ISG Playbook
APIsWhy all the Healthcare Supply Chain Shortages?
The COVID-19 pandemic exposed vulnerabilities in the US health system supply chains, leading to persistent and elevated supply shortages, economic uncertainty, and growing inflation. Between 2021 and 2022, new medication shortages spiked by close to 30 per centpercent, and according to the American Society of Health-System Pharmacists (ASHP)Health , health systems now recognize the need to improve supply chain resilience to face future challenges. During the pandemic, health systems struggled with shortages of personal protective equipment (PPE) and resorted to unconventional procurement practices, sometimes resulting in overstocking or receiving subpar supplies. As the pandemic abates, health systems are focusing on creating more resilient, efficient, and economically viable procurement approaches for the long term.
Health systems are facing severe shortages in the generic drug market, drawing attention from the White House and Congress. This has been brought to front-page attention with two glaring cases. Firstly, the recent case of Intas Pharmaceuticals, a company in India with critical chemotherapy drugs in short supply, highlights quality control issues in overseas manufacturing. The shortage of essential chemotherapy drugs, including cisplatin and carboplatin, is a significant concern for patients. These drugs are the best shot at a cure for patients with testicular, ovarian and other cancers and shrinking tumors. The limited supply due to the complexity and cost of manufacturing makes them challenging to produce for a few companies. This scarcity, along with shortages of other cancer drugs and medications, such as antibiotics and injectable fluids, poses potential risks to patient health.
To address the disruptions, there are calls for creating an exchange to allocate drugs where needed most and increasing production of small-batch medicines. The influence of intermediary companies in contracting with generic drug makers is also under scrutiny, as they often demand rock-bottom prices without accountability for shortages. Market-level solutions and expanded government contracting with organizations like Civica Rx, a nonprofit generic drug company founded in 2018 by national philanthropies, may help stabilize the industry and mitigate shortages in the long run. Leaders in the generic drug industry and other experts cite the pressure from intermediary companies that award the lowest-price bidder with access to millions of customers. The “race to the bottom” in prices, they say, destabilizes the industry and rewards those who might cut corners or operate overseas, often in India, where labor costs are lowest.
The other major case, the natural disaster on July 19th by a 150-mph tornado ripped apart the vast Pfizer drug warehouse in Rock Mount, North Carolina will probably lead to disrupted supplies of crucial drugs. Pfizer released a list of drugs that could go into shortage — or in some cases, a deeper state of shortage. These include common I.V. pain relievers like fentanyl and morphine used in surgery and critical care, as well as lidocaine, used in local anesthesia, and heparin, used to treat or prevent blood clots. The U.S. Pharmacopeia (USP) examined the impact of tornado damage on drug supply chains, assigning "vulnerability scores" to medications based on factors linked to shortages. Painkiller infusions and I.V. electrolytes were identified with a Vulnerability Score of 92% before the disaster. However, one positive aspect is that under federal rules, specialized pharmacies can make these drugs on an emergency basis, helping mitigate the impact of the unexpected shock to the system caused by the shortages.
Actions at Hand
Here are just some actions that are at hand to extend the visibility of the supply chain. The Biden administration is assembling a team to address the vulnerabilities in the pharmaceutical supply chain and improve its resilience. The scarcity of generic chemotherapy for cancer treatments is particularly concerning, with potential negative impacts on patient outcomes. Possible long-term solutions include extending supply chain visibility, exploring product-specific strategies, developing relevant protocols, and optimizing costs. The Food and Drug Administration (FDA) is seeking authority from Congress to access additional information about drug manufacturing and supply chains. However, the agency has expressed concerns about the financial strain on the generic drug industry and emphasizes the need to address the core economics of the system. Bipartisan Senate bills aim to speed up the availability of generic drugs, and addressing tactics causing delays can play a crucial role in easing shortages. This has come in the form of the bipartisan bill for Mapping America’s Pharmaceutical Supply (MAPS) Act (S. 2364)to use data analytics to identify supply chain vulnerabilities and other national security threats.
In June of this year, the administration announced a new lower-cost prescription drug law—the Inflation Reduction Act. The Inflation Reduction Act is already lowering out-of-pocket Part B drug costs. As part of the new law, manufacturers are required to pay a rebate to Medicare if a drug’s price increase exceeds the rate of inflation. CMS intends to send the first invoices in 2025 to manufacturers for the rebates owed to Medicare in 2023 and 2024. Some people with Medicare Part B, which generally covers drugs provided in doctors’ offices and hospital outpatient departments, may pay lower coinsurance on 43 drugs, whose prices rose faster than the rate of inflation in a benchmark quarter. People who take these drugs may save between $1 and $449 per average dose between July 1 – September 30, 2023, depending on their individual coverage.
Medicare has initiated a new proposal, the 2024 Outpatient Prospective Payment System (OPPS) rule, aimed at incentivizing hospital payments to maintain essential drug stockpiles, addressing ongoing drug shortages through price transparency, prior authorization process, rural hospital provisions and new payment options. However, some experts warn that this policy may inadvertently lead to the very shortages it seeks to prevent. Traditionally, efforts to tackle drug shortages involved empowering the FDA, granting it authority to require backup plans for manufacturing disruptions and gathering information on ingredient sources. The FDA can also prioritize reviews and inspections for drugs in short supply.
Four Supply Strategies
Health systems have a chance to strengthen their response to future shocks beyond the COVID-19 pandemic. Health system leaders can consider four initiatives to improve supply chain resilience.
- Firstly, extending visibility into an opaque and sometimes interrupted supply chain internally and externally can help detect potential shocks earlier and track inventory accurately. Although implementing sophisticated inventory-tracking systems may be costly, developing tools like RFID bar-coding for critical supplies can increase visibility.
- Secondly, exploring product-specific strategies can identify key items requiring special attention and proactive management.
- Thirdly, developing relevant protocols, capabilities, and governance can enhance decision-making and coordination during supply chain disruptions.
- Finally, optimizing costs can involve strategic sourcing, collaboration with suppliers, and managing excess inventory. These initiatives can help health systems be better prepared for future challenges and ensure smoother operations in times of crisis.
Resources
NY Times: How the Shortage of a $15 Cancer Drug is Upending treatment - https://www.nytimes.com/2023/06/26/health/cancer-drugs-shortage.html
NY Times: Drug Shortages Near an All-Time High, Leading to Rationing - https://www.nytimes.com/2023/05/17/health/drug-shortages-cancer.html
NY Times: Tornado at Pfizer Warehouse Likely to Worsen Shortage of Surgical Drugs https://www.nytimes.com/2023/07/25/health/pfizer-warehouse-tornado-drug-shortages.html
Pfizer Announces Post-Tornado Relief Plans for Rocky Mount Community and Manufacturing Facility https://www.pfizer.com/news/press-release/press-release-detail/pfizer-announces-post-tornado-relief-plans-rocky-mount?cid=em_PfizerNewsroomAlert&ttype=em
United States Pharmacopeia: U.S. Pharmacopeia statement on supply chain impact of tornado damage to Pfizer Inc. Rocky Mount facility https://www.usp.org/news/us-pharmacopeia-statement-on-supply-chain-impact-of-tornado-damage-to-pfizer-inc-rocky-mount-facility
United States Pharmacopeia: Visibility to build a stronger supply chain. https://www.usp.org/supply-chain/medicine-supply-map
Congress.Gov: A bill to map the United States pharmaceutical supply chain and use data analytics to identify supply chain vulnerabilities and other national security threats. https://www.congress.gov/bill/118th-congress/senate-bill/2364/all-info#subjects-content
Medicare has a new plan to address drug shortages — but it could backfire https://www.statnews.com/2023/07/18/medicare-cancer-drug-shortages/
Drug Shortage RFI - https://www.finance.senate.gov/imo/media/doc/drug_shortage_rfi.pdf
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