Blog | Operations Management

Pharmaceutical Waste and the Bottom Line

Blog | Operations Management

Pharmaceutical Waste and the Bottom Line

The cost of disposing of expired drugs can reach the billions each year, making efficient pharmacy practices key in a time when healthcare organizations are looking for ways to control spending.

Most of the attention related to pharmaceutical waste is focused on how to properly and safely dispose of expired medications. For consumers, there are a growing number of resources and programs, like the Drug Enforcement Administration’s National Prescription Drug Take Back Day, that provide education and opportunities around proper disposal of expired drugs.

Likewise, most hospitals and pharmacies have policies and procedures for safe management of pharmaceutical waste. But such waste has financial consequences that also must be addressed.

There is limited information available regarding the actual cost of wasted pharmaceuticals cost for hospitals and pharmacies, but a 2009 study by the Healthcare Distribution Management Association (HDMA) found that manufacturers were asked to provide credit for $2.6 billion to $4.2 billion worth of returned prescriptions annually. And although it is possible to request partial credit from manufacturers on certain expired drugs that meet specific criteria, for the most part expired drugs are a sunk cost in the billions.

There are multiple causes for returns, but based on perceptions from 26 manufacturers, the HDMA study reports that 72 percent of all returns are related to expired drugs. And on a micro level, pharmaceutical waste is likely not a line item that shows up on a budget, even though cost is incurred.

In addition to the cost for expired drugs, their safe disposal is another significant cost to consider. U.S. hospitals produce 5.9 billion tons of medical waste each year, and the proper disposal of this waste likely costs into the billions. There are both federal and state requirements that must be followed, as well as a number of other factors including security screenings for employees dealing with waste, toxic waste protocols, controlled substance and other hazardous waste disposal requirements, and accurate record keeping of all disposal activities.

Common-Sense Solutions

A number of steps can be taken to help reduce the financial impact that results from unnecessary pharmaceutical waste. Although some of these may seem like common sense, the simplest solutions tend to get overlooked in the midst of a hospital’s or pharmacy’s day-to-day activity. Taking the time to implement any number of the following recommendations will have a positive impact on a healthcare organization’s bottom line:

  • Arrange inventory to facilitate a “first in, first out” model, where the newer drugs are placed on the back of the shelf and the older ones stay up front.
  • Consider seasonal factors for drug orders, and adjust automated inventory management as appropriate. For example, the demand for Tamiflu is much higher during the flu season, so adjust the inventory management system to stop replenishing the supply in seasons when Tamiflu is unlikely to sit on the shelf for long periods.
  • Add the expiration date of all drugs into the inventory management system and set up a reminder to dispose of expired inventory at the appropriate time. Some inventory management systems have the functionality to assist in this task.
  • Take a close look at inventory management policies for medications with a short shelf-life. It may be possible to order these on demand rather than keep them in stock.
  • Consider container size when placing orders, particularly for high-cost and highly toxic pharmaceuticals where proper disposal is more expensive. Monitor usage of these drugs, and consider purchasing different dosages or formularies to reduce the likelihood of ending up with expensive pharmaceutical waste. For example, use single dosage containers whenever feasible, because they do not require preservatives and won’t result in waste.
  • Keep separate purchasing accounts for group purchasing organizations, 340B, and wholesaler acquisition cost. Distributors and manufacturers occasionally offer partial refunds on expired drugs, and the ability to isolate stock will be important because the drugs were purchased at different prices.

Dealing with pharmaceutical waste can seem like a daunting task, but it is possible to take some steps that will significantly reduce its financial impact. Finance leaders should take steps to ensure that pharmaceutical waste and its related cost is documented, measured and tracked, and that the organization has implemented processes to consistently monitor and reduce waste. Finance should note to how much inventory is being purchased and consider whether par levels are accurate in order to ensure good patient care.  Par levels should be reassessed regularly because inventory sitting on shelves has a financial impact on the organization—returning excess medications costs money because reverse distributors’ costs take a percentage of the total value of the drug. The required, proper disposal of waste also can prove costly. Efficient pharmacy practices are key in an effort to reduce waste.


Holly Russo, RN, MSN, MS, ECS, is the president and CEO of PatientCraft, El Paso, TX.

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Holly Russo

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