Pharmacy Budget Variance Evaluation

EMRMC

6 FREQUENTLY ASKED QUESTIONSABOUT MANAGING PHARMACY BUDGETS

Where can I validate labor and appropriate staffing?

What information do I have to evaluate budget adherence?

How should I evaluate revenue if I have no control over it?

What is the best way to evaluate appropriate control of expense compared to revenue?

What can I do to impact drug spend and other expenses?

If my expenses look higher than expected how can I investigate?

Test your skills

For your assigned cost center : 1. Calculate the Contribution Margin for the given Month and also for the Year to date 2. Identify key elements you would want to DRILL DOWN on based on the budget variance report 3. Describe what information you need to evaluate further (where would you go next?)

Use the AmerisourceBergen Quarterly Business Connect report under assigned reading session 21 and answer the following questions

CONGRATULATIONS! YOU HAVE COMPLETED THIS MODULE

Revenue

Charge capture

Revenue is driven from charges captured for 5500**** drug chargemaster codes or for patient charges for a pharmacy provided clinical service.Pricing tables built by type of drug and formulation for administration drive patient charges (AWP based formulas). Daily review of charges (RUD) report by managers is completed to detect errors in quantities billed, charges affixed to an individul charge code (CDM) or potential "missed" charges on high ticket items

• Budgeted revenue is just math.
• Kaufman Hall projects drug "charges" per patient day or outpatient procedure based on historical volumes and charges.
• Each FY projected # of patient days or procedures "predicts" projected revenue $

Manage expenses and Verify charge capture

Manage what you CAN control

• Daily RUD review (charge capture)
• Update Meditech drug dictionary costs(charges based on AWP)
• Purchase drugs on GPO contract
• Split orders to 340b/GPO every day
• Keep WAC spend to < 10% total spend
• Review invoices/ appropriate ordering (pars)

• Payroll (schedule/staffing to volume/DTO)
• Appropriate complement RPH:techs
• Wholesaler business report :opportunities

• Minimize drug waste
• Stick to formulary/preferred drugs
• Adjust doses appropriately
• IV to PO conversion
• Effective therapeutic substitutions

Monthly budget variance reports

Finance dept generates

• Monthly budget variance reports by cost center are shared for Directors and Managers to evaluate Revenue, expenses and variances in monthly budgets and year to date performance.
• Pharmacy Director sends to Managers/Residents monthly.
• Managers evaluate their assigned cost centers.
• Managers /Director calculate Contribution Margin and evaluate drug spend, labor, FTEs

Contribution margin

Evaluating Expenses & Revenue

Keeping expenses within budget when your volume is off (either too high or too low) is the key.Calculated contribution margin shows what you spend (expenses) to make $1 Total expenses= Number A Total revenue Subtract Number A from 1 to get Number B Number B X 100 to get % contribution margin

• In the example above

971,721 Total operating expenses= 0.28393,421,743 Total Revenue 1-0.2839= 0.7160 0.7160 x 100= 71.60%

ESS Monthly REV/Expense or KRONOS

Select a month (time period) IE APR 2023Select GL actual expense and drill down tab. Select Salary summary 1 to see a break down of salaries (1= management and supervisors 2= technicians = RPH + Techs) You can drill down further by selecting a category (2 Technican) and then drill down by dept (cost center) Alternatively you can view payroll (Kronos) punches every pay period. Director reviews all time cards each 2 week pay period.

Meditech ESS Finance Report

Dept Budgeting Details

Director/Managers have access to Meditech reports to help drill down to investigate expenses:MM department detail by GL account Department Expense Detail Labor Distribution Report Revenue Breakdown and monthly comparison Daily revenue by B/AR procedure code (detail or summary) Daily revenue by Charge dept (detail or summary

• Verify correct coding of invoices to cost center
• Verify accurate charge quantities and $
• Verify correct labor/payroll
• Compare to prior month or year