The rate of healthcare system acquisitions and mergers continues to rise. Healthcare system mergers and acquisitions rose from 53 in 2022 to 65 in 2023, according to Chief Healthcare Executive Magazine. So far, in 2024, several significant acquisitions have been announced, including the acquisition of nine Ascension hospitals by Prime Healthcare and Risant Health’s planned acquisitions of several facilities.
Mergers and acquisitions necessitate numerous operational changes, with prescription drug formularies being a key area of adjustment. The process of merging formularies demands not only a disciplined effort but also a high degree of sensitivity and awareness of the cultural changes taking place.
Over the years, we’ve walked alongside hospitals and healthcare systems as they combined formularies and have compiled this list of the top 5 lessons learned. Our in-house expert, Sherlene Christen also weighed in on her personal experience after Duke University Health System acquired her community hospital. For more than 30 years, Sherlene served various roles at Duke Raleigh Hospital, including pharmacy technician, pharmaceutical buyer, and pharmacy informatics analyst. As the pharmaceutical buyer during the acquisition, she was active in the process and now helps our clients implement Formweb and combine formularies.
Start with the therapeutic interchange list. Identify the core drugs that the parent health system wants to standardize across facilities and work on getting the smaller hospitals to adopt those first. This provides a foundation to build from.
For instance, if a doctor at the newly acquired facility orders a statin drug, the health system lets the new hospital know that it will automatically substitute with this statin drug because this is the one the system has a contract on, and the system receives the best price on. The new hospital now knows that this statin will be substituted for the other medication moving forward.
The system should go a step further and ask, “What statins do you have in stock?” Once that information is shared, the health system Pharmacy and Therapeutics (P&T) committee or pharmacy will review the list and identify which ones are approved by the health system. As a result, all other drugs will be automatically substituted for the ones on the system’s formulary.
Early engagement with and empowerment of the smaller facilities is crucial. If you’re a Formweb user, consider allowing them to maintain their formulary pages in the platform. This approach ensures they feel involved in the process and can adapt changes to their local needs.
When a facility joins the health system, they can access and input their Pharmacy & Therapeutics (P&T) committee minutes and decisions into Formweb. This integration allows the new facility to review the health system's P&T records and make informed decisions about which protocols to adopt or put on hold. For instance, if a new facility rarely encounters patients with a particular indication, they may choose to put certain drug additions on hold. The facility maintains autonomy over its formulary management, deciding which medications best serve its patient population while documenting these decisions in Formweb.
Emphasize the benefits for the smaller facilities, like access to the parent system's inventory and the ability to order smaller quantities. Help them see how the integration can improve patient care and operations.
This system enables cost-effective medication management through internal resource sharing. For example, a newly acquired facility can request small quantities of medications from larger hospitals within the health system rather than purchasing full bottles that exceed their needs. If a facility needs only ten doses of a drug that comes in a $1,000 bottle of 100 pills, they can source just the required amount from a partner hospital. This approach prevents waste and reduces unnecessary inventory costs, particularly for expensive medications that are used infrequently.
Sherlene shared that during a rare snowstorm that dropped around 22 inches of snow, she had to jump in a four-wheel drive truck to pick up a critical wholesale order from Greensboro, which is more than an hour away in good condition. The big trucks that usually delivered the orders couldn’t make it through the snow, but where there’s a will, there’s a way. This was before Duke University Health System acquired the community hospital Sherlene worked at, and Duke took their Life Flight helicopter to the same wholesaler in Greensboro to get the medications they needed during that same storm.
Sherlene said that after the acquisition, she and her team realized that access to the larger Duke University hospital’s inventory was a significant benefit, especially when they needed medications in an emergency and did not want to use one of the few emergency drug shipments they were allotted per year.
An alternative that some large health systems are turning to is a warehouse to store and manage the system’s medication inventory. One of our customers recently moved to this warehouse system, and the centralized inventory can save money and increase efficiency and access to critical drugs.
Expect the process to take 3-5 years. Dwindling down existing inventory and getting everyone aligned takes time. Communicate the timeline upfront so expectations are set.
Unless someone has been through the combination of formularies before, they may not know what to expect as far as the complexity and time needed to fully merge. Of course, with the increase in acquisitions, chances are many people know what to expect.
Managing existing medication inventory during formulary mergers requires careful planning to minimize financial loss. When a newly acquired hospital joins the health system with an existing stock of non-formulary medications, a strategic approach is needed rather than immediate disposal. For instance, if a facility has 500 doses of a drug that isn't on the health system's formulary, a systematic reduction plan should be implemented. Clinical pharmacists must coordinate with pharmaceutical buyers to stop new purchases while allowing controlled prescribing of existing stock. This reduction process may take three to five years, depending on typical medication expiration dates. For expensive or infrequently used medications, this gradual drawdown is particularly important to preserve the facility's investment. While manufacturers' returned goods policies offer an alternative solution, they typically provide minimal returns—often only 20% of the original purchase price, if available at all.
Ensure strong communication between the Formweb editors and the pharmacy & therapeutics committees. The editors must be closely tied into the decision-making process to keep the formulary information up-to-date, fostering a sense of reassurance and confidence in the process.
The key is balancing the needs of the larger health system with the concerns of the smaller facilities. An inclusive, phased approach focusing on benefits can help streamline the integration, making all parties feel considered and respected.
Sherlene and the Rpharmy team not only help hospitals and healthcare systems get Formweb up and running but also offer support throughout the process of combining formularies to make the transition as seamless as possible for all stakeholders involved. Communication can often make or break the process.
Are you in the process of combining formularies, or have you gone through this before? We’d love to hear from you on these tips and what else you would suggest. Remember, one of my priorities is creating a community for you to share your learnings and gain from what other people have experienced. Email us at info@rpharmy.com with questions, thoughts, and tips for other pharmacy leaders.