By Rob Dewig, Vice President, Healthcare Solutions:
Formulary decisions in hospitals are traditionally guided by clinical necessity, physician preference, and historical usage trends. This method ensures that essential medications are available to meet patient needs, but it rarely accounts for a critical factor: waste. Pharmaceutical returns data is a goldmine of untapped potential, offering hospitals the opportunity to rethink their approach to formulary management and make decisions that reduce waste, cut costs, and even benefit the environment.
Expired medications are shipped off to reverse distributors for disposal or credit. While this process does recover costs, it doesn’t address the root problem: why these drugs expired in the first place. That’s where returns data comes in. By analyzing patterns in expired inventory, hospitals can identify trends that point to inefficiencies in their inventory management and formulary design. A regular review of these reports — looking at both creditable and non-creditable returns — can reveal which drugs are chronically underused, overstocked, or no longer clinically relevant.
The implications are significant. Consider high-value expired drugs, which can represent tens of thousands of dollars in waste annually. When hospitals focus on these items, they often find opportunities to restrict outdated medications, streamline vial sizes, or lower inventory thresholds. These adjustments not only reduce waste but also improve cash flow and operational efficiency.
But waste data doesn’t just highlight inventory issues — it also forces hospitals to take a closer look at two often-overlooked aspects of formulary management: return policies and reimbursement rates. Drugs with restrictive return policies can quietly drain hospital budgets if they go unused or expire. Drugs with low reimbursement rates can create profitability challenges. Examining reimbursement patterns at the NDC level enables hospitals to optimize purchasing. By factoring these variables into formulary decisions, hospitals can ensure they’re not just buying medications that patients need but also managing them in a way that’s financially sustainable.
This approach requires collaboration across departments. Formulary managers need to analyze clinical necessity and outpatient pharmacy profit margins alongside waste data. Supply chain supervisors must adjust thresholds, storage practices, and selection of preferred drugs. Performance improvement specialists should track progress and identify areas for refinement. Together, these teams can create a closed-loop system where data informs action, and action improves margins and prevents future waste.
Challenges remain, of course. Drug shortages can lead to temporary substitutions that later expire unused. Decentralized inventory practices make tracking difficult. Despite these hurdles, the long-term benefits are clear. A thoughtful approach to waste reduction not only saves money but also addresses the environmental impact of healthcare, with pharmaceuticals accounting for 20% of the sector’s carbon footprint.
Hospitals can no longer afford to view reimbursement and returns data as an afterthought. Together, they are a powerful tool for improving formularies and margins, reducing waste, and building a more sustainable healthcare system. By shifting their focus from reactive disposal to proactive optimization, hospitals can turn pharmaceutical waste into an opportunity for smarter, more responsible decision-making.