Outsourcing of pharmacies: Prescription for problems?

By Katherine Eban
Independent journalist

The story of baby Alyssa’s death started with a tip from a state regulator: A preemie who was born at just 1.4 pounds and was 12 inches long but was, against all odds, thriving and going to survive, was killed when the pharmacy of a Las Vegas hospital mistakenly gave her 1,000 times the prescribed dosage of zinc sulfate.

The pure story elements of Alyssa’s case were poignant and remarkable. Her mother was a superstar nurse who managed a medication-safety team in a hospital across town. The pharmacist who made the error was the same one who had been warning administrators about safety lapses. And, after the baby’s death, the pharmacist and the grieving mother befriended one another.

We have all heard stories of terrible medical errors and so Alyssa’s death, though tragic, wasn’t necessarily news. But there was a catch: My source told me that the hospital’s pharmacy had been outsourced to a drug wholesale company that operated a side business managing hospital pharmacies.

That seemed like a story. It was one thing to outsource the hospital’s janitorial or food service. It was another thing to outsource a vital hospital function like pharmacy services. The central question of the story was: What had caused baby Alyssa’s death? My essential challenge would be to figure out whether outsourced pharmacies exposed patients to an increased chance of medication errors. That proved to be a very difficult task. But I think there is a lot more there to be excavated. The for-profit hospital chains, which are big outsourcers, are growing and so we will be seeing a lot more outsourcing of vital hospital functions in the future.

Trying to track the issue

For some straightforward numbers, I turned to the American Society of Health-System Pharmacists, which represents hospital pharmacists. According to its numbers, almost 8.5 percent of the nation’s hospitals outsource their pharmacy operations to pharmacy management companies. Those management companies range from boutique firms that solely operate pharmacies to national drug wholesale companies for whom managing hospital pharmacies is a side business. Very few of those companies advertise their customers and the contracts seem to be in a constant state of flux, so drilling down to anyone’s actual client list at any one time is hard. In getting numbers, it was difficult to get the companies to distinguish between hospitals and other treatment facilities.

As an issue, the relationship between outsourcing and patient safety did not seem to be on anyone’s radar. There are lots of organizations dedicated to patient safety – the Institute for Safe Medication Practices and the Institute for Healthcare Improvement, for example. Some experts knew a great deal about outsourcing. But I could not seem to find anyone who had really examined the issues in conjunction.

There also was no way to correlate medical errors with outsourcing, let alone try to get a handle on the extent of medical errors. In 2006, the Institute of Medicine released a landmark study on medication errors. It was based on data from the U.S. Pharmacopeia’s Medmarx system. Medmarx collects data from around 500 hospitals that have volunteered to submit incident reports on medication errors. None of those submissions distinguish whether the errors are specifically pharmacy related or, more importantly, what the management status of the hospitals’ pharmacies was.

Another avenue I went down was the state boards of pharmacy. They regulate hospital pharmacies and would know if there had been actions taken against hospital pharmacies that had been outsourced. Unfortunately, records from individual state pharmacy boards are not pooled nationally and, for this project, there was no way for me to contact every state pharmacy board. I do think it would be possible if one wanted to examine hospital pharmacies solely in one state.

When it became clear that there was no data that I could get within deadline, I hunted for experts who had studied the issue. From what I could tell, nobody had. I finally managed to track down a pharmacist who had written her doctoral thesis on hospital-pharmacy outsourcing. She told me that she’d had the same problem: There was almost nothing written about the possible correlation between outsourced pharmacies and medication safety.

The absence of data made me even more reliant on sources. But it was difficult to get those who had worked within the hospital to speak with me. They had been burned by the incident, were afraid of litigation and wanted to put it behind them. I was finally able to get the pharmacist who’d committed the error to agree to speak with me because, ironically, she had been flagging safety issues within the pharmacy. She was a vital source, both in terms of storytelling and in understanding what went on inside the hospital.

The hospital and its pharmacy management companies

Two issues emerged. One was the hospital chain’s oversight of its pharmacy managers. I learned that Universal Health Services, the hospital chain that ran Summerlin Hospital Medical Center where Alyssa had died, had changed pharmacy management companies four times in 10 years, creating wild upheaval and lax supervision. The hospital had just resumed management of its pharmacy three months before Alyssa suffered the fatal overdose. A blame game resulted. The hospital blamed the last management company, McKesson, for leaving the pharmacy in such a deteriorated state. But McKesson argued that it had not been in charge when Alyssa was killed.

I began to scrutinize the hospital more closely. Summerlin was part of a large for-profit hospital chain, Universal Health Services, which had been very aggressive in acquiring other hospitals and treatment centers around the country. In a number of cases, the acquisitions had been associated with upheaval and labor unrest, and the chain had tangled with various state regulators after failing to make promised improvements.

Though the scenario was somewhat different, Alyssa died at a similar moment of transition, when the hospital was resuming control of its pharmacy operations but had not updated its policies and procedures. A number of people I interviewed felt the hospital’s oversight of its contractors and continual shift in companies had resulted in a pharmacy barely integrated into the medical delivery system at the hospital.

The second issue was with the management companies themselves. The companies that had managed the Summerlin pharmacy were principally drug wholesalers who operated a side business managing hospital pharmacies. The companies’ critics believed this was a “Trojan Horse” maneuver. It allowed them inside the hospitals so that they could control the drug purchasing, and did so with proprietary software. I heard lots of allegations about two sets of books, and why these contractors seemed to increase rather than decrease the cost of pharmacy operations. I would encourage anyone interested in this topic to look closely at the track records of these companies, which included Cardinal Health and McKesson Inc., which has now sold off its pharmacy management division.

Future projects

Though I don’t have any definitive data, I believe that for-profit hospital chains do outsource hospital services more frequently than their not-for-profit counterparts. I think it would be interesting to compare the safety records/performance of in-house and outsourced hospital pharmacies. If you were to look at that in a specific region, it might be possible to get enough data regarding medication errors from the state pharmacy boards to make a meaningful comparison.

To learn about how pharmacies in your area are managed, contact the state board of pharmacy or whatever entity regulates pharmacies in your state. Whomever manages a hospital pharmacy must typically file some kind of record with the state and then falls under its regulations. Ask the state board how many hospitals in the state are under private, third-party management. Do a public records request if necessary.

Find out about hospital acquisitions using LexisNexis and use the hospital's own financial records.(This tip sheet about hospitals' financial documents offers more information.) Labor unions can be particularly helpful, as acquisitions can often lead to labor unrest and many hospitals are unionized.

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Katherine Eban is an investigative reporter, a contributing editor to Portfolio magazine and author of Dangerous Doses: How Counterfeiters Are Contaminating America's Drug Supply.