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HOSPITAL PHARMACY INVENTORY TURNOVER RATE INCREASES TO 10.5 TIMES IN 1985 AMONG WHOLESALER-ORIENTED HOSPITALS; BUYING GROUPS ARE ALMOST UNIVERSAL

Executive Summary

Wholesaler-oriented hospitals increased their inventory turnover rate to 10.5 times in 1985 vs. 8.5 turns for those hospitals making less than 39% of their drug purchases through wholesalers, according to the Lilly Hospital Pharmacy Survey 1986 edition. For those hospitals that used the wholesaler to obtain more than 39% (Group II) of their pharmaceutical needs, the inventory turnover rate was 10.5 times in 1985, up from 9.8 times in 1984. The inventory turnover rate for those hospitals purchasing between 20-39% of their pharmaceutical needs from wholesalers (Group I) increased to 8.5 times in 1985, compared to 7.2 times in 1984. In addition, the survey notes that the median amount of total purchases from wholesalers in hospital pharmacies oriented toward wholesaler business rose from 75% to 80% in 1985. WHOLESALER PURCHASES AND INVENTORY PATTERNS IN LARGE (<500 BEDS) SPECIALIZED HOSPITALS Chart is reprinted from the Lilly Hospital Pharmacy Survey 1986 edition. The wholesaler-oriented pharmacies "posted lower figures for inventory and purchases than did those in Group I," the survey points out. "This suggests that those specialized hospitals using wholesalers for a large portion of their drug needs enjoy the benefits of faster stock turnover, which can be translated into improved cash flow." The Lilly survey figures for the effect of wholesaler use on inventories were derived from selected operating figures from large (over 500-bed), private, nonprofit, specialized hospitals -- a subgroup of the total of 1,651 hospitals included in the 1985 edition of the survey and the 1,964 hospitals in the 1984 survey. In a separate analysis of the hospital pharmacy data included in the digest, Jean Paul Gagnon, PhD, University of North Carolina, credited the improved inventory turnovers in the hospitals to a trend toward the establishment of primary vendors. "Like their community pharmacy counterparts," Gagnon observed, "hospital pharmacists have discovered that channeling purchases through one wholesaler yields economies of scale." Looking at the wholesale purchasing trends from the overall hospital pharmacy data, the survey reported that "73% of pharmaceutical purchases by hospital pharmacies were made through wholesalers during 1985 -- up 7% from the previous year's figure." The survey found that "general hospitals with fewer than 200 beds purchased more than 80% of their goods from wholesalers, whereas facilities in the 200 to 500-bed range order over 70% of their drugs and related items from this source." The for-profit hospitals tend to make the most use of wholesale suppliers, the data show. "Profit hospitals order 87% of their pharmacy merchandise through wholesalers (up from 81% in 1984)," the Lilly Digest notes. The private nonprofits purchased 76% of goods via wholesalers (up from 68%), the digest data show, while government facilities made 68% of pharmacy purchases through wholesalers (up from 56%). The federal hospitals obtained 10% of their pharmacy purchases via wholesalers in 1985, up from 7% the previous year. Hospital pharmacy purchases for the "average" Lilly Digest hospital (a private, nonprofit general hospital with 244 beds) increased 9.4%, from $944,569 in 1984 to $1.03 mil. The average drug cost per admission rose 9.6% in 1985 to $120.57, or $19.33 per patient day (up 15.3%). While purchases increased from 1984 to 1985, average hospital pharmacy inventory declined by 0.2%, from $121,414 to $121,198. Inventory costs had also been down from 1983 to 1984, the digest reports. In terms of patient days, the survey notes that "during 1985, inventory equaled $2.27 per patient day -- up 5.1% from the 1984 figure." With the length of patient stays declining, the Lilly Digest points out, "it is important to note that, on a per-occupied-bed basis, inventory and purchases figures were more than 5% and 15% higher respectively than in 1984." Among other trends, the survey reports, "94% of participating hospital pharmacies are affiliated with cooperative purchasing groups (up from 92% reported for 1984)." In addition, "almost 97% of general hospitals report a similar affiliation as do 94% of the specialized institutions," the survey states. Chart omitted.

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