Buying the lowest units of product available may sound like an expensive proposition for small physician practices, ambulatory surgery centers, specialty clinics and medical centers. But for facilities with limited storage space issues, choosing a low unit of measure (LUM) approach is a best practice. It's not just that this model frees up space in the refrigerator for cold chain medications; it also frees up the storage room or drug storage areas for other drugs. This LUM method has multiple other benefits, like lower inventory holding costs, less labor and reduced waste.
When considering a LUM approach, it's important to understand the implications so there are no surprises and the facility can plan for its needs accordingly. This helps mitigate the risk of getting caught shorthanded and ensure that pharmaceutical items meet Drug Supply Chain Security Act (DSCSA) regulatory requirements.
How to better understand LUM
Typically, supplies, including pharmaceuticals, are centrally ordered in bulk. Staff members store the items in a central storage area and must pick and distribute them to the department or room that needs them. This method can be time-consuming for staff members who must also pay attention to expiration dates, inventory numbers and reorder dates.
Low unit of measure (LUM) is a distribution method by which the distributor provides the pharmaceutical items by unit, each or box rather than larger quantities. This method often shifts the responsibility to the distributor who packages and delivers the pharmaceuticals to the medical facility in smaller units instead of relying on medical staff to break it down in a central supply area and transfer smaller units to the point of care. The LUM method can help reduce costs and support improved efficiency for the physician practice. The deliveries typically come from the distributor directly to the designated location, whether a hospital department, specific physician suite or exam room that needs the medications, rather than a larger delivery to a central storage area.
Some people confuse the just-in-time (JIT) method with LUM. They are similar because both involve storing fewer products on-site, but there are key differences. Think of JIT as an inventory control method by which the pharmaceuticals or other supplies arrive at the medical facility in time for their intended use. LUM differs in that it focuses on the unit of measurement most helpful to the medical facility based on its actual usage.
The LUM model's benefits increase over time, resulting in less labor and less required storage space needed, as well as reduced inventory. Plus, the storage space can be reallocated for revenue-generating activities, such as office and telehealth spaces or item storage that would otherwise go to a paid storage facility.
Furthermore, the labor hours can become available for more critical work. As the medical practice continues to accrue and analyze data, it can better understand its pharmaceutical utilization rates and predict its needs. That means facility leaders, or doctors, can make more strategic decisions about pharmaceutical procurement, making it even more efficient.
The benefits of LUM
Frees up storage space
"A low unit of measure allows customers to receive quantities of a product they need and will use," says Trevor Keeler, director of pharmaceutical sales at McKesson Medical-Surgical. "It optimizes the storage space usage, especially for cold chain items where storage is a premium."
Lowers inventory holding costs
LUM reduces inventory holding costs in addition to total acquisition costs.
Reduces product waste
With less inventory, there is higher product turnover. That means pharmaceuticals are used more quickly and are less likely to expire. Expired products go to waste, resulting in unreimbursed medical system expenses. Sometimes a protocol changes, reducing the need for a specific medication. If the physician practice had stocked up on that medication, it might also go to waste.
"The cost is less if they only need to buy one each, or unit, as opposed to buying a whole box," says Jessica Grier, pharmaceuticals operations manager at McKesson Medical-Surgical.
With fewer bulk orders and storage needs, the medical facility can save time to receive, divide supplies, put away orders, and track inventory. With distributors handling the organization and delivering to the specific units that use the supplies, the medical staff can focus on clinical issues and patient care.
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How a medical practice can implement LUM ordering
Changing to a LUM model does require different management practices and ways of thinking. "When utilizing a low unit of measure inventory strategy, it's essential to understand the items' demand," says Grier. That means looking forward a few days or even a week to anticipate upcoming patient visits and the products needed for them. "This practice coupled with understanding historical purchase trends can help facilities adopt a low unit of measure strategy quite easily," Grier says.
Seasonality matters as well. Flu shots are more common in late summer and fall, so anticipating the demand at that time of year differs from flu shot needs in the spring.
For the LUM method, using technology to manage inventory is a must. Software can track an individual or a department's use of specific supplies and pharmaceuticals. In general, inventory tracking can take place in minutes rather than hours, using technology instead of manual efforts.
LUM also requires placing frequent purchase orders rather than fewer bulk orders. Managing each purchase order, invoice and acknowledgment is challenging without a sound software system. Another advantage of using software is that analytics and reporting features make forecasting easy and accurate.
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The risks of using LUM
The LUM system is not without risks, but understanding and planning can help mitigate them. "Backorders are always a concern, especially with pharmaceuticals," says Keeler. Ordering items in large quantities may help alleviate short-term backorders, but that's essentially a bandage fix for longer-term backorder concerns.
"Having a list of acceptable alternative items for highly utilized products will quickly help address any backorder issues, whether operating a low unit of measure strategy or not," he says. Distributors can help with the backorder issues by using their internal forecasting tools and working with manufacturers to understand the timing for stabilizing the affected product.
Affected medical facilities should also have enough inventory for the Joint Commission's regulation to maintain inventory safety stock levels.1 LUM does create some risks, "so working with reputable distributors who can deliver products on time is important," Keeler says.
Abiding by Drug Supply Chain Security Act (DSCSA) requirements
Medical facilities must keep the DSCSA requirements in mind when adopting the LUM model. The DSCSA took effect in November 2019 and phases in by November 2023.2
The goal of the DSCSA is to help improve pharmaceutical supply chain security by reducing the risk of giving patients contaminated, stolen or counterfeit medications. It requires serialized encoding — also known as product identifiers — for tracking prescription drug products.
Grier says, "Per the DSCSA regulation that went into effect November 2019, distributors can no longer sell certain prescription items without serialization in the low unit of measure." Manufacturers are required to serialize products in the saleable unit of measure, usually a box or pack. "In order to continue to service customers that require items in the low unit of measure due to space constraints or volume, we partnered with a qualified repackager to serialize items that we historically sold in the low unit of measure."
That repackaging allows McKesson to associate any drug product returns with DSCSA transactional data, combined with purchase order numbers or other related data and maintain product integrity. "Our current portfolio consists of the top items that we have historically offered in the low unit of measure prior to the implementation of DSCSA," Grier says. McKesson continues working with its repackager to add more items to this portfolio, with multiple dosage or size offerings to meet customer needs.
Medical facilities interested in learning more about how LUM can help improve their supply processes and revenue models can ask their McKesson representative for more information.
Check out this overview to learn more about the DSCSA.
DISCLAIMER: The material presented on this page is provided for informational purposes only and is not intended nor should it be construed as legal advice by McKesson Medical-Surgical, Inc. Parties should rely on their own legal or regulatory counsel before making their own decisions or interpretation of the FDA Drug Supply Chain Security Act (DSCSA).
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