As inflation hits a 40-year high, hospitals are facing some of their most challenging financial headwinds in at least as many years. Conversations among trading partners have shifted, from resiliency to intense price negotiations. This can be an uphill battle, with many products still in short supply and suppliers, too, facing higher prices. It can also spell problems down the road, if we divert our attention too much from trying to create a more transparent, resilient, and socially conscious supply chain.
Before inflation reared its ugly head, many providers and suppliers were actively discussing how to create upstream visibility into potential supply chain risks, from fires at a production facility to longer term disruptions caused by geo-political conflicts, major natural disasters and the likely potential for another pandemic. Among the most coveted information by hospitals and healthcare systems has been the countries of origin for both finished medical products and the associated raw materials and/or components. By knowing where a product is made, as well as the sources of the critical ingredients, hospitals can better target vigilance efforts. Case in point: when the Ukraine war started, industry observers rightly predicted shortages in many of the raw materials sourced from Ukraine that are used in the production of surgical instruments, orthopedic devices and durable medical equipment.
In the early stages of the pandemic, several large global medical device manufacturers told me it would be difficult to answer what seems to be a simple question: “Where are your products made?” That’s because the supply chain is complicated. The raw materials and components come from different regions, and the products themselves are often constructed in stages across geographies. During times of disruptions, manufacturers may move production lines. Many products are also produced, at least in part, by contract manufacturers.
Supply chain complexity further reduces upstream visibility, which can impact more than just the ability to predict and respond to potential shortages. Manufacturers can expect these requests to increase, as regulators and commercial customers seek information to address multiple issues. Knowing the parties and places involved in the production of medical devices is also key to addressing other critical healthcare issues, including:
- Health Equity – Many hospitals and health systems can include their manufacturers’ upstream purchasing with diverse suppliers in their own diversity spend reports.
- Environmental Sustainability – Knowing where and how products are produced helps measure the carbon footprint of healthcare products, which will become more of a regulatory and/or market requirement going forward.
A third critical question has to do with an issue that is only beginning to receive the attention it deserves in healthcare – the use of forced labor in the supply chain. Other industries, e.g., garment, electronics, have already begun tackling this issue, in response to the public outcry following the 2012 collapse of a textile factory in Bangladesh, which killed more than 1,100 workers, and a spate of suicides among technology workers at a manufacturing plant in China. According to research, two-thirds of surgical instruments are manufactured in Pakistan, often in unsafe conditions by children as young as 7 years of age who are forced to work to pay off family debt. Plants making personal protective equipment (PPE) in both India and Mexico have also been found to have violated similar labor laws, while there is increasing evidence that Uyghur people in China are being forced to make PPE.
Beyond the criticality of a well-functioning supply chain, the pandemic also raised awareness of longstanding labor violations in glove manufacturing plants in Malaysia, where most of the world’s medical exam and surgical gloves are made. In March 2020, at the very start of the pandemic in the U.S., the federal government had just lifted a ban on imports from Malaysian glove manufacturers accused of violating the rights of migrant workers. A year later, as the pandemic raged on, the U.S. government once again banned certain Malaysian glove imports and ranked the country among the most egregious for human trafficking.
According to research1, the exponential demand for certain products during the pandemic shifted the balance of power to manufacturers, while hospitals competed to secure necessary products. But even without a pandemic, the rising demand for surgical procedures (and associated, often disposable, products) only further increases the potential for labor violations.
Medical ethicists have pointed out the tragic irony of the use of products to support the health of individuals in one part of the world leading to a decrease in the health of the people in other regions who (are forced to) make those products. Beyond the moral dilemma, governments around the world, including the U.S., are taking a more aggressive stance against forced labor in the supply chain. The U.S. has prohibitions against both the importation of product produced with forced labor and human trafficking by any entity receiving federal financial assistance. The Biden Administration has multiple strategies addressing human trafficking and recently launched a working group on forced labor in the healthcare supply chain.*
Given the challenges faced by providers (from inflation to labor and supply shortages), this may seem like another highly complex problem to add to an already full plate. While that’s true, I would argue that it also further builds the business case for more end-to-end supply chain visibility. How can we work across the entire supply chain to address these issues? Even starting with more visibility into country(ies) of origin could help target our efforts to combat human trafficking and minimize the potential for more supply disruptions due to ethical and legal issues.