ABC Analysis of Hospital Pharmacy in a Tertiary Care Teaching Hospital

 

Naveen M.R., Santhosh Y.L., Satish Kumar B.P.

Department of Pharmacy Practice, SAC College of Pharmacy, B. G. Nagara

*Corresponding Author E-mail: santosh.kvc@gmail.com

 

ABSTRACT:

Background: About one-third of the annual hospital budget is spent on buying material and supplies, including medicines. Cost analysis (ABC analysis) has been found to be effective in the management of a medical store. Automated capital budgeting systems have been claimed to reduce capital spending by identifying utilization trends.

Objective: To conduct the economic analysis (ABC) of drug expenditure in a tertiary care teaching Hospital, B.G. Nagar.

Material and Methods: A matrix based on the coupling of cost (ABC) analysis criticality analysis was formulated for prioritization, to narrow down the group of drugs requiring greater managerial monitoring.

Results: Randomly 9 drugs were selected for the analysis. The total six months drug expenditure on items issued in 2008-09 was Rs. 1, 58,237-40. On ABC analysis, 82.662% (2), 11.1525% (3) and 6.1864% (4) items were found to be A, B and C category items, respectively.

Conclusion ABC analysis identifies the drugs requiring stringent control for optimal use of funds and elimination of out-of-stock situations in the pharmacy. The application of the cost inflation index justified the increased annual budget.

 

KEYWORDS: ABC analysis, drug inventory management, drug expenditure, hospital pharmacy..

 


 

INTRODUCTION:

About one-third of the annual hospital budget is spent on buying material and supplies, including medicines.1 A study from a 1500-bedded, state-funded, teaching hospital, like ours, has claimed that review and control measures for expensive drugs brought about 20% savings.2 It has been suggested that with six months of data, the performance and functioning of a current inventory system can be estimated.3 Cost analysis (ABC analysis) has been found to be effective in the management of a medical store1. In this, 10% items consume about 70% of the budget (Group A). The next 20% inventory items take away 20% of the financial resources (Group B) and the remaining 70% items account for just 10% of the budget (Group C) as shown in table no.1. With the use of ABC, costing was found to be more detailed and precise and overhead costs diminished drastically.4 Among various inventory control models, Economic Order Quantity (EOQ) has been commonly used, which attempts to balance the carrying cost of inventory with the cost of running out of an item.5 EOQ in conjunction with ABC has been proposed to be effective and efficient.6

 

Most of the savings with the ABC-EOQ were reported with the low value items (B and C items) which were being purchased too frequently.7 Automated capital budgeting systems have been claimed to reduce capital spending by identifying utilization trends.8

 

Inventory analysis seeks to achieve maximal output with minimal investment input, based on the economic principle of stretching the limited means to meet unlimited ends. We attempted to narrow down the areas, where management supervision and control measures are needed for optimal utilization of the available resources. To achieve this end result, the economic analysis of drug expenditure for the last completed six months in the financial year 2008-2009, of a tertiary care teaching Hospital, B.G.Nagar was undertaken.

 

In this report, we present the ABC analysis in an unconventional way, with explanation for the variation from routine expression. Inventory control in hospital pharmacy is very essential in a developing country like India. 9 As resources are limited, it is essential that the existing resources be appropriately utilized. With the existing drug budget, if rational drug use and improved drug management practices are followed, more number of patients can be served. It is essential that health managers use scientific methods to maximize their returns from investment at a minimal cost. 9-12

 

Table no: 1 Showing ABC analysis

Item

Items (%)

Money value (%)

A

10

70

B

20

20

C

70

10

 

MATERIAL AND METHODS:

The data of six months consumption and expenditure incurred of selected item of the pharmacy for the six months were collected. The data were then transcribed in an MS Excel spreadsheet. The statistical analysis was carried out using the MS Excel statistical functions.

 

ABC analysis:

The annual expenditure of individual items was arranged in descending order. The cumulative cost of all the items was calculated. The cumulative percentage of expenditure and the cumulative percentage of number of items were calculated. This list was then subdivided into three categories: A, B and C, based on the cumulative cost percentage of 70%, 20% and 10%, respectively.

 

RESULTS:

The 9 drugs of hospital formulary were selected. The total six months drug expenditure on items issued in 2008-09 was Rs. 1, 58,237-40.

 

ABC analysis:

On ABC analysis, the cumulative percentage of the selected drugs has shown in the figure 1, apart from it 82.662% (2), 11.1525% (3) and 6.1864% (4) items were found to be A, B and C category items, respectively, the figure 1 shows the cumulative percentage and amounting for 82.662% (Rs. 130797), 11.1525% (Rs. 17650.1) and 6.1864% (Rs. 9790.3) of SMDE of the pharmacy [Table no.2 and Figure 2 and 3]. The cut-offs were not exactly at 70/20/10%, and differed marginally, which is permissible. 13

 

Figure: 1 Cumulative Percentage

 

Table No: 2 Six Months Drug Expenditure

Category

No. of items

% Of items

SMDE

% Of SMDE

A

2

22.222

130797

82.662

B

3

33.333

17650.1

11.1525

C

4

44.444

9790.3

6.1864

Figure: 2

 

Figure: 3

 

DISCUSSION:

Provision of care in tertiary care hospitals is sensitive to the timely availability of facilities, including drugs. In case of drugs, besides the criticality factor, the cost factor must also be taken into consideration, as can be seen from our study, where about 22.22% of the drugs consumed about 82.66% of SMDE of the pharmacy. This is the group requiring greater monitoring as it has fewer drugs consuming most of the money.

 

ABC analysis:

The present study showed that if ABC analysis is considered alone for drug inventory, it would help effectively control the recommended 2 (22.22%) items in the A category, with almost 82.662% of SMDE of the pharmacy, but it would compromise on the availability of items of vital nature from B and C categories. The results of the study are comparable with similar studies conducted in India [Table no. 3]. 14-17

 

 

 


Table No: 3 Similar Studies Conducted in India

Category

Present study

GMCH, Goa study14

Service hosp, AFI study15

GMCH, Nagpur study16

CGHS study17

A

22.222

12.93

14.46

10.76

17.81

B

33.333

19.54

22.46

20.63

22.6

C

44.444

67.53

63.08

68.61

59.59

Note: All figures are in %,GMCH, Government Medical college and hospital; AFI, Armed Forces of India; CGHS, Central Government Health Services of India

 


CONCLUSION:

During the study of SMDE in the year 2008-09, items of approximately Rs. 1,58,237-40 were issued by the pharmacy store of AH and RC. This necessitates application of scientific inventory management tools for effective and efficient management of the pharmacy stores, efficient priority setting, decision making in purchase and distribution of specific items and close supervision on items belonging to important categories. ABC analysis identifies the drugs requiring stringent control for optimal use of funds and elimination of out-of-stock situations in the pharmacy.

 

ACKNOWLEDGEMENT:

The authors are thankful to the TRUST pharmacy for carrying out the work and to the principal of SAC College of pharmacy for his support and encouragement.

 

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Received on 25.12.2010 Modified on 26.01.2011

Accepted on 05.02.2011 RJPT All right reserved

Research J. Pharm. and Tech. 4(5): May 2011; Page 779-781