The Ins and Outs of Pharmacy Inventory

Full update November 2018

A patient’s most basic expectation for service at a pharmacy is that prescribed medications are in stock. This is one reason it’s so important to ensure your pharmacy has the medications your patients need, when they need them. Inventory is one of the most frequently performed tasks in a pharmacy. Ignoring inventory-related tasks can pose great risks such as patient dissatisfaction, treatment delays, financial consequences, and additional workload. Be familiar with the ins and outs of pharmacy inventory to help avoid these risks.

Pharmacy Inventory

You’re working on a refill requested by a patient: a 90-day supply of metoprolol succinate extended-release 100 mg tabs for Mary Bingham. Mrs. Bingham said she’ll be in tomorrow afternoon to pick it up. You’re surprised when the computer indicates that there are only 80 tablets remaining in stock. You check the shelf, and the computer is correct. You’re glad to have caught this issue, because the pharmacy dispenses a lot of this medication.

Why is it important to manage and maintain pharmacy inventory?

Ensuring patients have the medication they need at the right time is probably the most obvious reason. But be aware that pharmacy inventory itself is costly. While keeping adequate inventory in stock is a necessary requirement to serve patients, keeping too much in stock can be financially detrimental. For example, if $10,000 is tied up in excess inventory, this prevents the money from being invested or used to pay bills, staff salaries, etc. Both too little inventory (below the pre-determined “reorder point” or “par level”) and too much inventory (reorder quantities that cause you to exceed desired “stock-on-hand”) are directly related to poor inventory practices.

Plus taking up space in a pharmacy to store excess inventory can get in the way of workflow. When vital space, such as countertops and shelving, are used for long-term storage of inventory, workflow can be impeded. Efficient work takes place in an orderly environment. A disorderly environment can lead to mistakes and a breakdown in efficiency.

You wonder if there was somehow a mix-up with the reorder point (quantity needed to maintain the appropriate amount of stock-on-hand) for the metoprolol succinate tabs. Normally, you keep up to 500 tablets of this product on the shelf, and reorder when you drop below 300 tablets. As you are thinking about this short supply of metoprolol succinate in your pharmacy, you notice there are several unopened bottles of tranexamic acid tablets sitting on the counter. You know this med is not frequently dispensed and it’s very expensive, so you make a mental note to mention this to the pharmacist.

How is a pharmacy’s inventory measured?

Most pharmacies count their inventory and its value annually, semiannually, or quarterly. Many operations also have the ability to maintain a floating or perpetual inventory with automated inventory systems. These systems account for inventory and its value as it is received and as it sells. This method gives the pharmacy constant inventory information in real time. However, physical inventory adjustments are still needed periodically. This physical measurement of inventory requires the actual hands-on counting of bottles, tablets, etc.

Inventory measurement can be contracted or done in-house. There are several companies that specialize in inventory measurement. Some pharmacies choose to use their own staff to do inventory. The method and frequency of inventory measurement is not as important as having a policy that governs how it is done. Following the policy gives the pharmacy a dependable method of knowing its inventory value.

Where do pharmacies buy their inventory?

Most pharmacies purchase the majority of their inventory from a supplier, such as a wholesaler. Wholesalers are essentially a single source through which pharmacies can purchase drugs and supplies from various manufacturers. A large number of pharmacies in the U.S. are supplied by a few national wholesalers including McKesson, AmerisourceBergen, and Cardinal. In Canada, major wholesalers include McKesson and Kohl & Frisch. Pharmacies usually have multiple suppliers, at least a primary and a back-up source. Large pharmacy chains may own their own wholesaler and often use a combination of external wholesalers and their own warehouse. Drugs can also be purchased directly from manufacturers. This is less convenient for pharmacies, but necessary for some drugs that have special requirements such as limited distribution or special storage. Another way that drugs can be purchased is on consignment. This may be done in hospitals for costly items that aren’t frequently used such as antivenom for snakebites or clotting factors for patients with conditions such as hemophilia. Med consignment can be beneficial for pharmacy budgets, since the pharmacy isn’t charged for the meds until they’re used.

The wholesaler or warehouse offers an array of services other than supplying merchandise. The most important of these is to take inventory back. The agreement between the supplier and the pharmacy contains a set of rules governing all aspects of returning goods. Pharmacies need a way to sell goods back to the wholesaler when too much stock is delivered, the wrong item is received, medications go out of date, merchandise has stopped selling, etc. This inventory becomes unusable as it begins to expire in the store.

Some pharmacies choose to use a “reverse wholesaler” company in addition to their principal wholesaler. These companies specialize in returns of “out-of-date” or “soon-to-expire” merchandise that the main wholesaler doesn’t accept. The payment from these companies is lower than the usual wholesale value, but they offer an easy way to dispose of product that is no longer saleable. These “one box return” companies also handle Schedule II controlled substance returns (in the U.S.).

What are counterfeit medications and how do they enter a pharmacy’s inventory?

A counterfeit medication is a fake brand or generic medication that may contain wrong drug amounts, the wrong drug, harmful contaminants, etc. They are dangerous because they may be ineffective for patient treatment, cause toxicity due to inappropriate ingredients, or even lead to deaths. Meds that are targeted often include those for erectile dysfunction (Viagra, Cialis, etc), weight loss (Alli [U.S.], Xenical, etc), cancer, hepatitis C, HIV, and opioids (OxyContin [U.S.], OxyNEO [Canada], etc). Counterfeit medications are tricky because they often look identical to the real thing. Counterfeit medications may be sold illegally online, by foreign pharmacies, or through street dealers. They can also rarely enter a legitimate pharmacy’s inventory through wholesalers, repackagers, or other members of the supply chain who are either corrupt or have gotten duped. Follow your company’s policies on which wholesalers you should be using to order medications from. Pharmacies may get in trouble if they use unknown wholesalers offering medications that are in shortage or at prices that are too good to be true. Make sure wholesalers you order from are appropriately licensed in your state or province/territory. Also look for them to have Verified-Accredited Wholesale Distributors (VAWD) certification from the National Association of Boards of Pharmacy (NABP) in the U.S. and/or look for wholesalers who are members of the Healthcare Distribution Alliance (HDA) or the Canadian Association for Pharmacy Distribution Management (CAPDM) in Canada. These organizations provide an added level of assurance that the wholesaler gets medications from verified sources.

Regardless of where you are ordering and receiving medications from, follow the federal “track and trace” laws in the U.S. In addition to confirming your suppliers are appropriately licensed, make sure you are receiving product tracing information with each shipment (transaction information, transaction history, and transaction statement) and hold on to these records for at least six years. Watch for more track and trace requirements by 2023, such as new 2D barcodes on products instead of linear barcodes and the requirement for the secure, electronic transfer of product tracing information.

Inspect products closely during dispensing and keep an eye out for misspellings on the package, labeling in a foreign language, mismatched fonts, etc. Listen for patients complaining that a drug doesn’t seem to be working or that a drug doesn’t look, smell, or taste like it should. If you suspect a product may be a counterfeit, alert your pharmacist, quarantine it, and reach out to the manufacturer and wholesaler or other supplier to investigate further. Report the suspected product to the U.S. Food and Drug Administration (FDA)’s MedWatch program while the investigation is taking place. If the investigation finds that the product is in fact illegitimate, FDA must be notified within 24 hours by filling out Form FDA 3911. If you practice in Canada, fill out Health Canada’s Health Product Complaint Form (FRM-0317) if you suspect a product of being counterfeit. For more tips on how to prevent counterfeit medications from entering your pharmacy’s inventory, check out our CE, Drug Shortages and Counterfeits: Threatening the Drug Supply Chain and our cheat sheet, Keeping Patients Safe From Counterfeit Drugs.

What are some tools and strategies for ordering and maintaining inventory?

While community pharmacies will order medications based on what is dispensed at their location, hospital pharmacies will order what is needed from a list of drugs known as the hospital’s “formulary.” The formulary is usually determined by a group of healthcare professionals and administrators (the Pharmacy and Therapeutics or “P and T” committee) who balance the effectiveness of the medications with factors such as cost and safety.

All staff should know which inventory tasks they are responsible for and work to keep appropriate levels of useful inventory in stock. Fortunately, pharmacies also have good tools to help with this, such as shelf labeling, automated reordering, and automatic substitution.

Shelf labeling is a manual technique of inventory management. Labels are used to mark a shelf place for each product. The label provides the name/strength/size of the medication, NDC (U.S.) or DIN (Canada), reorder number, bar code, size, etc. These labels help when it’s time to reorder stock manually, such as when a med drops below its par level or reorder point. Generating a reorder in a well-labeled pharmacy can be done easily using a portable data terminal device to scan labels and adjust order quantities. By placing a label on the shelf for all products in the pharmacy, shortages can also be quickly identified. Creating new labels can also be very helpful. If the store has to wait for the warehouse or wholesaler to send labels, much of the impact of labeling is lost. Diligence and patience are required to keep a store well-labeled, but the benefit to inventory levels, and ultimately to patients, is well worth the effort.

Automatic reordering is a feature most pharmacies already have, though not all use it. Most computer systems allow reorder points and stock-on-hand values to be set for each medication, which is referred to as a “point of sale” inventory system. Prior to generating an order, the system can list all products that need to be replenished. A purchase order is then created and sent to the supplier. In more advanced systems, the software determines inventory level through usage, then orders the merchandise without any interaction from the pharmacy staff. Even with these automated systems, it’s a good idea to review each order to make sure the items and quantities are appropriate. If unusually high or low amounts in the order catch your attention, take a look at your target and actual inventory to see if everything makes sense.

Most suppliers offer the option of automatic substitution to minimize out-of-stocks. This feature gives the warehouse permission to send another size or brand if they are out-of-stock, or if a more economical preparation becomes available.

Here is a list of other strategies to help with maintaining and managing inventory:

  • Perform inventory tasks each day. Make sure you know the deadline by which an order must be placed in order to be received in the pharmacy by the next delivery day.
  • Don’t wait until products are out-of-stock to maintain your inventory. Pay extra attention to “fast movers,” meds that are very commonly dispensed such as atorvastatin, lisinopril, and metoprolol. Keep an eye on product quantities while you are filling prescriptions and adjust the on hand inventory if you notice something is off.
  • In the community setting, avoid ordering new and expensive meds until a patient brings in a prescription. Verify the cost with the patient beforehand, and don’t open the container or label it until the patient has paid. This way the drug can be returned to the supplier if necessary. In the hospital setting, the need to stock new meds will be determined by the formulary. However, circumstances may arise where a patient needs a new and expensive med that is not on formulary. If this is the case, a pharmacist or administrator will typically be able to advise about how much of the drug to order, and at what point any excess should be returned.
  • Keep reasonable, but not excessive, amounts of “non-income” products such as bags, labels, and vials, in stock. Like excess inventory of drug products, these can tie up cash flow and space.
  • Mark products that are set to expire soon with a colored sticker or some other identifier so they can be used first and removed from the shelves for return to the supplier at the appropriate time. In some situations, such as for medication trays for “code carts” in the hospital setting, you’ll want to avoid stocking medications that’ll expire soon (e.g., within the next three months). The carts will be stocked throughout the hospital, so monitoring and exchanging them within a short period of time due to expired meds is not an efficient use of time. Make sure you are aware of these types of rules in your pharmacy.

More tips on how to maintain good inventory control can be found in our CE, Drug Inventory Control.

Fortunately, you are able to manually add metoprolol succinate extended-release 100 mg tabs to your order that will be delivered to your pharmacy tomorrow. The order is usually delivered early and gets checked in right away.

How should out-of-stock medications be handled?

Despite your best efforts to keep meds in stock and have good inventory control, out-of-stock situations will occur. Know how to handle these properly to prevent delayed treatment, lost payments, and patient dissatisfaction. It’s important to notify patients right away if you don’t have a medication in stock, give them an accurate timeframe of when the med will arrive, and call the patient when the prescription is filled. Offer to partially fill the medication if you have enough to tide the patient over until the full quantity arrives.

If you are completely out of the medication and the patient isn’t able to wait and needs to transfer the prescription, call the other pharmacy first to verify stock. Ask the pharmacist to transfer the prescription to the other pharmacy to help minimize the wait time. If the medication is out-of-stock due to a shortage, get the pharmacist involved and help find an alternative med by accessing formularies online, calling insurance companies, etc. Also get the pharmacist involved if the out-of-stock medication is for a Schedule II controlled substance. The pharmacist will need to make sure that the med can be ordered and received in time for when the patient needs it.

What should be done when an order is received in the pharmacy?

When an order is received in the pharmacy, make sure the number of cartons received matches up with the number of cartons shipped. Point out any noticeable damage to the shipment before the delivery person leaves. Check the order in as soon as possible after it arrives to make sure all ordered items have been received. Use the packing slip or invoice and mark off items as they are removed from the shipping containers and placed on pharmacy shelves. Contact the wholesaler or supplier immediately for any damaged or shorted items. If the cause of a shorted item is a drug shortage, the pharmacist may need to work with prescribers to find alternatives for patients.

Keep in mind that controlled substances may be delivered in a separate order from noncontrolled substances. These may need to be checked in by the pharmacist and the paperwork must be filed separately from other pharmacy invoices.

Make sure drug products are placed in the appropriate area for storage: shelves, locked cabinet, refrigerator, or freezer. If you are unsure of proper storage, check with the pharmacist or look at the package or product labeling, under the “How Supplied” or “Storage and Stability” section. Make sure refrigerators and freezers are working properly to avoid wasting supplies of drugs that require refrigeration or freezing. When stocking meds in the pharmacy, pay attention to the potential for mix-ups to be caused by look-alike, sound-alike drug names. Use shelf tags, bins, etc, to separate these products to prevent dispensing errors.

Rotate stock when unpacking orders so products with the shortest expiration get used first. Place the products with expiration dates that are the furthest out behind, not in front of, products that are expiring sooner. Mark open stock bottles to avoid having multiple open bottles of the same product on the shelf.

What should be done with regard to returning inventory to the supplier?

Merchandise to be sent back to the warehouse should be kept in a designated area for returns. Usually drugs that expire within one to three months will be removed from shelves and placed here. A recall is another reason a drug may need to be removed from shelves and placed in a designated area.

The return process should take place at regular intervals. This will ensure there are not huge stacks of unprocessed returns or multiple piles of return goods cluttering up the pharmacy. It is important to process returns on a consistent, timely basis. This ensures the most credit for returns while freeing up inventory dollars to order the most needed items for your patients.

You find out from the pharmacist that the bottles of unopened tranexamic acid tablets sitting on the counter were pulled from the shelves for return to the wholesaler. You place these in the designated area, knowing that returns will be processed within the next couple of days.

How is the inventory of controlled substances different from that of noncontrolled drugs?

In the U.S., inventory of controlled substances has specific requirements mandated by the Drug Enforcement Agency (DEA). The DEA requires that a controlled substance inventory (Schedule II through V) be done when a pharmacy first opens for business, then once every two years. But keep in mind some states require controlled substance inventories more often, such as once a year. The inventory record needs to be kept in an easily accessible place for at least two years, in case of inspection. The record must contain the pharmacy’s name, address, and DEA number and must be signed by the person who receives and verifies that the order is accurate. State boards of pharmacy also have requirements for inventory of controlled substances. An example of this would be perpetual inventory of controlled substances reported to the board of pharmacy twice a month. State boards of pharmacy and company policy may dictate other controlled substance inventory procedures, such as the method for filing paperwork associated with the ordering of controlled substances, storage of controlled substances, etc.

In the U.S., remember that the ordering of Schedule II controlled substances requires a special order form (DEA form 222) that is available as either a paper triplicate or electronically. When Schedule II meds have passed their expiration date, DEA Form 41 must be completed and destruction of the expired drugs must be witnessed.

Rules regarding inventory of controlled substances are similar in Canada. For example, controlled substances may need to be counted quarterly to make sure there are no major discrepancies. Discrepancies may need to be reported to Health Canada, depending on the drug involved.

Can medications that patients don’t use be returned to stock?

In most states and provinces, medications cannot be returned to stock once they have left a retail pharmacy. It’s impossible to know how the medication was stored or if it’s been altered in some way that might make it dangerous. In the U.S., some states do allow the return of medications if they are in their original container and unopened with the factory seal in place. If a medication is not picked up by a patient and has not left the pharmacy, it may be returned to stock. In most cases, the drug should not be added back to the original stock container. Instead, keep the medication in the original vial and remove the patient-specific information. The medication can then be recounted into a new bottle and labeled for another patient. These rules also apply to pharmacies that deliver medications to patients. If the medication is never delivered and does not leave the possession of the driver, it may be returned to stock. Most states and provinces have specific regulations on handling return-to-stock meds. For example, in some states, meds that have been repackaged into prescription vials or bottles must be dispensed within one year of the original fill date. In the U.S., check with your state board of pharmacy for information on regulations specific to your state. In Canada, check with your provincial or territorial pharmacy regulatory authorities.

In the hospital setting, unused unit doses can usually be returned to stock. However, storage conditions on patient care units may determine whether or not injectables can be returned to stock. For example, if a vaccine that requires refrigeration is found on a countertop in a med room or unused and in a med return bin, you should check with the pharmacist about what to do with the dose. It may need to be discarded, or if room temperature storage for a period of time is allowable per the manufacturer or other guidance, it may be able to be dispensed to another patient. The same is true for IV piggybacks such as antibiotics and for IV infusions or fluids such as heparin drips, insulin drips, and maintenance fluids (e.g., normal saline 1,000 mL with potassium chloride 20 mEq).

One way to reduce the amount of unused medications in the hospital setting is to avoid delivering duplicate supplies. For example, if a nurse reorders a medication, you can look into the reason for the reorder. Many reorders are appropriate, such as when a medication ordered as a continuous infusion runs out (e.g., amiodarone, heparin, insulin) or when a bulk med is empty (e.g., inhalers, insulin vials, ointments). However, if a reorder seems too soon, it’s a good idea to make sure the nurse is looking in the correct location for the med, especially for meds that are refrigerated. Also, check to see if a patient has been transferred since it’s possible for meds to have been delivered to the old location. If you do dispense a med in response to a reorder and find that the patient already has an adequate supply on the patient care unit, simply return the med to stock.

When Mrs. Bingham comes in to pick up her metoprolol the next day, she brings with her an unused albuterol inhaler sealed in its original package that was prescribed for her husband about two weeks ago. She asks if it can be returned. You ask the pharmacist to speak with her and confirm whether or not a return can be made.

Project Leader in preparation of this technician tutorial (341180): Flora Harp, PharmD/Assistant Editor

Cite this document as follows: Technician Tutorial, The Ins and Outs of Pharmacy Inventory. Pharmacist’s Letter/Pharmacy Technician’s Letter. November 2018.

“Cheat Sheet” for Pharmacy Inventory

Why is it important to have good inventory practices?

  • Prevents delays and disruptions in therapy
  • Patient satisfaction
  • Financial benefits
  • Workflow efficiencies

How can I help keep counterfeit meds out of my pharmacy’s inventory?

  • Follow your company’s policies on which wholesalers you should be ordering meds from
  • Ensure wholesalers you order from have appropriate state licensure and added levels of legitimacy by certification or membership in organizations that verify product sourcing
  • Follow track and trace laws in the U.S. by making sure to receive product tracing information with each shipment and maintaining these records for at least six years
  • Inspect all products closely during dispensing and watch for:
    • Misspellings on the package
    • Labeling in a foreign language
    • Mismatched fonts
  • Listen for patients complaining that a drug doesn’t look, smell, taste, or work as it should
  • Quarantine any products suspected to be counterfeit and reach out to the manufacturer and wholesaler or other supplier to investigate further; notify FDA or Health Canada

What are some tools and strategies for ordering and maintaining inventory?

  • Know which inventory tasks you are responsible for and complete them correctly and on time
  • Know the deadlines by which orders must be placed and when they will be received
  • Use shelf labeling and make sure all products have a label on the shelf
  • Use automatic reordering, if available, to generate a list of products that need to be replenished
  • Avoid ordering new or expensive meds until a patient brings in a prescription, the prescription has been billed to the insurance, and the patient is aware of and agrees to the price. Don’t open the container or label the product until the patient has paid for the med in case it needs to be returned.
  • Don’t maintain excessive inventory of products such as bags, labels, and vials
  • Mark products set to expire soon so that they can easily be removed from inventory for returns
  • Process returns on a consistent, timely basis to get the maximum credit

How should I handle out-of-stock medications?

  • Notify the patient right away, provide an accurate timeframe, and offer to call when the Rx is ready
  • Get the pharmacist involved if a med is out-of-stock due to a shortage to help find alternatives
  • Inform patients getting partial fills how much they are getting and how much is still owed

What other important points should I keep in mind about pharmacy inventory?

  • Promptly verify inventory received and appropriately store refrigerated/frozen meds right away
  • Rotate stock anytime you are adding new inventory to existing inventory (use old product first)
  • Be aware of the federal and state/provincial/territorial laws governing inventory of controlled substances and how this differs from noncontrolled drugs
  • Never allow meds that have been sold to be returned without getting the pharmacist involved

[November 2018; 341180]

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