Wall to Wall Inventory: The Problem of Variability May 12, 2010

Goal Discuss the importance of consistency when doing an inventory

What is Required? All VA sites must complete a physical wall to wall inventory annually by February 28 th Results must be submitted to PBM by March 31 st –Survey (Used as a summary) –Actual Inventory Files A site is defined as a distinct VA station number A pharmacy exists only where a VA pharmacist is dispensing Non- VA Pharmacy sites –State Veterans Homes –CBOC with dispensing machines but no pharmacist –CBOC with a clinical pharmacist but where dispensing is only a fraction of the duties.

Why Do An Inventory? (National) Allows PBM to determine the total amount of inventory on hand in the entire system Demonstrates to other organizations (OIG, Central Office) that PBM estimates are accurate Allows PBM to compare VA to other non- VA institutions

Why Do An Inventory? (Local) Allows sites to compare themselves to other VA sites Sites can compare current inventory to previous inventory Allows a site to better pinpoint where increases in inventory may be occurring. Either by product or by inventory site (inpatient, outpatient, chemo)

Inventory Turn Inventory Turn = Annual Purchases/Inventory Ex. Pharmacy A uses $12,000 worth of drug A per year. But has $1,000 worth of stock on the hand when inventoried. The inventory turn will be 12 (12,000/1,000)

Inventory Turns Last Five Years YearInventory Turn

Problems Poor Instructions Purchase reports that were not accurate We did not add back in third party credits PBM did not ask for specialty products Sites conducting inventories inaccurately –Some sites were counting all direct products –Some sites were not counting stock in dispensing machines –Counting stock on the wards Site reporting was inaccurate

Possible Savings? In 2009 sites reported $1.516 billion in purchases and $164 million in inventory In 2010 sites reported $1.573 billion in purchases but only $132 million in inventory That’s a $32 million in savings, or approximately $13 million per turn Each increase in turns is 1% less stock needed Each decrease in turn is 1% more stock needed With less stock there is also less wastage due to out of dates and shrinkage

Most Common Question What is the VA standard for inventory turn?

Most Common Question What is the VA standard for inventory turn? I don’t know! We can only give a range.

Current Range Facility Average (April 2010) Average Facility Inventory Turn Range (1/2 standard deviation) Lower limit9.5 Upper limit14.5

Common Mistakes Not being prepared Using wrong prices (Cost Change Report) Counting cases as each Not validating counts during the inventory Not validating data after the inventory is completed Not accounting for all purchases

Possible Changes Better Instructions Live Meeting before inventory to answer questions Possible upload of inventories to a site which will allow PBM to validate prices across all inventories Easier reports to determine purchases

Next Years Goals All pharmacies should have a turn larger than 9. (Pharmacies with $1 million in purchases) Increase average turn to

Inventory Requirements of the CMOP 16

Background: Mid-South CMOP Facts Hours of operation 5:30 am to 12 midnight Monday thru Friday. Yearly pharmaceutical purchases FY09 $ 343.8M. Yearly pharmaceutical sales FY09 $356.7M. Approximately $9 million worth on On-Hand Inventory. Local Reduction of Inventory holding costs during FY09 of $4M. $343.8M/$9M approximates to a turn of 38. Inventory Data capture using MM100. Over 12,000 lines of inventory equating approx. 3,500 products in stock. 17

CMOP – Inventory Requirements Quarterly wall to wall inventories. Reconciliation of inventory with production system. All drug and medical supply items must be counted. TCA canisters estimated to the nearest 10 th. Random check of at least 25 items per major inventory area. Inventory must be completed when production is shut down. An inventory service provider will not be used. Counting and adjustments must be completed within 48 hrs. VA OIG Report compliance. 18

Barriers to Success Volume of Inventory-on-Hand and 48hr turn around requirement. Not being able to contract for an inventory service provider. Reconciliation time frame. Billing cut-off date varies from inventory date requirements. Standardized data collection and translation. Production must be stopped (and packed out). Variations in products and bar codes. Returns for Credit. Price valuation versus count valuation. CMOP Production system is running the inventory management. Galactic Planetary alignment 12/21/

TCA Canisters Mid-South has 330 canisters in TCA production each with up to 3L capacity. 20

Goals to reduce inventory variations Have ALL products in house bar coded… 21

Goals to reduce inventory variations Standardize Inventory Capture - electronically 22

Goals to reduce inventory variations Independent Quality Assurance Audit during the inventory. Dead stock product identification and movement. Visio floor map. Computer generated product reconciliation. 23

Inventory Floor Map Labels for each section inventory embedded in VISIO document 24

25 Reconciliation

Added the physical count as the true Ending Quantity for comparison. 26

Goals to reduce inventory variations Real time pricing. Initiated Just in Time fulfillment. Reduction in inventory holding costs without sacrificing customer service turn around time. (Special Handling products) Using SLIP instead of FIFO. Education Education Education. Recognition of bar codes… Estimating testing of each staff… Brief description of the area and products for staff… 27

Lessons Learned. Identified that the inventory process must start and end with physical counts for reconciliation purposes, then apply value$. Price changes still hard to completely track… VISTA accounting software still lacking functionality for price changes and real-time impact to on hand inventory. Inventory expected $ value of on hand more in line. June 2009 inventory % variance (excess) September 2009 inventory 0.341% variance (excess) December 2009 inventory % variance (excess) Still more work to be done… Manufacturers have excess product in non-control drug bulk containers – CMOP Consolidated orders Vastly improved TCA automation integrity for count accuracy. Universal singular bar code format 28

QUESTIONS 29