The recent IV solutions shortage has exposed some glaring weaknesses in the nation’s Supply Chain infrastructure. The problem goes well beyond IV fluids and represents a strategic risk to the country’s healthcare system as a whole. Below is one health system executive’s take on what went wrong with our Supply Chain — and how to fix it.
News organizations throughout the country are beginning to highlight the ongoing shortage of IV solutions in the United States, and in doing so have generally focused on the recent damage to IV manufacturing plants located in Puerto Rico from Hurricane Maria. Looking at the pictures of hurricane-ravaged roads and coastlines from this strongest-in-a-generation storm, it’s easy to dismiss this shortage as the result of a one-off “act of God” — but as many hospital Supply Chain executives know, that’s not necessarily the case. One of the largest and most severely impacted producers of IV fluids is actually based in California, far from Maria’s path — and the fundamental flaws in operations and manufacturing that are truly driving this issue are (unfortunately) not limited to one line of products.
In this past year alone, there have been major supply chain disruptions in pacemakers, spinal implants, cardiac stents, local anesthetics, disposable urinals (just try running a major hospital without those and see how your day goes), syringes, even basic gauze … and the list goes on. Hospital Supply Chain staff are feeling increasingly overwhelmed by the daily challenges in providing critical supplies to provide basic patient care. What’s even more frustrating is that many of these shortages are limited to the United States alone. One of our materials directors recently visited some family in the Philippines, and joked about raiding his local small-town clinic for their plentiful IV supplies so he could bring some back to New York City — an anecdote that reflects the reality of the fact that for most of the world these shortages simply do not exist.
Here at Mount Sinai, we’ve been prudent in our planning, and we’ve been fortunate enough to ensure continuity of care and even assist our fellow hospitals in New York when needed with many of the products mentioned — but not all health systems have our resources, and with Flu season in full swing, I fear many hospitals — especially small and mid-sized institutions throughout the country – may struggle to provide their customary levels of care.
So why is this happening – and most importantly, what can be done about it? I believe there are a few key issues driving this trend:
1. The Healthcare Supply Chain is global, not local, and the scope of manufacturing operations increases the risk. Most products we use are coming from Asia/Europe, and a lot can go wrong over 7000 miles of land and water.
2. The “Just in Time” economy has gone too far. Over the past decade, manufacturers have hired many operations and logistics consultants to tell them how to streamline their operations and save money. The message they have been getting, loud and clear, is to minimize any excess stock on hand. Gone are the days when manufacturers have a warehouse full of products sitting around waiting to be sold. These days, shipments come off of a boat, and are whisked into transport centers, where they are cross-docked (i.e., taking products off one truck and directly on to another) and rushed out to fill outstanding (usually overdue) orders. As a result, there is no cushion built into the system — when an earthquake happens in China, or a hurricane in Puerto Rico, hospitals truly feel the impact within hours, not weeks.
As you can imagine, it doesn’t take an emergency to disrupt a Supply Chain this fragile. A favorite term from manufacturers these days is the “rolling backorder” — this is shorthand for “something went wrong between here and wherever this item was made, and we don’t want to publicly announce that there is a shortage, but you are not getting your product and we don’t know when you will.” For hospitals, of course, whether it’s a major storm or simply poor planning by the manufacturer, the end result is the same.
3. Manufacturers have not invested in excess manufacturing capacity and in-house logistics expertise — Especially for public companies, justifying the capital expense necessary to modernize your production lines is a huge challenge, and as a result, many plants are old and outdated, prone to breakdowns, and without sufficient excess capacity to ramp up during a shortage to cover the market’s needs.
The old and outdated manufacturing plants are matched by a lack of good data and trained in-house logistics staff. When there is a shortage, manufacturers are usually unable to provide hospitals with accurate data on incoming shipments, production levels — or indeed, any meaningful data at all that can help hospitals mitigate. Hospitals and Health Systems are left interacting with sales reps with no logistics expertise, no operations training, and essentially no helpful information to provide.
4. Supplier consolidation has limited our backup options — Thanks to aggressive pace of acquisition by a few of the largest medical device/supply companies, many key product categories have only two, perhaps three FDA-approved vendors who can supply product in any meaningful capacity. These vendors likely have no excess manufacturing capacity anyway, and no reserve stock on hand to assist when a shortage hits their competitors.
So how do we fix this issue? Recently, representatives from several leading health care systems – including MSHS — came together to visit Washington D.C. and share our concerns about this issue with lawmakers from both parties. We do feel the problem is bi-partisan — rich or poor, Republican or Democrat — everyone wants hospitals to have what they need to provide care – and there a ways to address this issues that would be consistent with both parties’ principles. Here were a few of the recommendations we discussed:
1. Designate certain categories of medical/surgical supplies as “Mission Critical/Essential”: Step one in solving any problem is always to get our arms around the scope of the problem. We recommend that the FDA create and maintain a list of essential supplies and suppliers. This category may include not only IV solutions and Drugs, but also Medical Supplies & Devices such as IV tubing, pacemakers/stents/spinal implants/patient bathing/needles/infection prevention supplies.
Manufacturers of these supplies should be incentivized to meet certain requirements. Depending on your preference, these could be regulatory requirements, or simply market based tax incentives (and good press) for manufacturers that are willing to work in partnership with the FDA and hospitals to help us strengthen our Supply Chain. Examples include:
- Visibility into Current Stock and Production Levels: Production volumes and current in-stock levels from Mission Critical/Essential manufacturers should be submitted to the FDA quarterly, in a standardized format, and distributed to hospitals in case of supply chain/production interruption.
- Equivalent Product List: The FDA should maintain a list of equivalent products and manufacturers in each essential category. Hospitals should be able to view this list online when they need to locate a substitute product quickly.
- International Pre-Clearance List: The FDA should also develop a pre-cleared list of international substitute products for items like solutions that are widely manufactured in Europe. These products could be fast-tracked for importation in case of a major shortage.
- Notification Requirements: Mission Critical/Essential manufacturers should be required to notify the FDA of any sustained interruption in production or distribution longer than five days — or five or more interruptions in production or distribution within a quarter. Hospitals should be able to view these notifications as they do recalls, so that they can consider a Supplier’s reliability when making contracting decisions.
- Redundant Manufacturing/Emergency Plans: Hospitals are required to maintain detailed emergency plans to ensure continuity of care — Mission Critical/Essential manufacturers should be required to do the same. Mission Critical/Essential manufacturers should be required to present proof of redundant manufacturing capability of all mission critical supplies (this redundant manufacturing plan should include recommended distance between manufacturing plants to accommodate weather-related disruptions).
- Reserve stock within continental United States: Hospitals are required to maintain a set amount of essential supplies on hand to ensure continuity of care in case of supply chain interruption. Mission Critical/Essential manufacturers should be subject to similar requirements. Designated Mission Critical/Essential manufacturers should be required to maintain at least 30 days stock (based on current customer volumes) within the continental United States at all times. This would greatly mitigate the effect of “rolling backorders” (i.e., short-term supply issues) and would allow both hospitals and vendors the ability to respond to larger scale production issues with sufficient notice.
- Review of mergers/acquisitions for Supply Chain impact: Mergers between Mission Critical/Essential manufacturers should receive scrutiny from regulators for possible impact on Supply Chain resiliency. As part of merger approval, manufacturers should be required to present a plan to maintain manufacturing levels sufficient to meet market demand.
While increased support and communication from government agencies would be greatly helpful, there are also ways that hospitals can help themselves by leveraging their purchasing power and emphasizing to manufacturers the importance of investing in a robust Supply Chain.
2. Hospitals and purchasing groups should include benchmarks for Supply Chain performance in their contracts with manufacturers.
Supply disruptions come with a significant cost to hospitals — not just missing products and delayed cases, but time, effort, and shipping costs involved with locating substitute products. I believe it’s time for hospitals and GPOs to adopt reasonable contract provisions making manufacturers liable for some of that burden should they be unable to meet demand due to actions within their control.
If the FDA shuts down your plant due to repeated violations and quarantines your stock (leaving you unable to fulfill your obligations to your customers) then contractual penalties should occur. In addition, price increases should simply never be contractually permitted while allocation levels are below 100 percent of average monthly use.
On a larger scale, I believe it’s also time for hospitals to formally begin factoring manufacturers’ Supply Chain and product availability history into their contracting and product evaluation process. Ater all, you can have a wonderful, clinically preferred product, but if it’s constantly going on backorder, forcing repeated changes in clinical practice (and extra expense), the product may not provide a net benefit to quality of care. This approach can also reward manufacturers who have developed an extremely resilient Supply Chain and work hard to meet their customer’s needs.
The recommendations advanced above would not make this problem go away entirely, but I believe they would greatly strengthen the nation’s healthcare Supply Chain, encourage better planning and improved manufacturer operations, and increase the ability of hospitals to plan ahead and meet their patients’ needs.
At Mount Sinai Supply Chain, our driving philosophy is that the institution deserves a supply chain operation that is worthy of the world-class excellence and dedication displayed every day by our clinical teams. In a country as advanced and successful as ours, patients throughout the United States deserve a healthcare Supply Chain strong enough to ensure that their local hospitals will have everything needed to provide great medical care.
