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Health Companies Swap Data to Avert Supply Shortages in Crises

Aug. 27, 2020, 9:35 AM

Companies at every level in the health-care supply chain are sharing more data, modifying contracts, and investing in new technologies to prevent future shortages of drugs, masks, and other equipment that have become scarce during the pandemic.

Personal protective equipment makers are disclosing how much stock they have in an effort to increase transparency. Hospitals like Intermountain Healthcare are working to establish alternative products for when the doctor’s first choice isn’t available. And distributors like AmerisourceBergen are using real-time data to ensure crucial supplies get to the neediest populations.

The supply chain hasn’t seen an event like the global Covid-19 pandemic, and health industry consultants and executives agree that it wasn’t prepared to handle an increase in demand to this degree. Health-care workers have spent much of the crisis rationing and reusing masks and gowns, and they’ve been left with inadequate drugs and testing supplies.

“The pandemic has exposed a lot of risks of the health-care supply chain,” said Sudhi Rao, senior managing director in FTI Consulting’s health solutions practice.

The crisis made it clear that a lack of transparency into where supplies are made and how much are in stock has contributed to the shortages, consultants say. When information is shared, each part of the chain can work together to get doctors what they need or an acceptable substitute.

Health-care providers and systems typically get their medical supplies from distributors like McKesson and AmerisourceBergen or through group purchasing organizations. Such organizations are alliances of hospitals that use their collective purchasing power to negotiate discounts with manufacturers and distributors.

Information Sharing

Health systems may have assumed in the past that products would show up when they’re needed, but the pandemic made many realize they need more details about how and where their supplies are manufactured, said Steve Downey, group senior vice president of supply chain operations for group purchasing organization Vizient Inc.

Manufacturers would also be able to better prepare their production if they know exactly how much hospitals are using and stockpiling.

Typically, manufacturers only see the orders and don’t know what’s being used. But Vizient is using a system from software company One Network Enterprises that allows them to get that information and plan production for future months, Downey said.

The system also lets manufacturers share information back with their chosen partners, Downey said. For example, a gown manufacturer can share where it’s making its product and how many days of supply it has for a particular health system.

Organizations that monitor where supplies and raw materials are made, as well as other information about critical equipment, will likely become more common in the health-care industry, said John Wright, vice president of supply chain at Intermountain Healthcare, a Utah-based health system.

Because of a pre-existing relationship, Intermountain got information from an N95 respirator manufacturer about how much inventory it had and when it began setting limits on purchasing, Wright said. That helped Intermountain know when it needed to find alternative sources or when unvetted sources weren’t telling the truth, Wright said.

Drug manufacturers have also become more transparent with distributors about how many days of supply they have in stock, in transit, and on hand, said Heather Zenk, senior vice president of strategic global sourcing at AmerisourceBergen.

Distributors have in turn shared which items they’re struggling to get. There wasn’t a need to share that kind of information when there was consistent, reliable demand, but the pandemic changed that, she said.

Ensuring Quantity

Distributors and GPOs are taking steps to make sure that health systems can get enough of the products they need, or are able to buy suitable alternatives.

Intalere, the GPO that Intermountain owns, is crafting language for its contracts to ensure manufacturers have a certain number of days of finished goods and raw materials, Wright said, adding that he expects other GPOs will do the same.

Health systems also are working more closely with their distributors and GPOs to establish substitutes for critical products when the preferred product runs out. Intermountain has worked with its GPO to vet supplies during the pandemic and help spread information about fraudulent suppliers, Wright said.

Intermountain’s clinical teams have been doing that for the past several years, and AmerisourceBergen is having similar discussions with health systems. It helps the distributors and GPOs know what extra inventory to get their health system clients, Zenk said.

Manufacturers and distributors also are setting up new methods for health systems to stockpile supplies, particularly in cases where they don’t have the space to store them. Vizient set up a program where systems can purchase more inventory and the suppliers will hold it, Downey said.

Cardinal Health created a new program under which it will guarantee that health systems can purchase up to 200% of what the system typically buys for certain types of products, said Scott Gage, director of supply chain at New Hampshire-based LRG Healthcare. His system plans to sign up for it, he said.

Covid-19 Demand

Companies that work in supply chain management are doubling down on technology platforms that can forecast product demand by population center, disease rate, or other similar issues, said Peter Bolstorff, executive vice president of corporate development at the Association for Supply Chain Management.

Traditionally, the health-care industry hasn’t invested in technology like this, so the challenge is going to be to rapidly apply these digital applications, Bolstorff said.

AmerisourceBergen began using real-time use data from health systems during the pandemic and adjusted its allocations to make sure regions with the most Covid-19 patients and areas with pop-up hospitals get enough of the supplies they need, Zenk said. The company, which normally distributes about four to five million pharmaceutical products each day, delivered nearly 6.5 million products per day at the peak in March, she said.

Typically the company would set how much systems get based on their historical usage, but that doesn’t make sense in a pandemic.

The historic demand “that we’ve relied on as an industry isn’t valuable now,” Zenk said.

To contact the reporter on this story: Shira Stein in Washington at sstein@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com; Alexis Kramer at akramer@bloomberglaw.com