Costing Managerial Accounting

With the coronavirus, contingency planning takes on greater importance for healthcare supply chain professionals

April 1, 2020 7:48 pm
  • Hospitals already are facing a shortage of personal protective equipment, meaning supply chain professionals need to investigate alternative means of procurement or other types of equipment that can be used instead.
  • Over the longer term, there could be a dearth of generic drugs that rely on ingredients manufactured in countries such as China.
  • Hospitals should resist the urge to hoard, which would exacerbate supply chain concerns.

To put the current supply chain challenges facing the healthcare industry in perspective, Susan Winckler thinks of a remark made by her boss, Mike Leavitt, formerly the governor of Utah and later secretary of Health and Human Services in the George W. Bush administration.

“Anything you do in advance of a pandemic is alarmist, and anything you’ve done in advance of a pandemic when you’re in one is insufficient,” Winckler said, quoting Leavitt.

That is the situation facing hospitals and other healthcare stakeholders as they grapple with the supply chain implications of the new coronavirus that increasingly is affecting communities around the U.S.

A lack of personal protective equipment (PPE) poses a danger to frontline clinicians. Vital generic drugs and devices such as ventilators could become scarce as well, disrupting clinical operations and affecting outcomes for patients.

“We have an efficient and effective supply chain for normal activity,” said Winckler, chief risk management officer with Leavitt Partners and president of Leavitt Partners Solutions. “This, by definition, is not normal activity.”

Winckler, previously chief of staff with the Food and Drug Administration, spoke with HFMA about the supply chain concerns surrounding the new coronavirus and how providers and other healthcare stakeholders should respond.

Q: How big an issue do you see the supply of PPE becoming for hospitals?

Winckler: With personal protective equipment — as with many different products — we have to think through where we’ll have more demand than we have supply, or demand that has popped up in certain places where we didn’t expect it. [In those scenarios] we’re not getting the flow of product to all the places where it needs to be.

For those who are working in healthcare, it’s a question of thinking about what their facility might need, what are their alternative sources of supply, and then planning in procurement, planning in deployment and thinking through procurement alternatives or alternatives for the equipment itself. Is there a way to use something else in certain circumstances? Are there alternatives for making better use of the supplies available?

Q: Do the same concerns pertain to the supply of generic drugs?

Winckler: In addition to the supply chain disruption that you might see for PPE or hand sanitizer, where there’s more demand, we also have to recognize the disruption from work stoppages or simply a decrease in production in the quarantined areas [overseas].

Those disruptions are harder to predict. It could be that the active pharmaceutical ingredient for a cholesterol-lowering drug may have had a manufacturing plant in a part of China where there was a work stoppage for three weeks. That can have implications weeks and months down the line.

Q: What can be done to address those concerns about drug supplies?

Winckler: There’s some ongoing work to try and predict where we might see shortages and then to smooth out the supply chain disruption to make sure that we are getting the active ingredient to the facilities where it needs to be so that we can generate finished product. And then let’s allocate finished product in a way to better meet folks’ needs.

Where we can exacerbate the problem is if we begin to get indications that there may be a shortage, then the immediate response for those who might need that product is to go procure more, which then continues the disruption in the supply chain. It can create a broader problem if people are worried about a shortage and then bring more out of the formal supply chain and into personal supplies — then it’s not available to deploy to places where we need it.

We need to be more prudent in deploying what we have to make sure that we can get it to as many places where it needs to be, and perhaps protect against some of the stockpiling and look more to how we’re distributing and making available the supply that we have.

Q: Are there other areas of the supply chain that could be disrupted? Perhaps devices?

Winckler: The risk of supply chain disruption is a risk that healthcare facilities should consider for all of the products they use.

It’s important for supply chain professionals to be thinking beyond the obvious and, rather, evaluating their sources and thinking through: A just-in-time [supply chain] approach is still appropriate for many things, but then understanding what alternatives there might be and making good use of the redundancies in our supply chain.

Q: What steps can hospitals take to mitigate these issues over which they may have little control?

Winckler: Twenty years ago, there were certainly a lot of [issues] in the Y2K transition to think through. We weren’t really sure what was going to happen when we went from 1999 to the year 2000. There was a lot of thinking through many of these same questions, saying, “OK, what planning should we have in place?” This may be a great opportunity to look at what was done there, and the lessons learned and perhaps steps that we might take.

The most important thing is to have a good understanding of your supply chain, refresh yourself with what your procurement practices are, and then monitor for things that seem to be a bit different and say, “All right, what are my alternatives?” So having contingency planning.

Looking back at work that we’ve done, I’m sure there are many other examples — hurricane preparedness — where we do this, [assessing] do we have a good sense of our typical practices and are we monitoring for any deviations? And then what’s our response to those deviations?


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