COVID-19 is Forcing Medical Supply Chains to Change… And that’s a Good Thing: Part I
By Connor Smith
Without question, the dedication and tireless work ethic exhibited by medical first responders has been nothing short of heroic throughout these trying times. Unfortunately, despite (and partially due to) the valiant efforts on the ground, the healthcare sector is one of the most negatively financially impacted industries by the pandemic. A recent report by the American Hospital Association estimates the total financial impact of COVID-19 on the U.S healthcare system from March 2020-June 2020 to be $202.6 Billion. While a significant amount of this financial strain stems from treating patients infected with the virus and forgone revenue from elective procedures, many problems brought on by the virus could have been mitigated with more efficient and resilient U.S medical supply chains.
While the magnitude of a global pandemic is something few could have properly anticipated, COVID-19 introduced few truly new problems for U.S medical supply chains. Instead, it exacerbated problems and inefficiencies that have plagued the industry for years which have never been properly addressed. Yes, over 70% of active pharmaceutical ingredients that supply the U.S healthcare market are imported and constrained as a result of the pandemic and unprecedented global surges in demand for PPE created massive shortages in basic medical equipment for U.S frontline responders. However, siloed data, lack of automation & interoperability, and a reactionary approach to purchasing contributed to upwards of $25 Billion in wasted supply chain spending each year long before the pandemic. In fact, analysts project that 2020 will be the first year in which supply chain costs surpass those of labor as the largest cost component of delivering medical care by providers.
Some are optimistic that a COVID-19 vaccine will be ready by the end of 2020, but this is far from guaranteed and it could be a year or more before one becomes readily available. Consequently, the U.S healthcare system must face a stark reality that it may continue to lose upwards of $20 Billion per month for the foreseeable future. Major operational improvements must be made to its supply chains in order to help offset these costs.
The status quo for medical supply chain management is no longer tolerable and inefficiencies that were previously ignored must be corrected. Medical supply chains need to be reinvented over the coming months if the U.S healthcare system is to survive the pandemic and thrive into the future. This is the first of a three part series in which I will explore 6 different ways that U.S medical supply chains will look in the post-pandemic era and the technologies and external forces that will enable them. So without further ado, let’s dive into the future of U.S medical supply chain management!
1. Automation & Digitization
While this may sound obvious, over 80% of clinicians and hospital leaders still rely on manual processes for managing inventory. Consequently, health systems struggle to know what supplies they currently own, where they are located, if they have expired, and a myriad of other problems. Unfortunately, patients pay the largest price for these manual, inefficient systems. One survey found that 40% of clinicians postponed a patient’s treatment and 23% know of adverse events occurring to patients because of inadequate inventory. Considering that some industries are well into the ‘Supply Chain 4.0’ era, the first seismic shift for medical supply chain & inventory management will be to go entirely digital and implement technologies already used in more mature supply chains like retail.
Regulatory pressures from the FDA’s medical device unique device identifier (UDI) requirements and the Drug Supply Chain Security Act have already begun forcing some of this change and major compliance requirements are going into effect over the coming months. Digitizing medical supply chains will not only significantly reduce errors and inefficiencies arising from human error and manual entry, but also enable the use of technologies like AI and blockchain that can elicit even greater cost savings. For example, firms in other industries have seen cost savings of 32% across an entire operation by implementing AI based inventory management systems. Such implementations can be used to improve inventory management by enabling features like predictive forecasting and optimizing surplus inventory levels that should be maintained at all times. Other heavily regulated industries, like food, are experimenting with blockchain for product traceability applications in supply chains and estimate they can reduce costs of compliance by 30% within a few years.
Certainly, there is much foundational work that must be done before medical supply chains can integrate these more advanced solutions. Implementing RFID chips to enable real-time asset tracking, achieving basic systems interoperability through data standardization, and switching to cloud-based healthcare inventory management software are among the baby steps that must first be taken. However, given the lack of digital infrastructure currently in place in many medical supply chains, there is an opportunity to ‘leapfrog’ legacy supply chain technology and implement cutting edge solutions to realize even greater cost savings immediately. Forward looking medical supply chain management teams will be looking to implement such solutions to ensure their supply chains remain resilient and future proof to future disruptions or pandemics.
2. Rep-less Medical Device Sales Models
Manufacturers of implantable medical devices have traditionally used an in-person sales model for distribution. These sales reps form close relationships with clinicians and are oftentimes even present in the OR during the surgery. While this model has been the standard practice for decades, it also increases the cost of delivering care tremendously. For example, in orthopedics, it’s estimated that the sales process for implantable devices accounts for 35–50% of the cost of sales. Moreover, this sales process makes it nearly impossible for device manufacturers to track their field inventory and providers to manage their consignment inventory, resulting in further cost increases of up to 25%.
The pandemic has not only made these inefficiencies no longer bearable for providers, but it has hindered the ability of manufacturers to even sell their products. Whether through self-selected or provider mandated deferral, there have been 50% fewer patients receiving care compared to normal, and elective surgeries for implantable devices like knee replacements have dropped by 99%. Moreover, nearly 50% of orthopedic sales reps have been forced to use exclusively digital means to support physicians or have been unable to provide support at all.
It is reasonable to suspect that providers will continue to limit who is allowed into a hospital at least until a vaccine is readily available, if not longer, and patients can only forgo necessary care for so long. Hence, providers and manufacturers alike will be required to implement technologies that make rep-less sales models attainable. One key technological enabler of this transition will be integrated data environments of supply chain, medical IoT, and EHR data. Integrating supply chain data with EHR data had already been a top priority for many providers entering 2020. Such environments will serve as the cornerstone for other tools like video conferencing software and payment processing tools that can enable a rep-less sales model and save providers millions of dollars per year.
In Conclusion
I hope you enjoyed the first part of my series on the future of U.S medical supply chains! I will be back next week with two more insights regarding what the future of these complex systems will look like. If you are interested in learning more or ways your medical supply chain could be improved, feel free to contact us at Consensus Networks, where our HealthNet technology is being used to reinvent medical supply chains for the post-pandemic era. Until next week!
