As ironic as it sounds, when it comes to pharmacy procurement, health systems can no longer afford just to chase the lowest price. With drug prices hitting new highs and amidst record-setting drug shortages, pharmacy procurement is no longer just a matter of finding the lowest cost item (though that’s not an easy task, either). Successful health systems purchase strategically, adopting a broader, value‐based mindset.
In this blog post, we’ll discuss value-based purchasing (VBP) and its “value” to health systems. This approach represents a significant opportunity to improve outcomes, control the total cost of care and strengthen the pharmacy’s role in maintaining clinical care while reducing costs.
VBP centers on purchasing practices and payment models that link cost, quality and value. It looks to control costs, but the “value” here also includes improving outcomes, reducing waste and enhancing patient experience.
The RAND Corporation explains that VBP focuses on “performance-based payment strategies.” Financial incentives are tied to how well providers, like vendors, perform based on defined measures. These measures aim to “achieve better value by driving improvements in quality and slowing the growth in healthcare spending.”
For example, instead of awarding contracts solely on the basis of lowest cost, value-based procurement considers several additional factors (e.g., contribution to patient outcomes, total cost of care over the lifecycle, clinical integration). One example at the federal level is the Centers for Medicare & Medicaid Services (CMS)’s hospital value-based purchasing program. This program “rewards acute care hospitals with incentive payments for the quality of care provided in the inpatient hospital setting … designed to make the quality of care better … and to recognize hospitals that provide high‐quality care at a lower cost to Medicare.”
Compare VBP to approaches such as fee-for-service or lowest-cost purchasing. These traditional purchasing models often focus purely on price or volume. They emphasize volume of services or the lowest upfront cost of supplies, drugs or devices.
On the other hand, in the context of pharmacy purchasing, VBP doesn’t simply choose the lowest-cost generic or the distributor offering the lowest margin. Instead, a health system pharmacy under a VBP mindset would evaluate:
In health system pharmacies, value-based purchasing shifts the metric from “lowest cost wins” to “best value wins,” with “value” encompassing cost, quality, outcomes and partnerships.
Health system pharmacies are often under-integrated with value‐based care models. These initiatives factor in payers, care delivery, population health and bundled payments, but not how pharmacy procurement supports those goals. Yet pharmacy procurement is deeply tied to the total cost of care and quality outcomes.
Pharmacy is a major spend center for health systems, with drugs and therapies accounting for a large share of the cost of care. A pharmacy purchasing decision (for example, product or vendor) can have downstream implications: better adherence, fewer hospitalisations, fewer adverse events, fewer supply‐chain disruptions and less waste. A VBP mindset recognizes that pharmacy spending is a core lever to reduce the total cost of care.
In a VBP model, pharmacy relationships with group purchasing organisations (GPOs), wholesalers and vendor contracts are strategic. Health systems still evaluate vendors based on their price, but they also weigh the source’s level of service based on several other considerations, such as:
By contrast, traditional pharmacy procurement (i.e., strictly lowest cost) misses opportunities to add value or leverage better vendor service. It may also generate downstream costs and contract noncompliance while remaining siloed from value-based care efforts. Integrating VBP in pharmacy procurement elevates the pharmacy’s role in achieving system value.
By aligning pharmacy procurement with value-based purchasing, health systems see better patient outcomes, more reliable supply and inventory and increased savings. VBP impacts a range of operational and strategic dimensions, starting with the cost of care. Selecting products, vendors and contracts that support better outcomes lowers the overall cost of care (not just pharmacy line items). One study shows that health systems adopting a VBP approach experienced fewer complications, lower rates of adverse events and higher patient satisfaction.
Coordinating pharmacy procurement with value metrics improves a health system’s ability to capture rebates tied to outcomes or volume, ensure contract compliance and optimize inventory—all of which feed back into value. Weighing vendor service and strengthening relationships also helps mitigate the impact of drug shortages; when the next shortage hits, health system pharmacies need reliable partners to avoid the last-minute scramble and interruptions in patient care.
Adopting a value-based purchasing mindset in pharmacy procurement offers significant advantages to health systems, but they must manage this approach with the right solutions and strategies. Best-in-class pharmacy procurement software can make all the difference.
While traditional procurement often silos processes, moving to VBP requires solutions to integrate workflows. A unified pharmacy purchasing solution streamlines and de-silos processes because it integrates all purchasing data, from uploading a purchase order through receiving items to dispensing or returning products or relying on vendor reports.
Effectively implementing VBP requires accurate data on variables such as vendor performance and product lifecycle costs. But too many health systems are stuck with piecemeal data spread across multiple sources or reliant on periodic vendor reports. It’s not enough to capture all the data. To ensure transparency, health systems need infrastructure for analytics, reporting tools and vendor oversight. Analyzing data on product utilization, costs and outcomes, hospitals can identify areas for improvement, but only if health systems can get to that information without adding additional work.
The best pharmacy procurement software includes features like dashboard and configurable reports, which puts the information at your fingertips. Instead of trusting vendor reports on compliance on their timetable, for example, you can generate reports based on your needs and assess higher rebate tiers. With greater visibility, you can optimize purchasing in line with the terms of your agreements. You can also ensure you always get the right product at the correct quantity for the agreed-upon price.
Health systems are under greater pressure to deliver better outcomes at sustainable costs. Every purchasing decision (comparing products, inventory management, compliance, etc.) affects patient outcomes and health system goals. When pharmacy procurement aligns with outcomes, quality, relationships and cost, it becomes a strategic partner in value-based care rather than a cost center. Value-based purchasing is not just a policy or payment model; it’s an entire procurement mindset and a key differentiator in a competitive industry.