February 10, 2021
The challenges plaguing the medical products supply chain—lack of geographic diversity, insufficient numbers of suppliers for essential medicines, inability to predict demand surges, and limited purchasing power of small and midsize health systems—existed before the COVID-19 pandemic but have been exacerbated by the crisis. A PwC Health Research Institute (HRI) survey found that 86% of provider executives see supply chain improvement as a priority for 2021. HRI spoke with PwC principals Ginger Pilgrim and Connie Yang about how providers are adapting their strategies.
What steps have provider organizations taken to build resiliency into their supply chains in response to the problems revealed by the COVID-19 pandemic?
Some health systems are exploring nontraditional relationships—joint ventures, partnerships or nontraditional contracting—to add some level of supply chain redundancy, particularly around personal protective equipment (PPE). A few of the big players are exploring potential alternative vendors, but that’s at a somewhat immature stage. Some systems are considering extending or expanding partnerships with domestic manufacturers to increase lines to provide some redundancy around PPE, and/or they’re expanding their own warehousing or storage capabilities to reduce their risk associated with PPE.
In terms of vaccine distribution, many health systems experienced challenges with supply for healthcare workers. Different states were ready at different levels to distribute to the providers. The logistical challenges were underestimated, and the communications around all of this were well intended but less than ideal, as things often are with something new, big and complicated with all levels of government involved. The states were the ones with the biggest challenges.
The COVID-19 pandemic has reinforced the need for provider organizations to drive more product standardization through clinical evidence-based programs. This would allow provider organizations to develop strategic partnerships with manufacturers and explore more favorable contracts, including outcomes-based contracting to deliver on expected outcomes. Building a fully integrated supply chain that focuses on the evidence will lead to better health outcomes, more affordable care and higher satisfaction for patients and the care team.
HRI: Are providers investing more in analytics to better manage inventory and predict surges?
Ginger Pilgrim: Most providers are trying to figure out what they can do with what they have. Some of the bigger software providers have tried to create solutions, but given the need for a quick turnaround and major financial pressures, providers might hesitate to commit significant financial resources to pay for it. They will rely much more on existing data sources and workarounds.
There is an opportunity for electronic health record (EHR) and enterprise resource planning (ERP) vendors to help the systems cope, whether it’s through add-on services or training associated with existing tools they might leverage differently. People in the pharmacy and supply chain spaces are trying to promote dialogue around how they can better use the tools that they’re installing for supply chain optimization.
Connie Yang: Developing capabilities in data analytics is key for provider organizations to transform their supply chain to drive more value and improve customer experiences. It begins with data integrity and establishing a single source of truth across the supply chain through integrated solutions, like ERP and EHR. With advanced data analytics capabilities, supply chain organizations will have the ability to generate valuable insights to facilitate efficient, data-driven decisions to further optimize the supply chain and reduce variations in cost and operations.
HRI: What kinds of technologies are they investing in to do this?
Connie Yang: Many provider organizations are investing in cloud-based ERP solutions to serve as a core, foundation system that enables digital transformation and integrates and simplifies business processes. However, additional technologies would be needed to further advance an organization’s supply chain capabilities. Many provider organizations are also investing in artificial intelligence and robotic process automation to create more automation, transparency and access to data. For example, point-of-use solutions and RFID technology (radio frequency identification) would provide more visibility and automation to better manage inventory. If a supply chain organization was working toward commercializing its services, additional technology would be needed to support this effort.
HRI: Are provider systems considering bringing any parts of the supply chain in-house, perhaps around manufacturing PPE or owning more of the supply chain?
Ginger Pilgrim: Interest lies much more in partnerships, joint ventures and long-term contractual commitments with more domestic sources of production. Big hospital systems are exploring different levels of alternative sourcing, and the relationships will differ depending on the organization. It could be a long-term contract with some level of commitment with a nontraditional source. It could be some sort of ownership interest or a joint venture relationship.
Health systems are showing a level of tolerance, at least in the short term, for paying a little bit more for domestic supplies as a trade-off for resiliency. I don’t know if that tolerance will last.
Connie Yang: Provider organizations continue to explore ways to bend the cost curve. Through collaborative arrangements, provider organizations are coming together to tackle the high cost and shortages of supplies, including drugs. For example, Civica Rx was formed to manufacture affordable generic medicines to help address drug shortages. It’s exciting to see this level of collaboration among provider organizations to achieve the shared goal of improving the health and well-being of their patients and communities.
HRI: Are providers thinking differently about how they use group purchasing organizations (GPOs)?
Connie Yang: Provider organizations rely heavily on GPOs; healthcare is the largest market for the GPO industry. Unfortunately, during the COVID-19 pandemic, GPOs did not come through on the needed supplies, and provider organizations were left on their own to develop new relationships with manufacturers. Based on this experience, more provider organizations are recognizing they need more value than what GPOs are delivering. With a growing demand to reduce the cost of goods and services, several provider organizations are exploring more options. Some have established their own GPOs, regional collaboratives or aggregation groups, or made other arrangements. As more of these are formed to leverage their combined purchasing power, it will be interesting to see how GPOs respond to the increasing demand for lower pricing.