Within the last decade, healthcare providers and suppliers have experienced at least two notable shortages of IV and pharma solutions.
The first emerged in the 2013-2014 timeframe, following a Food and Drug Administration recall, coupled with an aggressive flu strain season and the exit of the No. 2 supplier.
The second emerged in the 2016-2017 timeframe, following a hurricane that damaged the Puerto Rican manufacturing plant of the No. 1 supplier, but also cut out power by damaging the electrical grid on the island nation it hit, which further hampered production.
When a crisis incapacitates an industry or market in a capitalistic, free market economy driven by supply and demand price hikes inexorably emerge. In fact, Healthcare Purchasing News received anecdotal reports from prominent supply chain executives at the time that spikes in demand led to some hikes exceeding 20 percent to 50 percent to estimates of 300 percent, regardless of group purchasing organization contract protection. Those supply chain executives further noted suppliers were bundling in pumps and related supplies as a way to soften the economic impact.
Certainly, impediments that hinder production — from natural disasters to product recalls to market dynamics — are not limited to IV solutions or other pharmaceuticals, but can touch clinical, critical care, imaging, laboratory, medical/surgical and other products as well.
However, because IV and other pharmaceutical solutions represent such a critical element of patient care healthcare providers and suppliers need to maintain a fluid (pun intended) supply chain to ensure access to these products no matter what.
Understandably, this issue remains a sensitive and sore spot among providers and suppliers alike, but rather than allowing providers to take social-media potshots at suppliers and suppliers to defend their decisions, HPN instead chose a different path by asking sources to analyze past problems and formulate potential solutions that could avert these problems.
Get in front of it
Some experts argue that planning for unexpected events and minimize, if not prevent, product shortages from happening may be easier said than done, better on paper than in practice.
“Effective sourcing strategies for products including IV solutions and pharmaceuticals require a far higher level of transparency in comparison to historical standards,” Jackson said. “Organizations involved in contracting for these products need to look beyond foundational elements, such as FDA approval and supplier production capacity, and really evaluate the perceived health of the overall supply chain, including manufacturing sites, raw materials procurement, and historical performance.”
Beth Grimsley, Portfolio Executive, Medical Sourcing Operations, Vizient, acknowledges that the shortage of IV fluids providers experienced after Hurricane Maria hit Puerto Rico was significant, but after reviewing the actions of several healthcare organizations that were successful in managing through the crisis, she found they shared several common supply strategies.
“First, every organization had a signed Letter of Commitment to at least one supplier,” Grimsley noted. “While they were not getting everything they needed, they were getting some product on a regular basis. Next, each had an internal team of stakeholders from every affected area in the hospital, such as medical, nursing, supply chain and leadership, and they had at least one person designated as an inventory specialist. This specialist served as ‘boots on the ground’ managing the products, backorders, utilization rates and the distributors. Lastly, when possible, many organizations sought out secondary supplier agreements for additional inventory.”
Market dynamics, including a limited number of suppliers of a given product, may complicate decisions and dilute potential solutions, according to Thomas Lubotsky, a former Chief Supply Chain Officer at a leading Midwestern integrated delivery network and senior healthcare supply chain industry observer. In fact, searching for “silver bullets” beyond some obvious strategies and tactics likely used by many forward-thinking organizations may be futile, he adds.
“Many providers have a primary supplier they rely on for the manufacturing and delivery of these products,” Lubotsky said. “A sourcing strategy could include a secondary supplier, and I suspect that this sourcing approach is widely used today. Yet these secondary suppliers are also primary to other providers, and in times of severe shortages, they are going to serve their primary providers first before they can deliver product to their secondary providers. Should a shortage be only isolated to a primary supplier, then a secondary supplier contract relationship may offer some protection to the provider. In these situations, a provider may wish to pay a premium to the secondary supplier for these products to get to the ‘front of the line’ among other primary providers seeking product [from] this same secondary supplier.”
The economic aftershocks, in terms of pricing, may be a bit trickier, Lubotsky continued. “To mitigate internal (provider) costs related to these type of product shortages, one could build in penalties to the primary supplier to pay to the contracted provider should they not be able to deliver product reliably,” he indicated. “While these payments could offer monetary relief, they do not replace the critical safety issue of reliably having product on hand.”
A simple strategic solution to a shortage issue of this magnitude doesn’t exist, agreed Ash Chawla, RPh, Chairman and CEO, PDM Healthcare. Some situations may arise unforeseeably in natural disasters like hurricanes, tornadoes, earthquakes, fires, etc. or through man-made “disasters” like weak planning by manufacturers and wholesalers, limited number of manufacturers and product production, quality control problems with manufacturing facilities, or manufacturers leaving the market completely, Chawla observed. These issues challenge sole-source strategies, he added.
“Knowing that there is a dearth of IV and pharma manufacturers even under the ideal market conditions, it is in the best interest of a healthcare organization to maintain purchasing agreements with more than one manufacturer of these products rather than providing exclusivity to a single manufacturer,” Chawla noted. “This is an area where a GPO that is awarding dual contracting structure can be of great asset. This flexibility allows them to ‘ready’ a solution in place when a shortage of their preferred products does come up rather than having to urgently seek a new supplier and create a new contracting supply chain structure.”
Chawla urges healthcare organizations to develop and maintain a “defined and well-articulated protocol in place for staff to be able to easily switch to another product when needed” as a clinically acceptable alternative or even to take a hard look at their inventory practices against the backdrop of current events and market developments.
“Most importantly, healthcare facilities should time-monitor their inventory and place timely re-orders, specifically for products with a history of shortages or where shortages are anticipated due to market conditions, or population health issues, such as the recent severe flu outbreaks,” he said.
Chawla further muses that events and issues like these should motivate manufacturers to determine whether to invest more in product line development or whether a new manufacturer should enter the market to fill the void.
“Business continuity planning and strategic partnership development are two crucial ways to protect against future IV solution shortages,” Nickens told HPN. “Creating a long-term business continuity plan is one of the most valuable steps that healthcare organizations can take. These plans should proactively outline contingencies that allow for continuous organizational operations during a natural or man-made event — rather than scrambling to mitigate a shortage during a shortage.
“In addition, healthcare organizations must be sure to communicate their business plan to sourcing partners who are committed to providing sustainable and reliable supplies,” Nickens continued. “That requires developing long-term partnerships with solutions providers who take the time to understand the organization’s needs and priorities, and who can help forecast how those requirements might fluctuate throughout the year or under different conditions.
Nickens recommends providers concentrate on asking six fundamental questions as they search for a reliable supplier:
- Is my provider capable of creating redundant supply?
- Do they have a capacity backup plan A, plan B and even plan C?
- Do they offer regional manufacturing diversification to protect against shortages caused by disasters or other events?
- Are they committed to innovation in supply augmentation?
- Do they have a history of responsible, long-term thinking?
- Do they invest in manufacturing?
The “secret to strategic sourcing” involves working with suppliers that can answer “yes” to all six, Nickens added.
Compounding crises can be quite confounding to organizations without flexibility in their strategic sourcing plans, according to Mike Moloney, Group Vice President of Integrated Pharmacy, Premier Inc.
“We’ve seen how important sourcing flexibility is to maintain patient care during recent natural disasters, including Hurricanes Harvey and Florence,” Moloney said. “Add unexpected events to the already ongoing dry spells of drugs that are critical to patient care, and it’s clear that providers need to strategically plan how to adapt their sourcing to protect against potential shortages.”
Moloney urges providers to establish a “strategic sourcing toolbelt” that includes the following:
- A strong response plan in place that includes partnerships with nearby organizations and an understanding of how the supply chain partner contributes during shortages
- A supply chain partner with purchasing volume, partnerships and expertise to make connections with alternative suppliers and manufacturers during shortages
- A partner that can provide affordable access to drugs that are in short supply.
Plan work, work plan
Certain natural or man-made events may happen too quickly or unexpectedly for a supplier to pivot a massive production engine in time, Chawla acknowledges, but that doesn’t mean providers and suppliers should not be “well-versed in alternate strategies and offer proper advance training and education” for their staff and customers — focus on the proactive more than the reactive.
“Proper preparations ensure easy integration and switching to alternate solutions without excess time and or supply waste without the need for additional last-minute training that would take away from time needed for patient care,” Chawla said. “Effective alternate strategies include using compounded products either made in the hospital or through a certified, reputable quality controlled 503B facility, using different size bags where appropriate, and using different methods of administration, such as oral rehydration therapy, IV push or oral therapy, and creating guidelines for patient priority for access to the short-supply products.”
HealthTrust’s Jackson emphasizes a flexible sourcing strategy.
“Multiple sourcing approaches can be deployed to mitigate supply interruptions and shortages,” he said. “If you are pursuing a sole-source strategy, ensuring a strategic partnership with a single vendor so that all the potential risks to supply are evaluated and addressed up front creates a proactive process and accountability. Contracted suppliers must maintain sufficient product inventory so that they can meet contract delivery terms and service levels. If taking a dual or multi-source approach, it is important to ensure diversification of risk. This can be accomplished by eliminating overlap among the underlying historic contributing reasons for drug shortages (e.g., raw materials suppliers, manufacturing locations, etc.).”
Stephanne Hale, Director, Clinical Solutions, Vizient, advises healthcare providers assemble a multidisciplinary team of internal stakeholders to develop system-wide policies and procedures to manage, educate and communicate about shortage situations. Team members should include, but are not limited to, a physician and/or medical director, and key leaders or representatives from pharmacy, nursing, dietary, supply chain and the education departments. As necessary, this team will be responsible for communicating and educating the mitigation strategy throughout the organization, evaluating the success of the strategy and making changes as required, she adds.
Hale also recommends that this team should “develop proactive plans for the management of IV and pharmacy solution shortages as they occur, as well as strategies and procedures in crisis situations. In the event of a natural disaster or shortage, the team should convene as quickly as possible to begin collecting information regarding the cause of the shortage and the manufacturer’s contingency plan.”
Further, the team also “should implement an enhanced inventory assessment and tracking protocol, from weekly or daily to every shift, to determine product allocation for the emergency department, intensive care units and trauma cases versus elective procedures,” Hale continued. “Additionally, they should schedule daily facility alerts reminding caregivers of the acute shortage and conservation strategies.” The team should meet frequently and also include a supplier representative to discuss and share updates on contingency and recovery plans, she added.
If anything, Hurricane Maria served as a catalyst or wake-up call for several risk mitigation strategies that suppliers should consider, according to Hale. She cites four key issues to address:
- Investment in U.S. mainland production capabilities
- Efforts to optimize supply chain operations and create manufacturing redundancies where appropriate
- Implementation of import registration strategies in the event the U.S. supply is compromised
- Investment in technology and e-services to provide more timely information.
As part of a mutual principle of transparency, Lubotsky encourages providers and suppliers to develop a core preparedness plan that is triggered by thresholds of units unable to be delivered, shut down of production lines at the manufacturing plant or other critical events such as severe climate changes.
“So often in these moments of severe shortages, communication channels break down or in some cases, completely shut down, which leads to more desperate and perhaps unnecessary measures by a provider,” he said. “Knowing well in advance of potential supplier manufacturing issues (e.g., product line shut downs or temporary stoppages due to FDA investigations) is key communication. Suppliers should be able to forecast future supply delivery issues to their customers once they understand the magnitude of these production problems. This communication can then assist providers to work with pre-arranged secondary suppliers to remedy future supply issues or to set in motion other internal solution approaches within their healthcare system if necessary. In these situations, transparency of a potential downstream delivery impact will go a long way toward developing healthy, trusting relationships with suppliers that are faced with unplanned events. Demonstrating this type of transparent and advanced planning behaviors actually will sustain longer-term relationships among supplier and providers.”
Lubotsky understands that severe climate changes, some of which may be sudden, can challenge product delivery almost immediately so adaptation should be obvious.
“Given the placement of manufacturing plants in high-risk climate areas and with a shelf life of two years among IV and pharma solutions, suppliers should consider safety stock locations across their other ‘safer’ locations — including global locations — to meet the ongoing demand of product delivery when climate or other disaster events occur,” he said. “Providers that have a centralized [consolidated] service center established can certainly also stock up on IV and pharma solutions, but their capacity to hold product is usually far less than the large global suppliers. Yet this inventory management practice can also minimize unfulfilled supply demand issues.”
Still, the crux of the issue centers on communication, Lubotsky insists.
“Let’s not forget that during the moment of crisis, communication of where product is in transit and its location is essential,” he said. “During the recent hurricane supply disruption, many providers were relying on knowing the status of product delivery each day. Updating by the hour regarding the precise number of IV and pharma solution units to be delivered during each day was imperative to ensure that product was going to reach the patient bedside. There are enough demand-signaling capabilities today that suppliers should consider to increase the efficiency of communicating their delivery of product. Furthermore, suppliers need to be transparent by showing how well they are meeting daily production levels required among production plant sites so that providers have a better understanding of how they are progressing in meeting future demand. By working closely with providers and their distributors, this key communication is essential to deploy in these moments of supply disruption crises.”
B. Braun’s Nickens backs the federal government’s recommendations for reactive managing through and proactive planning for product shortages.
“As recommended by the Food and Drug Administration (FDA), we at B. Braun agree that stakeholders — including healthcare organizations, suppliers and solutions providers — should find ways to lower shortage risks by building redundant manufacturing capacity, holding spare capacity, or increasing inventory levels,” she said. “The FDA also recommends improving internal and external communication to minimize or better manage shortages when they occur. Providers, suppliers, manufacturers and other stakeholders can check for, receive notifications from, or report shortages on the FDA Drug Shortages and the ASHP Drug Shortage databases.
Premier’s Moloney emphasizes the potential longevity of a crisis as a necessary component to shape strategic sourcing plans.
“Given how long products can stay on the drug shortage list today, preparedness plans for both providers and suppliers need to include product shortages as well as natural disasters,” Moloney noted.
“Providers can work with suppliers by seeking GPOs and purchasing programs that increase competition and circumvent market pressures with an eye toward products that may be vulnerable to shortages in the future,” he continued. “For example, Premier’s product access program has provided uninterrupted access to 92 high-quality SKUs on the drug shortage list at an affordable, differentiated price point, including drugs used for essential patient care.” Through Premier’s ProvideGx subsidiary, the GPO works with quality generic drug manufacturers that can supply shortage products and bring more stability to the market, he added.
Note: Executives at Baxter Healthcare Corp. did not return HPN’s repeated attempts for comment, and executives at BD declined to comment on the matter.
Related Sidebars:
Assessing, evaluating provider, supplier performance amid crises
Searching for alternative processes, products before demand peaks
GPO contracts should keep pricing in check during shortages, right?
Rick Dana Barlow | Senior Editor
Rick Dana Barlow is Senior Editor for Healthcare Purchasing News, an Endeavor Business Media publication. He can be reached at [email protected].
