An accountant and banker by training, he came into the pharmacy business through "sheer luck." Innovative ideas, lots of business savvy, and a strong commitment to customer service have carried him to the top.

by David K. Buerger

At a young-looking 41 years of age, Michael Bronfein has already made his mark in the long-term care world. As founder and CEO of NeighborCare, Bronfein heads up a leading east coast pharmacy services company with operations spanning a dozen states from New England to Florida. He is widely respected for his keen grasp of long-term care issues large and small.

Now, following a recent buyout by Genesis Health Ventures, Bronfein plans to extend NeighborCare's reach as a full-service, fully integrated, regional post-acute care provider. From his office overlooking Baltimore's Inner Harbor, Bronfein talked with TCP about the future of pharmacy, his ambitious service model, the importance of data integration, and the dangers of "irrational" competition.

What are the biggest challenges in long-term care today?

Today, the long-term industry uses an archaic operating model. We use it at NeighborCare, so we're just as guilty as everyone else. I believe the future will bring further separation of the distributive and clinical functions. The distributive function will be a commodity for which the low-cost provider will prevail. Those who can build a low-cost distribution model, coupled with value created through clinical interaction, will be the winners.

This forecast is based on two assumptions. First, reliable information must be available at the time of the decision-the point of care-so that appropriate diagnosis and treatment can be given, and costs and outcomes optimized. Second, the entire process of getting the drug from the manufacturer to the patient must be completely redesigned.

Today, we get a fax from a facility, we handpick the medication, we put it into a bin, somebody checks that bin, we put it in a truck and send it to the facility, and then they administer it. Confirming that the drug was administered and arranging for replenishment is difficult. It's very disjointed and archaic.

What changes lie ahead, and how is NeighborCare positioning itself?

A few years ago, we realized the key to our future would be information systems and our ability to share data with every provider who is integral to the care process. In the case of our long-term care operation, that meant linking the facility to the pharmacy on a real-time basis with more than just a data entry system. We needed a total information infrastructure-a clinical electronic highway, if you will. Not necessarily a clinical pathway manager, but an infrastructure that allows for multiple mechanisms to reside in a common place, handling everything from formulary management to interactions, to vital signs and other patient data, administrative to-do lists, and so on, and also serving as a nesting ground for any other type of systems our partners in care might need. That's what our new ACE software product does [see sidebar, p. 225]. We believe ACE and other, similar products will help redefine the industry.

A Real-Time Solution

A central component of Bronfein's efforts to achieve a comprehensive, fully integrated service palette-and one he wants to see other providers latch onto-is the Accessible Clinical Environment (ACE) family of software systems.

Developed by NeighborCare and recently introduced by spin-off company HealthObjects Corporation, ACE is available in two versions, ACE Facility and ACE Pharmacy, both driven by wireless point-of-care data entry and retrieval. Working independently or in tandem, these systems offer an impressive array of clinical and cost data management capabilities:

• Real-time clinical reporting and standardized clinical protocols
• Immediate on-line access to detailed cost, utilization, and productivity analyses
• Comprehensive billing and accounts receivable, including third-party and capitation claims
• Perpetual inventory management and automated reordering

"Through our HealthObjects systems, we believe we'll be able to create, over the next two to three years, the information technology to integrate all providers seamlessly within a fully integrated data management environment." How important is full data integration to long-term care pharmacy providers' future? Bronfein doesn't hesitate: "Without it you'll fail."

Once you can-at the point of care, in real time-monitor that the patient has actually been administered the drug, you gain two important capabilities: One, you can drive information back into the fully automated distribution model, and two, you can implement queuing models to determine how to refill those cassettes at the optimal time. These capabilities will drive large amounts of inefficiency out of the system, and redefine the relationship between the pharmacy and the facility-geographically and in many other ways.

For example, today we still use a model that's fairly tight-knit in terms of the proximity of the pharmacy to the facility, mainly because of facility administrators' concerns about replenishment. Under our model of the future, those concerns just won't be an issue. We may pay a delivery permium to a third-party pharmacy closer to the patient's location, because it makes more sense for us to pay somebody $10 to deliver a few pills rather than us to send a truck on a three-hour run. We want to deliver the entire cassette fill, all at once: That way, we're far more efficient. With real-time data at our disposal, all sorts of these opportunities arise.

The distribution function in our business is going to change dramatically, and tinkering with the old methodology-automating the blister pack process, for instance-is in my opinion, not the answer.

It's part of the answer, isn't it?

No, not really. It's like bailing out the Titanic with a 55-gallon drum: It's better than using a bucket, but the ship is still going to sink. We're moving from a fee-for-service system to other payment mechanisms, and pharmacy is going to go from a carve-out from the facility standpoint to a cost-of-goods sold. That's going to change the whole way people look at buying pharmacy services.

If you look at how the margins in retail pharmacy have been diminished over the last 15 years, and then look at how the margins in institutional pharmacy have been protected, you see that there's a lot of room for more efficiency. Much of that margin is there because we've told the marketplace, "We have an inefficient methodology, and you have to deal with it." Well, soon purchasers are going to say, "No, we don't."

How must providers adapt?

The successful provider of the future will be able to provide pharmaceutical care to patients as they migrate up and down the continuum of care on a post-acute basis. Therefore, at NeighborCare we don't view ourselves as a long-term care provider, or as an infusion provider, or as an outpatient provider. We view ourselves as a provider who has a full spectrum of capabilities to meet the needs of patients, wherever they reside.

In addition, we focus on having the critical mass to be the low-cost provider in each of our four regions of operation-New England, Mid-Atlantic, Chesapeake, and Southern-and then use our clinical initiatives to create value for the patient, or the payer, or both in whatever proportions are most appropriate in a given situation.

Most of NeighborCare's large competitors in the long-term care market have an elemental strategy; they focus on one channel, long-term care. We don't have an elemental strategy. We don't want to be the 2,000-bed pharmacy in the middle of nowhere. We want to be the 10,000- to 20,000-bed institutional pharmacy with a large, competent home infusion therapy and institutional therapy operations attached to it, a PBM and medical supply and equipment operation attached to it, serving as a geographic hub, with professional pharmacies arrayed like wagon wheel spokes all around-all linked together electronically in real time.

By focusing on the overall system, rather than any one element, we believe we'll have a better opportunity to adapt and evolve with the system, rather than be victimized by it.

How far along is NeighborCare in realizing that level of integration?

We're about 80% there. The ACE system is operating today. We believe we will solve the distribution issues within the next 12 months. We believe we can, by mid-1998, create at least one new model of pharmacy distribution. It won't be the only model, but it will be one that's a lot more rational in terms of how it uses resources and controls the attendant costs of operating the model. We believe we can reduce costs by as much as 40 percent.

How do you feel about ACE being available to other providers?

The ACE product is owned by HealthObjects Corporation, not NeighborCare. NeighborCare is the first licensee of the ACE system, and I am one of the founders of HealthObjects. My intention, from the beginning of the development of ACE, was to make it available to the entire marketplace. Whether I or my competitor has a better or worse information system is less relevant than what we do with the information we obtain with that system.

I believe ACE and other products like it should be widely available, because the more competent the competitors, the better the competition; it improves the entire marketplace. It makes the marketplace more rational and more efficient, so success or failure depends on the execution of the values and the needs the marketplace dictates, as opposed to the irrationality of "If I can't really do a good job, I'll just cut the price." That ultimately becomes a crash-and-burn strategy for the poorer competitor, but in the meantime it diminishes the returns of all the competent competitors.

I'd rather compete with smart companies that do things based on a competent body of knowledge, and raise the level of quality across the entire competitive environment: May the best provider win. That way, we're competing at a level of quality that everyone can feel good about, and for which the marketplace gets significant benefit. You never see a market benefiting from irrational competition. It just becomes an irrational market, and nobody's really creating any added value; they're just sort of battling it out.

When a customer invests its business with NeighborCare, and we help them be more successful by improving patient outcomes and health, then we've transferred value to them. If we don't do that, then all we've done is exploit the vender-buyer relationship by transferring their money to our account. Transferring value creates a strong bond and a collaborative relationship that, in turn, leads to greater and greater value creation. The other scenario-failing to create value-leads to constant RFPs and a level of tumultuousness that isn't productive for anyone.

How will NeighborCare fit into Maryland's new Medicaid managed care waiver program?

NeighborCare is already a large Medicaid provider, on both the long-term care and outpatient sides. In fact, we're the dominant long-term care pharmacy provider in Maryland. Keep in mind that the waiver which has been approved is only for outpatient, not long-term care, populations. The long-term care side will be addressed, but it's not clear right now when or how. As things develop, we hope we can be part of the discussion and process of evolution. But I don't see the long-term care issues being addressed for at least another 12 months.

Also keep in mind that NeighborCare operates today from New Hampshire to Florida, so we view ourselves as a regional provider. From our standpoint, we're really looking at national trends, such as the current push in Congress to create a prospective payment system for skilled nursing facilities that includes most ancillaries. The key PPS questions and issues are: How is the debate framed? How does it get focused? And who are the winners and losers, if there are to be any-and who adapts and figures out how to operate effectively? In NeighborCare's view, it's really irrelevant whether we're paid prospectively or on a fee-for-service basis: That's a finance issue, nothing more.

Our mission is to take our business model and make sure it has the most modern, efficient operating mechanisms available, thereby giving us tremendous flexibility. So when the market changes, NeighborCare's ready.

We're never going to be the market; we're going to have to operate within it. The best we can do is anticipate changes and create the flexibility to operate effectively within the changing environment.

When a nursing facility PPS becomes a reality, what attributes will pharmacy providers need?

We've been involved in prospective payment systems since 1992 or 1993 for populations as large as 200,000 to 250,000, and unequivocally, the single most important element is real-time, granular data- very specific data that's appropriate to what you're going to measure. The finer the data element, the more you can manipulate and understand it.

What's an example of "granular" data, and what sorts of analyses does it allow?

An example of a granular element would be the cost per tablet per episode of care relative to a specific disease state, measured over X period of time, for a particular person of a particular age group. You might want to know, for example, the total projected cost of care for a woman who's had congestive heart failure for four years, who's 82 years old, and who has a number of other concomitant diseases and conditions.

How do you read the evolution of long-term care pharmacy over the last five or ten years?

We started building our current business model in 1991, when we realized the future of our operation has more to do with managing behaviors and managing outcomes than anything else.

Managed care has evolved from its infancy when it was managed costs-"we used to pay you a dollar, now we'll pay you 50 cents." With that approach, there's a point of diminishing returns, and a point of capital deinvestment, where people are no longer willing to invest in building distribution systems because they can't achieve an adequate return on the investment. If the profitability of any one transaction is negative, then it doesn't matter how many transactions you do: It's still negative. We've reached that point, by and large, in a lot of places. In some places we haven't reached that point, and there's still a lot of irrationality in the market that's driven by the governmental payer systems and the fact that Medicare and Medicaid still reward people for transactions, not for outcomes.

I believe we're going to see what I would call phase II of marketplace evolution, in which groups of providers-sometimes very unusual groups-will be collaborating. Some groups that competed in the past will be allies because it's in their self-interest to find ways to put together their multiple talents to solve problems. Some providers NeighborCare collaborates with today in one situation, for one population, may be competing against us in a different arena, with a different population, and vice versa. We have to seek partners who are able to optimize outcomes on a case-by-case basis.

Who were the most important influences in shaping your business philosophy?

I come from a family of businessmen. My dad is an accountant with a very strong sense of ethics and fairness. He taught all three of his children to do the right thing, and to do things right the first time. And my grandfather was a fine merchant who always told me that as long as you satisfy the customer, everything else will take care of itself. He drilled that into me from a very young age.

In my banking days, I was very fortunate to work for a man named Alan Leberknight, who is now dean of the School of Business and Economics at Towson State University and probably the finest manager I've ever met. He understood that training and development of people creates the ability to succeed more than any other single factor. He really instilled a lot of insight in me on how to build an organization and how to select, attract, and retain the variety of people you need to succeed.

What are the key tenets of NeighborCare's patient care philosophy?

At NeighborCare we believe very much in respecting each other and treating each other like we want to be treated. That's very important. When you start thinking like that every day, you don't leave a customer hanging on the phone, because you wouldn't want to be left hanging. You don't allow a delivery to be missed, because if you were relying on that delivery, you'd want it.

We also think it's important that we, as a company, be involved in our community. We want to focus on being innovative and expert, but also-above all else-we want to focus on being caring. We're in the health care business. We're about helping people improve their health. That's what we do. Although we certainly have to measure the economic benefits to the firm of meeting that objective, we also have to, more importantly, focus on the benefits to the people who need better health. And if we do that well, we'll succeed. Profits are to a business what food is to a person. The purpose of life is not to eat; you eat to sustain yourself. The purpose of business is not to make profits; it's to create and retain customers. Profits are merely a necessary by-product that allows you to have license to create and retain customers.

Copyright © 1997 American Society of Consultant Pharmacists, Inc. All rights reserved.