Last updated: September 23, 2019
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Health care organizations throughout the world are facing many financial challenges. Management has to find ways to streamline processes, reduce waste, and bring profit to the organization. Pharmacies in the health care system tend to be one of the major departments that bring in a very large amount of revenue for an organization. Therefore, it is extremely important for management to focus on processes that will result in the smooth operation of the pharmacy department.Management must be cognizant of the revenue constraints and financial factors that the pharmacy department faces and be able to make good business decisions that benefit the organization.

Additionally, to forecast accurately the future of a hospital’s pharmacy, management must have the required knowledgebase to review and interpret the appropriate financial reports. Pharmacy Effects on Operations Management Health care managers must continually monitor the processes and operations of the pharmacy in their organization.Pharmacies are one of the major profit producers of a health care organization, therefore ensuring that required workflow processes are efficiently and effectively in place are critical.

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Pharmacists and pharmacies play a major role in the delivery of quality health care as they distribute safe medications to the patient population. To prevent disruptions in services and to make a positive impact on the hospitals bottom line, pharmacy management must focus on inventory control, staffing, and automation. Inventory Control Pharmacies keep adequate stock levels of medications to meet the demands of the local hospital.Most pharmacies use the economic order quantity (EOQ) methodology to establish a benchmark for inventory levels (Beier, 1995, p. 160). To maximize profitability of hospital pharmacies, efficient inventory management is vital. A major cause of insufficient cash flow is acquiring too much inventory. Disproportionate stocks place a serious burden on the cash resources of the organization.

On the contrary, inadequate stock levels result in delays for customers which ultimately end in lost sales. Therefore, effective inventory management is essential and results in improved cash flow, excellent customer service, and a good return on investment.Staffing Size and workload determines how management will staff their pharmacies. To provide adequate staffing, accurate data is collected and examined by management in order for good business decisions to be made.

In an effort to improve patient safety and reduce medication errors, pharmacy staffing should allow all required processes and procedures to be carried out prior to release of medication. Satisfactory staffing is also imperative to reduce stress and workload, which significantly helps reduce errors. Automation Pharmacy automation is implemented throughout many health care facilities. Automation helps reduce manual error, reduces error rates, and minimizes patient waiting times” (Langabeer, 2008, p. 351). Because of financial constraints over the past several years, hospitals have had trouble retaining pharmacy staff and paying competitive salaries. Additionally, during the same timeframe, regulatory agencies were focusing on reducing medication errors. To bridge the gap, automation was implemented to help meet this mandate and provide a safer health delivery system (Kimble & Chandra, 2001, p.

27). Revenue Constraints and Financial Factors Revenue limitations continue to globally affect health care organizations.Changes in uncompensated care and patients covered by Medicaid have had a negative impact on revenue. Numerous hospitals have made cutbacks in all departments to address the economic challenges. Hospitals have cut admin costs, diverted assets, and reduced services. Pharmacies have felt this impact in a huge way and as a result had to incorporate several strategies to help offset some expenses. Restrictions were placed on pharmacy formularies to prevent the purchase of expensive medications.

Additionally, pharmacies had to decrease staffing and implement creative strategies to compensate costs.One of the creative strategies implemented was to stop the purchasing of intravenous medications. Oral medications, which are less expensive, were purchased by pharmacies for patient use. Pharmacies nationwide also had to eliminate resident positions, reduce student rotations, cut back hours of services, and place capital projects on hold. Management in health care organizations had to analyze their financial situations and determine if it was possible for them to remain open. Unfortunately, some pharmacies had to close their doors (Thompson & Karpinski, 2009, pp. -9).

Financial Reporting in Pharmacies Financial forecasting is important for any organization. Proper forecasting allows management to modify business practices at the right time to obtain the greatest benefits. Additionally, forecasting avoids the organization from spending time and money on products that will eventually fail. Financial reports must be understandable and reliable. The two reports that provide information that help with the decision-making process for a pharmacy’s operating future are the income statement and the statement of cash flows.Income Statement The income statement provides valuable information about an organization. This financial report will tell the business if it was profitable over a given period.

The income statement “measures a hospital’s profitability by tracking revenues, expenses, and margins” (Langabeer, 2008, p. 50). Management can make sound economic decisions by accurately examining and interpreting data from this financial report. Statement of Cash Flows The statement of cash flows is one of the most important financial reports of an organization.Management within an organization can use the information provided by the statement of cash flows “to predict future cash flow, which helps with matters in budgeting future activities” (Megan, Hategan, Caciuc & Cotlet, 2009, p. 128). Although the statement of cash flows does not portray the overall financial status of an organization, management can use the information provided in conjunction with other financial reports to determine the fate of a particular hospital’s pharmacy.

Conclusion Managers within the health care industry must continue to find creative ways to reduce cost and increase revenue.Challenges confront health care management on every hand, but having the basic business-based knowledge will give management the opportunity to make sound decisions that will drive the organization forward. Pharmacies are indeed profit centers for hospitals and management must ensure smooth processes are in place to prevent bottlenecks from occurring.

Management must take into account revenue constraints and financial factors and constantly monitor financial reports to ensure the organization stays in the black and can successfully continue to move forward.