Supply Chain Matters again points to the conflicting stakeholder interests that continue to result in U.S. wide shortages of life saving pharmaceutical and drug supply.

This condition is not something new but rather a reflective of decades old dysfunction in stakeholder financial and other interests.

 

Record High Drug Shortages

Business and general media have cited data from the American Society of Health-System Pharmacists (ASHP) that indicates 323 critical drugs were in shortage during the first quarter of this year. That number is the highest reported since 2014, including the period of the Covid-19 pandemic during the years 2020 to 2023.

The shortages of medicines and sterile injectable drugs mostly acquired by hospitals and healthcare delivery organizations span mostly generic type drugs utilized to treat various illnesses including various antibiotics, cancers, diabetes, emergency room treatments and other notable illness. Generic versions of drugs are prescribed as a means to reduce healthcare or health insurance costs with the goal of being able to treat higher numbers of patients.

This is not a new phenomenon.

Since our inception as a supply chain management focused blog in 2018, Supply Chain Matters has continually provided examples and perspectives regarding what can be best described as an industry dysfunctional supply chain that is replete with key stakeholder conflicts.

During the Covid-19 pandemic, the U.S. government stepped in with policies and national directives that were aimed at boosting the supply and available of critical vaccines and drug treatments for severely ill patients. Recall that the government provided the monies to help fund drug development and distribution to the points of healthcare provider distribution needs.

If readers have added interest, click on our Search Menu on the right-hand panel on the category of Pharmaceutical, Life Sciences and Healthcare supply chains, to be able to scan in excess of 140 various commentaries.

Thus, this commentary will not be a regurgitation of media headlines and reporting. That is already occurring not only in mass media but industry focused reporting.

We have long since been frustrated by the lack of changes that have occurred among the various stakeholders that make up this industry’s supply and demand networks. That includes drug developers, supply network intermediaries, government regulators and health care providers.

Instead, we will point our readers to what are viewed as the continuing root causes of these shortages that once again, have reached a new record level.

Thousands of patients and their families remain concerned about not having the drugs required to treat their illnesses, including generic versions of drugs. In the case of specific branded pharmaceuticals, not being able to afford the significant prices demanded of such drugs provides an added dimension.

Dimensions of This Dysfunction

As with most supply chain focused shortages, there are factors related to product demand and supply dimensions.

Product Demand

On the product demand side those tuning into U.S. broadcast media or even specific web site content sites can witness a barrage of pharmaceutical drug and medicine commercials directed as all sorts of illnesses and conditions.  The degree of promotional ad spending has got to be in the hundreds of millions.

Drugs that have been effective in treating diabetes are now repurposed and branded for garnering needed weight loss. Drugs such as branded Wegovy remain in short supply, while the advertising of the drug for weight loss continues non-stop across multiple media outlets, which results in added patient demands that in-turn, can lead to added shortages of drug ingredients and production capacity needs.

The other meaningful influence on demand are public and private health insurance providers who deem that generic versions of the most needed drugs are preferential for coverage over a branded version, the latter implying a higher out-of-pocket cost for the patient.

Industry Supply Networks

There are a number of published reports that point out the industry’s supply network stakeholder conflicts. The most notable are the intermediaries that make up the termed buying groups.

We reference for our Supply Chain Matters readers a specific report from The American Prospect, Our Uniquely American Drug Shortage.  Author David Dayen longtime observer of the industry provides refreshing direct and refreshing candor.

Some examples are noted below:

The vast majority of drug shortages are actually in generics; about half of them are sterile injectable drugs. In other words, we’re talking about older, routine medications that hospitals use, not what you pick up at your local pharmacy. They’re cheap and relatively easy to produce. Companies just haven’t found it worth the effort to do so.”

The report points to the three major hospital group purchasing organizations (GPOs), that control around $250 billion in health purchasing, roughly 90 percent of the market that have locked in sole-source contracts without alternative choices for hospital pharmacy buyers.

We know the reason why, though you will almost never see it mentioned in drive-by stories about this topic. It has to do with middlemen who have made manufacturing generic injectable drugs unprofitable, magnifying the risk of shortages by artificially reducing supply.”

Dayen cites a specific instance as far back as 2018 when shortages of sodium chloride IV’s , half of which was sourced in Puerto Rico, led to delays in critical hospital surgeries and emergency medical procedure’s.  Our published Supply Chain Matters commentary at the time pointed to industry reports indicating that effects of Hurricane Maria led to the shortage.  Daynen in his authored book observed it had more to do with middlemen that drove production needs offshore.

The result is noted as supply being sourced at lowest cost producers, usually outside the U.S. in regions such as China, India or other countries.

Some published reports make specific mention of a Biden Administration white paper released in March that also points to the stakeholder conflicts related to supply.

Included in the key takeaways of this report, are the following:

Drug shortages are a decades-old problem arising, in part, from market forces that touch stakeholders across the drug supply chain—providers and pharmacies, manufacturers, and the middlemen in the system. Key issues include a broad lack of transparency, concentration among middlemen, and prices for generic drugs that are driven to levels so low that they create insufficient incentives for redundancy or resilience-oriented manufacturing, distribution, and purchasing. These market failures lead to pharmaceutical supply chains that are brittle, disruption-prone, and too slow to recover from shortages.

This paper goes on to outline the needs for a more resilient industry supply chain: “to create a robust and resilient pharmaceutical supply chain include diversification of supply—both in overall redundancy of manufacturing capacity and in the balance of domestic and diversified, foreign sourcing—and investment in reliable, efficient, and sustainable manufacturing practices. Mitigation and prevention tools, such as buffer inventory and capacity, are also essential supply strategies.”

Some Added Observations

All of these observations that we have highlighted are valid descriptors of the conflicting stakeholder interests in this decades old challenge that is now more problematic.

From our lens, government policy makers can increase their efforts to pass legislation or modify policies that can address the built-in demand and supply conflicts. In contrast, huge sums of money continue to be invested in industry funded lobbyists to ensure that the various stakeholders maintain their demand, supply or other influences for assuring imbalances to demand and industry supply, and thus higher drug prices as the result.

In a U.S. political climate that is more divided than ever, the challenge is magnified in partisan lenses.

The further reality is that this situation tends to be primarily an acute problem within the U.S. as opposed to some other countries that have managed to foster governmental policies and industry supply chain influences that assures resiliency and efficiency.

All of the current supply chain technology enablement deployed to address this problem can only identify the scope and severity of these supply demand and monetary forces.

This is instead a muti-faceted challenge of political dimensions that we will defer to healthcare advocates and policy makers to somehow sort out.

 

Bob Ferrari

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