Improving Medication Safety Helps Control Costs

Posted on July 28, 2014

By Niels Erik Hansen, PhD

If ongoing news reports of pharmacy product contaminations, recalls and patient injuries aren’t enough to prompt reforms to reduce errors in the compounding of IV medications, a study published late last year — which shows the significant cost burden hospitals bear from IV medication errors — should be.

The report, in the journal American Health & Drug Benefits, found that preventable adverse drug events (ADEs) from IV drugs harm more than 1 million patients annually in U.S. hospitals, costing between $2.7 billion and $5.1 billion each year — an average of $600,000 per hospital.

Niels Erik Hansen, PhD, President and CEO, Intelligent Hospital Systems


The potential costs of preventable ADEs are obvious. An IV drug administered to the wrong patient or in the wrong concentration can cause injury or death. A contaminated medication can cause infection, a particularly serious scenario for a patient that is immunocompromised (and, as last year’s meningitis outbreak demonstrated, potentially deadly even for patients that aren’t). Any of these incidents may require emergency intervention or a longer hospital stay. And these costs don’t include professional or institutional tort liability.

Although the study did not differentiate between IV medications prepared in the hospital pharmacy and those purchased from commercial suppliers, each new pharmacy recall suggests hospitals that outsource a large portion of their medication compounding should consider the ongoing cost-benefit carefully.

Medication safety and manual compounding

In its 2013 hospital national patient safety goals, The Joint Commission lists using medicines safely as one of its six priorities. If that seems obvious, it’s also an acknowledgment that within a hospital or health system, there are numerous risk points — ordering, processing, storage, administration, among others — that can impact medication safety

But even with innovations such as computerized physician order entry and workflow management, medication safety continues to be too easily compromised by human error; medications that are compounded manually are at particular risk. Some studies have documented observed manual error rates of up to 10 percent in hospital pharmacies. The fact is even the most experienced technicians can suffer from fatigue, miscalculate dosages or mislabel a syringe.

Unfortunately, studies quantifying the percentage of ADEs that result directly from compounding errors are lacking. What we do know is that ADEs from injectable drugs are more serious and rapid than from oral-solid medications. Further, ADEs in the inpatient setting are very resource-intensive and costly. We also know that the hospital pharmacy touches virtually every patient — so its safety practices can have a significant impact on patient outcomes and costs institution-wide.

The question for hospital CEOs, CFOs and risk managers often comes down to this: Will investing in technology to reduce manual pharmacy compounding errors result in a quantifiable cost benefit and ROI? The answer is yes.

Controlling costs

Pharmacy IV automation is an important but underutilized technology that helps hospitals reduce costs. Among other benefits, automated compounding lowers the cost-per-dose of medication by allowing hospitals to insource medication preparation, minimizing or avoiding outsourcing costs.

For example, a 570-bed acute care teaching hospital in the south-central U.S. found it could reduce the total cost for 22 common IV drugs on its formulary by more than two-thirds — to $157,644 from $626,564 — by producing them in-house using an automated compounding system instead of buying prefills. The minor additional labor cost of $70,000 for insourcing was far outweighed by the drug cost savings.

These savings accrue over the long-term as well. Projected net savings from outsourcing cost avoidance for 650-bed acute care teaching hospital in the southeastern U.S. totaled more than $315,000 the first year and nearly $2.2 million over five years.

The technology saves money in other ways too, such as reducing pharmacy waste. Automated compounding systems can use all of the medication in a vial and handle large, multi-dose vials. Also, because there are no preparation errors, fewer syringes, vials, bags and other supplies are wasted. Although few pharmacies track waste costs, hospitals with installed IV automation systems reported savings of $40,000 to more than $100,000 annually on reduced waste alone.

Of course, all of these are direct costs and don’t include savings from medication incidents that are prevented, including adverse events, emergency measures, extended hospitalizations and lawsuits. But regardless of whether direct savings are considered by themselves or in the broader context of negative outcomes avoided, these savings contribute to a substantial and meaningful ROI.

Investing in a higher standard of care

Automated IV technology also provides numerous safety benefits. One of the biggest is removing the primary source of contamination and error — humans — from the compounding process. Automated compounders have an aseptic chamber where medications are mixed. Vials are photographed and their barcodes are scanned; both are then matched to a product database to ensure the right product is being used in each step.

As compounding progresses, pulsed UV light provides extra disinfection to critical puncture sites, needles are automatically capped (reducing the risk of needle sticks), and the finished product is dispensed in a syringe or IV bag with an electronic barcode label for documentation. The result is a sterile and accurate medication compound that is verifiably safe for the patient.


Although some will say that automated compounding systems are expensive, that’s a relative term. CT scanners, MRI machines and many other types of healthcare technology can be considered expensive, but they are an investment in a higher standard of patient care. Indeed, the hospital industry has always been the vanguard of implementing new technology — and often automated technologies — to enhance patient care and outcomes.

Hospitals also know the value of technology as means of differentiating themselves in the market. Pharmacy IV automation provides an advantage here too, especially as the Patient Protection and Affordable Care Act pushes for greater transparency in healthcare, and institutional outcome and safety data is increasingly sought by consumers. Likewise, the tort bar wouldn’t hesitate to challenge a provider that could have prevented a deadly AED by implementing automated IV compounding, but chose not to.

Every hospital leader knows that while safety is paramount in patient care, it is also a very important strategy for controlling costs and thus provides its own ROI. Pharmacy IV automation is a critical component on the continuum of safety technologies in a modern hospital. The benefits of IV automation — in cost and negative outcome avoidance — have the potential to impact every patient care department while potentially strengthening a hospital’s brand and bottom line.

Dr. Hansen is president and CEO of Intelligent Hospital Systems (IH Systems) in Winnipeg, Manitoba. He holds a Ph.D. in control engineering and an M.S. in mechanical engineering from Technical University of Denmark, and is a graduate of the Senior Executive Program at London Business School. He has more than 30 years’ experience in technology engineering and production, of which more than 20 years’ experience leading large global businesses in highly-specialized industries.

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