A Three-Part Series
Views of Health care Supply Chain’s Response to COVID-19
A Three-Part Series
Part 1: A fragmented supply chain – what happened?
One of the biggest challenges health care systems are facing as a result of the COVID-19 crisis is a shortage of PPE and other necessary supplies, drugs, and equipment. As the pandemic continues to spread, and certain inefficiencies of the PPE and critical medical supplies markets continue to persist; it is important to take a step back and observe how the present situation has come about. Supply chain is the sequence of processes involved in the production and distribution of a finished good and any break or bend in the chain can fragment it. Health care supply chain is often reactive to market shocks and cannot easily adapt to change. This factor, combined with surges in demand for essential items and medical supplies, along with numerous factors outside of supply chain, can help explain key issues with the immediate response to the COVID-19 pandemic.
This blog will focus on three distinct areas that may help explain why the health care supply chain had difficulty effectively responding to the COVID-19 pandemic: (1) the rapid shift of accountability to providers, (2) lack of visibility to supply and demand, and (3) insufficiency of supplier risk management and demand forecasting.
SHIFT OF ACCOUNTABILITY TO PROVIDERS
One of the primary factors that negatively impacted health care supply chain is the shift in supply chain accountability to providers (hospitals, health systems, and other organizations that provide health care services)1. Historically, many of these organizations have relied heavily on group purchasing organizations (GPOs), distributors, and wholesalers for sourcing, purchasing, and distribution of critical medical supplies, rarely pausing to think about where the goods are ultimately manufactured. As the COVID-19 crisis slowly became reality, much of the access to and purchase of PPE and essential COVID supplies (oxygen, ventilators, etc.) fell into the hands of providers. Traditional “middle-men” involved in these health care supply chain related transactions (distributors, GPOs, etc.) were unable to satisfy the supply shortage or provide visibility into alternative suppliers even as patients crowded into EDs and ICUs. As a result, most hospitals and other providers have had to quickly find alternative sources directly to restock dwindling supplies, causing further stress to already taxed health care systems and is a direct reason as to why this shift to providers happened. The lack of coordinated federal / state / local government strategies contributed to minimal distribution of necessary supplies2 and further exacerbated the problem as higher demand resulted in sharp price increases and, in some instances, the loss of shipments that were redirected to a higher bidder or seized.
LACK OF VISIBILITY
Another factor that negatively impacted health care supply chain is a lack of visibility to the supply and demand required for such a crisis. As the crisis first emerged, members of both the producers and purchasers of PPE (personal protective equipment) and other COVID-related medical supplies and equipment had insufficient methods to quickly communicate the supply and demand of these products. Health care organizations saw the growing influx of COVID-19 patients, and many were unable to obtain a stockpile of necessary supplies while producers did not proactively scale manufacturing to address these needs. Respirators, gloves, face shields, gowns, and hand sanitizer are all examples of products that have become scarce.3 There is not a responsive, open, and efficient marketplace necessary to address the escalating need to purchase critical supplies.
This lack of an open and efficient marketplace has led to the creation of many gray markets.4 These are markets that are deemed unofficial by the original manufacturer of a product and typically involve selling legitimate goods through unauthorized channels at hyper-inflated prices. Gray markets create additional risk and disrupt the efficacy and safety of health care supply chain since the handling and transport of product is outside the traditional manufacturer to authorized distributor model. Another reaction to market pressures observed in the industry is buyers hoarding and over-purchasing supplies in direct competition with other organizations, fearing inaccessibility to essential supplies and equipment.5 This hoarding behavior prevents many organizations from obtaining critical supplies while other organizations have a surplus, and it drives up prices as quantities of these essential products are limited.
INSUFFICIENT RISK MANAGEMENT AND DEMAND FORECASTING
Another factor in this costly disruption of health care supply chain lies in a marked insufficiency in risk management and demand forecasting on the part of providers. Across the country, the general inability to quickly shift to alternative suppliers has directly impacted PPE output and distribution. Additionally, the failure of many suppliers to understand the timing and necessary volume of critical supplies has further exacerbated the situation. While no event of this scale could have been fully predicted, a lack of preparation and quick adaptation of supply chain organizations to disruptions is visible and should be addressed to help prevent future challenges.6
Prior to COVID-19, health care organizations generally purchased PPE supplies with little or no awareness of where the product was ultimately manufactured. A closer look into the place of origin for these critical supplies and equipment reveals a common overreliance on specific global regions. As these locations were also affected by COVID-19, international exports were redirected back for domestic use which contributed to the eventual shortages in the US.
The impacts of health care supply chain responses are significant and have been brought to light globally. In Italy, health care workers experienced high rates of infection because of the lack of PPE spurred by market challenges.7 Furthermore, the lack of ventilators and respirators in Italy forced health care workers to make difficult decisions around which patients receive these products. In the US, early indicators show that inadequate PPE may be contributing to 11% of COVID-19 infections among frontline health care workers, which further increases the impetus to obtain these essential supplies.8 Although most parts of the US have been able to accept patients and provide necessary critical care, infections continue to spread—especially among front line workers. The current situation that health care supply chain organizations are experiencing can be attributed to several factors, but organizations that can quickly adapt and respond can help to mitigate this trend. The next blog will highlight examples of health systems that have responded effectively to the crisis.
1 John Kent, David Dobrzykowski, David Speer, “Researchers Helping Healthcare Supply Chains Cope with COVID-19”, University of Arkansas, April 17, 2020, https://news.uark.edu/articles/52781/researchers-helping-healthcare-supply-chains-cope-with-covid-19
2 Nicholas Wu, “Almost all of the federal stockpile of personal protective equipment is depleted, new documents show”, USA Today, April 8, 2020, https://www.usatoday.com/story/news/politics/2020/04/08/coronavirus-almost-all-federal-equipment-stockpile-depleted/2971757001/
3 Zoe Schlanger, “Begging for Thermometers, Body Bags, and Gowns: U.S. Health Care Workers Are Dangerously Ill-Equipped to Fight COVID-19”, TIME, April 8, 2020, https://time.com/5823983/coronavirus-ppe-shortage/
4 Ben Popken, “Coronavirus mask mania spurs internet’s gray markets into action” NBC News, March 9, 2020, https://www.nbcnews.com/tech/social-media/coronavirus-mask-mania-spurs-internet-s-grey-markets-action-n1153426
5 Myah Ward, “Justice Department will send seized medical supplies to New York, New Jersey”, Politico, April 2, 2020, https://www.politico.com/news/2020/04/02/new-york-new-jersey-coronavirus-medical-supplies-161477
6Thomas Y. Choi, Dale Rogers and Bindiya Vakil, “Coronavirus is a wake up call for supply chain management”, Harvard Business Review, March 27, 2020,
7 Megan L. Ranney, et al., “Critical Supply Shortages — The Need for Ventilators and Personal Protective Equipment during the Covid-19 Pandemic”, New England Journal of Medicine, March 25, 2020, https://www.nejm.org/doi/full/10.1056/NEJMp2006141
8Christina Jewett and Liz Szabo, “Coronavirus is killing far more US health workers than official data suggests”, The Guardian, April 15, 2020, https://www.theguardian.com/us-news/2020/apr/15/coronavirus-us-health-care-worker-death-toll-higher-official-data-suggests