Modernizing the healthcare supply chain in the coronavirus era


The coronavirus crisis shook almost every industry globally, but the healthcare system was forced to adjust in real time.

As the coronavirus raced around the world, hospital systems found themselves facing rising numbers of cases and supply shortages. The normal supply channels and protocols that hospitals depend upon began to break down, forcing new and creative ways to allocate and gain supplies.

Even as the healthcare system continues to deliver crisis care while the coronavirus pandemic grows, the flexibility of the supply chain has remained a focus within the industry. As such, the lessons learned in an industry as strictly regulated as healthcare can help other sectors struggling to adapt to disruptions caused by the pandemic.

Spend Matters’ Chief Research Officer Pierre Mitchell recently spoke with Karen Conway, Global Healthcare Exchange (GHX) Vice President of Healthcare Value, about the issues that hospitals faced with their supply chains, and how the industry has learned from its past mistakes.

“One of the first things I did when the crisis broke was to review lessons learned from past outbreaks: SARS, H1N1 and Ebola. In all, the supply chain was noted as one of the biggest challenges,” she said.


Pierre: As this started unfolding, who are the ones that were first starting to see what was going on over in China, or not seeing what was going on? The story around visibility or not. Obviously, we have some intermediaries in the supply chain here, so we've created a very fragile supply chain. But then when did you guys start to see the effects of it and some talk about some of those issues around the visibility? Was this a tale of two different health systems?

Karen: We began to see news reports in early February about the Chinese government acquiring all of the personal protective equipment (PPE) coming out of Chinese-based manufacturing facilities, including supplies typically bound for export to the U.S. and elsewhere. The situation became real for many hospitals and healthcare systems, especially those that rely on just-in-time distribution, when their orders were placed on allocation. For example, a hospital that typically only buys 100 of a given product might increase the order quantity to 1,000 in the face of a pandemic. But when orders increase substantially across its customer base, a distributor has to allocate the supplies, meaning customers only get a portion of what they ordered.

Another challenge is that some of the demand was coming from outside the acute care setting, for example from nursing homes. While hospital supply chains have become far more sophisticated, many non-acute care facilities still handle their orders manually and outside the formal supply chain organization, which masks the demand. The pandemic has illuminated the value of healthcare system supply chains having responsibility, or at least visibility, into spend across both acute and non-acute facilities.

I think that's what I wanted to ask you about. It seems to me that certainly in “materials management" but the supply chain more broadly, it doesn't seem like the function has really at all been managed strategically. And to your point, we've had a demand-driven supply chain with automated replenishment and all that stuff happening. But we just kind of assume that the distributors and the GPOs, they're to be there to kind of support our needs and we don't really have to think about the supply chain too much. As such, without that visibility and management of it by the time we actually find out what's happened, it's too late.

On the hospital side, healthcare is still very much a cottage industry. With a lot of the mergers and acquisitions, we are seeing more economies of scale that can translate into a broader view of supply demand and utilization across multiple hospitals and facilities.

This will be increasingly important as we move to a more distributed healthcare system where care is delivered in the most optimum place, or in other words, where the same quality care can be delivered for a lower cost or where it is more convenient for the patient, or both. Changes in where and how healthcare is delivered will necessitate changes in supply chain structure and capabilities to accommodate a more distributed demand pattern. The expanded use of telemedicine and hospital care at home during the COVID-19 crisis indicates we will likely see an accelerated move to deliver more care in non-acute settings.

How do allocations work on the distributor side or on the manufacturer side? Do they try to just spread what they can?

I can’t speak for individual distributors, but my experience has been that allocation is often driven by past ordering patterns and contractual relationships, but this does not always ensure product is delivered where it is needed most in a pandemic. There are lots of discussions among manufacturers, distributors, healthcare providers, government entities and supply chain technology companies about how to create visibility into supply availability and where it is needed most. Just like in the clinical world, where crisis standards of care require prioritizing how scarce resources are allocated, the healthcare supply chain must work to best match limited supply to the rising demand.

This is one of the bright spots in the midst of the challenges of this pandemic. We see supply chain leaders, clinicians and data scientists, even across disparate organizations, coming together to ask a series of questions, starting with, "What is the anticipated patient demand and what type and quantity of supplies will we need?” That’s followed by, “What supplies do we have on hand in a given hospital or across the region? What is on order and what are the expected allocated quantities and delivery schedules? And finally, how do we continue to share information and, if necessary, supplies and other capacity to meet the collective demand?”

There's been a lot of focus on the grim decisions doctors have to make around ventilators and such, but I think what you bring into focus is that when supply is constrained and the standards of care have to be there, it also forces a level of creativity about how do we rethink the supply situation, such that, "All right, we're not going to get N95 masks, we're going to do pop-up sterilization centers and we're going to have people to reuse them." It would be nice if maybe there were some playbooks that had more options on what's Plan B.

That’s a very important point. I left healthcare for a time and worked in the energy industry, where I was responsible for crisis communications. One of the most important lessons I learned was the value of tabletop exercises and contingency planning. During that process, multiple stakeholders consider a variety of scenarios and how best to respond. During this pandemic, we found that health systems where supply chain and clinicians routinely collaborate on both product and practice were better able to handle the many changes required when more traditional products became scarce.

But the more important outcome of these exercises is the trust established among the various parties that facilitate decision making and action in times of crises.

Meaning suppliers too?

It should include all relevant parties across the healthcare ecosystem, including the supply chain, who are impacted and can play a role in addressing the challenges at hand. That includes manufacturers, distributors, public health and other government agencies, and clinical, supply chain and financial leaders often from multiple healthcare systems, even those that traditionally compete for market share.
These varied stakeholders come together to discuss what could happen, what resources they have access to, what capabilities each other has and how best to share information and resources.

I have also heard some hospital leaders saying they plan to change how they utilize products during “normal” times, to reduce waste or to leverage new evidence developed during the course of this pandemic. Others have discussed a return to the use of more reusable vs. single-use products, but that requires taking into consideration other system impacts, such as whether the existing laundry facilities can accommodate the additional load.

But is that necessarily the model you want when you constantly have to refresh supply? It's pretty fragile.

As you know, in the supply chain, there are always tradeoffs. The key is understanding the pros and cons of various decisions from a variety of perspectives: clinical, operational, financial and customer satisfaction.

Many hospitals are working to find the balance between an ongoing drive toward standardization to reduce variation to lower costs and improve quality, and the need, during times of crisis, to be flexible enough to accommodate change.

Pierre: So let me just replay this last piece around standardization. There is certainly one piece, which is there's a value-based care element and maybe just clinical pathways you can kind of standardize on, "As long as the product does X, Y, Z and it's improving patient outcomes, we can have some alternatives." Maybe the supply chain itself has become too standard and not flexible enough to understand things like alternatives.

Would you say that this ability to understand alternatives and things like that, and have the patient and quality of care being the guiding light (but being able to have flexibility and supply that meets that need), if that allows you to have more options for substitutes to respond better than in this crisis?

Karen: This is where the real learnings from COVID-19 can be found. I've talked to a number of healthcare system and supply chain leaders, and they say they will continue to strive for standardization, but they will do so in much closer consultation with clinicians to understand how they view acceptable alternatives, based on features, functionality and most importantly evidence around product performance.

You're not going to see a lot of business continuity clauses in these contracts right now. It's very price-focused. And more broadly, hospital systems have been focused certainly on the reducing number of SKUs, aggregating volume, getting a better price and it hasn't seemed like that scale has brought more rigor to the overall supply chain management. But even just within contracting, I have a more balanced scorecard for my suppliers beyond just price and availability. It doesn't sound like there's been a huge movement toward a more balanced scorecard.

This is another area where I think we will see real progress. As healthcare system leaders understand more of the complexities and inherent interdependencies in the supply chain, I believe they will start incorporating a number of new criteria into their sourcing decisions and supplier relationships, from cost and quality to how transparent a supplier is about upstream risk mitigation.

Another interesting development will be around how the private and public sectors work to mitigate risk. For example, we may see regional hospitals pooling their resources to create and manage their own local stockpiles.

What an interesting unintended consequence, because you laugh at the silliness of saying the states need to have your own strategic stockpiles. It's like, “Wait a minute. You need the central warehouse in the supply chain." You all need to have your own, but it does bring up a point: If you can't trust the central supply chain and the central supply chain group, then you might need to have some alternate structures.

I think you will see the nature of the discussions and the contractual relationships between buyers and sellers change. When contracting, hospitals will factor in not just price, but also clinical evidence, a supplier’s ability to mitigate risk and their willingness to share inventory data, bi-directionally. Sourcing managers will assess vendors based on their willingness to alert them to a potential disruption. Historically, suppliers have been very afraid to share this kind of information, but I expect that to change as hospitals prioritize suppliers who are upfront with them and help them figure out how to resolve an immediate need.

I would think that there's going to have to be a bigger push for direct contracting with the hospitals to manufacturers just because the channel has been such a source of noise and fraud and opportunism. I mean, if I'm a profit maximizing distributor, I might say forward auctions are the way for me to support my shareholders and my employees in the best way to get the best price.

Do you think there will be more focus on things like being able to understand tier two suppliers, business continuity or making sure that the supply chain is actually going to be run a little more properly? Do you think there's going to be a push for more visibility in demand and direct sourcing, or demanding that transparency through the distributors up to the manufacturers like you see in high tech?

We are already seeing a greater appreciation for the risks associated with tier two suppliers and beyond. I believe hospitals will require more visibility into upstream suppliers of raw materials and components, but that doesn’t necessarily translate into less use of distributors, especially with the move to non-acute care.

Some distributors are also working hard to assess demand from their customers and share that with manufacturers. Unfortunately, each distributor only has part of the demand picture. In a crisis, we need a system that provides broad visibility into both demand and supply availability across the entire system.

So the lead time but also just actual real availability. Because when this started hitting kind of early and stuff started selling out, I'm like, "I want to get out there and be smart." So I go to a B2B distributor and I find some sanitizer and it's not what it was. I just want to get like a bottle. I find the supply and I'm like, "I'm so smart because I know B2B and everybody's on the consumer side." So I placed my order and I'm feeling all smug, it's confirmed. And then a week later, "Sorry. ‘Available’ really did not mean available." That has happened at scale.

I don't know if there are good examples of kind of a more effective public-private partnership that you know of, but you said you saw some of the different hospitals coordinating with each other and also having a more regionalization kind of support. Has there been any good systems where they worked at the state or local level where they had some level of coordination before this all happened?

GHX operates in the U.S., Canada and Europe. One of the things that I noticed early on was how quickly the federal and provincial governments in Canada, and specifically Ontario, began to work together. That’s because they had a far greater problem with the SARS outbreak in 2003 and adopted some new procedures as a result of lessons learned. They operated together, as a system, to address the supply chain issues.

We heard a similar call from New York Gov. Andrew Cuomo when he called on all hospitals in the state to operate as if they were part of a single system. During times of crisis, the rules need to change. Once again, having these contingency plans in place ahead of time and understanding the triggers helps facilitate faster and more informed responses.

I do want to talk about one more thing, and that is the value of standard product identifiers. The U.S. FDA implemented a rule requiring all medical devices be assigned unique device identifiers, or UDIs, and to publish data about those products to the FDA’s Global UDI Database. Other countries and regions of the world are also pursuing similar regulations but are not as far along. Had they been, it might have been easier for hospitals to identify approved alternatives and avoid counterfeit products because those products would have had UDIs assigned and data available in publicly accessible databases.

Early on in the crisis, GHX developed reference lists of the various products and associated vendors in specific categories of supplies critical to the fight against COVID-19. We were able to do so based on the data we have on products in our content management tools, which leverage both standard identifiers and classification schemas.

I was looking at that data. Here are the actual manufacturers of this as well as the distributors to kind of cross reference. But has anybody taken your data and built a supply network model to either visualize it or use it to have the demand tracking of the thermometer sensors that are out there?

We have done a few things in this regard. First, we combined these reference lists with the clinical evidence curated by Lumere, a company we acquired in January. In this way, hospitals can not only see what products and vendors are associated with specific product categories but also the evidence about product performance and instructions for use to help clinicians identify the most appropriate alternatives.

More recently, we have been having discussions with different stakeholders, including those building models to match anticipated patient demand with associated supply demand. This work at the industry level is critical because we are trying to solve a national, if not a worldwide, challenge. These kinds of models can be used to manage demand for not only PPE and ventilators, but also supplies that will be required for testing and the resumption of elective procedures.

So it seems like the supply chain is not going to necessarily get any less volatile going forward. We're going to have to really upscale the strategic supply management capabilities that are out there because right now there seems to be a gap.

Yes, and we will need to create greater points of collaboration between supply chain operations and clinicians, between hospitals and suppliers, and between the commercial supply chain and government agencies.

Pierre: Let’s finish the conversation where we started which was, I just think about what happened coming out of SARS and it was like, "Yep, this is a problem. We're going to build a strategic supply chain." And then it started to go away and we got forgetful, and then the manufacturer couldn't make any money and administration's change. Before you know it, you forget the bad stuff that has happened.

Karen: One of the first things I did when the crisis broke was to review lessons learned from past outbreaks: SARS, H1N1 and Ebola. In all, the supply chain was noted as one of the biggest challenges.

This is not something the federal government can solve alone, nor the states, nor suppliers, nor hospitals, nor any one sector alone. It's going to take a system-level understanding of the healthcare supply chain and its complexities and interdependencies. And it's going to require a view beyond acquisition price and efficiency at all cost. Every country in the world is talking about the need for more domestic production. We need to understand why so much production occurs offshore, in places like China and India. It’s not just for cost savings, but also because there are very significant markets in those countries. That's not going away. But I do believe we will see investments in advanced manufacturing capabilities that make it easier to build product in the United States, often closer to the point of use, and in a manner that creates more flexibility for all involved.

Share on Procurious

Voices (2)

  1. Jam Saeed Ahmed:

    yes, investments in advanced manufacturing capabilities make it easier to build products in the United States. Great!

  2. GaryJohnson:

    As I deal with a website of hospital medical billing, I would like to say that this is exactly the kind of content that we required to move us forward. We will be monitoring this article in the coming days to ensure that we do not make mistakes regarding hospital billings and give accurate data for all the readers to study.

Discuss this:

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.