An inside look at Humana’s industrial-sized (and secret) pharmacy

Drug canisters in Humana’s Cincinnati pharmacy facility. A conveyor underneath the canisters carries pill bottles to the right canister, where a mechanism dispenses the desired amount of pills. The bar-code-driven system was designed by Humana. | Photo by Boris Ladwig

In a red-and-tan building in the Cincinnati area, orange prescription drug bottles shoot through overhead chutes and rattle along dozens of yards of conveyor belts before they are packaged and mailed to Humana customers.

The Louisville-based insurer owns and runs the facility, but keeps the location confidential and staffs it with security guards around the clock because it contains a modern-day treasure: about $40 million worth of drugs, from over-the-counter insulin inhalers to hepatitis C prescription drug Harvoni, a three-month supply of which costs about $100,000.

Humana operates such mail-order pharmacies — it has more in Arizona and Texas — to gain better control over the accuracy with which medications are dispensed and over the consistency with which patients take those medications.

Building and running the facilities is expensive — Humana spent $23.4 million to build the Ohio facility about a decade ago and at the time paid 335 employees a combined annual salary of $18.5 million and it upgraded the facility last year — but the costs pale in comparison to the health care expenditures Humana can save if patients stay healthier, in part because they adhere to their medication regimen.

People with chronic conditions account for nearly 90 percent of health care expenditures in the United States, according to insurance executives and government agencies. At its Investor Day last year, Humana leaders said that the company’s monthly costs for diabetes patients, for example, range from $613 for low-severity cases to $1,852 for medium-severity and $4,059 for high-severity patients.

For every patient Humana can keep in the medium-severity category, it saves about $26,500 per year. While that does not seem like much for a company that generates $54 billion in annual revenue, the numbers add up quickly when one considers the size of Humana’s customer base and the share of patients with multiple chronic conditions.

The insurer has about 3.5 million Medicare Advantage customers, excluding those who are on a prescription drug plan only. According to CDC data, a quarter of people over 65 have diabetes. For Humana, that means about 875,000 diabetes patients.

If Humana can keep just 15 percent of those patients from sliding from the medium- to the high-severity category, it can save $3.5 billion in health care costs annually. That’s more than the company generated in net income last year.

And that’s just for a quarter of Humana’s population — and for only one condition. Three of four Americans 65 and older have multiple chronic conditions, according to the CDC.

Humana has been taking a comprehensive approach — wellness, disease prevention, disease management, urgent and chronic care — to try to keep ballooning health care costs under control. Its pharmacy operation gives patients “convenience and accuracy,” as well as drug discounts and help from pharmacists or technicians.

Customers also can get a three-month supply of drugs, which means they don’t have to go to renew their prescription or go to a drugstore every month. The lower ordering frequency increases the likelihood that patients stick to their drug regimen because they are less likely to run out of drugs and less likely to fail to renew their prescription.

The facility

An overview of Humana’s pharmacy operations in Ohio. | Photo by Boris Ladwig

Humana’s Ohio mail-order pharmacy runs much like a manufacturing operation, except that the end product, which is shipped to the customer, usually is a package with drugs and other medical supplies.

Drugs arrive via truck at one end of the facility. Wholesalers may make a delivery with hundreds of different drugs, while manufacturers typically bring large quantities of a single drug.

“We carry pretty much everything that’s available,” said Paul Harder, the facility’s pharmacist in charge.

Harder told Insider that Humana can keep inventory low because it can order from wholesalers twice per day.

The company installed a new bar-code-driven drug dispensing line in December to increase efficiency and reduce errors. The line was designed by Humana engineers, built in four locations in the U.S. and then trucked — requiring about 100 truck loads — to Ohio and assembled.

Once the boxes of drugs arrive at the facility, employees stock them on shelves or bring them further into the facility, where they are unboxed and opened. Humana employees remove the caps and cotton by hand, conduct a visual inspection and transfer the pills into larger canisters, which are placed in rows above computer-controlled dispensing mechanisms that drop the pills into the bottles that are moving through the facility on the conveyor belts.

Physicians send prescriptions to Humana, with about 70 percent arriving electronically. The electronic file provides information about the language (English, Spanish, Braille, etc.) to print on the label, whether the bottle needs a childproof or easy-open cap, and which drugs are to be dispensed.

Paul Harder, pharmacist in charge at Humana’s Ohio facility, holds a pill bottle in an RFID-equipped container, called a “puck.” | Photo by Boris Ladwig

A labeling station then places a label on the bottle and drops it into a small, round radio-frequency-identification-equipped container, called a “puck,” which carries the bottle, via conveyor, through the facility, stopping underneath the appropriate drug canister. Once the bottle is filled — but before it is capped — the bottle moves underneath a camera, which captures its contents. The photos are saved in case a problem arises later and a patient says the bottle contained the wrong drug. The conveyor then moves the bottle to an area where a pharmacist visually inspects the pills and, via computer screen, compares them to a photo of what the drug in that bottle should look like.

From there, the conveyor carries the bottle to mechanized sealing and capping stations and drops it into an RFID-equipped tote, part of another conveyor system that may add more drug bottles or single-use items such as insulin inhalers or over-the counter medications, before the tote is sent to the facility’s packaging and shipping area.

Harder said it takes 15 to 20 minutes for a pill bottle to reach the shipping area. The main line alone can handle 120,000 prescriptions per day.

Some products still are gathered and added to shipments by human hand, perhaps because they have an odd shape or are not used frequently enough to warrant being pushed through the automated system.

A new robot also helps read and print labels for medications “packaged in irregularly shaped boxes and bottles.” Previously, Harder said, technicians had to pick up an item from a tote, scan it, print a label and place the item back in the tote. The robot does all of that automatically, allowing Humana to do double the work with the same number of employees.

Highly regulated drugs are handled by human hands in a separate area, called The Cage, which is off-limits for most employees. Pharmacists there count by hand the number of pills that are to be dispensed, and then count the remaining ones to make sure their count was accurate. Those drugs are sent via UPS and require an adult signature upon arrival. Other packages are sent via U.S. Postal Service.

Harder said that by law, Humana has to conduct an annual inventory of the highly regulated drugs, but the company performs one every month.

Pill bottles move through the facility in chutes and on conveyors. | Photo by Boris Ladwig

The pharmacist told Insider that thanks to the in-house developed dispensing system and software, Humana’s facility suffers only about one defect per one million opportunities, much lower than other pharmacy operations, which can have thousands of errors per million opportunities.

Keeping errors low is critical, Harder said. A wrong address on a label can result in a delivery to the wrong house, which can pose problems by itself — never mind that the intended patient may run out of a critical medication.

Running the mail-order pharmacy in-house also allows Humana to prevent duplication of orders, wrong dosages and adverse drug interactions.

Some drugs require refrigeration and are placed in special cooler packages before shipment. The facility’s computer system tells employees whether to include one brick of ice — for a shipment to Minnesota, for example — or five bricks, for a delivery to Phoenix — though Harder said the number of bricks can differ materially even within a state.

“There’s a lot of science and testing that goes into these,” he said.

On a typical day, four UPS and five USPS trucks make pickups at the facility. The trucks are usually full. The facility runs at about 70 percent capacity.

Humana said that its pharmacy business is the fourth-largest pharmacy benefits manager in the country. It filled 433 million prescriptions last year.