Accounting and Financial Reporting

The coronavirus and the healthcare supply chain: What hospitals need to know about N95 masks, drugs and devices

April 1, 2020 7:39 pm
  • The majority of personal protective equipment used by U.S. healthcare providers is manufactured in China and other countries hit hardest by the coronavirus.
  • Based on current projections, most hospitals will experience about a month-long disruption in the delivery of N95 masks used to protect against the spread of airborne illness.
  • Other parts of the supply chain, including drugs and medical devices, also could be impacted.

The novel coronavirus, clinically known as COVID-19, has not yet presented a widespread health threat in the United States, but it is starting to take a toll on the healthcare supply chain.

Most hospitals are experiencing delays of three to five days on orders of N95 respirators, the masks used to protect healthcare workers from the spread of airborne illnesses, and are receiving only partial orders, said Chaun Powell, group vice president for strategic supplier engagement with Premier Inc.

U.S. healthcare organizations typically buy more than 2 million N95 masks each month, and the majority are manufactured in countries that have stopped shipping to the U.S. because of increased demand in their own countries. All major U.S. distributors are using allocation protocols — that is, controlling the distribution of N95 masks so no hospital is shut out — and many providers are rationing masks, Powell said in an email.

N95 masks are different than standard surgical masks. They are effective only if they are properly fitted and used, and healthcare staff must be trained in the Occupational Safety and Health Administration’s protocols for their use.

Only two U.S.-based companies — 3M and Prestige Ameritech — are full-line manufacturers of N95 respirators, and they historically have not produced enough units to meet domestic demand, Powell said Feb. 19 during a Premier-sponsored webinar. Both companies are ramping up production in their U.S. facilities.

“Barring no further outbreaks here in the U.S., we believe this could take up to about a month, but it would meet our current demand nationally and alleviate any reliance on overseas manufacturing for this critical item,” he said.

On Feb. 26, U.S. Health and Human Services (HHS) Secretary Alex Azar told the House Appropriations Committee that the country has a stockpile of 12 million N95 masks, but according to HHS estimates, it needs 300 million to cover an emergency. Powell said the maximum annual production capacity in the U. S. and Mexico is 65 million.

Health systems should work to reduce the number of N95 masks they use, Capt. Lisa Delaney, associate director for emergency preparedness and response at the National Institute of Occupational Safety and Health, part of the Centers for Disease Control and Prevention, said during the Premier webinar.

For example, food-service workers could be prohibited from entering rooms where N95 masks are required. Instead, healthcare staff directly involved in patient care could deliver and remove food trays.

The CDC has published strategies for optimizing the supply of N95 respirators.

Supply chain concerns go beyond masks

The full impact of the coronavirus outbreak on the healthcare supply chain is not yet known. Based on current knowledge, provider organizations should not worry about the safety of packages coming from China because the virus would not survive the transit, Delaney said.

“It’s fragile, and it’s going to be susceptible to temperature and humidity,” she said. “We’ve gotten a lot of concerns about cargo, but I would not be concerned about that.”

However, the disruption to China’s manufacturing industry poses a concern, Powell said. As with the automotive and electronics industries, healthcare may experience interruptions in supplies that rely on components made in China or neighboring countries.

Pharmaceutical products. To Powell’s knowledge, 100% of the active pharmaceutical ingredients (APIs) for two vital products — penicillin and the blood-thinner heparin — are manufactured exclusively in China.

“If shipments of these APIs are halted, global demand will create scarcity, forcing our industry to innovate and find or create alternative sources,” he said.

Those alternatives, he said, would entail investments by U.S. companies in the resources needed to manufacture ingredients that are not available domestically or moves by Asian companies to open U.S. factories.

The Food and Drug Administration (FDA) said in this week it had identified about 20 drug products that are linked to China through API sourcing or product manufacturing. So far, none of the manufacturers has reported a supply shortage, according to the statement.

Medical devices. It’s hard to predict what medical devices might be affected by the impact of the coronavirus in China and other countries. Regulations require drug manufacturers to communicate potential disruptions to industry partners, but no such regulations exist for medical device manufacturers.

“As an industry, we need to set higher expectations with suppliers to improve supply disruption notification processes,” Powell said.

Purchasers also have no way of knowing exactly which countries are involved in the manufacture of individual medical devices or pharmaceutical products. Premier is proposing that the FDA work with suppliers to create “upstream visibility” so that purchasers know where raw material suppliers, contract manufacturers, sterilization sites and packaging facilities are located.

Accounting for disruptions during future budgeting

Regarding personal protective equipment such as N95 masks, global events could affect health systems’ budgeting processes in the following aspects.

Potential price increases. Developing a supply chain in which critical products are manufactured in various geographic locations — to mitigate the possibility of disruptions — will prevent avoidable shortages but also could lead to price increases.

“We must continue to focus on cost reduction for our member hospitals, but we cannot be so focused on cost reduction that it leads to an inability to have dependable supply,” Powell said. “For a modest increase in spend for these critical items, tremendous headache and man-hours [spent] seeking alternative supplies during times of shortage could be saved.”

The need for stockpiles. Appropriate stockpiles of essential items can reduce the impact of a potential supply chain disruption, Scott Cormier, vice president of emergency management, environment of care and safety for Medxcel, said in an interview. He recommends that purchasers identify their peak usage in a typical year — generally, that will be during flu-season months — and create a PPE stockpile that is about 20% greater.

Such a practice should not be implemented until the supply has resumed normal levels, Powell said, and it should be adopted over time to avoid putting additional burden on suppliers.

Many items have expiration dates, Cormier added, so maintaining a stockpile requires developing and following a plan to ensure items are used before they expire.


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