A Practical Guide to Establishing a Wound Care Formulary in Your Clinic

The Centers for Medicare and Medicaid Services (CMS) has been addressing inequities in payment for a variety of services. When a service is provided in the hospital outpatient department setting (HOPD), the patient is likely to receive two bills: one reflecting the facility fee, and one for the physician fee. When the same service is provided in the office setting, the patient receives only one bill. CMS sets the relative value units for the physician work, then adds a “practice expense” that reflects the overhead associated with that CPT code. It is not uncommon for there to be a considerable difference in cost to CMS when the same procedure is done in the HOPD versus the office setting. To control costs, CMS is looking towards “site neutrality,” paying the same for services regardless of where they are rendered. 

Although this seems reasonable on the surface, in the wound care arena, the methodology for calculating cost does not reflect the advances in wound care products and the increased cost in comparison to gauze dressings. In the office setting, the cost of supplies (all supplies) is part of the practice expense and is part of the physician's total reimbursement. As you can imagine, this can have a significant impact on reimbursement. However, office-based wound care can be provided economically, with some attention to detail and forethought. 

Taking an Inventory of Wound Care Products and Assessing Provider Preference

Establishing a wound care formulary for your office-based wound care practice is an important task but also one that can seem daunting. The key to establishing a cost-effective strategy for your wound care formulary is an organized approach that establishes the process to develop your formulary. 

The first step is to assess your current practice and take a detailed inventory of what you currently have in your office. Organize your inventory by category (alginates, foams, hydrocolloids, etc.). Pay particular attention to unused products, categories with multiple products with different names, and product expiration dates. If you have an excess of a specific product in a category, you should evaluate whether that product is not being used because of practice preference, improper organization (placed in the wrong product category), or because the product is sitting in a location out of plain view. Once your wound care closet is organized by category, place any products with an upcoming expiration date in the front, so that they are used before the expiration date. Now that you have an organized inventory, you can address any gaps in inventory, surpluses of unused products, and expired products.

The next step to determining your formulary is assessing provider(s) preference within all product categories. If there are multiple providers in your practice, it is important to have agreement on which products will be carried. This will not only help keep the providers happy but will also help provide consistency in care for the patients when seen by multiple providers. Once provider preference has been determined, obtain the unit cost for each item from your current supplier. With that information, you can assess products in each category based on efficacy, user experience, and cost. Recognize that unit cost per item does not always equate with total cost. If an item is more expensive but allows for less frequent dressing changes or has superior efficacy, the total cost may be less overall. Ideally speaking, a product will have low unit cost, high efficacy, less frequent application need, and long shelf life. Accounting for all these variables is important when choosing your formulary. A spreadsheet with each product and associated cost can be a useful tool to organize your formulary and compare established products to new products when they come to market.

Determining the Costs of Wound Products

Once you have determined the products you would like to have on your formulary, the decisions on how to purchase them need to be addressed. If a small number of manufacturers can fill your formulary,  you may find the lowest price by setting up accounts directly with those manufacturers. If your preferred products come from numerous manufacturers, you will need to determine if the time and complexity of managing numerous accounts is a cost-effective strategy for your time. Placing multiple orders, tracking multiple shipments, and paying individual accounts may not be the best use of your resources. 

If potential product cost savings are outweighed by the cost of human resources to manage them, consider a more turnkey approach. If you determine you will manage individual accounts,  there are online formulary management tools into which you can input your formulary and keep it organized. If you choose to use a turnkey solution, a group purchasing organization (GPO) or comprehensive medical supplier should be carefully selected. Often a representative will be assigned to you to help with your needs. The representative provides detailed reports of product usage and cost to help maintain or reduce your spending on supplies. 

Whichever route you choose, it is critical to keep clear records of ongoing cost, and I would encourage you to calculate the wound care supply cost per patient each month for all of your providers and share that with the providers to keep them actively engaged in the process.

Maintaining the Wound Care Formulary in the Future 

Now that you have an active working formulary, it is essential to remember that the task is not complete. The wound care product market evolves rapidly, and prices for your current products may change with little or no warning. New products come to market frequently, and there are product vendors and representatives continually vying for your attention and wound care dollars. A plan must be implemented to honestly evaluate those products to determine if they are a fit to be a replacement or addition to your formulary. If you find a product that has sufficient medical evidence and favorable total cost, have all clinicians educated on the use of the product. Perform a trial of the product, ensuring that all of the providers have an ample opportunity to evaluate that product. Once the product trial has concluded, a group decision can be made whether the product should be added to the formulary or replace an existing product.

The advent of site neutrality has put a spotlight on the economics of office-based wound care. With careful product selection and planning, patients can be treated for their chronic wounds in the office setting. 

David Schwegman is the Chief Executive Officer of Hyperbaric Physicians of Georgia and Chief Medical Officer of HyperbaRXs, Marietta, GA. Helen B. Gelly is emeritus medical director of Hyperbaric Physicians of Georgia and Chief Executive Officer of HyperbaRXs, Marietta, GA.