From Inventory to Insight--Rethinking Medication Management for Clinical and Operational Performance

Highlights of this episode include:

• How to reduce costs within medication management
• How system wide visibility can change decision making for health system leaders
• Centralized medication distribution and automation
• AI-driven analytics
• Efficiency and caregiver support
• How to drive enterprise-wide cost optimization

Kelly Wisness: Hi, this is Kelly Wisness. Welcome back to the award-winning Hospital Finance Podcast. We’re pleased to welcome Randall Lipps. Randy is the founder, chairman, president, and CEO of Omnicell, a company transforming pharmacy care delivery with a comprehensive portfolio of medication management solutions. Inspired by inefficiencies he observed during his daughter’s birth and his experience in airline operations, he founded Omnicell in 1992, growing it into a publicly traded company in 2001 that now serves healthcare systems worldwide. Recognized for his industry leadership, he was elected to the Bellwether League Hall of Fame in 2014 and has served on the American Nurses Foundation Board of Trustees. Randy and his wife, Kathy, actively support a range of charitable endeavors, while Omnicell fosters volunteerism and charitable initiatives through its Omnicell Cares program. He holds bachelor’s degrees in economics and business administration from Southern Methodist University.

In this episode, we’re discussing, from inventory to insight, rethinking medication management for clinical and operational performance.

Welcome, and thank you for joining us, Randy.

Randall Lipps: Well, Kelly, thank you so much for having me here today. It’s always fun to talk about the numbers, especially with folks who are thinking about the numbers all the time.

Kelly: Yeah, exactly. Well, let’s go ahead and jump in. So, Randy, as I read your bio, you don’t have a healthcare background initially, so what drove you into healthcare from the airline industry? It must be an interesting story there. [laughter]

Randy: Yeah, when I got out of school, I went to work for the airlines, and the airlines had a ton of numbers, kind of like healthcare, I guess. And it had some of the same profile: it had a lot of employees in order to run an airline, a lot of capital, and a lot of regulation, things you will also find in healthcare. And in order for us to survive in the airline industry – at that time, it was American Airlines – we had to lower our cost. There was no other mandate other than to lower our cost, and we had to do that by eliminating work that we didn’t really have to do, minimizing the necessary work, centralizing it so that we could then really get a good perspective on it, and then eventually automating it. As I experienced healthcare through my own daughter’s long-term stay in a hospital, I realized there were some of the same opportunities that existed in the airline that there is in healthcare, so some Stanford students and I launched a venture to go find out ways to make things more efficient and easier, particularly for nurses and pharmacies to do their jobs with less cost. I mean, what was ingrained with that thought process when I entered the airline is it’s great to think about soft costs, but you’ve got to save hard dollars when you come up with new technology and new automation, and so that’s always been on the front of my mind in the way I think and we move the company forward.

Kelly: I love that story. I mean, it’s just so interesting that you’re kind of sharing those commonalities between two industries that we wouldn’t think have anything in common but seemingly do. With U.S. healthcare spending nearing $5 trillion, where do hospitals have the biggest untapped opportunity to reduce costs within medication management?

Randy: Well, that is a great question, and medication management is really the– it’s a tale of two cities, right? One, it’s the cost side, particularly on inpatient, and the other side, of course, is the revenue opportunity or the earnings opportunity that you have with the outpatient side. And so, a good organization must take advantage of both of those, so let me just cover those. On the inpatient side where everything is a cost, it’s really important to eliminate unnecessary work. And this is clearly seen as you see the consolidation of providers and hospitals and sites, that there’s duplicate work done at these sites. So, first step, eliminate unnecessary work, and then minimize the necessary work. The things that you have to do, be sure that you don’t do– that you do them, but that you don’t exaggerate them. And here’s the key. And many of these organizations have already figured this out. You then centralize it. You bring that critical work that you’ve minimized into a central location. There you have the expertise, you have the enterprise mindset, and you can make better decisions because you’re not looking at an individual basis, but as an enterprise, and then you create standards and roll those out. And then of course, the final step is after you centralize, you automate. Then now you’re automating the processes that you centralize and really understand well. And we begin to see this happen with these consolidated service centers where hospitals with 20, 30, 40, 50 hospitals move their medication management process to a central site that’s automated, reducing headcount and processes at individual locations so that the deliveries can be done once a day at these sites through technology like ours, automated dispensing, and really reduce the burden and the need to run full out pharmacies at every location.

This is a huge savings in terms of inventory cost, huge savings in terms of people cost, and probably more importantly, it allows you to execute to a standard. Everybody’s running the same way and reducing the variance by which you run, and it can be measured. And so that opportunity is there. We’re starting to see the industry take more steps on that side, and it’s a game changer. The amount of savings we’ve seen in some cases has been a third of the total cost of onsite inventory, reduction in over half of wasted products, the reduction of shortages, which takes people and time to cover are reduced because you’re now managing those shortages from a central location. It’s just been a beautiful thing to watch and makes a lot of sense. But it’s a strategic move. It’s an investment, but it has very hard returns. And it is a scalable way to grow as well as you acquire more assets, whether they’re inpatient or outpatient. Servicing them from a centrally consolidated service center makes a lot of sense, and makes the scaling and tracking of those costs, and understanding what those costs will be as you scale, easy to understand.

Now the same thing is somewhat true on specialty. Today, we have crossed the threshold. Over half the drug spend in the United States now is specialty pharmacy. And 25% of that drug spend– as we go into ’26 and ’27, 25% of that specialty drug spend will be spent on outpatient infusion centers. In other words, a provider has to execute the delivery of that medication management. And if that’s true, then that’s an opportunity for these hospital and providers to gain and garner lots of revenue. You have to be an expert in those types of infusion outpatient situations. They’re new drugs, new protocols. They’re not easy to ontake. You have to get alignment with the manufacturer and the payer to do those, but those represent significant revenue and earnings opportunities for all systems and optimizing that. A lot of systems do have those, but the amount of influx of new opportunities in the next even 24 months is significant, and you don’t want to miss out on those because it’s revenue that should be in your P&L because they’re your patients, they’re passing through your hands, and it just makes sense for you to manage those specialty drugs.

Now, on the other side of, of course, the specialty drug management is the 340B. We continue to see a lot of changes, or small changes, in 340B and reimbursement, and you’ve got to keep up with those 340B changes are, but it is still a profitable program that you need to be executing in your institutions. And many of the institutions we see are doing a great job executing the 340B program, but there’s still another 10 or 20% they’re missing out on just because of the changes and the dynamic nature of these 340B reimbursements. So, you’ve got to be able to take advantage of the outpatient specialty pharmacy and outpatient mail order pharmacy opportunities, and you’ve got to be able to consolidate in the inpatient area in order to automate and centralize and minimize and eliminate the workload so that it turns out to be a beautiful picture.

Now, what we’re starting to see is that in some situations, institutions are putting their outpatient pharmacy and their inpatient pharmacy in the consolidation center together. In other words, they’re utilizing the space to both manage inpatient and outpatient. And one area that has been sort of poorly managed is clinics or ambulatory care sites, which are under the responsibility of the provider pharmacy in many cases, but there hasn’t been the tools or the technology to manage medication management out at these distant spaces that use a few drugs, maybe expensive, but don’t use a lot of drugs. And with the new technologies that we have and that are in the marketplace, suddenly these become part of the equation, to manage these fringe sites in order to get closer to perfection. One of the big things that’s hard to manage in these sites is vaccines. Vaccines have expiration dates. You need to sometimes have a lot in different locations. They’re expensive. How do you manage vaccines in these clinics in order to not have too many there, not have too few there? It’s important to understand the best approach on those.

So those are the strategic areas that you as a provider have the opportunity to manage. And the challenges I know that you have today are about the shortage of techs. And what happens when you have a shortage of techs? You say, “Well, I’m saving money. I don’t have as many techs,” but then the processes get very inefficient and the costs go up other places. And so having a shortage of techs is costing you money, more than a little overtime here and there. It’s costing you money because then the process is people over-order because there’s not enough people to process the orders that they should be processing. And the same thing is true as in any part of your institution where you don’t have enough labor. Inefficiencies and costs are pushed up higher in other locations.

Kelly: A lot there to take in and to kind of think through all of that. What’s the financial risk of managing medications and silos? And how does system wide visibility change decision making for health system leaders?

Randy: Well, I always say, if you can’t manage the medication in the healthcare process, you can’t manage the risk. You can’t determine the outcome with understanding that leads to the best outcome and at the lowest cost. So the medication piece of the curative part of the healthcare experience is costly enough in getting it right not just in the cost of the med, but in the ability to get it right for these patients because it’s going to save you money because you’re not going to have the patient returning back to your institution because they were in the hospital and returned less than 30 days, and it costs you money to take care of them that you don’t get reimbursed for. So, managing medication is extremely important and the right medication. It’s harder to get than you think. And so, I think if we look at medication management as a chief goal of the curative outcome process, it really lends itself to the right outcome in terms of both cost and quality and best health for the patient.

Kelly: Wow. Thanks for sharing that with us. So, drug shortages are widespread. How can centralized medication distribution and automation help hospitals protect access to critical drugs without increasing spend?

Randy: Yeah. One of the things that’s really critical when you have shortages is visibility. Visibility starts with understanding what your demand is, but also understanding, “How much drugs do I have on hand?” And so, when you look at the demand and the drugs I have on hand, I really don’t have a shortage. I have enough drugs for the demand, but I don’t have those drugs in the right location so that it doesn’t create a shortage. When you centralize in a central location, you get that visibility both to the demand and to what you have available, and that availability when you put it in a central site usually is 6 to 12 hours. You can move it around to whoever needs it as quickly as possible, allowing for you to really eliminate that shortage. Even though that drug might be on short, per se, you may not have a shortage enterprise wide. You probably have shortages in certain locations. Eliminate that through a consolidated service center.

Kelly: Yeah. It makes sense that visibility is key there. How are hospitals using AI-driven analytics today to better forecast medication demand and reduce waste or inefficiencies?

Randy: Yeah. AI is a great tool. And one of the best tools that AI is helpful for is administration. We see a heavy burden in pharmacy for administrative tasks, and many of these administrative tasks are helpful in managing pharmacy better. But today, in our last study that I’ve seen, it’s about 76% of activities done in pharmacy are for administrative tasks versus only 24% for clinical work. So, AI being applied to this administrative workload, delivering the reports that you need, being able to manage regulatory compliance that you need, and being able to just use AI to query where I am I on these compliance issues, where am I on these reporting issues? And then being able to actually, in some cases, deliver those reports with the AI with supervision, obviously. And so today we have people totally dedicated to many of these functions and we can really minimize the amount of time and workload it takes to probably even get a better answer. Now, we do have a tall task in medication management, particularly on big providers. And that is the task of managing many, many discrete inventory locations. So even if we take one of the top 300 largest providers in the United States, each of those has over a million discrete locations where they’re managing inventory. That’s on every floor, and that could be at remote pharmacies that could be in OR rooms, that could be in doctor’s offices. That’s everywhere. That’s a million locations of discrete inventory. How do you manage that so that you don’t have too much in any of these 1 million locations, or you don’t have too little? And so today we do that with spreadsheets and pieces that really give us suboptimal results. And now with the advent of AI, how do we really consume all that data to get us this, I would say, perfect answer for each one location? AI is the engine that’s delivering much, much better results. We have a great new inventory management process that’s driven by AI that we’re doing with King’s College in the UK. And it’s just delivering phenomenal results. And so, we’re going to see more of that in the marketplace where the expectation is that we can do a lot more with a lot less inventory, but have it in the right places.

Kelly: Yeah, it does seem that AI-driven analytics is a game changer for sure. From a finance lens, medication inventory ties up significant capital. What does modern inventory management unlock for hospital balance sheets?

Randy: Well, that’s a great question. I hope that many of your listeners will see a significant drop in inventory. I don’t mean 10%. I mean a third or more drop in inventory because many of the legacy processes and systems that are in place are really creating these inefficient buckets for additional inventory. And it adds up. It adds up in cost not only in capital toward these inventories, but because the meds tend to expire on the shelf. They’re perishable. They can’t last forever. And so, one of the key indicators that I’m sure many of these institutions are following is understanding what their expiration of on-shelf products and drugs are and what those costs are. So that’s a key indicator of how well you’re managing your inventories and what the opportunities are to really eliminate those. And I believe these consolidated centers, this approach to automation, which gives you much more visibility on exactly where you have it and what you have leads to the confidence, right? Because it takes confidence to lower your inventory to know that you’re going to have the right things where you need them. But you need to lean into the systems to give you that confidence to do that.

Kelly: That makes a lot of sense, Randy. Your personal experience as a founder shaped on [Micelle’s?] mission. How does that perspective influence the way you approach efficiency and caregiver support today?

Randy: Well, I had been on the nursing foundation board as well as on the pharmacy foundation board. And it’s these clinicians that are on the front line. These clinicians have the healing hands, if you will. If you look at inpatient, nursing is doing all the palliative care, and then pharmacy is delivering all of the drugs that mostly are used in the curative session of those hospital stays. So if you look at the function that they’re providing, you give them the right tools to allow them to administer effectively and clearly, they’re going to enjoy their jobs more because they know they’re providing those good outcomes for those patients, and they can see it, seeing the impact of automation and technology and the outcome of your job, not just making it easier, but making it better for others. And I think that’s kind of how we think these days, right? I certainly think that if I can do something for others, it’s more satisfying to me than just doing something for myself. And so, these tools, these solution sets, we believe, really empower these clinical folks to give more to patients that deliver better outcomes.

Kelly: I love that, Randy. I mean, caregivers are key in our healthcare system, for sure. So, what’s one question that CFOs should be asking their pharmacy teams right now if they want to drive enterprise-wide cost optimization?

Randy: Well, I’d ask first, do you have a consolidated service center strategy or not? That should be on your strategic plan for pharmacy. And secondly, how do we know what our specialty in 340B is? Are they optimized? Can we optimize them more? What are our opportunities over the next two years to get positioned to fundamentally make a big impact on our P&L? Those are the two biggest impacts on the P&L is consolidated service center strategy, secondly, on the specialty pharmacy, how can we get prepared to do more outpatient infusions with a specialty drug lineup that’s coming out in the next two years?

Kelly: Yep. That makes a lot of sense. Well, thank you, Randy, for sharing your insights with us on from inventory to insight, rethinking medication management for clinical and operational performance. Randy, if a listener wants to learn more or contact you to discuss this topic further, how best can they do that?

Randy: Oh, just send me an email, randyl@omnicell.com. Just do it. And I’d love to hear from you.

Kelly: Great. Thank you for providing that. And thank you all for joining us for this episode of The Hospital Finance Podcast. Until next time…

[music] This concludes today’s episode of The Hospital Finance Podcast. For show notes and additional resources to help you protect and enhance revenue at your hospital, visit besler.holdings/podcasts. The Hospital Finance Podcast is a production of Besler Holdings.

If you have a topic that you’d like us to discuss on The Hospital Finance Podcast or if you’d like to be a guest, drop us a line at contact@besler.holdings.

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