Quick Hit: The unspoken contributor to drug shortages, strategic overstock

By | October 24, 2013

The other day I discovered a new term being thrown around in pharmacy circles, and that term is “strategic overstock”. The best way to describe strategic overstock is to call it what it is, i.e. hoarding. Of course healthcare systems don’t want you to call it hoarding because that would be considered inappropriate so they created a term that makes people think they’re doing something positive; marketing spin, if you will.

Regardless of the term being used, strategic overstock is clearly a contributing factor to the drug shortage problem that has plagued hospitals for the past couple of years. Don’t believe me? Consider this. Most hospital pharmacies keep pretty tight control of their inventories for obvious reasons, i.e. cost. Hospital pharmacies, like all entities that deal with high value items, try to turn their inventories as often as possible. No one wants to be sitting on millions of dollars of inventory at any given time.

I’ve visited with pharmacies that shoot for a 3-5 day supply of medication in the pharmacy, but that’s not common. It takes a great team with good data to run a pharmacy that tightly. More often I’ve seen inventory levels kept between 7 and 14 days. Sometimes more, but you get the gist.

Recently I came across a hospital pharmacy that keeps a 3 month supply of medications identified as “short” or on backorder; strategic overstock. This particular hospital has gone as far as to build a separate storage area away from the main pharmacy to manage their overstock, as well as dedicate an entire FTE to procuring and managing this strategic overstock.

This hospital has approximately 580 acute care beds. Assuming that most hospitals were to sit on a 14-day supply, it’s easy to see how much resources this facility is literally keeping out of the global system for patient care. Some simple math tells me that they’re eating up certain drug resources for at least five other hospitals of similar size; more if you consider smaller hospitals.

I’ve seen outrage over drug shortages. ASHP has gotten involved. Political entities have screamed at the top of their lungs, and gone as far as to enact legislation to prevent drug shortages. People have hammered drug companies for being irresponsible in how they’ve handled the drug shortages. But no one is looking to facilities to discourage what I’ve described above.

Strategic overstock is certainly a contributing factor to the drug shortage problem. I’d go as far as to say that it’s made the problem not only worse, but prolonged it. Why aren’t regulatory agencies looking at the problem and attempting to curtail it? Shouldn’t facilities that hoard medications in short supply be held accountable? I certainly think so.

2 thoughts on “Quick Hit: The unspoken contributor to drug shortages, strategic overstock

  1. Phil Zweig

    Great post. I heard from a physician source that some of the top hospitals in the US are doing this. He called it for what it was: hoarding.
    Congress won’t go after the hospitals because of their political clout. Instead they scapegoat “mom and pop” drug distributors, who have no clout, as “gray market” profiteers, hoarders, and “price-gougers.” This “gray market” nonsense was cooked up in 2011 by Premier Inc. , one of the big three hospital group purchasing organizations (GPOs), to deflect attention from the real root cause of the drug shortage scandal: GPOs and their anticompetitive contracting practices, kickbacks, and self-dealing.
    For more on this, see our op-ed in The New York Times of 9/3/13,”How a Cabal Keeps Generics Scarce”: http://www.nytimes.com/2013/09/03/opinion/how-a-cabal-keeps-generics-scarce.html
    Phil Zweig
    Executive Director
    PhysiciansAgainstDrugShortages (PADS)

  2. Jerry Fahrni Post author

    Hi Phil – Thanks for commenting, and for the link to the NYT article. -Jerry

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