assurance that what was prepared matches what ations will affect the profitability associated with thewas ordered on the written prescription. The phar- goods and services offered by the business. It costsmacist then gives Marie the prescription and provides money to develop/create goods, and it costs money toinformation about how to use the medication properly provide services. In the scenario, the pharmacy is com-while the clerk rings her up and processes her credit pounding a product from multiple active ingredients.card. It is evident that there are a multitude of inputs, all of which have associated costs. The pharmacy must pay for the■ C H A P T E R QU E S T IO N S t Ingredients, both active and inactive t Container that will hold the final compound1. What is the importance of operations management in pharmacy practices today?2. What resources are used in the process of creating ∗ These goods and services, also called offerings, can be divided goods and services? into five categories, including pure tangible good, tangible3. What categories are helpful in devising strategies to good with accompanying services, hybrid, major service with manage the resources used in operations? accompanying goods and services, and pure service (Kotler4. How do the differences between goods and services and Keller, 2006). There is some debate about the usefulness influence the decisions made in operations manage- of distinguishing goods from services, particularly for the ment? purposes of marketing the offerings of a business (Vargo and5. How does scheduling affect the profitability of a Lusch, 2004). For the purposes of this chapter, the terms pharmacy? goods and services are used in their classic sense.
  • 84. General Operations Management 65t Computer that creates the label and bills the insur- to fill prescriptions, this decreases the profitability of ance company the pharmacy. This connection to profitability makest Software run by the computer operations management a critical, multifaceted area oft Fee charged to verify and bill the prescription over interest to any business. the phone linet Bag that the prescription is placed in so that the ■ T Y PIC A L PH A R MACY patient can carry it home O U T P U TS ( GO O D S A N Dt Cost of electricity that lights, heats, and cools the S E RV IC E S ) work areat Rent on the facility in which the prescriptions are The scenario refers to the creation of a product for prepared Marie Lassiter. The concept of managing operationst Salary and benefits for the pharmacist who com- for a business that creates goods is relatively easy to pounds the prescription comprehend. The inputs are tangible; one can see themt Salary and benefits for the technician who enters the and touch them, and often their quality can be evalu- prescription order into the computer ated. This is not to say that management of operationst Salary and benefits for the clerk who rings up the to create goods is simple, as will soon become apparent. prescription Instead, the concept of managing the operations used to assemble a product is more comprehensible. As This is not a complete list, but it demonstrates the scenario illustrates, even in the creation of goods,that there are a number of costs associated with cre- there are many intangible, nonproduct inputs. In thisating a product that is then sold to a patient. The example, the speed and proficiency with which thepharmacy covers these costs by collecting money for pharmacist, clerk, and technician can perform theirthe goods and services it produces. Simply put, after duties will influence how many prescriptions can bededucting all the costs or expenses associated with op- compounded by the pharmacy in a day. Their inter-erating and creating the goods and services that are actions with the patients who are having prescriptionssold, the money left over is profit. If the owners, man- filled will influence whether the patients return toagers, and employees are not prudent in the purchasing have prescriptions filled in the future. Their ability toand managing the inputs used to create the goods and interact with patients will be influenced by how muchservices sold by the pharmacy, the pharmacy will not assistance they have in filling the prescriptions. Thebe as profitable. However, being profitable is not just scenario refers to the creation of a product, one that didabout finding the inputs with the lowest cost, and it is not exist prior to the transformation performed by thenot a matter of simply raising the prices to cover the pharmacist with the assistance of the technician and thecosts. clerk. Maximizing the efficiency of creating goods and A common example of a service in a commu-services sold by a pharmacy requires careful planning, nity pharmacy is the filling of a prescription that isanalysis, and management. If the pharmacist uses infe- not compounded. In this case, a pharmacist, with therior ingredients or vials, the patient may never return assistance of technicians and clerks, is adding valueto the pharmacy for another prescription. If the phar- to the product that was made by a pharmaceuti-macist is paid too little, she may not take pride in her cal company. The pharmacist is packaging the ex-work, she may not be as efficient as she could be, or she act amount needed by the patient, adding informa-may end up taking more sick days—all these cause the tion that will help the patient to take it appropriately,pharmacy to pay the salary of the pharmacist without and billing the patient’s insurance company for thebenefiting from her productivity. If an inferior com- cost of the prescription. Pharmacists may add addi-puter system is purchased at a lower cost and it crashes tional value to this product, and these value-addedregularly, preventing the pharmacist from being able services illustrate the similarities to product creation.
  • 85. 66 M A N A G I N G O P E R A T I O N SResources also must be expended to provide services, Table 5-1. Typical Pharmacy Outputsand pharmacists still should be concerned about theirquality. Community pharmacy practice The transformation of resources to create services Filling of prescription medications based onis not always as easily understood. This is so in part physicians’ ordersbecause the transformation of resources may not be Compounding of prescription medicationstangible. For example, think about the transformation Over-the-counter medicationsthat takes place to provide information to a patient. Nutritional supplementsThe pharmacist must recall the information or look Offering and fitting durable medical equipmentit up in a reference, understand its relevance to the Information about prescriptions medicationssituation and the patient, and communicate this in- Information about OTC medicationsformation to the patient in a way that the patient will Information about nutritional supplementationunderstand. Health and beauty aids Managing the operations of a pharmacy to cre- Greeting cardsate the highest-quality goods and services for the low- Disease-state managementest cost requires some knowledge of typical pharmacy Prospective drug utilization review Counseling on prescription drug useinputs and outputs. While the outputs created by a Adjudication of claims with third-party payersbusiness are the final step in operations, it is useful Provision of medications to nursing hometo learn about the typical pharmacy outputs at this residentspoint to fully appreciate the resources used to create Special convenience packaging (e.g., bubblethose outputs. In other words, with knowledge of these packs)outputs, the operations that take place within a phar- Screening for drug interactionsmacy will be more easily understood, and the strategies Institutional pharmacy practiceused to manage those operations will have more mean- Filling of prescription medications based oning. physicians’ orders Community and institutional pharmacy practices Compounding of prescription medicationsgenerally offer a variety of medication-related goods Preparation of intravenous medications andand services. A representative list can be found in Table solutions5-1. The list of goods and services given in this table Delivery of medications to floorsis by no means comprehensive. Some pharmacies have Oversight and inventory of controlledice cream parlors, some have nail salons, and some sell substancesgifts and collectibles. So how does one choose what Collection of orders from hospital floorsgoods and services a business should offer? Drug event monitoring The outputs of the business justify the existence of Formulary managementthe business. While this leads some consumers to iden- Therapeutic interchangetify the business by its goods and services, this is not Prescription medication counselingto say that it defines the business. The company BASF, Medication use evaluationfor example, is a chemical company that identified it- Filling of prescription medication cartsself as a company that adds value. The company ran an Drug information to physicians and otheradvertising campaign in the late 1990s that made the health care providersclaim, “We don’t make many of the things you buy. Total parenteral and enteral nutritionWe make many of the things you buy better.” This Stocking of emergency crash cartsadvertising campaign did not make consumers believe Pharmacokinetic dosingthat the company made chemicals, but rather it com- Clinical drug trials
  • 86. General Operations Management 67municated to consumers that BASF was a company ■ T Y PIC A L PH A R MACY I N P U TSthat added value to the everyday goods that consumers ( R E SO U RC E S )used. Despite the fact that companies can influencethe perceptions of their businesses and their goods and Operations are the activities performed to transformservices through marketing, many consumers catego- resources (inputs) into valued, profitable goods and ser-rize businesses by what they provide. Pharmacies fill vices. In the scenario, what are the resources that wentprescriptions, fast-food restaurants serve inexpensive into the filling of Marie’s prescription? The obviousfood quickly, pharmaceutical companies make drugs, resources are the several active ingredients producedand car dealers sell cars. This consumer-driven cate- by pharmaceutical manufacturers that were mixed to-gorization of businesses can lure one to believe that gether to formulate the prescription. However, thesegoods and services offered by a business are predeter- constitute only one of the many resources that weremined based on the category of business. Instead, the used to fill the prescription.goods and services are driven by decisions made by Others are listed in Table 5-2, and this is not athe people who own or operate the business. Certainly, comprehensive list. As you can see, many resources arethe owners or decision makers of businesses consider used to fill a prescription, and not all of them are asconsumer opinions about their businesses, and yet theoutputs that a business will offer are under the controlof the owners or decision makers. The mission of the Table 5-2. Resources Used to Fill Marie Lassiter’sbusiness is the basis for these decisions. The mission Prescriptiondefines the business’s reason for existence. It delineates t Prescription medicationswhat the business does and communicates the unique t Pharmacist who ordered the prescriptionadvantages it has in creating the goods and services that medicationsit offers. t Delivery service provided by the wholesaler Opportunities to decide which products and ser- t Technician who placed them on the shelf invices to offer are available to both community and in- the pharmacy in a place where the pharmaciststitutional pharmacies. The environments are slightly would find themdifferent, and the decisions are important in both set- t Shelf that they sat on until the pharmacisttings. For example, hospital pharmacies frequently are used themwithin larger infrastructures of the hospitals they serve. t Vial in which the pharmacist placed theMany, however, still function to add value to various in- finished proeductputs. They serve patients and internal customers—the t Computers used to process the prescriptionphysicians, nurses, and other health care professionals t Adjudication service offered by the insurancewho practice in the institution. company As a result, owners or operators of businesses can t Label printed by the computeradd, enhance, eliminate, or change the goods and ser- t Software used by the computervices offered. To make these decisions, a process of t Phone line used to connect the computers forstrategic planning should be used. This process of plan- the purpose of adjudicationning can assist in identifying the internal and external t Clerk who rung the prescription upfactors—the strengths, weaknesses, opportunities, and t Register used by the clerk to ring it upthreats—faced by a business. Once these factors are t Counter that the register sits onunderstood adequately, a pharmacy can more easily t Facility that houses the pharmacychoose goods and services that have the best chance of t Electricity and other utilities that are availablebeing profitable for the business in a given geographic in the pharmacyarea (see Chapters 3 and 4).
  • 87. 68 M A N A G I N G O P E R A T I O N Sobvious as others. However, they each play a critical you imagine digging around in piles of bottles lookingrole in being able to transform the medication received for the correct stock bottle of medication? While thefrom the wholesaler into a medication that Marie can pharmacy would save money by not buying shelves, ittake appropriately. Many of these resources are trans- would cost the pharmacy money because extra phar-parent to or are taken for granted by the ultimate con- macists and technicians would have to be hired just tosumers of the product or service, and this does not dig through the piles and pull out the correct medica-diminish their importance to activities involved in fill- tion. On the other end of the spectrum, the expenseing the prescription. A pharmacist only has to have the of having shelves that maximize storage space and ac-electricity go out once to learn how critical this resource cess, as compared with simple, standard shelves, mayis to the service of filling prescriptions. The lights will not be warranted if the floor space of the pharmacygo out, the computer will not be able to process or is conducive to having simple shelving that does notadjudicate the prescription, and the cash register will detract from efficiency. This example, although sim-not function. Some of these activities can be performed ple, illustrates how even a resource as basic as shelv-even when the electricity is out. The pharmacist can ing can influence efficiency and, ultimately, profit-use battery-operated emergency lights or a flashlight see. He can use reference materials to look up in- Each of these resources can be grouped or cate-teractions. He can use a manual typewriter to create a gorized according to many different strategies. Theylabel. He cannot, however, determine the amount of can be grouped into categories based on whether theythe patient’s copay, which is calculated during the ad- are a product or service, for example. Using this cat-judication process. If the pharmacy uses a register that egorization scheme, goods are tangible and would in-determines the prices of goods by scanning the Univer- clude (and are not limited to) shelving, computers,sal Product Code (UPC) of the product (POS system), prescription vials, labels, software, and drugs. Servicesthen he may not even know how much to charge the can include the tasks performed by the people involved,patient for the goods in the store. This resource in- the wholesaler’s service, the phone service, and the ad-fluences the efficiency of and ability to perform the judication service. This broad categorization scheme,activities in filling the prescription. while illustrative, may not be helpful to the manager It is evident that electricity contributes to the ef- or owner in deciding how to choose the resources usedficiency of filling prescriptions. By powering the com- in creating the goods and services of the business andputer, it makes checking interactions, storing patient determining how to maximize the efficiency of the pro-information, and printing labels much more efficient. cess. Instead, operations management uses more spe-However, it also is critical to filling prescriptions be- cific categories to describe, analyze, and manage thecause without it some of the activities necessary to cre- operations of a business. One strategy is to consider theate the output of the process are not possible (e.g., issues faced in operations as strategies or tactics (Mantelreal-time adjudication). Other resources in this pro- and Evans, 1992). Also, different businesses will cate-cess may not be critical to the process but increase gorize resources differently for purposes of managingthe efficiency of the process. For example, the shelv- them. While a uniform categorization scheme woulding units chosen to hold the stock prescription bottles be helpful, it is not necessary in understanding howcome in different forms. Choices can range from not various strategies can be employed to manage these re-having shelving at all and simply stacking goods on sources to maximize their efficiency in the operationsthe floor in big piles to using shelving that maximizes of the business. Instead, it is helpful to think of opera-storage space and access to the bottles. Without any tions management in terms of the critical decisions thatshelving, which would save the pharmacy the expense need to be made by operations managers (Heizer andof shelves, the process would be terribly inefficient. Can Render, 1999). The 10 decisions under the purview of
  • 88. General Operations Management 69operations management are the following (Heizer and the strategies used to make good decisions in each ofRender, 1999): these areas are covered in more detail in other chapters. Before going into depth, however, it is helpful to un-t Designing goods and services derstand how these areas of operations managementt Process strategies are related to the resources used in pharmacy opera-t Managing quality tions and how these operations decisions can influencet Location strategies profitability.t Layout strategiest Human resources ■ D E S IG N I N G GO O D S A N Dt Scheduling S E RV IC E St Supply-chain managementt Inventory management Designing goods and services that are in line witht Maintenance the needs and wants of consumers requires analy- sis and planning. As indicated previously, goods are If you reconsider the scenario, it is possible to tangible—they can be held and touched. Services aresee the influence that these decisions will have on the not tangible—they are experienced by the consumer.breadth of activities involved in the operations of a Except in the instance of compounded prescriptions,pharmacy. The design of goods and services that are the design of the good is largely up to the manufacturer;needed and wanted by consumers (and that offer a however, with the advent of medication therapy man-competitive advantage over other pharmacies) must be agement (MTM), there are increased opportunities tocreated. Once the goods and services are designed, the design innovative and creative services to accomplishprocesses that will be used to create and offer them these objectives. Services can be designed to have threemust be implemented and managed. The quality of the different approaches—customer service, product ser-goods created and services offered must be maintained. vice, and service products. These approaches are similarThe location and layout of the pharmacy need to be and have differences that influence how they are im-conducive and appropriate given the goods and ser- plemented, managed, and marketed. Customer servicevices offered. Pharmacies rely heavily on personnel; hu- is aimed at improving the customer’s experience withman resources management and scheduling of those re- the pharmacy and is geared toward improving over-sources are important parts of operations management all sales. As a result, these are perceived as overheadof a pharmacy. Supply-chain management is manage- costs (Mathieu, 2001). Product services are linked toment of the supply of inputs used to create the outputs. a specific product, add value to the product, and areHaving an efficient supply of prescription products is offered in an effort to enhance sales of that product.critical to the service of filling prescriptions. And once This type of service is consumed after the product isthe products are delivered, the inventory must be man- purchased (Mathieu, 2001). The final category is a ser-aged to minimize the costs associated with having an vice product. This is a service that is independent ofinventory necessary to fill prescriptions and offer OTC the company’s tangible offerings and can be consumedproducts. Finally, maintenance of the resources that go separately.into operations must be considered and managed. If Planning will play a critical role in the develop-the resources are not functioning properly, this can ment of new goods and services. Analyses of the inter-create inefficiencies that decrease profitability. Each of nal and external environments will play a role in deter-these factors and the strategies that can be employed to mining the capabilities of the pharmacy and the needsmaximize their efficiency are relevant to both commu- in the market. Offering goods and services that are con-nity and institutional pharmacies. These decisions and sistent with consumer needs and wants will increase the
  • 89. 70 M A N A G I N G O P E R A T I O N Schances of profitability. The offering of services will af- determined by the resource that imposes the greatestfect multiple aspects of the pharmacy’s operations, in- limitation on the process (Bruner, Eakes, and Free-cluding marketing, production, delivery, and internal man, 1998). This limiting resource is referred to as thecommunications (Brax, 2005). Each of these has the bottleneck. To increase capacity, the bottleneck mustpotential to influence the day-to-day processes used to be identified and eliminated. For example, if Marieoffer the goods and services to customers. entered the pharmacy at a time when another phar- macist was on duty, the other pharmacist might come■ P RO C E SS S T R AT E G I E S over to fill prescriptions while the first pharmacist com- pounds Marie’s prescription. This would prevent a bot-The operations process involves many steps. The sce- tleneck in filling other prescriptions that are droppednario at the beginning of this chapter can be broken off while Marie’s prescription is being prepared. Bottle-down into over a dozen steps. The order in which those necks and other obstacles to efficient creation of a goodsteps are performed will influence the efficiency of op- or provision of a service will influence profitability byerations and, ultimately, the quality of the goods and decreasing the quantity of a good created or limitingservices produced. As a result, it will influence the prof- the number of services provided. For example, whenitability of the pharmacy. For example, if a pharmacist Dr. Michael Kim realized that many patients weretries to fill a prescription with a medication that has waiting for refills in the limited space in his phar-not been placed on the shelf yet, she may find her- macy, he implemented a refill system. In this sys-self digging through totes full of medications that were tem, a report is generated of the upcoming refills. Pa-delivered from the wholesaler. In this instance, the pro- tients are contacted to determine if the medication iscess of filling prescriptions is affected by the inventory, needed. Prescriptions for medications that are neededwhen the order was placed, when the order was de- by patients are filled and scheduled for delivery. Thislivered, and when the order was put on the shelves. process change decreased the traffic in his store andSimilarly, prescriptions that are brought in by patients allows the pharmacists to focus on the new prescrip-who will wait to have them filled need to be filled be- tions presented by patients who visit the pharmacyfore prescriptions that are not going to be picked up (Wilkin, 2006). Stanley Devine and Robert Beardainuntil the next day. Patients will be influenced directly of Winona, Mississippi, take this process change a stepby the efficiency of this process. In processes used to further. They line up each patient’s medication refillscreate goods, the customer is not likely to be involved. so that the patient can get all his or her medicationsIn services, however, the customer may be integrally in- once a month, and they contact every patient before thevolved, as is the case with the customer service provided prescriptions are due to be filled. This affords them theto patients who are waiting to have their prescriptions opportunity to discuss with their patients any prob-filled. Often patients will express their dissatisfaction lems or issues that the patients may be experiencingat having to wait a long time to have their prescriptions with their medications. It also decreases the need tofilled, and this may affect whether they come again to maintain a large inventory because the medicationshave their prescriptions filled. Whether the patient is can be ordered just in time to refill the prescriptionsinvolved or not, decisions about the process used to cre- for patients, affords them more control over the paceate goods and services need to be designed to maximize at which they fill prescriptions, increases their contactefficiency. with patients, and significantly decreases the patient The processes used by the pharmacy to create traffic in the pharmacy (Wilkin, 2006).goods and provide services have specific capacities. For A flowchart of the process that is used by the busi-example, technicians can enter only so many prescrip- ness to create its offerings can be helpful in analyzingtions into a computer in an hour, and pharmacists can and designing the process. A flowchart is a diagram offill only so many prescriptions in an hour. Capacity is the steps involved in creating the good or offering the
  • 90. General Operations Management 71 Start Transformation End Initial Prescription Secondary Prescription Prescription Patient Handling for Patient Processing Filling Interaction Delivery to Interaction Patient Figure 5-1. Operations performed in a community pharmacy to fill prescriptions.service. This visual representation can be helpful in an- clear understanding of the process used to create all thealyzing the resources used in the transformation process product and service offerings of the business is not onlyand can be used to improve the processes performed important in identifying areas where efficiency can bewithin the pharmacy. To diagram the process, geomet- improved, but it can also be used to manage quality.ric shapes are used to represent each of the steps in theprocess (Robson, 1991). The operations performed to ■ MA NAG I N G QUA L I T Yfill prescriptions are depicted in Fig. 5-1. The level ofdetail within a flowchart can vary. This depiction out- Being able to offer goods and services that are of highlines a series of operations that are performed within the quality to customers is important to any business. En-transformation process of filling prescriptions. Multi- suring quality, more specifically, measuring quality, willple tasks are performed within each of these operations, differ depending on whether a product or service isand these tasks will use a number of different individ- being created. The decisions made about the qualityuals and resources. The more detailed the diagram is, of a product produced by pharmacy operations canthe easier it will be to evaluate the time and resources be based on objective standards. For example, a com-necessary at each step of the process. pounded prescription should have a certain amount of The flowchart is a helpful tool in identifying and the active ingredient in the product. The quality of aevaluating the capacities of each element of the process product can be evaluated by measuring the quantityand areas of the process that can be improved (e.g., areas of the active ingredient and using other objective stan-that are causing bottlenecks for improved efficiency). A dards. The quality of a service, on the other hand, is
  • 91. 72 M A N A G I N G O P E R A T I O N Sdetermined by more subjective standards. Marie Las- involve delivery of a new medication to the patient, losssiter, in the scenario, may be assessing the quality of the of the product that was dispensed incorrectly becauseinformation she was provided. This is likely to be based it will have to be discarded, and a potential lawsuiton her subjective assessment of the information and if harm was done to the patient (see Chapter 11 forthe manner in which it was communicated. Services, more information on service failures). Production ofdespite their intangible nature, still need to be evalu- quality goods and services does not occur in a vacuum.ated to determine if the intended outcomes are being Instead, it is closely tied to the processes employed toachieved. create those goods and services. There are two types of costs associated withquality—the cost of maintaining quality and the cost ■ LO C AT IO Nassociated with poor quality (Mudie and Cottam,1999). In maintaining good quality, there are preven- The location of the pharmacy can affect several aspectstion costs and appraisal costs. Prevention costs result of operations. The location of the pharmacy can affectfrom the use of resources (time and personnel) to pre- the following:vent errors from occurring. For example, these can in- t How easily and efficiently the inputs for operationsclude the cost of training employees and the cost oftechnologies (e.g., robotics, computers, and software) can be acquired t How easily the outputs of operations can be trans-used to decrease the likelihood of errors. In additionto prevention costs, there are appraisal costs. Appraisal ferred to the consumers of those outputs t Which outputs are chosen to be offered by a givencosts result from the use of resources to inspect, test,and audit to identify a drop in the quality of a service business (designing of goods and services)or product. In addition to these costs of maintaininggood quality, there are costs associated with poor service In a pharmacy, there are certain skilled positionsquality. These costs result from internal and external that need to be taken into consideration when locat-failures. Internal failures are errors or defects that are ing the business. Operating a pharmacy in a locationidentified and rectified before consumers receive the that is conducive to attracting qualified pharmacistsproduct or service. For example, if a pharmacist places to work there is important. The pharmacy must alsobrand-name medication in a bottle that is labeled to be able to receive deliveries of the various productscontain the generic medication, realizes the mistake, sold by the pharmacy. Proximity to consumers and theand corrects it, this would be considered an internal preferences of consumers will play a role in how easilyfailure. It cost the pharmacy money because it con- the pharmacy’s goods and services are transferred tosumed the pharmacist’s time to correct the problem. the consumers of those services. For example, a chainThe managers of the pharmacy would be wise to de- pharmacy in a busy metroplex whose customers rely ontermine what factors led to the internal failure, take public transportation to get to the pharmacy to havesteps to eliminate or modify those factors, and prevent their prescriptions filled will be greatly inconveniencedit from occurring again. External failures are errors or if the pharmacy does not have in stock all the medica-defects in goods or services that are actually delivered tions necessary to fill their prescriptions. This, there-to consumers. Frequently, external failures are the ones fore, affects the operations of the pharmacy. It mayidentified by consumers. For example, if a consumer re- cause the pharmacy to have a larger inventory thanalizes that she has received a different medication than otherwise needed or a delivery service to minimize thethe one indicated on the label, this is an external failure. inefficiency or customer dissatisfaction that may resultMore often than not, this will take much more time from not being able to fill the prescriptions while pa-and money to correct than an internal failure. It may tients wait. Or the pharmacy could be located in an
  • 92. General Operations Management 73area with a large population of people who want to ■ H U MA N R E SO U RC E Spick up their medications at a drive-through window(e.g., mothers with sick infants). Human resources are one of the most important re- The market factors that are influenced by loca- sources in a pharmacy. The goods and services offeredtion will influence the operations of the pharmacy. The by pharmacies are transformed using personnel. Thesegoods and services themselves also may make one loca- individuals perform the operations of the business andtion more profitable than another. The design of goods rely heavily on technologies to increase the efficiencyand services is part of operations, and if a business of their tasks (e.g., computers, robotics, counting ma-is located near people who want and need its prod- chines, and software programs). Their efficiency anducts and services, it may enhance the business’s chance ability to interact with patients will influence the effi-of attracting them to the store. For example, a phar- ciency of pharmacy operations. Many factors need tomacy located in an ethnic neighborhood that has a be evaluated when determining the human resourcespopulation of people who rely on natural products to needed to accomplish the operations of the pharmacy.maintain health might decide to offer such products To conduct these evaluations, many tools (e.g., jobto those consumers. The proximity of these people to design and job analyses) are available to make goodthe store and their desire to have such products may decisions about the human resources needs of specificincrease the chance of those items being profitable for operations. The human resources and the ability tothe pharmacy. The location of the pharmacy certainly acquire them will also be affected by environmentalcan affect operations, and so can the location of various factors. The supply and demand for pharmacists, forgoods and services within the pharmacy. example, may prevent a pharmacy from finding enough pharmacists to perform the operations of the pharmacy■ PH A R MACY L AYO U T efficiently. This may cause owners and managers to seek other mechanisms to increase the efficiency of the staffA pharmacy needs to be designed to maximize the ef- that they have (e.g., robotics or increased use of readilyficiency of the processes conducted to create the goods available personnel). These environmental factors alsoand services. For example, when filling a prescription, may cause businesses to offer higher salaries, more at-the path that the prescription takes from the patient to tractive working hours, and better benefits. However,the pharmacist who will fill it needs to be efficient. A these items need to be evaluated in light of how theylayout that decreases efficiency is likely to contribute to will affect the profitability of the pharmacy.decreased profitability. Steps that require the prescrip- The types of people attracted to work at the busi-tion to “backtrack in the process” need to be eliminated ness also will affect operations. Motivated, productive,or minimized by designing an efficient layout. The lay- and competent individuals are likely to contribute toout can also affect the efficiency with which services are greater profitability than unmotivated, unproductive,provided. Having a counseling area that is readily ac- and incompetent individuals. Hiring just the right peo-cessible to the pharmacist and patients will increase the ple for the operations within the pharmacy is impor-efficiency of providing information to patients. And it tant. Training those people on their responsibilities iseven may increase the likelihood that patients will ask just as important. If the phone rings and no one thinksfor information when they need it. that it is their job to answer it, the pharmacy may lose a In addition to the efficient operations of the phar- sale. Likewise, if the phone rings and the staff begin tomacy, the layout of the pharmacy will affect the pa- argue over whose turn it is to answer it, this contributestients’ movement through the store. This has implica- to a lack of efficiency and possibly to customer dissatis-tions for product placement and pharmacy design (see faction. In a pharmacy, human resources play a big roleChapter 23). in the transformation of inputs to outputs. This makes
  • 93. 74 M A N A G I N G O P E R A T I O N Shuman resources management an important aspect of could help increase efficiency at other times—for ex-operations management. ample, pull outdated drugs off the shelves and return them for credit. If the demand is in excess of what was■ SC H E D U L I N G predicted, this is no less problematic. In this case, the staff is overworked, patients wait a long time to haveGiven this heavy reliance on human resources, schedul- their prescriptions filled with the potential of harminging of personnel is a critical aspect of operations. Regu- customer relations, and the likelihood of mistakes maylations state that a licensed pharmacist must be present increase. This inefficiency can also lead to job dissatis-when the pharmacy is open to fill prescriptions. This faction for the personnel involved. If the prediction ismakes scheduling of pharmacists coincide with the right, then the demand is met efficiently.hours that the prescription department is open. Other Another scheduling strategy is called level schedul-considerations need to be given to the pharmacists’ ing (Heizer and Render, 1999). This strategy is used topreferences for work schedules. Given the importance provide a level amount of production so that a constantof this resource and the costs associated with replacing workforce can be employed to handle the demand daya pharmacist, the schedule should be created in light after day and week after week. This method is em-of individuals’ work preferences to whatever extent it is ployed more easily in the creation of goods where thepossible. The scheduling of support staff, for example, business can create surplus in times of low demand. Fortechnicians and clerks, should be driven by the de- example, an institutional pharmacy can compound amand for goods and services. Ideally, the pharmacists constant number of intravenous solutions that are usedwill have the most help when the demand for having commonly in the hospital. The demand for the so-prescriptions filled is at its greatest. This takes careful lutions will change over the course of the day or theplanning and evaluation of sales and volume trends. week, but as long as the supply produced does not growGraphic and charting methods can be used to deter- too small (so that the pharmacy runs out) or too largemine the demand for having prescriptions filled and for (so that the prepared solutions start to expire beforereceiving disease-state management services. To chart they are used), this strategy can be employed effec-the demand, however, the pharmacy must collect the tively. This is not as easily employed in a service suchdata. Most computer systems will allow decision mak- as filling prescriptions. Through marketing and tech-ers to track the number of prescriptions filled on a given nology, however, a pharmacy may be able to encourageday, and some will allow them to track the number by its customers to call in prescription refills during off-sales volume. By looking at the number of prescriptions peak hours and even to come in at a particular time infilled at given times during the day, a manager can plan an attempt to level off the demand across the courseto have enough help to meet the demand efficiently. of the day. By lining up the prescription refill dates Many pharmacies use what is called a chase strat- and contacting patients before refills are due, the phar-egy (Heizer and Render, 1999). In essence, they chase macy will be able to schedule the refilling of prescrip-the demand by having personnel available to han- tions, schedule the delivery of inventory, and scheduledle the demand when they predict the demand will the other resources necessary to handle the the greatest. For example, if a pharmacy predicts All these strategies rely on having a good estimate ofthat the Monday after a holiday weekend will be bus- demand.ier than usual, then more pharmacists and support help Demand can be estimated using forecasting. “Fore-are scheduled to work. If the prediction is wrong and casting is a necessary prerequisite for many of the meth-the demand is not as high as was predicted, then the ods and procedures used in operations management”pharmacy overspends and cuts into profitability. Some- (Lewis, 1981, p. 241). Forecasting demand for goodstimes the influence of this error on profitability can be and services requires the use of information, mathe-offset by having the “extra” staff perform tasks that matical functions, and statistical analyses.
  • 94. General Operations Management 75 Equally important as personnel scheduling is the planning. Management of the supply chain is of greatscheduling of the resources used to create goods and importance in the creation of goods or the provisionprovide services. In community and institutional phar- of services that involve goods. The key elements of themacy settings, the scheduling of product delivery is im- decision in choosing suppliers for the pharmacy are theportant. Ideally, the goods will be sitting on the shelves timely delivery of needed and properly stored medica-where they can be accessed efficiently when the orders tions by a licensed and reputable wholesaler at the bestfor prescriptions come in. Scheduling of the delivery price. In making this decision, there are a number ofof these orders so that they come in at times when the wholesalers from which to choose.demand is not at its peak will ensure that staff mem- According to the Healthcare Distribution Man-bers are available to put the inventory in its proper agement Association (HDMA—formerly the Nationalplace. Some businesses go so far as to schedule deliv- Wholesale Druggists’ Association), there are thousandsery and restocking of shelves at night when the store of wholesalers. Fewer than a half dozen are respon-is either closed or not busy. To schedule deliveries in a sible for a majority of sales. These full-line or full-manner that helps pharmacies to be efficient requires service wholesalers obtain medications directly fromrelationships with suppliers. the manufacturers and distribute the medications to pharmacies (both independent and chains), institu-■ S U P P LY- C H A I N tions, and other wholesalers. Some chain pharmacies MA NAG E M E NT have regional or local distribution centers that receive medications from the wholesaler in large quantities andThe supply chain is the chain of businesses that sup- repackage the medications into package sizes that areply pharmacies with necessary inputs. It is important more feasible at the store build relationships and have agreements with other Large, full-service wholesalers are only one typecompanies that will maximize the efficiency of receiv- of wholesaler available to supply pharmacies and othering the goods needed to fill prescriptions. Wholesalers health care institutions with medications. There areare the primary vendors for pharmacies (Lobb et al., also regional wholesalers, smaller wholesalers, and sec-2002). They distribute the majority of prescription ondary wholesalers (Eastern Research Group, 2001).drugs in the United States. Some chain pharmacies The main distinguishing features of the different typesreceive goods from distributors that they own and also of wholesalers include services provided, their autho-have relationships with wholesalers. This is done so rization status according to the Prescription Drug Mar-that they can get goods that may not be available from keting Act (21 CFR Parts 203 and 205), and their salestheir own distributors or so that they can get goods volume. Under strict interpretation of 21 CFR Partsquickly if the wholesaler delivers more frequently than 203 and 205, only the large, full-service wholesalerstheir own distributors. These relationships need to be are authorized. This designation is reserved for dis-established with reputable companies that can provide tributors who have formal, written distribution con-reliable service particularly in times of need, such as tracts with the manufacturers and conduct more thanduring natural disasters. These relationships can take two transactions with the manufacturers in any 24-different forms and entail different levels of service. month period of time. The other types of wholesalersBy signing a contract with a pharmacy, a wholesaler may conduct business with the manufacturers and doagrees to provide the pharmacy with products and ser- not have formal, written distribution contracts. If notvices that may help the pharmacy to operate efficiently. authorized, they must provide documentation of theThese services can include electronic order submission, products’ pedigree as stipulated in 21 CFR Part delivery service, private-label programs, co- Different types of wholesalers may be used to meetoperative advertising programs, special-handling ser- different needs within the pharmacy. For example, onevices, pharmacy computer systems, pricing, and store wholesaler may offer a better delivery schedule, a more
  • 95. 76 M A N A G I N G O P E R A T I O N Sefficient service, or better pricing. Additionally, the of operations. If the machine breaks down and requiressmaller and secondary wholesalers may not be able to costly repairs, profitability suffers. The link to servicesmeet all the needs of a pharmacy with regard to prod- is not quite as clear, but it is just as important. Whenuct line and in times of emergency. Once the inputs you walk into a restaurant, do you want to eat at a dirty,are obtained from suppliers, managing the inventory wobbly table? The answer is most likely no. Patients doof those goods is important in a pharmacy. not want to buy goods that are covered with dust. They do not want to walk up to a counter to learn how to■ I NV E NTO RY MA NAG E M E NT test their blood glucose level on a test device that has not been cleaned properly or that is not functioningInventory is the largest expense that a community phar- properly. Maintenance of the areas in which servicesmacy has (as measured as a percentage of sales) (West, are provided will affect the satisfaction of patients and2002). This makes the management of inventory par- ultimately affect the patronage of the business for itsticularly important to a pharmacy. Too much inven- offerings.tory is seen as money sitting on the shelf, and too littlecauses inefficiency in the system. Imagine a scenarioin which you are paid on a weekly basis. You go the ■ C O N C LU S IO Ngrocery store to buy food. Would you buy all the milk When Marie Lassiter walked into the pharmacy to havethat you would need to get through the entire month? her prescription filled, it is not likely that she consid-Probably not, because it might go sour before you use ered the multitude of resources that had been assem-it, and why would you spend money to buy all that bled to provide her with that service. She is not likelymilk when you are probably going to get paid again to appreciate the complexity of operations that go intobefore you need to buy milk again. You could use the providing her with that service, and Marie does notmoney for something other than for milk that is going necessarily have to know, ever. Pharmacists, particu-to sit on your shelf for a whole month. Now imag- larly those in positions to make operations decisions,ine similar situations with medications costing more not only need to be aware of these issues, but they alsothan a gallon of milk. The management of inventory stand to be more profitable by knowing how to analyzewill receive more extensive treatment in Chapter 22, these issues and manage them effectively.but it is important to see the connection between theoperations used to provide goods and services and theefficient management of inventory. Having money sit- ■ QU E S T IO N S F O R F U RT H E Rting on the shelf in the form of inventory may prevent D I SC U SS IO Na pharmacy from being able to pay for other resourceswithin the business. This inability to pay may cause 1. Are the following business outputs goods or ser-the pharmacy to incur additional charges that then de- vices?crease the profitability of the business. a. Filling a prescription b. Compounding a prescription■ MA I NT E NA N C E c. Selling OTC medications d. Helping a patient to understand how to manageMaintenance of the resources used to create goods and his illnessprovide services must be provided, or the risk of re- e. Helping a patient to understand how to take hersource failure in operations increases. It is easy to un- medicationderstand how the maintenance of a machine used to 2. How does one choose whether to offer a productcreate goods could be linked directly to the efficiency or service when it has the potential to be profitable
  • 96. General Operations Management 77 but might be harmful to the health of the patients Marie in her room to go over the medications (e.g., selling alcohol or tobacco)? that she is receiving.3. Think about filling a prescription as being a service. 2. The scenario in the chapter is illustrative of the How does a pharmacist add value? How has the inputs and outputs consumed and managed when product been changed by the pharmacy? filling a compounded prescription. What are the4. Categorize the services provided by a community resources and outcomes that might be associated pharmacy into the following three categories— with providing a disease-state management service customer service, product service, and service prod- to diabetic patients? Can each of these be managed? uct. Prioritize them based on which inputs add the most5. List the personnel who play a role in the profitability value to the output of this service. How did you of a community pharmacy. decide which had the most value?6. List the personnel who play a role in the profitability 3. Pick a disease-state management service. Develop a of an institutional pharmacy. process diagram for this service. What stages of this process do you expect to create bottlenecks? What resources would be necessary in each step of the■ S MA L L G RO U P D I SC U SS IO N process? TO PIC S1. Consider the following scenario in an institutional REFERENCES setting. Develop a process diagram for the following scenario. What are the key resources used in each Brax S. 2005. A manufacturer becoming service provider: step of the process? What operations management Challenges and a paradox. Manag Service Qual 15:142– opportunities to do you see? 55. Bruner RF, Eaker MR, Freeman, RE, et al. 1998. Operations Marie is not feeling well, and on examina- management: Implementing and enabling strategy. In tion by her physician, she is admitted to the The Portable MBA, p. 125. New York: Wiley. local hospital. The physician stops by and or- Eastern Research Group, Inc. 2001. Profile of the Pre- ders some prescriptions for Marie. He writes scription Drug Wholesaling Industry: Examination of an order for the prescriptions on a duplicate Entities Defining Supply and Demand in Drug Dis- form. One is placed in a bin and picked up tribution. Final Report. Task Order No. 13; Contract by a pharmacy technician; the other is placed No. 223-98-8002. Rockville, MD: Food and Drug in Marie’s chart. Once the order arrives at the Administration, attachmentg/toc.html. pharmacy, a pharmacist enters the order into Heizer J, Render B. 1999. Operations Management, 5th ed. the computer, and the medication is pulled Upper Saddle River, NJ: Prentice-Hall. from inventory to be sent to the floor on the Johnson R. 1998. Managing Operations. Boston: Butterworth next round of floor deliveries. The next day, Heinemann. this order for Marie’s medications, along with Kotler P, Keller KL. 2006. Marketing Management, 12th ed. all the other medication orders for the pa- Upper Saddle River, NJ: Pearson Prentice-Hall. tients in the hospital, is printed so that a cart Lewis CD. 1981. Forecasting. In Lewis CD (ed), Operations Management in Practice. New York: Wiley. can be filled with that day’s medications. A Lobb W, Shah M, Bonnarens J, Wilkin NE. 2002. Contri- technician fills the bins in the cart, and a phar- butions to buyers. J Pharm Market Manag 14:87. macist checks the filled bins. After the bins Mantel SJ, Evans JR. 1992. Operations Management for Phar- are checked, the cart is delivered to the floor. macists: Strategy and Tactics. Cincinnati, OH: Institute That afternoon the clinical pharmacist visits for Community Pharmacy Management.
  • 97. 78 M A N A G I N G O P E R A T I O N SMathieu, V. 2001. Service strategies within the manufactur- Wilkin NE. 2006. Profiles of Innovation in Community Phar- ing sector: Benefits, costs and partnership. Int J Serv macy: Final Report. Alexandria, VA: National Commu- Indus Manag 12:451–75. nity Pharmacists Association.Mudie P, Cottam A. 1999. Service quality. In The Manage- ment and Marketing of Services, 2d ed. Boston: Butter- S U GG E S T E D R E A D I N G S worth Heinemann.Robson GD. 1991. Continuous Process Improvement. New Bassett G. 1992. Operations Management for Service Indus- York: Free Press. tries: Competing in the Service Era. Westport, CT: Quo-Vargo SL, Lusch RF. 2004. The four service marketing rum Books. myths: Remnants of a goods-based, manufacturing Greasley A. 1999. Operations Management in Business. Chel- model. J Serv Res 6:324. tenham, Glos, Great Britain: Stanley Thornes.West D, ed. 2002. NCPA Pharmacia Digest. Alexandria, VA: Vondle DP. 1989. Service Management Systems. New York: National Community Pharmacists Association. McGraw-Hill.
  • 98. 6 Managing Technology and Pharmacy Information Systems Margaret R. Thrower and Bill G. Felkey A bout the Authors: Dr. Thrower is Regional Clinical Coordinator for McKesson Medication Management. She received a B.S. in biology from Southeast Missouri State University and a B.S. and postbaccalaureate Pharm.D. at St. Louis College of Pharmacy in 2001. She completed a postdoctoral specialty residency in drug informatics with, Express Scripts, Inc., and the St. Louis College of Pharmacy. Mr. Felkey is Professor of Pharmacy Care Systems at the Harrison School of Pharmacy at Auburn University. Professor Felkey received a B.A. in psychology and communication through media (dual major) from the University of Maine in 1975 and an M.S. in instructional systems technology from Indiana University in 1977. He is an internationally recognized resource for the information and computer industry, health systems, pharmacy organizations, and the pharmaceutical industry, having authored over 1,100 presentations and publications. He is the Founding Editor of Computer Medicine for the Hospital Pharmacist. He earned the Professor the Year Award and the Outreach Award for Excellence at Auburn University in addition to numerous national and international accolades. ■ LEARNING OBJECTIVES After completing this chapter, students should be able to 1. Understand the importance of technology and automation in managing the information that pharmacists use in practice. 2. Identify technology needs and a process that can be used for selecting appropriate vendors for technology products. 3. Identify key components of pharmacy support technology. 4. Identify the roles of technology at the point of care. 5. Describe the functions and purposes of the Internet that facilitate management of a pharmacy care practice. 6. Understand the need for and evaluation of information on the Internet. 7. Evaluate the need for technology and automation in the practice of pharmacy. 8. Understand the importance of integration in systems used in the practice of pharmacy. 79Copyright © 2009 by The McGraw-Hill Companies, Inc. Click here for terms of use.
  • 99. 80 M A N A G I N G O P E R A T I O N S■ SC E NA R IO ■ C H A P T E R QU E S T IO N SJennifer Russo completed the doctor of pharmacy cur- 1. How has the use of technology changed the practicericulum and then went on to complete a pharmacy of pharmacy?practice residency and a specialty residency in infec- 2. How have pharmacists’ roles in delivering pharma-tious disease. She has just accepted a position as a ceutical goods and services evolved over the past fewclinical specialist with a large teaching hospital. She decades?took this particular job because she wanted to have a 3. What role does technology play in the managementdirect impact on appropriate medication use to im- of information?prove patient outcomes through educating physicians 4. How can the pressure of increased prescription vol-and other prescribers. Her primary responsibility is ume be balanced with the increased focus on patientto implement an antimicrobial stewardship program care and access to patient information necessary toin collaboration with the chief of infectious disease. providing pharmaceutical care?She writes orders to obtain cultures and sensitivities 5. How has the Internet and e-commerce affected theto antibiotics, makes recommendations on appropri- practice of pharmacy?ate drug and dose, educates physicians on appropriate 6. What is the importance of systems integrationdrug use, and writes orders for dosage adjustments for among the technologies used in pharmacy practice?patients in the institution. She also oversees the charg- 7. What are the main barriers to the use of technologying of patients and maintains an inventory of the drugs by pharmacy employees?used. To accomplish these tasks effectively, she mustbounce back and forth between five different com- ■ T E C H N O LO G Y I S E SS E NT I A Lputer systems. One system houses data on laboratory TO MA NAG I N G D ATA A N Dlevels, another is used for hospital billing, and a third O PE R AT IO N Shas a drug inventory database. She has a pharmacoki-netic software program that assists her in calculating Historically, adoption and investment in informationdoses and estimating frequency intervals for obtain- systems in health care have lagged significantly behinding the next drug level and also contains a drug in- those in other industries. However, the gap is narrow-formation database. She then must enter data from ing. This is evidenced by the fact that in 1999, 46these four systems into a pharmacy-based system that percent of hospitals still used handwritten medicationthe central pharmacy uses for patient management. administration records (MARs), but this had decreasedRelevant data then are extracted from this applica- to 24 percent in 2005 (Pedersen, 2006). However,tion and housed on a health information exchange there is still considerable opportunity because imple-(HIE) repository that enables other providers who see mentation of electronic MARs has replaced handwrit-this patient to have pharmacy information available ten and printed MARs in approximately 20 percentfor decision making. She spends hours per day ac- of hospitals. (Sandborn, 2007). Effective managementcessing and collecting data from the various databases of even moderately sized pharmacy operations quicklyand even more time entering orders and combining can exceed the capacity of the unaided human from the different sources into the central phar- Therefore, technology must be used appropriately in amacy’s database. After a couple of weeks, Jennifer be- systems approach that is designed to support the op-comes frustrated and feels that she did not go to phar- eration of a pharmacy. Pharmacists need to becomemacy school to spend most of her time collecting and knowledgeable users of the technology available. Theyprocessing data. She is exasperated and blurts out to need to understand both the capabilities and limita-the pharmacy director, “There has got to be an easier tions of technology. This chapter will focus on tech-way!” nology concepts, skills, and attitudes that pharmacists
  • 100. Managing Technology and Pharmacy Information Systems 81must acquire to become effective information man- of data processing is called transaction processing. Ac-agers. Information is the common denominator in all cepting payment for a prescription would constitute ahealth care systems, disciplines, and specialties today. single transaction. Processing a prescription from re- Managing the increasingly vast amount of infor- ceipt to dispensing involves several transactions. Themation available to health care practitioners can be next level of data processing is management informationchallenging. Primary literature continues to grow very systems. Data processing at this level groups transac-quickly, with over 20,000 biomedical journals pub- tions into meaningful sets. This allows administratorslished annually (Lowe and Barnett, 1994). To keep the ability to identify trends that predict the success ofup with this massive amount of information, an in- the organization. Additionally, the management infor-dividual would need to read 6,000 articles each day mation systems level can aid in determining appropri-(Arndt, 1992). In addition to the large amount of pub- ate needs for such things as staffing hours, inventorylished medical information, pharmacists must manage management, and third-party reimbursement. Decisionlarge numbers of patient profiles containing informa- support, the next level of data processing, occurs whention about disease states and medications. On a given the computer functions to provide support while trans-day, community pharmacists typically access hundreds actions are occurring. An example of decision supportof the thousand to tens of thousands of patient pro- would be drug utilization review (DUR) modules thatfiles managed by their pharmacies. Similarly, it is not alert pharmacists to potential drug-related problemsuncommon for a hospital patient to have his or her while they are filling a prescription or medication order.record amended with dozens of medication-related or- Currently, the highest level of data processing uses ar-ders in just a day or two. An appropriate information tificial intelligence and/or expert systems. Expert systemsmanagement system needs to be employed through the can be used to help guide caregivers through complexadoption and diffusion of technology. therapy decisions or even to help providers determine For the purposes of this chapter, technology is de- when patients diagnosed with a terminal condition lackfined as “anything that replaces routine or repetitive a high enough quality of life to justify continuing ex-tasks that were previously performed by people or traordinary life-support systems. An expert system is awhich extends (or enhances) the capability of people program that can use a set of given rules to make deci-to do their work” (Rough, 2001, p. 85). The term au- sions. Expert systems consist of a knowledge base andtomation refers to “any technology, device or machine an inference engine. The objective of an expert systemthat is linked to or controlled by a computer and used to such as an electrocardiogram (ECG) diagnostic pro-actually do work that was previously done by humans” gram or a drug formulary product selection program(Rough, 2001, p. 85). It is important to appreciate this is to collect the rules and knowledge human expertsdifference right from the start and to keep in mind employ in the knowledge base so that diagnosing orthat all automation is technology, but the reverse is not selecting would occur in a highly consistent and reli-necessarily true. In addition to distinguishing between able and automation, some cursory knowledgeof data processing is a necessary prerequisite to un- ■ H A R DWA R Ederstanding the impact of technology on pharmacypractice. The term hardware encompasses computer equipment used to perform input, processing, and output activ-■ L EV E L S O F D ATA ities. An increased understanding of how computers P RO C E SS I N G perform data processing functions can be achieved by a basic understanding of both the visible and invisibleComputers use many levels of data processing in the hardware that is necessary for a computer to operateday-to-day operations of a pharmacy. The simplest level individually or within a network of computers. Visible
  • 101. 82 M A N A G I N G O P E R A T I O N Shardware includes things that one can see when walking of-care software may be defined as “software used at theinto a work area, such as mainframe computers, servers, place where a pharmacist provides pharmaceutical careworkstations, and dispensing devices. Many hardware to a patient or when assisting a colleague (pharma-systems are located “behind the scenes,” including net- cist, physician, or nurse) in providing care to patients.”works that connect two or more workstations, routers Clinical pharmacy software should be integrated withthat pass information along on a network, gateways, all other aspects of a pharmacy, including managementand switches. Additional peripheral hardware that is and distribution programs, to ensure that care can beused specifically in a pharmacy operation can include coordinated fully (Felkey and Fox, 2003a). Pharmacydocument and barcode scanners, robotics, and high- management systems, such as Etreby, QS/1, and PDX,quality laser printers. which are primarily pharmacy distribution systems, have added the necessary screens and resources to do■ SO F T WA R E pharmaceutical care management. Other companies, such as CarePoint, started their products as pharmaceu-Dispensing and Drug Utilization Review tical care programs and then later added the pharmacySoftware is available in two major categories: oper- management system attributes to support distribution.ation systems and application software. Every hard-ware system must employ an operation system soft- ■ P O I NT- O F - C A R E D EV IC E Sware to control the operation of the devices containedin the system. The software that makes up all the ap- The use of point-of-care technologies allows health careplications that users employ to actually do their work professionals to be more effective and efficient in ev-makes up the second category of software. Software eryday practice. Point-of-care devices include, but areused to manage the drug dispensing and distribution not limited to, notebook computers, desktops, and per-process is an example of an application software and sonal digital assistants (PDAs). To be useful to the prac-has been in existence since the 1970s. In addition to titioner, the computer should contain patient-orientedstoring prescription information, maintaining patient drug information, including appropriate mixtures ofprofiles, and monitoring inventory levels, distribution- tertiary, secondary, and primary literature referencesrelated software also includes DUR functions that aid on pharmacy and medical topics. These devices can usepharmacists by providing messages alerting them of Internet access to retrieve patient-specific data from re-potential drug-related problems while filling prescrip- mote databases. This helps to integrate available datations. First DataBank, a provider of electronic drug that are generated as a by-product of rendering pa-information, supplies knowledge bases for integration tient care into data warehouses and clinical data repos-into health care applications. The modules listed in itories. These data warehouses then are able to popu-Table 6-1 incorporate clinical decision support and are late decision-support applications at the point of carea subset of available content for licensing to pharmacy and reduce pharmacists’ uncertainty during decisioninformation systems vendors to use within their soft- making. Data warehouses collect information such asware applications, such as DUR and pharmaceutical patient demographics, diagnostic information, adversedispensing. drug reactions and drug allergies, laboratory results, and drug profiles to make them available for use byPharmaceutical Care Software clinical decision makers.Clinical information systems that stand alone or do Wireless networks afford health care professionalsnot integrate into other systems are common in clini- greater flexibility to render patient care because theycal pharmacy practice. They may involve pharmacists allow care to be moved to patients instead of havingmanually entering patient-specific data for use in man- to bring patients to the care. PDAs are used to inter-aging patients’ pharmacotherapy (Felkey, 1997). Point- face with wireless networks, which makes delivery of
  • 102. Managing Technology and Pharmacy Information Systems 83 Table 6-1. Sample of Modules Available for Licensing to Pharmacy Information System Developers from First Data Bank t Dosage Range Check Module Identification of safe dosage levels and frequency of administration based on patient-specific parameters. t Drug Allergy Module Identification of potential allergic reactions and cross-sensitivities between drugs and specific patient-known allergens. t Drug Images Module High-resolution digital images of prescription and OTC products for visual verification of correct dispensing and administration. t Drug Imprints Module Physical descriptions of over 30,000 prescription and OTC products for correct dispensing and administration. t Drug Indications Module Identification of all drug products available to treat a specific condition. t Drug Precautions Modules Minimization of potential contraindications between drug use, medical conditions, age (pediatric and geriatric), pregnancy, and lactation. Includes Pediatric Precautions Module, Geriatric Precautions Module, Pregnancy Precautions Module, and Lactation Precautions Module. t Drug–Alternative Therapy Interactions Alerts of drug interactions with herbals, dietary supplements, and other alternative-therapy agents. t Drug–Disease Contraindications Module Assessment of drug use in patients who have specific diseases or health-related conditions or who have had certain procedures or diagnostic tests. t Drug–Drug Interaction Module Alerts to help prevent harmful drug–drug interactions; reports only drug interactions that are clinically significant. Full-text monographs for professionals included. t Duplicate Therapy Module Accurate, timely alerts to potential duplications of drug therapy, drug ingredients, and prescription refills. t Intravenous Compatibility Module Data for automatic screening of physiochemical compatibility and incompatibility of IV preparations. t MedTeach Monographs Database of detailed patient education information that allows health care professionals to offer patients easy-to-use written instructions on drug therapy. t Prescriber Order-Entry Module Common dosage order database of standardized inpatient and outpatient medication orders, ready for integration into providers’ order-entry or prescription-writing systems; helps prevent prescribing errors. t Side-Effects Module Decision-support tool to quickly identify and monitor side effects.information at the time it is most needed much more feedback and have the potential to improve the qualityfeasible (Felkey and Fox, 2003b). of drug information. Programs that are updated frequently, even daily, ePocrates RxPro is a software program that is avail-are available, and they can be put onto a PDA to give able for PDAs that contains comprehensive drug infor-pharmacists access to the most up-to-date information. mation, including alternative medicines and infectiousClinical evaluation of the new PDA drug information diseases (Fig. 6-1). It is updated on a daily basis. Oneprograms has begun but is complicated by the constant helpful advantage of this software is that it includesupdating of databases and the lack of a certification region-specific formulary information to aid cliniciansboard. However, evaluations are useful for the publish- in selecting a product that is covered by the patient’sers of these programs because they provide valuable insurance. LexiComp Platinum (Fig. 6-2) is another
  • 103. 84 M A N A G I N G O P E R A T I O N S comprehensive program available for PDA download and in one evaluation was named the “most clinically dependable” and was cited as offering the “greatest breadth of information” of the programs evaluated (En- ders, Enders, and Holstad, 2002). Monographs that are of higher quality than most pharmacy management sys- tems provide can be printed at the point of care and are available through the Micromedex electronic package of products. Over 26,000 health and medication sites exist on the World Wide Web. is an evidence- based Web site for consumers that contains a compre- hensive drug database and aims to empower consumers by providing nonbiased drug and health information. Unique to this site are drug–drug comparisons, side- effect comparisons, and a drug-interaction checker that is written in consumer language. In addition, the site has streaming video to instruct patients on the proper administration of insulin and eye and ear drops and the proper use of inhalers. There is technology emerging that could facili-Figure 6-1. Screen shot of ePocrates RxPro software for PDAs. tate provider reimbursement for dispensing what has been described as “prescription-strength information” (Kemper, 2002, p. 116) or information resources that can be “prescribed” for patients. These resources can be used to motivate patients to pursue and manage their own care. It is possible to equip patients with self-care management information to help them de- termine when professional care is needed and how to self-treat simple injuries and maladies. Patients tradi- tionally have depended on learned health professionals to sort out what is important for them to know and in what sequence they should perform changes in their health behaviors. Thus, dispensing information of this sort some day may become reimbursable. ■ S E L E C T IO N P RO C E SS It is important that pharmacy and the pharmacy direc- tor be involved in the selection and implementation process, even though in reality sometimes information system (IS) decisions are made at the health systemFigure 6-2. Screen shot of LexiComp Platinum software for level (Sanborn, 2007). The responsibility of fully real-PDAs. izing the benefits remains an important key to success
  • 104. Managing Technology and Pharmacy Information Systems 85and should not be overlooked after selection of the ap- t What kind of regular maintenance will be needed?propriate system (Clark, 1999). The addition of new The cost of regular maintenance and how often ittechnology for a pharmacy organization is a consider- is needed are important considerations when imple-able investment in time and money and may be rela- menting new automation/technology.tively long term. The selection of new technology may t Will staff and patients accept this change? If staff mem-not be reversible and thus is a critical decision not to bers do not accept this change in technology, theybe taken lightly. The process used for selecting new will not want to use it. Training programs can helptechnology should not be initiated until an organiza- to overcome this barrier.tion determines what the technology needs to accom- t Is the system adaptable? For example, can the capacityplish. The organization should answer the following of the system be increased as needed?specific questions prior to selection/addition of newautomation/technology (Lewis, Albrant, and Hagel, Many organizations realize that they do not have2002): adequate time to build their own systems to address or- ganizational needs. These organizations therefore mustt What do we need it to do? The purpose of the new go through a technology selection process. The deci- technology should be clearly identified by the orga- sion to partner with IS companies should be taken nization. very seriously. Due diligence is the term given the pro-t Will it do what we think it can do? The new cess where purchasers assure themselves of the benefits automation/technology needs to function up to the of the technology and the vendor’s financial stability. expectations of the organization. Whenever a new technology is being considered, itt Do we need it? The new automation/technology is recommended that organizations determine where should be clearly advantageous for the organization they are going with a proposed change before they be- to incorporate it and not simply technology for tech- gin a selection process. In this way, the technology will nology’s sake. be selected based on its ability to help achieve orga-t What is the cost-benefit ratio or return on investment? nizational goals. Technology is a tool that should be There should be a clear advantage in terms of cost adapted to organizations rather than the reverse (see benefit and return on investment (ROI). For exam- Chapters 3 and 4 on planning). ple, an investment of $100,000 in technology that generates an additional profit of $40,000 for a year Security and HIPAA Compliance would have a return on investment or an annual- Considerations ized ROI of 40 percent. If this rate continues over A survey conducted by the Medical Records Institute time, the initial investment would be recouped in in 2002 on health care practitioners’ concerns with the 2.5 years. implementation of mobile technology devices and ap-t Is it affordable? To answer this question, the organi- plications cited security/confidentiality when sending zation’s strategic plan and capital budget should be or receiving information and the lack of Health Infor- consulted. mation Portability and Accountability Act (HIPAA)t What is its expected longevity? Technology requires compliance as primary concerns by 50 and 34 per- continuous updating and soon becomes obsolete; cent of respondents, respectively. Confidentiality and therefore, one must take a realistic approach when security of information against unauthorized access considering how long the technology will last. must be HIPAA-compliant. A number of systems aret What kind of support will be needed? What is the cost of available that can help a pharmacy organization to re- these services? It is important for the potential client main in compliance with HIPAA regulations. Phar- to inquire about the type and cost of support services macists are required by law to use reasonable methods the vendor has to offer. to ensure that protected health information remains
  • 105. 86 M A N A G I N G O P E R A T I O N Sconfidential. From a technology standpoint, firewalls, Acquisition cost of the system itself can be signif-which usually are delivered as combinations of hard- icant, but it represents, in many cases, only a relativelyware and software, should be used to protect computer small percent of the total system cost over time. Manysystems from undesirable access. Firewalls do this by factors in addition to the acquisition cost of the systemrequiring users to be authenticated in their level of need to be considered, such as the costs of softwareallowable access to the system. A firewall may allow updates, hardware maintenance, service contracts, andpublic access to a limited set of information while re- claims processing (Lewis, Albrant, and Hagel, 2002).stricting any access to patient information unless an Table 6-2 provides a checklist of items that a pharmacyauthorized user with an appropriate password from a should consider when selecting software and softwareknown location is making the attempt. vendors (Felkey and Fox, 2003b). Technology that digitally captures patient signa-tures, encryption software, and telecommunication all Resources to Obtain Necessary Data in themay be necessary to protect the privacy of patients Selection Processand the security of pharmacy data. Pharmacists also The list of considerations in Table 6-2 is extensive.must ensure that affiliated businesses are using proper One can become bogged down in the selection processprocedures to protect any information they handle on without a firm grasp of where to seek this information.behalf of the pharmacy. Even transactions necessary for Directors of pharmacy can employ several resources tothe business functions of a pharmacy must be secureto protect patient identity. Table 6-2. Things to Consider When SelectingDocumentation Is a Must! Software and Software VendorsIn pharmacy, it is often said, “If it isn’t documented, t Identification of vendors being consideredit didn’t happen.” With this in mind, it is easy to un- t Evaluation of service offeredderstand the importance of a system that is conducive t Cost of the systemto and promotes documentation. There is a need to t Details of installationbuild or select systems in which documentation is of- t Vendor ability to personalize the technology tofered as a by-product of the transactions performed by meet goalsprofessionals. Ideally, the system should anticipate and t Identification of safety and quality assuranceprepopulate documentation forms. Documentation is featuresan absolute must in any well-designed information sys- t Integration with other existing clinicaltem, and therefore, a system should not even be con- information systems, Internet, managed care,sidered unless it promotes efficient documentation. and other existing information systems tThe Vendor as a Selection Criterion Identification of specialized features that distinguish one system from anotherWhen selecting from a choice of software products, t Appropriate security features (must bethe director of pharmacy should consider the prod- HIPPA-compliant)ucts’ vendors. The company’s good reputation and its t Determination of the frequency of systemability to provide referrals from former and existing upgradesclients are essential. Installation planning should be t Supplemental equipment needed for the systemsuitable for the organization’s needs yet realistic for the to function optimally and the costvendor. While the vendor is responsible for system de- t Supplies needed (e.g., special paper, vials,sign, much of the installation, education, and training barcoding, labels)of employees will fall on the shoulders of the pharmacy t Provision of employee education and trainingdepartment.
  • 106. Managing Technology and Pharmacy Information Systems 87obtain the necessary data, such as direct contact with and unscheduled. Scheduled downtime is performedthe vendor, contact with current and previous clients of routinely to prevent major system failures that couldthe vendor, evaluation reports on selected technologies, cause serious interruptions in workflow. Developers ofconsultants, and the Internet. The Internet can be used critical systems try to build in levels of redundancyto seek feedback on products. Most vendors have infor- and fail-safe system monitors to reduce unscheduledmation about their product available on the Internet; downtime. Unscheduled downtime occurs when a sys-therefore, research and retrieval are made much eas- tem is not operational and the downtime was notier. If specific information is not included on the Web, then the vendor can be contacted for further clar- Most software and hardware companies offer tech-ification/information. A credible and knowledgeable nical support for their products. Technical support usu-consultant who specializes in health care technology ally involves highly trained individuals that update, fix,and, more specifically, in pharmacy technology can of- or change existing hardware and software products.fer advantages by doing some of this time-consuming Older programs generally require more expensive andresearch. The pharmacy manager or director may check time-consuming modifications and hardware replace-with colleagues to see if they have used a consultant and ments. Newer products continue to improve, and thusask them if they would work with that consultant again maintenance costs should decline (Stair, 1996). Invest-if given the chance, or consultants may be located via ing money upfront on quality information systems andthe Internet. Another option would be to visit clients well-designed programs should pay off in the end.of vendors under consideration to determine if theyare satisfied with the vendor’s product and service and User-Performed Maintenance and Upkeepwhether, if given the choice, they would invest with Some maintenance or upkeep will be performed onthe same vendor again. a routine basis by the vendor and/or IS department. In addition to routine maintenance, including clean-■ MA I NT E NA N C E ing of equipment and changing of printer toner car- tridges, some pharmacy information systems still de-After the system has been implemented, there is need pend on data cartridges to store valuable data. Forfor ongoing maintenance, and this can often be done by example, pharmacists using data cartridges exchangethe IS department and the vendor. However, optimiza- them daily to avoid losing valuable patient-specifiction of the technology often depends on the pharmacy data. Loss of data, which includes medication history,department to work with both parties for the technol- allergies, and refill information, may compromise pa-ogy to be optimized. This is an often underrecognized tient safety. There is no way to estimate the time itarea and should occur in an ongoing fashion because would take for a pharmacist to reconstruct profiles andit is critical to patient safety (Sanborn, 2007). gather missing information that would need to be en- tered manually into an information system.Maintenance by the VendorRegardless of the age or cost of information and hard- Systems Integrationware systems, all require some form of maintenance. The complexity of existing information systems makesMaintenance involves updating, changing, or improv- system integration difficult. This is further complicateding the existing system. The goal is to continually by the general lack of standards in the informationimprove the system’s functionality and usability while technology field. “What is an integrated system?” is aminimizing the time that it is nonoperational (down- common question in the health care field. Completetime). Ideally, information systems should require only integration involves integration from order entry [e.g.,minor or routinely scheduled maintenance. There are computerized physician order entry (CPOE)] to dis-two kinds of maintenance or downtime: scheduled tribution of medication to billing and inventory. An
  • 107. 88 M A N A G I N G O P E R A T I O N Sintegrated system can consist of a single system or mul- include patient input and access that spans episodes oftiple systems that transfer, manipulate, and use infor- care across multiple providers within a community, re-mation seamlessly across the entire enterprise. gion, or state (or, in some instances, countries). EHRs It was reported by the Institute for Safe Medication are reliant on EMRs being in place, and EMRs willPractices (ISMP) in 2000 that fewer than 5 percent of never reach their full potential without interconnectedphysicians were “writing” prescriptions electronically. EHRs being in place (Garets and Davis, 2006).In a 2000 white paper entitled, “A Call to Action: Elim-inate Handwritten Prescriptions within 3 Years,” ISMP EMRs versus EHRsrecommended the use of electronic prescribing by clin- The EMR is increasingly a part of the pharmacist’sician order entry to reduce medication errors (ISMP, practice in every practice setting.2000). CPOE can help to reduce errors in the deliveryand transcribing of orders to the pharmacy where the ■ AC C E P TA N C E O F N EWorders are filled. Order management can be used to T E C H N O LO G Y B Ycontrol inventory and alert pharmacy staff (and even E M P LOY E E Sthe patient) of the status of a prescription. For example,some national chain pharmacies have the capability of Prior to a new system being implemented, careful plan-alerting the patient by phone or e-mail if a prescription ning and design must occur. This planning needs to in-is ready or if other action needs to be taken before the clude all relevant potential users of the new technology,prescription can be picked up. The system should also including clinicians, staff pharmacists, patients, andbe able to report results, such as the number of pre- other departments that will be affected by the system.scriptions filled, the revenue generated over a specified Determining the resources necessary for implementa-time, and medication error reports. tion is key to the success of the new system (Sanborn, An integral part of the integration process is doc- 2007). No matter what their level of computer skills,umentation. The system should support and be con- employees must see personal advantage to want to useducive to the process of documentation on a patient’s the technology. For instance, they must believe that theelectronic medical record. The use of critical pathways technology will provide some benefit to them, such asand other tools to aid clinical decision support facili- increased efficiency. Training programs regarding pur-tates the use of evidence-based medicine and appropri- pose and proper use of new technologies/informationate therapeutic use of medications. Access to patient- systems are critical for gaining acceptance by employ-specific data such as drug allergies (e.g., anaphylaxis to ees. Implementation of new technologies should bepenicillins) and laboratory values (e.g., kidney function gradual. Tulley (2000) reported that the Davies Pro-or liver function) will help to minimize adverse drug re- gram (instrumental in the study of computer-basedactions and maximize appropriate use of medications. patient records) identified response time, reliability,The system should have Internet access or appropriate and ease of use as critical technology requirements foroffline resources available on the organization’s intranet end users. Thus pharmacy managers/directors must beto ensure that appropriate clinical literature and drug adept at managing change, allowing input from em-information resources can be consulted when needed ployees in the selection and implementation of newand evidence then can be placed in the electronic med- technologies. They must be empathic to employee con-ical record (EMR), which is a subset and data contrib- cerns about switching technologies yet firm about theutor to the electronic health record (EHR). The data need to do so. Managers must train employees prop-in the EMR is the legal record of what happened to the erly on the use of the new technology and allow somepatient during his or her encounter with a provider, transition time between the preexisting and new tech-and the EHR is owned by the patient and can even nology.
  • 108. Managing Technology and Pharmacy Information Systems 89■ OFFLINE, ONLINE, the end of 2002, almost 93 million Americans (which I NT R A N E T, I NT E R N E T, W E B equals about 80 percent of adult Internet users) had P R E S E N C E , E XT R A N E T, A N D used the Internet to look for health information (Fox E - C O M M E RC E and Fallows, 2003). Owing to the fact that anyone (re- gardless of educational background or credentials) canInternet post a Web site, the reliability and validity of healthEnhancements to pharmacy practice made possible by care information on the Internet vary widely. Hencethe Internet can be expressed in terms of the three C’s: pharmacists must have skills to evaluate the useful-content, communication, and commerce (Felkey and ness, accuracy, and quality of the information available.Fox, 2001). In the widely known book, Internet for Table 6-3 identifies characteristics of credible, reliableDummies, the Internet is defined as “all of the comput- information and appropriate criteria for evaluating theers in the world talking to all of the other computers quality of Internet sites, the world” (Levine, Bauroudi, and Levine, 1996). Many medical and pharmacy information re-Use of the Internet for health care purposes is growing sources can be accessed efficiently via the Internet (in-exponentially, with well over 200 countries connected cluding information that can be used at the point ofglobally. care), such as practice guidelines, tertiary references, and governmental/regulatory information. High-qualityInternet Content graphics are plentiful on the Internet and can bene-Thousands of Web sites are available to assist health fit pharmacists in both patient education and prepa-care professionals in providing drug information use- ration of presentations. Using multimedia resourcesful in pharmaceutical care. One source reported that by with patients should improve their retention and Table 6-3. Things to Consider When Evaluating the Credibility of Internet Web Sites t Ownership of the site. Can help to determine if there may be a potential commercial bias. t Authors of the material. Can help to determine credibility of information. This information should be readily available, commonly contained in the “About Us” section of the site. Sites having a qualified staff generally make it known because it is to their advantage to state their credentials and establish credibility with the user. t Review process. Gives the user an idea of how meticulous the site is about its postings. It is preferable that site uses a peer-review process. For example, each document that is posted on the Web site goes through an editorial process of equally qualified persons, or peers (peer review). t Last update on each page clearly defined. This will give the user an idea of how current the information is on the page. t Believable claims. If it is not believable or cannot be validated by a reliable and credible source, the user should beware. As the old saying goes, “If it sounds too good to be true, it probably is.” t Support for the information found. If no other source confirms the information found on the site, the site may not be accurate. t Referencing of the information. A good indicator for support of the information is the use of proper referencing on the Web site. Source: Health on the Net Foundation Web site,; accessed on May 19, 2007.
  • 109. 90 M A N A G I N G O P E R A T I O N Scomprehension of health education content. For exam- Regulation and quality control of content on theple, a McGraw-Hill collection of over 150 video-based Internet have been difficult, but some organizationsexplanations of common conditions can illustrate visu- have developed criteria for developing health Web what is actually happening physiologically during A Swiss organization called the Health On the Neta disease process. Leaflets that contain illustrations and (HON) Foundation has provided guidance in settingtell patients in a customized manner can equip them ethical standards for Web site developers. The missionto be successful in their treatment regimens. of the HON Foundation is to guide consumers and health care practitioners to useful and reliable infor-Internet Communication mation regarding health and medications. The foun-E-mail has changed the way in which we communicate dation has a “HON Code of Conduct” (“HONcode”)drastically. Many people now prefer to communicate for medical and health Web sites. This includes a setvia e-mail than by telephone or regular mail. Some pa- of eight principles that a site must possess before thetients e-mail questions to their health care providers HON emblem may be displayed on the Web site and aand access information on consumer-oriented Web “SiteChecker” to help users determine whether a Websites. E-mail communication may have the potential site is following the principles of the HONcode. Tableto improve compliance to medications. For example, 6-4 displays the ethical principles established by thesome pharmacies provide reminders via e-mail when HON Foundation for Internet-based health informa-a chronic medication refill is almost due and a re- tion. If the Web site meets criteria from a review processminder when the prescription is filled and ready for and is granted permission by the HON Foundation, itpickup. The cost to send this kind of message is neg- may display the HON logo.ligible, and the results can be positive both therapeu-tically and financially. Education can be provided on Internet Commercechronic disease states specific to the individual by elec- An increasing number of pharmacies are switching totronic newsletters produced by the organization as Internet-based prescription claims processing. Phar-an attempt at patient education. It is now possible macies are discovering that processing prescriptionsto e-mail, phone, access the Internet, fax, and have over the Internet is both quicker and less expensive thanpager capabilities all in one device. Videoconferencing dial-up or manual claims processing. E-commerce of-can enable pharmacists to communicate with other fers unlimited opportunity for pharmacies to increasecolleagues and patients at a reasonably economical visibility, and this opens a new avenue for additionalcost. sales. Independent pharmacies can offer personalized One problem with the use of e-mail is its poten- services via the Web, whereas chain pharmacies cantial lack of security. Employers legally own the e-mail increase efficiency by allowing online refills and hous-that is delivered to their systems for use by employees. ing a drug information database on their Web sitesMany information technology (IT) departments rou- with consumer access. It is important for pharmaciststinely monitor e-mail traffic that could contain confi- to recognize that as they incorporate e-commerce intodential information. If a pharmacist were to e-mail a their practices, they must be cognizant of maintainingpatient at work to inform him or her that a refill med- a personal relationship with their patients. The Inter-ication was due, that patient’s confidentiality could be net may be best used by corporate chain pharmacies tocompromised. Alternatively, if patients were told that refer patients to a bricks-and-mortar (physical) phar-new information is posted on their pharmacy’s Web macy when appropriate (Felkey and Fox, 2001a).page, a browser would give them access to their con- The National Association of Boards of Pharmacyfidential information behind a secure firewall, which (NABP) has recognized the special needs and prob-could protect that information from unauthorized ac- lems that Internet pharmacy has created. In the springcess. of 1999, the Verified Internet Pharmacy Practice Sites
  • 110. Managing Technology and Pharmacy Information Systems 91 Table 6-4. HONcode’s Ethical Principles for Internet-Based Health Information1. Authoritative. Indicate the qualifications of the authors. Any medical or health advice provided and hosted on this site will only be given by medically trained and qualified professionals unless a clear statement is made that a piece of advice offered is from a non medically qualified individual or organization.2. Complementarity. Information should support, not replace, the doctor–patient relationship. The information provided on this site is designed to support, not replace, the relationship that exists between a patient/site visitor and his or her existing physician.3. Privacy. Respect the privacy and confidentiality of personal data submitted to the site by the visitor. Confidentiality of data relating to individual patients and visitors to a medical/health Web site, including their identity, is respected by this Web site. The Web site owners undertake to honor or exceed the legal requirements of medical/health information privacy that apply in the country and state where the Web site and mirror sites are located.4. Attribution. Cite the source(s) of published information, date, and medical and health pages. Where appropriate, information contained on this site will be supported by clear references to source data and, where possible, have specific HTML links to those data. The date when a clinical page was last modified will be clearly displayed (e.g., at the bottom of the page).5. Justifiability. Site must back up claims relating to benefits and performance. Any claims relating to the benefits/performance of a specific treatment, commercial product, or service will be supported by appropriate, balanced evidence in the manner outlined above in principle 4.6. Transparency. Accessible presentation, accurate e-mail contact. The designers of this Web site will seek to provide information in the clearest possible manner and provide contact addresses for visitors who seek further information or support. The Webmaster will display his or her e-mail address clearly throughout the Web site.7. Financial disclosure. Identify funding sources. Support for this Web site will be clearly identified, including the identities of commercial and noncommercial organisations that have contributed funding, services, or material for the site.8. Advertising policy. Clearly distinguish advertising from editorial content. If advertising is a source of funding, it will be clearly stated. A brief description of the advertising policy adopted by the Web site owners will be displayed on the site. Advertising and other promotional material will be presented to viewers in a manner and context that facilitate differentiation between it and the original material created by the institution operating the site. Source: Health on the Net Foundation, Program was unveiled in response to pub- earned the VIPPS seal have demonstrated that they arelic concern over the safety of Internet pharmacy sites. in compliance with standards on protection of patientVIPPS is a certification that is earned after a phar- privacy, security and authentication of prescription or-macy complies with licensing and inspection require- ders, quality assurance, and the provision of consulta-ments of its state and of each state in which it provides tion between patients and pharmacists. Sites that aregoods and services to patients. Pharmacies that have certified by VIPPS bear a hyperlink seal.
  • 111. 92 M A N A G I N G O P E R A T I O N SIntranets their knowledge of technology and automation. TheAnother source of information that employees of health white paper on automation in pharmacy identifies im-care organizations commonly have access to is in- portant skills necessary for pharmacists to acquire: (1)tranets. Often an organization’s intranet has Internet how to operate automated pharmacy systems to pro-access but is firewalled so that its computers cannot be duce desired outcomes, (2) how to recognize if a systemreached directly by anyone outside the organization. failure occurs, (3) how to address a failure correctly soThis can be achieved by requiring an identification that patient safety is protected, and (4) how to get fail-password for access to a Web site. Intranets can pro- ures corrected quickly (Barker et al., 1998). For phar-vide a rich environment for sharing ideas and receiving macists to obtain these skills, an education and trainingconsultation from peers and for the efficient sharing program for employees that use automation should beof resources. Extranets, on the other hand, while sim- developed and evaluated periodically for efficacy. Coreilar to intranets and accessible by the Internet, require objectives of the training must include the purposeaccess authorization and typically are used to connect and capabilities of the system, minimum competencya pharmacy with its business partners, such as drug required by operators, and how system failures can oc-wholesalers. The Web site may be accessed for support cur. There should also be a plan in place for whenin ordering and tracking a pharmacy’s order. Patient system failure occurs, and it should be rehearsed peri-identifying information often is unavailable for access odically (Barker et al., 1998).by business partners and other stakeholders. Yet an- Automation can reduce medication errors if it isother source of information is offline references that implemented properly because it reduces the num-may be stored on the internal capacity of the computer ber of manual functions necessary to complete a task,(Felkey and Fox, 2003b). thus reducing the chance for mistakes. Automation has helped to reduce the time that pharmacists spend preparing, labeling, and packaging medications, and■ AU TO MAT IO N A N D this time can be reallocated to pharmaceutical care ac- RO B OT IC S tivities (Lewis, Albrant, and Hagel, 2002). Another advantage of automation is inventorySeveral key factors drive the need for automation. A control. It is more efficient and accurate than manuallynational shortage of pharmacists in the face of ever- completing this task and can result in reduced inven-increasing prescription volumes is one major impetus. tory costs. Automation can capture charges more effi-Another is the profound need to reduce the incidence of ciently and accurately than can be performed manually.medication errors. Still another is the opportunity cre- It improves the billing process by detailing when med-ated by automation to enhance the role of pharmacists ications are used, who dispenses or administers them,in patient care. Finally, consumers’ demand for speed and who receives them (Lewis, Albrant, and Hagel,and convenience further enhances the attractiveness of 2002). Automated inventory control can perform aautomation in pharmacy operations (Lewis, Albrant, number of functions, including monitoring inventoryand Hagel, 2002). Technology has the ability to accel- and automatic reordering when inventory reaches aerate the movement of pharmacists from the traditional quantity that can be preset by the pharmacy.dispensing focus to that of a patient-centered role. In order for this to happen, pharmacists must be ■ S U R E SC R I P TSknowledgeable about automated technologies to deter-mine their appropriate management and to incorporate SureScripts was founded in 2001 by the National As-them into their practices. As these technologies become sociation of Chain Drug Stores (NACDS) and the Na-more common, pharmacists will be forced to expand tional Community Pharmacists Association (NCPA)
  • 112. Managing Technology and Pharmacy Information Systems 93their mission is to improve the quality, safety, and effi- Fox, 2001b). Telehealth employs telecommunicationsciency of the overall prescribing process. The Pharmacy and information technology. It is an umbrella conceptHealth Information Exchange operated by SureScripts under which telemedicine, telenursing, and telephar-is the largest network to link electronic communica- macy fall. It combines practices, products, and servicestions between pharmacies and physicians, allowing the that make it possible to deliver health care and infor-electronic exchange of prescription information. The mation to any population that it focuses on is communityor retail pharmacies ( ■ T E L E PH A R MACY The NABP defines telepharmacy as “the provision of■ COMPUTERIZED pharmaceutical care through the use of telecommu- PH Y S IC I A N / P ROV I D E R nications and information technologies to patients at O R D E R E NT RY ( C P O E ) a distance” (National Association of Boards of Phar- macy, 2000). For example, one of the most basic formsComputerized physician/provider order entry (CPOE) is of telepharmacy is a pharmacy Web site that can be ex-defined as the computer system that allows direct en- panded and developed to offer patient care functions. Atry of medical orders by the physician or person with basic pharmacy Web site may include information thatappropriate licensure and privileges to do so. Directly lists hours of operation, location and directions, andentering orders into a computer has the benefit of re- specialized services available. This basic setup then canducing errors by minimizing the errors caused by hand- be expanded to offer patient care such as an e-mail re-written orders, but even a greater benefit is realized quest for a refill or more advanced functions such as anwhen the combination of CPOE and clinical decision- “Ask the Pharmacist” service. Even the most basic Websupport tools is implemented together. presence provides the potential to expand a customer Implementation of CPOE is being encouraged in- base by way of increased visibility. Options and servicescreasingly as an important solution to the challenge can be added based on the level of commitment thatof reducing medical errors and improving health care the organization has toward telepharmacy. A high-levelquality and efficiency. But use of CPOE is not yet option that has significant potential in pharmacy iswidespread in part because it has a reputation for be- videoconferencing. By connecting with patients in re-ing difficult to implement successfully. mote areas, videoconferencing may afford pharmacists is a Web site that presents the results of the opportunity to enhance outcomes and possibly ob-research by the Physician Order Entry Team (POET) tain reimbursement for providing care. ScriptPro is anat Oregon Health & Science University. The team innovator in this capacity and has developed a video-is funded by a grant from the National Library of conferencing system that allows a pharmacist in oneMedicine to study success factors for implementing location to counsel and dispense a prescription to aCPOE. This Web site also provides access to a col- patient in a different location.lection of resources and links regarding CPOE (www. Pharmacists must demonstrate the of their role as medication experts who identify, re- solve, and prevent drug-related problems through this■ T E L E H E A LT H medium (Felkey and Fox, 2001b). If a pharmacist wishes to implement counseling by teleconferencing,Telehealth is a recent innovation that brings care di- basic equipment can be purchased for as little as arectly to the patient, allowing health care practitioners few hundred dollars; however, more advanced, cutting-to provide services from remote locations (Felkey and edge technology may cost tens of thousands of dollars.
  • 113. 94 M A N A G I N G O P E R A T I O N S■ R EV I S I T I N G T H E macy departments must carefully plan their decision C A S E — MA K I N G L I F E E A S I E R to invest in and select appropriate technologies, as well as ongoing maintenance and optimization.Jennifer’s situation would be so much easier if the sys-tems were integrated and information could be pre- ■ QU E S T IO N S F O R F U RT H E Rpopulated in the appropriate fields. Why is it not pos- D I SC U SS IO Nsible that when the drug is entered, it is also subtractedautomatically from the pharmacy inventory? The ap- 1. How might the use of technology continue to affectpropriate patient should be charged automatically for the practice of pharmacy in the future?the drug. Laboratory information should be sent auto- 2. What will be the impact on the quality and cost ofmatically to Jennifer, who then simply could verify the health care when quality data are readily availableorders to be sent to the laboratory, and nursing could at patient bedsides?be notified to draw the appropriate levels. Finally, the 3. How might a pharmacist keep pace with techno-EMR should reflect what was done for documentation logical advances in the practice of pharmacy?purposes. This documentation should occur as a by- 4. Describe the use of technology at your currentproduct of her taking care of the patient. If this were workplace. How has this technology enabled thehappening, Jennifer could spend more time providing pharmacy to operate more effectively? Is the tech-education to physicians on appropriate drug utiliza- nology managed appropriately? What could betion, providing patient care, and having the kind of done to manage it more appropriately?impact on patient outcomes that she intended whenshe chose pharmacy as a career and this particular site REFERENCESas her first professional position. Arndt KA. 1992. Information excess in medicine: Overview,■ C O N C LU S IO N relevance to dermatology, and strategies for coping. Arch Dermatol 128:1249. Barker KN, Felkey BG, Flynn EA, Carper JL. 1998. WhiteThe fundamental role of technology is to enhance the paper on automation in pharmacy. Consultant Phar-work of human beings. In pharmacy, technology will be macist 13:256; available at; accessed onone of the factors that will greatly assist motivated phar- June 10, 2004.macists in transitioning their practices from a product Physician Order Entry Team (POET) at Oregonto a patient focus. Pharmacists should be able to de- Health & Science University. Available at: www.ohsu.ploy technology at the point of care that will increase edu/academic/dmice/research/cpoe/index.php; access-efficiency and reduce medication errors. To accomplish ed on May 1, 2007. Clark T, McBride J, Zinn T. 1999. Achieving a computerthis, it is critical that they be accepting and knowledge- system’s benefits. Hosp Pharm of the latest innovations. They should also bear in Enders SJ, Enders JM, Holstad SG. 2002. Drug-informationmind that all technologies have limitations. Such tech- software for Palm operating system personal digital as-nologies as computerized physician order entry and sistants: Breadth, clinical dependability, and ease of use.electronic health records will continue to improve in Pharmotherapy 22:1036.accuracy and efficiency, and fully automated systems Felkey BG. 1997. Implementing a clinical information sys-will become the norm in future pharmacy operations. tem in a managed care setting: Building the clinical workstation: Software for the health-system pharma-Pharmacists can and should take a leadership role by cist. Am J Health-Syst Pharm 52:1505.incorporating technology into their practices (Rough, Felkey BG, Fox BI. 2001a. Telehealth for pharmacy care. In2001). Integral to this process is identification of needs, Pharmacotherapy Self-Assessment Program, 4th ed, bookselection of vendors that can serve those needs, and 2, p. 117. Kansas City, MO: American College of Clin-proper implementation. Pharmacy directors and phar- ical Pharmacy.
  • 114. Managing Technology and Pharmacy Information Systems 95Felkey BG, Fox BI. 2001b. How do you spell relief? Automa- Centered Pharmacy, p. 66. Washington, DC: American tion! Computer Talk July–August:38. Pharmaceutical Association.Felkey BG, Fox BI. 2003a. Informatics: The integration Lowe HJ, Barnett GO. 1994. Understanding and using the of technology into pharmaceutical care. In Rovers JP, medical subject headings (MeSH) vocabulary to per- Currie JD, Hagel HP, et al (eds), Pharmaceutical Care, form literature searches. JAMA 271:1103. 2nd ed., pp. 283–292. Bethesda, MD: ASHP. Malone PM, Mosdell KW, Kier KL, Stanovich JE. 2001.Felkey BG, Fox BI. 2003b. Computer software for clini- Drug Information: A Guide for Pharmacists, 2d ed., p. cal pharmacy services. In DiPiro J (ed), Encyclopedia of 108. NewYork: McGraw-Hill. Clinical Pharmacy, p. 214. New York: Marcel Dekker. Medication Errors Rank as a Top Patient Worry inFirst Data Bank Web site, www.; accessed Hospitals, Health Systems, ASHP Patient Concerns on May 19, 2007. Survey Research Report, September 1999; avail-Fox S, Fallows D. 2003. Internet health resources: Health able at; accessed on December 27, searches and e-mail have become more commonplace, 2002. but there is room for improvement in searches and National Association of Boards of Pharmacy. 2000. overall Internet access. Pew Internet and American VIPPS Web site,; accessed on June 8, Life Project; available at 2004. pdfs/PIP Health Report July 2003.pdf; accessed on Pedersen CA, Schneider PJ, Scheckelhoff DJ. 2006. ASHP June 10, 2004. national survey of pharmacy practice in hospital set-Garets D, Davis M. 2006. Electronic medical records tings: Dispensing and administration—2005. Am J vs. electronic health records: Yes, there is a differ- Health-Syst Pharm 63:327. ence, white paper, HIMSS Analytics, Chicago, www. Rough SS. 2001. The pharmacist-technology interface: Cur- rent and future implications for the practice of phar-Health on the Net Foundation Web site,; ac- macy. In Pharmacotherapy Self-Assessment Program, 4th cessed on May 19, 2007. ed., book 2, p. 85. Kansas City, MO: American CollegeInstitute for Safe Medication Practices. 2000. White paper: of Clinical Pharmacy. A call to action: Eliminate handwritten prescriptions Sanborn M. 2007. Developing a pharmacy information sys- within 3 years. Minneapolis: ISMP; available at www. tem infrastructure. Hosp Pharm 42:470.; accessed on May 19, 2007. Stair RM. 1996. Principles of Information Systems: A Manage-Kemper DW, Mettler M. 2002. Information Therapy, p. 116. rial Approach, 2d ed. Danvers, MA: Boyd and Fraser. Boise, ID: Healthwise. SureScripts Web site,; accessed on MayLevine JR, Bauroudi C, Levine ML. 1996. The Internet for 1, 2007. Dummies. San Mateo, CA: IDG Books Worldwide. Tulley M. 2000. The impact of information technology onLewis RK, Albrant DH, Hagel HP. 2002. Developing the the performance of clinical pharmacy services. J Clin infrastructure for patient care. In Managing the Patient- Pharm Ther 25:243.
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  • 116. 7 Ensuring Quality in Pharmacy Operations Terri L. Warholak A bout the Author: Dr. Warholak earned a B.S. in pharmacy and an M.S. and Ph.D. in pharmacy administration from Purdue University. Her professional experience en- compasses practice in both hospital and community pharmacies, including 5 years as a commissioned officer in the U.S. Public Health Service (Indian Health Service). In ad- dition, she completed a short tour of duty with the Food and Drug Administration (FDA). Since joining the faculty at Midwestern University Chicago College of Pharmacy in 2001, Dr. Warholak’s research has focused on medication error reduction. In 2003, she was recog- nized as a winner of the American Association of Colleges of Pharmacy Council of Faculties Innovations in Teaching Competition for her efforts in a course entitled, “Quality Assurance and Effective Pharmacy Practice.” ■ LEARNING OBJECTIVES After completing this chapter, students should be able to 1. Discuss the importance of quality in pharmacy practice. 2. Describe how quality is measured in pharmacy practice. 3. Justify the use of successful quality practices employed by other industries in pharmacy practice. 4. Explain the differences between quality assurance, quality control, and continuous quality improvement. 5. List three methods for ensuring quality in pharmacy practice. 6. Outline the steps necessary for a successful continuous quality improvement plan. 7. Prioritize areas/functions most suitable for conducting a quality analysis. 8. Identify sources for additional information about quality assessment and improve- ment. 97Copyright © 2009 by The McGraw-Hill Companies, Inc. Click here for terms of use.
  • 117. 98 M A N A G I N G O P E R A T I O N S■ SC E NA R IO 7. List four practical CQI suggestions for the pharma- cist.It happened again last night. One of the televisionnewsmagazines aired an expos´ on pharmacy errors eduring prime time. As soon as she saw the advertise- ■ W H AT I S QUA L I T Y ?ment for the program, Anita had that sinking feeling inher stomach. Anita has been employed as a chain com- Quality may appear to be a nebulous term. We knowmunity pharmacy technician for the past 3 years during what quality is when we see it, but the definition is oftenpharmacy school. Recent months have witnessed sev- subjective. In fact, there are quite a few definitionseral dispensing errors made by pharmacists at her store of quality. For example, Webster’s Dictionary definesthat she has found out about. Luckily, no patients were quality as a “degree of excellence” (Merriam-Webster,seriously hurt as a result, but they could have been. 2003). While this definition provides a framework for Anita arrived 10 minutes early for work the next quality in general, it is also helpful to examine themorning. The first thing she saw when entering the definitions of quality specific to health was the harried manner in which her boss, phar- The U.S. Office of Technology Assessment hasmacist Pat, was rushing around looking for something, defined the quality of medical care as “evaluation ofand three of the phone lines were ringing simultane- the performance of medical providers according to theously. When he saw her, Pat said, “Anita! I’m so glad degree to which the process of care increases the prob-you are here. We’ve got a problem, and we need to ability of outcomes desired by patients and reduces theact fast. Patients started calling an hour ago. They are probability of undesired outcomes, given the state ofcalling in response to that news show last night on medical knowledge” (Congress of the United States,pharmacy errors. Did you see it? Anyway, the patients Office of Technology Assessment, 1988).want to know how they can be sure they are getting The Institute of Medicine (IOM), in a report en-the right medications. I remember the district man- titled, “Medicare: A Strategy for Quality Assurance,”ager asking us to implement the corporate CQI pro- stated that “quality of care is the degree to which healthgram, but I can’t remember where I put the manual— services for individuals and populations increase thenot that I understand it anyway.” Pat heaved a sigh, likelihood of desired health outcomes and are con-looked at Anita, and said, “You’ve learned about im- sistent with current professional knowledge” (Lohr,proving quality in school, right? Can you please help?” 1990a), whereas Ovretveit (1992) simply states, “AAnita knew that it was going to be quite a challenging quality health service/system gives patients what theyday. want and need.” An amalgamation of these definitions may pro-■ C H A P T E R QU E S T IO N S vide the best explanation of the concept of quality in health care. Each provides additional insight into qual-1. How is quality defined within the context of phar- ity, what we can expect from quality, and how quality macy practice? can be perceived. Webster’s definition supports the idea2. Define health care quality in layperson’s terms. that quality is a continuum of excellence or the lack3. How can the need for quality improvement be jus- thereof. From the Office of Technology Assessment tified to decision makers? definition it can be said that in medical care, quality4. How can quality be measured? can be measured and used to evaluate the care delivered5. What can pharmacy organizations learn from other by health care providers. This definition also implies industries concerning quality? that the care offered to patients should increase the6. List the steps of a continuous quality improvement probability of positive outcomes (e.g., getting rid of an (CQI) model. infection) and decrease negative outcomes of care (e.g.,
  • 118. Ensuring Quality in Pharmacy Operations 99death). The care offered to patients should be the most Each of the preceding (i.e., structure, process, andcurrent. The IOM definition is similar but a little more outcomes) has been used to measure quality. Tradi-straightforward. The Ovretveit definition incorporates tionally, quality in pharmacy practice has been mea-judgments by the end users of medical care to define sured by structure and process methods. This relies onquality. While this broadened perspective has merit, a premise that a quality outcome is not possible withoutpatients may not be the best judges of the quality of appropriate structure or process. Moreover, it is muchmedical care because even though they may know what simpler and less controversial to measure structure andthey want from medical care, they may not have well- process than it is to measure outcomes. Recently, how-defined notions of what they need from medical care. ever, outcomes quality measurement has become moreThus it is up to the medical provider to offer quality to benefit the patient even when the patient does In the realm of pharmacy, the raw materials ornot know what he or she needs. While this may appear structure necessary for quality care are many and var-paternalistic, it seems reasonable that any person who ied. Examples include number of pharmacists peris not an expert in a field may not know all the best shift, counter space, pharmacist credentials or licens-alternatives. ing, pharmacy square footage, medication reference So what is quality in pharmacy practice? Extrap- books, medication stock, and counseling facilities.olating from the preceding discussion, it can be said Because pharmacists are responsible for all phasesthat quality in pharmacy practice of medication use, processes in the pharmacy can refer to any phase of the medication use process (e.g., pre-t scribing, dispensing, administering, or monitoring). Represents a degree of excellencet Examples of process measures include, but are not lim- Increases the probability of positive outcomest ited to, adherence to clinical guidelines or pathways, Decreases the probability of negative outcomest percent of prescriptions assessed for appropriateness, Corresponds with current medical knowledget and percent of patients counseled. Offers the patient what he or she wantst Outcomes are the driving force behind medi- Provides the patient with what he or she needs cation therapy management, which has pharmacists participating in patient education, medication review, Understanding these aspects of quality will help and disease-state management. Through such activi-Anita and Pat explain pharmacy quality to patients ties, pharmacists have been able to improve patientand will serve as the basis for pharmacy improvement. care by (1) increasing patients’ control of their medical conditions (Clifford et al., 2005; Cranor et al., 2003; Garrett and Bluml, 2005; Kiel and McCord, 2005;■ HOW I S QUA L I T Y Leal and Herrier, 2004; Ragucci et al., 2005; Sadik MEASURED? et al., 2005; Scott et al., 2006; Schnipper et al., 2006; Sookaneknun et al., 2004) and (2) decreasing use ofHistorically, pharmacy practice quality has been mea- health care resources (Cordina et al., 2001; Deddensured by assessing its structure, process, and outcomes et al., 1997; Garrett and Bluml, 2005; Rupp et al.,(Donabedian, 1969, 1992). Simply put, for a good or 1997), (3) increasing patients’ knowledge of theirservice, conditions, treatments, and medications (Mangiapane et al., 2005; Schulz et al., 2001), (4) increasing ad-t Structure refers to the raw materials needed for pro- herence to and persistence with medication regimens duction. (Krass et al., 2005; Lee et al., 2006; Mangiapane et al.,t Process is the method or procedure used. 2005; Sookaneknun et al., 2004; Vrijens et al., 2006),t Outcomes are the end result. (5) increasing patients’ satisfaction with their care
  • 119. 100 M A N A G I N G O P E R A T I O N S(Cranor et al., 2003; Garrett and Bluml, 2005; Wein- related quality of life (HRQoL). For example, a sur-berger et al., 2002), (6) saving payers money (Cranor vey concerning patient satisfaction with pharmaceu-et al., 2003; Fertleman et al., 2005; Garrett and Bluml, tical care services could be used to assess humanistic2005; Ragucci et al., 2005), and (7) improving patients’ outcomes for patients receiving these services. Alter-quality of life (Cordina et al., 2001; Mangiapane et al., natively, a QoL assessment may be useful to assess the2005; Rupp et al., 1997; Sadik et al., 2005; Scott et impact medication therapy has on the patient’s life asal., 2006; Schulz et al., 2001). a whole. Pharmacists’ ability to identify, resolve, and pre- Measuring outcomes can seem to be a dauntingvent medication-related problems, as well as take re- task. This may have been why Anita’s boss, pharmacistsponsibility in disease-state management, is well doc- Pat (in the scenario), did not implement the corporateumented (Bluml et al., 2000; Cranor et al., 2003; CQI program as recommended by his district manager.Fertleman et al., 2005; Hansen et al., 2006; Nolan, Thus the remainder of this chapter will present these2000; Schnipper et al. 2006). Thus outcomes describe concepts in an easy-to-understand manner and willthe ultimate goal of the care or therapy and answer the include simple implementation tips.question, “What are we trying to accomplish?” There are different ways to look at outcomes.One method, the ECHO model, purports three basic ■ W H AT C A N PH A R MACYtypes of outcomes: economic, clinical, and humanis- L E A R N F RO M OT H E Rtic (Kozma et al., 1993). Economic outcomes include INDUSTRIES?direct costs and consequences, both medical and non-medical, and indirect costs and consequences. For ex- Health care traditionally has lagged behind other in-ample, when assessing outcomes from a patient per- dustries in quality improvement. It has been suggestedspective, a medication copayment would be a direct that medicine should follow the lead of the airlinemedication cost, whereas gas money to pick up the and other industries by using quality management tomedication from the pharmacy would represent a non- decrease unnecessary variation and improve qualitymedical direct cost. Lost wages from missed work could (Leape, 1994). An IOM report supported this con-be regarded as an indirect cost. tention when the authors suggested that the American Clinical outcomes measures can include morbid- health care system can improve the quality of care byity and mortality, event rates, and symptom resolution borrowing techniques used in other industries to stan-(Ovretveit, 2001). These measures are a direct mea- dardize processes (Kohn, 2000). Many of these tech-sure of quality but may be difficult to assess, especially niques are based on systems pharmacy, where their onset could be years follow- Systems theory, developed by von Bertalanffying a treatment or intervention (Chassin and Galvin, (1968), has been used in engineering, medicine, and1998; Shane and Gouveia, 2000). In these cases, indi- education (Nagel, 1988; Sheridan, 1988). A systemscators or markers can be used to assess outcomes. These approach involves defining the purpose and perfor-indicators can be condition-specific (e.g., HgA1c) or mance expectations of the system, examining the char-procedure-specific (e.g., rate of postoperative infection acteristics of the input, considering alternative mech-after hip surgery) or address an important issue of pa- anisms for achieving the stated goals, implementingtient care. For example, blood pressure may be used as the system, and adjusting the system based on feed-a marker to assess susceptibility to stroke because it is back (Park, 1997; Sheridan, 1988). Basically, a systemsnot practical, safe, or ethical to wait and measure the approach allows for inspection of the interaction be-occurrence of stroke. tween every component of a system, thus expanding Humanistic outcomes include measures of the the more traditional approach of looking at individual“human” aspects of care. Specific types of humanis- components independently (Rasmussen et al., 1994;tic outcomes include patient satisfaction and health- Sheridan, 1988).
  • 120. Ensuring Quality in Pharmacy Operations 101 Airlines, aircraft manufacturers, and the Federal mization of outcomes, cost reduction, and satisfactionAviation Authority (FAA) have turned to a systems (Clearinghouse, 2000; American Pharmacists Associa-view of quality improvement termed human factors tion, 2003). These decision-support systems can alsoprinciples (Boeing, 1993; Edkins, 1998; FAA, 1993; be used to decrease reliance on vigilance through alert-Leape et al., 1998a). The human factors view of quality ing the pharmacist of potential problems.focuses on the relationship between quality problems Another mechanism for decreasing reliance onand the system in which they occur (Rasmussen et al., memory and reducing variation is the use of proto-1994). “Human factors principles are concepts about cols and checklists. Protocols and checklists serve as re-the design of work that take advantage of the strengths minders of critical tasks, especially when an omissionand weakness of the human mind and compensate for can have serious consequences, and are often recom-its limitations” (Leape et al., 1998a). Human factors mended as mechanisms for increasing quality (Boeing,principles include (1) reducing reliance on memory, 1993). Policies and protocols decrease confusion,(2) simplifying and standardizing, (3) using protocols thus improving overall dispensing quality (Agency forand checklists, (4) using mechanisms to physically pre- Healthcare Research and Quality, 2001). A constraintvent error (constraints and forcing functions), (5) im- that “prevents further action until some condition isproving access to information, (6) decreasing reliance met” (Leape et al., 1998a) can also be written intoon vigilance, (7) differentiating, and (8) implementing protocols to provide a quality check in a system. Forautomation (Kohn, 2000; Leape et al., 1998a). example, protocols usually preclude prescriptions from Human factors principles can be used to improve being dispensed until they are approved by the phar-quality (Kohn, 2000; Leape et al., 1998b). For ex- macist’s final check.ample, instruments, checklists, and decision support Improving access to information leads to im-can help users to avoid reliance on memory (Boeing, proved quality (Abelson and Levi, 1985; Weinstein1993; Leape, 1994; Leape et al., 1998a). In pharmacy and Fineberg, 1980). One study indicated that phar-practice, decreased reliance on memory can be accom- macists make more appropriate prospective DUR de-plished by using decision-support systems. Most com- cisions when they have access to more complete patientmunity pharmacies now use in-store computer sys- information, such as medication profiles, allergy infor-tems to assist with Omnibus Budget Reconciliation mation, patient age, and diagnosis (Warholak-JuarezAct of 1990 (OBRA 90)-mandated prospective drug et al., 2000). Therefore, medication orders should notutilization review (DUR). However, decision-support be processed without the pharmacist considering thesesystems should be used wisely because they are not in- and similar pieces of information.tended to supplant the pharmacist’s clinical decision- Moreover, improved quality produces a corre-making skills (Leape et al., 1998a; Nolan, 2000). sponding increase in productivity because less rework Standardization is thought to be one of the most is needed and less waste is produced (Deming, 1986).powerful tools for improving quality (Leape et al., “Improvement of quality transfers waste of man-hours1998c). If a person does something the same way ev- and machine time into the manufacture of good prod-ery time, the chances that he or she will perform the ucts and better service” (Deming, 1986). When ex-activity incorrectly are greatly reduced (Leape et al., trapolated to pharmacy practice, it can be predicted1998c). Industry has long known that quality and vari- that quality improvements will produce desired clin-ation are inversely related; quality improves as varia- ical outcomes such as improved QoL in addition totion is reduced (Deming, 1986). In pharmacy, stan- positive humanistic outcomes such as greater customerdardization is the simplest, most broadly applicable, satisfaction. Improved customer satisfaction can helpand most effective method for quality improvement to make the workplace more pleasant and may produce(Leape et al., 1998c). In fact, the move to standardiza- a corresponding increase in employee satisfaction. Thistion has created the impetus for critical pathways that ultimately may lead to the pharmacy having a compet-focus not only on error prevention but also on opti- itive edge and an image as a provider of high-quality
  • 121. 102 M A N A G I N G O P E R A T I O N Spharmaceutical care and may allow the business to re- spective, every action of the health care professional iscruit and maintain the most highly qualified and de- performed to benefit the patie