These actions can eliminate vulnerabilities and ensure greater supply chain resiliency for the next pandemic—and beyond.
Drug shortages have been a pervasive part of the health care landscape for more than a decade. More than 100 drugs already were in active shortage in the United States before the pandemic began, contributing an additional $230 million in annual drug costs1 nationwide and leading to suboptimal patient outcomes.
The coronavirus disease 2019 (COVID- 19) has compounded these sourcing challenges. Overseas drug manufacturing, export bans from some of the largest producers of active pharmaceutical ingredients (APIs), and demand spikes of more than 150%2 are making it difficult for health care providers based in the United States to secure basic, lifesaving therapies for patients.
To tackle the drug shortage crisis, the root causes contributing to medicines in short supply must first be diagnosed. From there, the appropriate remedies can be prescribed.
Symptoms of an Unhealthy Market
Although drug shortages are triggered by a variety of events, including disease outbreak, manufacturing quality issues, natural disasters, and raw materials sourcing, an October 2019 United States Food and Drug Administration (FDA) report pointed to market dynamics as the predominant cause.
The market for low-cost generic drugs is most unhealthy when a lack of blockbuster profits drives a competitive fight for market share and a pricing “race to the bottom.” As pricing hits that nadir, manufacturers tend to look overseas for lower cost labor and supplies and tend to be less willing to invest capital to build redundant capacity, improve quality, or source safety stock.
Over time, the market is left with a heavily concentrated supply chain that predominantly sources from Asia and just 1 or 2 manufacturers3 in many important categories. The result is fragility that is not strong enough to handle fluctuating demand. In a pandemic, these issues are exacerbated by panic buying, where even a hint of a compromised supply chain triggers purchasing behaviors that cannot be accommodated by a just-in-time approach.
As a use case, consider the drugs needed to ventilate patients with severe cases of COVID-19.
According to a Premier Inc analysis4 from November 2020, the top 10 drugs that experienced the biggest demand spikes were those used to support mechanical ventilation.
Most of these drugs are low-cost generics that have experienced historic supply shortages or have gone into spot shortages across the country as COVID-19 cases climb.
The Figure shows the increased percentage of ordered units at the height of the first wave (April 2020) compared with ordered units placed during the same period in 2019.
Since March 2020, demand for these products surged dramatically5 over historic volumes, and although fill rates6 appeared to be meeting current need as of December 2020, the pharmaceutical supply chain remains fragile. As cases rise and emerging research suggests new uses for old drugs that may assist in COVID-19 care, almost any drug could quickly slip into shortage. To account for this, since last summer most providers have been increasing on-hand supply7 of these medications to ensure at least 1 month of surge demand, with some collecting up to 60 or 90 days of supply.
Prescription for Diversity and Transparency
Investments must be made to improve manufacturing transparency and supply diversity if there is a hope of eliminating future drug shortages. These solutions may be private or public but should focus on strategies that build long-term supply chain resiliency.
Innovative partnerships and private-sector models have begun to fundamentally alter the economic dynamics that plague the generics market and put supplies at risk.
One such program, ProvideGx,8 focuses on improving both supply chain diversity and transparency by aggregating demand from US hospitals to collaboratively identify priority shortage medications. The ProvideGx team negotiates with manufacturers to secure long-term purchasing contracts for these products with guaranteed safety stock of APIs and finished dose products. The committed purchasing volume from health systems encourages new market entrants or increased output and stability of production from existing suppliers, as well as investment in manufacturer contingency planning.
Supply source visibility and sourcing diversity also are program requirements, including criteria for manufacturer disclosures on both the site of finished dose manufacturing and the sources for all APIs.
In exchange, providers receive a guaranteed drug supply at a fair price. And, most importantly, patients get prompt access to the medications they need. Since March 2020, ProvideGx has weathered demand increases of 150%6 or more, with no interruptions in supply, and it continues to bring critical COVID-19 drugs, such as heparin and propofol, to market.
Extending this model to other medications is the most productive step that can be taken to increase supplier competition, and providers’ ability to accommodate surge demand. Also needed is a hybrid approach, in which buyers carry in-house inventory on a just-in-time basis. At the same time, direct-sourcing companies and manufacturers take a just-in-case approach, reserving capacity for surge, retaining safety stock, and building rapid replenishment channels for restock.
Private-Sector and Public Solutions
Through more efficient new drug approval processes, increased transparency, and investment in diverse manufacturing, the US government can play a pivotal role in improving supply stability.
The FDA has made strides to encourage market entry of additional manufacturers to begin to stabilize the most at-risk pharmaceutical classes. For instance, the agency has fast-tracked approvals in shortage categories, increasing the number of drugs on the market by nearly 17%9 from fiscal years 2013 through 2017, at the same time it is cutting average reviews of new drug applications by 6 months.
Recognizing the inherent risks in concentrating supply sources to just a few companies, countries, or regions, the FDA has helped advanced the return of capabilities to US soil. However, a full view of supply chain diversity and redundancy is elusive because of a lack of transparency from many manufacturers.
For greater visibility, the FDA could leverage new authorities granted by the coronavirus relief bill, which would require manufacturers to disclose API sources and finished-product manufacturing locations to better evaluate overreliance and potential risks. Advanced technology also can enable greater transparency, collecting data from across the supply chain to assess availability and product location, as well as major gaps. For raw materials, pharmaceutical ingredients, and finished drugs, a balanced and diverse approach inclusive of 3 or more global suppliers and at least 1 US-based source also recognizes the need for global sourcing to alleviate US national security concerns and keep costs in check.
Although it may be desirable to increase US-based supply diversity, it can be cost-prohibitive for manufacturers that are competing in a lowest-price-wins market against Asian counterparts. Government-backed, 0% interest loans and tax incentives can help close the cost gap between domestic and foreign manufacturing sources. And these incentives can be coupled with requirements for information sharing across the supply chain, including redundancy and contingency protocols, to minimize disruptions.
Another onshoring strategy focuses on private-sector incentives for US companies within critical supply categories. For instance, after learning that 90% of all face masks10 were produced in China and highly susceptible to shortages, Premier and 15 leading health systems pooled resources to secure a minority stake in Prestige Ameritech,11 one of the nation’s only domestic producers of face masks and other personal protective equipment. In exchange for the cash infusion and longterm purchase commitment, the company is shipping 5 million masks to US health care providers per month that it ordinarily would have little incentive to make. Such a model can easily be replicated to create other investments in drug supply diversity, for raw materials, ingredients, or finished goods.
A fundamental focus on supply chain visibility, as well as added capacity, diversity, and domestic investments, can help insulate the United States from future drug shortages. These actions would eliminate vulnerabilities and ensure greater supply chain resiliency for the next pandemic and beyond.
WAYNE RUSSELL, RPH, PHARMD, FASHP, is vice president of pharmacy at Premier Inc in Charlotte, North Carolina.JESSICA DALEY, PHARMD, MBA, is vice president of strategic supplier engagement at Premier Inc in Pittsburgh, Pennsylvania.