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         Clinical intelligence for supply chain leadership


January 2007

News on the Cover

Pandemic purchasing priorities

Are healthcare facilities prepared for the surge or behind the curve?

by Rick Dana Barlow

Before terrorists flew passenger jets into sky-scrapers and the Pentagon and allegedly targeted other prominent federal buildings back on 9/11, such acts were confined to the creatively fertile imaginations of Hollywood and fiction publishing houses.

Now in the post-9/11 world, with credulity stretched to the limits, the mind’s eye blinders are gone. Healthcare facilities are preparing for, if not at least talking incessantly about, heretofore unfathomable worst-case scenarios that involve hundreds, if not thousands, of bacterially or virally infected patients that will quickly drain finite resources instigated by management efficiency efforts.

Imagine if the terrorist acts on lower Manhattan, Washington, D.C., and what turned out to be a Pennsylvania field had resulted in the release of a lethal virus? Or imagine if the floodwaters of the Hurricane Katrina-battered Gulf Coast in late 2005 distributed something toxic to residents and relief workers in the region, which quickly radiated outward to other parts of the country? Or what if something less dramatic occurred? Like disease-infected geese defecating in public soccer fields and parklands in a given geographic area? Following weekend games and other recreational activities, scores of kids and their parents and friends track geese droppings on their shoes and bicycle and car tires home. This can happen.

Shortly after the terrorist attacks on the twin towers of the World Trade Center authorities closed lower Manhattan to vehicular traffic to prevent transportation logjams. In the event of a viral pandemic, they would have had to quarantine the area. And authorities would have to do the same in those areas affected by the Katrina floodwaters or the geese droppings. But they also would have to control and corral an infected patient population crowding hospital emergency rooms and medical clinics.

Because many hospitals have followed the long-standing advice of manufacturers, distributors and supply chain consultants who emphasize lean inventory measures for efficiency, their just-in-time stock quickly would be depleted by the disease-ravaged public. With vendor supply routes cut off, hospital inventories running on fumes and the Strategic National Stockpile in continual development, how does a materials manager keep product pipelines flexible, fluid and open during a major catastrophe or crisis?

Owens & Minor Inc. readies deliveries to Gulf Coast customers in Hurricane Katrina’s wake in late 2005.
Photos courtesy of Owens & Minor

With experts warning against panic-driven stockpiling and JIT benefits quickly becoming obsolete in the face of unexpected demand, materials management professionals seemingly are caught between a rock and a hard place in dealing with a pandemic that escalates consumption and depletes coffers. Are there rational – and realistic – solutions for materials managers? Should they trust the system and their suppliers?

To a certain degree, yes, but with careful planning, according to Michael Lortie, corporate director of materials management at Carondelet Healthcare Network, Tucson, AZ. Lortie and Carondelet’s warehouse manager Randy Corn have been involved in community-wide disaster planning in Tucson for years.

"We have boosted inventories on masks, gowns and gloves for our four-hospital system, but we do not have what can be called a huge stockpile," Lortie said. "The bottom line from our point of view is that just as in Y2K, being prudent is one thing, over-reacting is another. But no matter how much you build inventory, you just don’t know what the magic number is. If there is an outbreak here, we would call on our distributors up in Phoenix, and run our own trucks up there if need be.

"We will put our trust in the inventory we have built up, and then in our supply chain partners, and then in the federal response," he continued. "Tucson is home to a huge Air Force base, with a huge Army base nearby, and we have been involved in a drill involving actually flying in the National Stockpile. Therefore, we do not feel hoarding supplies is a good use of the organization’s money."

Jim Rush, corporate director of disaster preparedness at San-I-Pak Inc., an onsite medical waste treatment firm, and president of MEDLOG Inc., a disaster preparedness services firm, recognizes the conundrum. Rush acknowledged that healthcare inventories have been reduced as both product demand forecasting capabilities improved and healthcare financial resources became strained, noting that even the Department of Defense switched to a JIT supply management system more than a decade ago. "So what is wrong with lean distributor and hospital inventories and just-in-time distribution? Nothing … as long as a long-duration natural or man-made disaster doesn’t occur," he said.

"If demand for medical products spikes by more than a few percentage points above average consumption, the lean supply chain is emptied and manufacturing plants will not be able to catch up to demand for months if not a year or more. That means widespread supply-outs and long backorders just like we see in anti-viral medications today," he continued. "There is no difference between medical products and any other commodity like the gasoline outages we see throughout
America when demand outstrips supply. However, there are significant differences between an event which affects one city or even one state and an event like a pandemic which will affect the entire country and all industries, including healthcare."

Distributors may be able to shift resources rather quickly in the event of a natural disaster, realigning medical product supply capabilities so that facilities in an affected area can keep healthcare delivery "reasonably intact," such strategies may be stretched in the wake of a man-made disaster, he indicated.

Cardinal Health’s Robert Hankins completes a delivery to a major teaching hospital customer.

Photos courtesy of Cardinal Health

 "If a city should be attacked with a nuclear weapon – not a dirty bomb but a nuclear detonation – the demand for radiation antidotes, trauma supplies, blood and tissue products, pain medicines, burn ointments and dressings, IV fluids and a host of other life saving supplies and equipment will be so great that such an event would likely deplete distributors inventories across America," he said.

Rush questioned the suggested strategy of healthcare facilities "stocking up" with a two-week supply of items for a bioterrorism event or for a forecasted avian influenza pandemic. "Where is the healthcare organization going to get supplies after the two-week supply is exhausted?" he asked. "The inference is that the supply chain will catch up to demand, but those words are never in writing. By
the way, is that two weeks of normal usage? Or is that two weeks of supply at levels of consumption associated with a disaster?"

Rush emphasized that facilities should be calculating the individual line items and quantities of medical products that will be required in a disaster
and identified in the jurisdiction’s Hazard Vulnerability Assessment. Otherwise, healthcare facilities are just "talking around" the issue, he added.

Planning for pandemic pandemonium

While the private sector is encouraged to be cautious and prudent, the federal government has been fortifying its Strategic National Stockpile (SNS) with items such as N95 respirators, isolation gowns, exam gloves and other relevant products.

In fact, Health and Human Services Secretary Mike Leavitt reassured the public that the government has stored enough vaccine to inoculate roughly three million people against bird flu and plans to increase its capacity by another five million treatment courses this year. Additionally, Leavitt told the media that the feds have purchased and stored 16 million treatment courses of antiviral drugs for the H5N1 virus with another 20 million due by March; 73.1 million N95 respirators with another 31.8 million on order; and 37.4 million surgical masks with another 14.1 million on order.

Leavitt also reported that a number of states have implemented pandemic flu exercises and that a team of "pandemic flu experts and communicators" will conduct an exercise early this year to test and improve pandemic information reporting capabilities.

"Hospitals need to establish contact with the appropriate government organizations – local, state and federal – and advise them of their supply chain situation," said Larry Dooley, vice president of contract and program services at Novation, "especially if they have JIT or stockless types of supply chain." That way each hospital can ensure access to supplies that the government is stockpiling in 15 to 20 locations around the country, he added.

Careful planning also keeps transportation routes fluid, particularly during restrictive government cordons or quarantines.

"Supplies need to move freely from suppliers to hospitals and from hospitals to other hospitals," Dooley said. "By notifying the government you can set up plans for moving these supplies safely with the necessary police protection. As we know, nothing is foolproof or 100 percent secure, but maximum pre-planning can ensure maximum protection."

But Rush questioned how private healthcare facilities will gain access to the public Stockpile and how those facilities will participate in a federally driven supply chain effort where private and public healthcare facilities will have to rotate and share supplies. For example, can the Stockpile serve the public health organizations as well as the private healthcare industry and vice versa? Another detail that still needs to be addressed and planned includes actual order processing and fulfillment during a crisis.

"There is no practical way for cities or states to build inventories large enough to sustain their jurisdictions throughout a long-duration or ‘material-intensive’ disasters like a nuclear detonation or multiple-target attacks with explosives," Rush said. "Also, the mission of the SNS has not been clearly articulated to the healthcare industry in terms of what the SNS will and will not provide to healthcare organizations during disasters. This leads to very dangerous assumptions that the SNS is going to sustain all disaster-related healthcare. It will not."

Craig Raben, vice president, environmental health and safety, Cardinal Health Inc.’s Supply Chain Services and Medical Products Manufacturing business, noted that any successful planning and implementation efforts hinge on open lines of communication.

"To prepare for a possible pandemic, the most important thing that healthcare providers can do is set up various means of communications and to establish communication channels that will remain open in any crisis," he said. These channels must be comprehensive, widespread and regularly evaluated. "Channels need to set up with employees, the communities they serve, suppliers, public health agencies, other governmental agencies, emergency responders and other healthcare providers," he advised. "Communication channels and response arrangements should be routinely tested and providers should ensure there are backups to everything and everyone."

But that doesn’t alleviate the distributor’s responsibility to ensure product delivery to customers, he added. Hospitals should ask about and understand their chosen supplier’s capabilities during a potential pandemic or other crisis, focusing on specific plans and processes.

At the same time, hospitals must have established business continuity plans in place that specialize in pandemic preparedness, according to Raben. With proper communications, education, training, a pandemic preparedness team, a documented process to be followed, a list of mission-critical employees who must come to work and a list of products acceptable for increased pandemic-motivated inventory levels, hospitals have a workable battle plan to weather storms, he added.

Hospitals also need to establish local networking groups and discuss how they are going to work collaboratively to address any emergency situation, including establishing protocols for sharing supplies and staff, according to Dooley.

What if the hospitals belong to different GPOs and access different contracts? It doesn’t matter. "At times of crisis, all this goes out the window," he added. "When 9/11 hit, suppliers and hospitals did what they had to do to care for patients. These suppliers were working with the hospitals out of community service, not what price to charge. When the dust settles the impacted hospitals will work collaboratively with their suppliers to reconcile product use and costs."

Logistical lessons learned

Logistics strategies and tactics used by healthcare suppliers or even in non-healthcare industries may not be applicable or appropriate solutions for healthcare providers, experts noted. For example, retail management of large stockpiles relies on minimum and maximum replenishment cycles. "These replenishment cycles have no significant correlation between daily hospital usage and order quantities," Rush noted. "If stockpiling continues at the city, state and hospital levels, the American healthcare supply chain may be damaged for years to come. The result could be long unanticipated backorders on critical items until the supply chain forecasting systems can be repaired."

Conceptually, JIT and stockless distribution and inventory programs in hospitals were "intended to mirror those of other industries," acknowledged Jamie Kowalski, managing director of business development at Owens & Minor Inc., but they are merely similar. "In manufacturing, the JIT process results in delivery of supplies, literally, just before they are used," he said. "In a hospital, that cannot work because of unforeseeable variables in demand on an immediate basis, such as arrivals in the ED, spike in births, etc."

Kowalski urged hospitals to maintain enough stock in their internal pipeline to satisfy at least two weeks of usage. "Most supply chain practitioners and consultants would rarely recommend a target inventory turns rate of more than 20 per year, hospital-wide," he noted. "While individual items may turn more rapidly, in general, the two-week ‘float’ would suffice until transportation infrastructure could respond."

Kowalski cited the laborious, but ultimately successful, supply chain activities after 9/11 and Hurricane Katrina. "While there were individual hospitals and individual items that were running out, the healthcare supply chain operated relatively smoothly, albeit, with much effort," he added. "So the pipeline inventory helped."

Raben concurred that relatively recent disasters served more as a valuable educational experience rather than an operational strain.

"We learned a lot from 9/11 and natural disasters such as Hurricanes Katrina and Rita, that will help Cardinal Health deal with any catastrophe," Raben said. "Even though roads were closed in the aftermath of the twin towers being hit, critical operations were not in jeopardy. Cardinal Health drivers were escorted to restricted areas by police, due to the vital nature of our roles in public health. Helicopters landed at our facilities to pick up essential supplies."

Hospitals should have business partnerships with suppliers that have comprehensive, documented and tested disaster plans, and a record of performance in such situations, Kowalski urged. Experience during and after 9/11 and Hurricane Katrina are prime examples, he added.

Emergency protocols should be established with all key suppliers that handle med/surg, drugs, laboratory products, food and MRO. In fact, hospitals should negotiate such emergency protocols into their contracts, Dooley noted. "For example, in Florida many hospitals have negotiated tractor trailer loads of the most needed supplies they will need during a hurricane," he said. "When a hurricane is predicted to impact an area those hospitals notify their distributor to bring the trailers to a secure area. The supplies are only used if necessary, and only those supplies that are used or resalable are paid for. The remaining supplies are returned to the distributors’ inventory. This type of planning works."

However, Dooley doesn’t recommend including penalties for non-compliance or unacceptable performance on part of the vendors to support the facilities. "I am not a major proponent of penalties in these cases," he said. "Time and time again, the distributors and other suppliers have more than demonstrated their ability and willingness to help. If they fail to supply it is because they can’t for legitimate reasons." 

Despite the perceived risks during a crisis, Raben insisted that "low inventory levels are good business." However, he realizes that may create challenges when planning for a pandemic response. "Higher inventory levels of specific products make sense for pandemic preparedness," he advised. "It is crucial to define which products need higher inventory levels and to determine the needed increase. To overcome this challenge, the rationale to increase inventory of specific products must be developed and presented to senior manage-
ment for their understanding, approval and support."

Rest assured, Cardinal heeds its own advice, according to Raben. "We maintain detailed local disaster response plans for each of our distribution facilities," he said. "As part of the plan, each distribution facility has at least three backup locations, emergency customer support and centralized command and control centers. We have systems to track employees and the movements of our trucks. Additionally, we have relationships with key suppliers to maintain fuel supply in the event of a shortage. We also have strong relationships with local, state and federal authorities."

The distributor also monitors the med/surg product pipeline of its suppliers, too, in the event of a pandemic. It has developed product guides to help healthcare providers prepare for avian flu and a potential pandemic based on product formularies created by the Association for Healthcare Resource and Materials Management (AHRMM), the Health Industry Group Purchasing Association (HIGPA) and the Health Industry Distributors Association (HIDA), according to Raben.

In fact, company representatives work with customers on ordering using the Centers for Disease Control & Prevention’s "FluSurge" program, which enables hospitals to input demographic and other information to determine they type and quantity of product needed. "We are building ‘Pandemic Orders’ with customers and making a variety of arrangements with them, including direct shipment from manufacturers to setting up trailers, pods or off-site storage facilities," he added. "For JIT or low unit of measure facilities, we are working with customers to appropriately increase their par levels."

Meanwhile, Owens & Minor has developed similar plans and processes to link internal business continuity with customers’ own continuity, Kowalski indicated. Company employees communicate with each other and with manufacturers so that distribution centers work collaboratively in providing contingency coverage. Technology facilitates identifying problem locations and items so that resources can be redeployed as rapidly as possible, he noted.

Owens & Minor also works with customers to determine pre-established product formularies so it recognizes hospital needs and can forecast purchases, inventory levels and deliveries. What helps is when the hospital’s information system can identify inventory on hand at all times and locate products that are in the building, for internal redeployment, as an immediate response, while waiting for the supplier portion of the supply chain to respond, Kowalski said.

"Imagine the value of having pre-established, universal care protocols along with standard product formularies and ‘bills of materials’ for all cases and procedures," he said. "Managing disaster situations would be greatly facilitated for both hospitals and suppliers. Maybe disaster planning will move the industry in that direction."

10 tips to bank

So what can healthcare materials management professionals do to prepare his or her organization to function properly during and after a natural or man-made disaster? Rush offered the following suggestions on preparedness.

1. Establish a close relationship with the healthcare organization’s disaster preparedness coordinator/manager. Obtain information relating to the community hazard vulnerability assessment (HVA) and the healthcare organization’s internal HVA.

2. Provide supply, equipment and ser-
vices subject matter expertise at plan
ning committees, exercises, and other hospital disaster-related meetings and committees. 

3. Accompany the disaster coordinator to local disaster coordination meetings and at meetings sponsored by the State Public Health Department’s Bioterrorism Coordinator, especially pre-proposal Federal Grant meetings. This will enable the materials manager to include the hospital’s disaster preparedness medical material and services requirements on hospital grant requests and proposal documents. The materials manager can then expeditiously order and obligate government approved and funded products and services.

4. Use the Association for Healthcare Resource & Materials Management’s (AHRMM) disaster "Readiness Information" (members only) at
www.ahrmm.org/ahrmm/news/disaster.html as a basis with which to plan for events depicted in the community HVA.

5. Serve as the healthcare organization’s leader in developing disaster-related

6. Become an advocate for healthcare preparedness at local materials management planning work groups and at AHRMM state chapter meetings and share strategies with the membership.

7. Consider supplier consignment inventories to enhance the hospital inventory without adding to the cost of hospital-owned inventories. Institute appropriate stringent management controls on all consignments.

8. Develop memoranda of agreements with DOD active duty and reserve organizations for logistics support during disasters. Local DOD elements may be able to offer helicopter or fixed wing assistance in transporting supplies and equipment from distributors to hospitals when roads are impassable. The same agreements should be explored with Air Taxis within the jurisdiction or region and where feasible with law enforcement agencies for supply convoy escorts.

9. Prepare pre-disaster purchase orders to be released to distributors and suppliers, including out-of-state suppliers during  emergencies. The more redundancy in the supply chain the better it will be for the hospital.

10. Establish out of state/out-of-region support agreements with suppliers to
fill in as the prime vendor when local distribution inventories are exhausted. This can often be accomplished through the existing prime vendor with distribution centers located across America. 

"The time for separate planning committees is long past, and mutual cooperation toward the common good is long overdue," Rush concluded.

Editor’s Note:

For another acute perspective from New York City, read Timothy Glennon’s
People & Opinions article.