Introduction

National Academies of Sciences, Engineering, and Medicine; Health and Medicine Division; Board on Health Sciences Policy; Committee on Security of America's Medical Product Supply Chain; Carolyn Shore; Lisa Brown; Wallace J. Hopp

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National Academies of Sciences, Engineering, and Medicine; Health and Medicine Division; Board on Health Sciences Policy; Committee on Security of America's Medical Product Supply Chain; Shore C, Brown L, Hopp WJ, editors. Building Resilience into the Nation's Medical Product Supply Chains. Washington (DC): National Academies Press (US); 2022 Mar 3.

Building Resilience into the Nation's Medical Product Supply Chains.

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1Introduction

Medical product supply chains are essential for the national security and the health security of the United States, and ultimately, the continuity of society. The coronavirus disease 2019 (COVID-19) pandemic has exposed the fragility of U.S. medical product supply chains. Shortages of personal protective equipment for health care workers, medical devices, supplies, and drugs used to treat conditions associated with COVID-19 have put the lives of Americans at risk and have compromised the U.S. health care system. However, the vulnerabilities in U.S. medical product supply chains predate the current public health crisis. Over the past several decades, supply chain disruptions and drug shortages have repeatedly plagued the U.S. health care system, costing medical facilities millions of dollars per year (Vizient, 2019), threatening the clinical research enterprise (McBride et al., 2013), and most importantly, impacting the health and lives of patients (Phuong et al., 2019). These disruptions are the result of a lack of resilience and security of U.S. medical product supply chains and their inability to deliver essential medical products to patients who need them, both in so-called normal times and during disasters or public health emergencies (Accenture, 2021; Phuong et al., 2019).

Medical product supply chains share many characteristics with other modern supply chains. They involve multiple stages and steps, with different entities in different locations frequently being responsible for different portions of those stages rather than being performed within a single vertically integrated organization. These entities are subject to variation in supply and demand, and they are powerfully influenced by profit motives. At the same time, medical product supply chains are also integral to the health care system. Unlike supply chains for consumer goods, where profit motives and competition provide effective incentives to meet customer needs, medical product supply chains serve profit and public health objectives, which may be in conflict (Shah et al., 2021). Consequently, maintaining resilient medical product supply chains is not only about delivering products and generating profits, it is also about saving lives and protecting public safety. Failure in medical product supply chains can result in serious harm to patients or even death. As a result, medical products—which for the purpose of this report is an all-encompassing term that includes drugs, biologics, medical devices, and medical equipment—and manufacturing processes are subject to more government oversight and regulation than supply chains for many other consumer goods.

The U.S. Food and Drug Administration (FDA) plays critical roles in the regulation of development, manufacture, sale, and distribution of drugs, biologics, and medical devices. The manufacture of medical products is an increasingly complex process. For example, the share of newly approved devices that contain software increased from approximately 10 percent in 2002 to nearly 18 percent in 2016, and devices containing such software increasingly include cybersecurity content (Stern et al., 2019). Given these complexities, regulatory oversight plays a particularly important role in the medical product supply chain to ensure patient safety.

Medical product supply chains deliver a diverse array of products, including the four main categories described in this report^¹:

1.: Originator drugs that are drug or biological products approved by FDA through an Abbreviated New Drug Application (ANDA) or a biologics license application (BLA) (FDA, 2017a, 2021a, 2022; WHO, 2008);
2.: Generic drugs that are products approved by FDA through an ANDA or biosimilar products that are approved by FDA through a BLA (FDA, 2018a);
3.: Simple medical devices (Class I) that pose the lowest risk to the patient and/or user according to FDA categories (FDA, 2017b); and
4.: Complex medical devices (Class II and III) that pose a progressively higher risk to the patient or user (FDA, 2017b).

These products vary widely with regard to the complexity of their supply chains as well as their vulnerability to disruption. Chapter 2 summarizes in more detail the ways in which medical product supply chains are structured.

Some of these vulnerabilities are the result of competition and modern cost control trends in supply chain management, including globalization. While the United States remains a world leader in drug discovery and development, the manufacturing of many medical products used in the United States has shifted overseas in recent decades.^² For example, as of August 2019, only 28 percent of the manufacturing facilities producing active pharmaceutical ingredients (APIs)^³ to supply the U.S. market were domestic facilities,^⁴ which still does not provide insight into the domestic product volume. The COVID-19 pandemic exposed vulnerabilities in this global network. Facing worldwide shortages, producers of medical products, including the United States, European Union (EU), China, and India, limited exports to preserve access to medical products for their own citizens through export bans and other trade restrictions, which further crippled already overtaxed supply chains (CRS, 2021). As a result, countries that have underinvested in the resilience of their supply chains, like the United States and many other world countries, struggled to obtain the necessary medical products to combat COVID-19, a situation which placed all patients at risk, even those with unrelated conditions (Kaplan, 2020).

Insufficiently resilient medical product supply chains pose risks not only to public health but also to national security. Medical product supply chains are highly multinational and interdependent, with products commonly including inputs from multiple countries and manufacturing steps taking place in disparate locations. As a result, the United States depends upon other countries, including China, India, the EU, Mexico, and Canada, for medical products (CRS, 2020a, 2020b, 2020c). These other countries also often depend on the United States to play critical parts in complex and interdependent supply chains, but concerns have arisen that U.S. reliance on foreign governments for medical products, key components, manufacturing steps, or even transportation potentially could leave the United States vulnerable to the geopolitical and trade decisions of other nations (CRS, 2020b). Reducing reliance on international suppliers of critical drugs and devices by increasing domestic production (i.e., on-shoring), stockpiling, and diversifying the supply has been widely suggested as a way to increase supply chain resilience (Adler et al., 2020; Murphy, 2020).

While on-shoring may appear to be a simple fix to the supply chain disruptions experienced during COVID-19, the globalized and complex nature of medical product supply chains may limit the feasibility of an on-shoring strategy to improve their resilience. Relocating the final stage of production to the United States may provide limited protection against disruption if inputs are globally sourced (The White House, 2021). But onshoring every step of a long, complex supply chain is likely to be difficult and expensive, especially when compared to other options for increasing supply chain resilience. Moreover, concentrating production inside the United States can make supplies more vulnerable to regional disasters, such as hurricanes (The White House, 2021). These issues cloud the picture of whether on-shoring for a given medical product might alleviate, have no effect on, or worsen supply chain disruptions.

Therefore, rather than looking for arguments for or against any specific remedy, the committee decided to approach the medical product supply chain vulnerability problem by starting with a clear goal and then considering a full range of alternatives in order to identify appropriate elements of an integrated strategy:

The primary goal of resilient medical product supply chains is to prevent public health and safety from becoming compromised by disruptions to supplies of medical products.

Many trigger events, including production interruptions, natural disasters, disease outbreaks, and geopolitical events can produce supply shortages by either directly impacting medical product supplies or indirectly impacting supplies and components needed to manufacture medical products. Regardless, all trigger events lead to product shortages by decreasing supply, increasing demand, or impeding the ability to match supply with demand. This observation narrows the search for resilience options, as opposed to exploring every possible trigger event. Instead, successful resilience measures will be those that increase supply, decrease demand, or improve coordination of supply with demand. With this, the committee’s task becomes one of finding a set of measures that increase the resilience of a medical product supply chain by making it capable of avoiding harm to the public under a wider range of disruptive events. Finally, because measures to improve resilience generally come with costs, the aim must be to select the most cost-effective measures that achieve a socially desirable level of protection.

CONTEXT FOR THIS STUDY

Section 3101 of the CARES Act, signed into law on March 27, 2020, directed the Secretary of the U.S. Department of Health and Human Services (HHS) to enter into an agreement with the National Academies of Sciences, Engineering, and Medicine (the National Academies) to establish an ad hoc committee to examine the security and resilience of U.S. medical product supply chains.^⁵ A number of other reports that examine medical product shortages and medical product supply chains were released prior to the COVID-19 pandemic and afterward in response to it. This study builds on and complements the recommendations from other contemporary reports (see Appendix B).

Trends in Medical Product Shortages

Data from the University of Utah Drug Information Service and the American Society of Health-System Pharmacists show that the number of new drug shortages reported in a year had been increasing until 2011, when the number peaked, and then it began to gradually decline (Fox and McLaughlin, 2018). Another study on drugs used for adult critical care found the same trend, with a moderate decline in new drug shortages through the middle of 2016 (Mazer-Amirshahi et al., 2017). Although the number of new drug shortages has been decreasing in recent years, the number of ongoing shortages remains high—mostly because of the long time it takes for drug shortages to be resolved. Mazer-Amirshahi and colleagues reported that the median duration of resolved drug shortages was 7.2 months, while those that were still ongoing at the end of their study had a median duration of 13.6 months.

Certain categories of drugs notably experience shortages more frequently than others. As discussed in Chapter 2, supplies of generic drugs are prone to shortages, particularly those drugs that are older or low priced (Dave et al., 2018; Ventola, 2011). Several factors may contribute to the higher frequency of shortages among older or low-price generics, including lack of incentives to maintain adequate supply of low-margin drugs, low reimbursement rates, and market consolidation. Clinical classes of drugs that are frequently in shortage include anesthesia medications, antibiotics, pain medications, nutrition and electrolyte products, and chemotherapy agents (Fox et al., 2014). Sterile injectable drugs are commonly in shortage, which may be explained by the manufacturing complexities and the high cost hurdle of entering the generic market (NASEM, 2018). FDA data show that anywhere between 20 and 80 percent of drug shortages are represented by sterile injectables (Fox et al., 2014; NASEM, 2018), though this wide range demonstrates the uncertainty of the data on drug shortages.

Data on the occurrence of medical device shortages are even more scarce than on drug shortages. Device manufacturers were not required to notify FDA of anticipated discontinuance or interruption in the production of medical devices until 2020 with the passage of the CARES Act.^⁶ Before the CARES Act, FDA mainly relied on manufacturers’ voluntary notifications of devices shortages (FDA, 2011).

As has been put into high relief by the COVID-19 pandemic, emergencies such as natural disasters, geopolitical interventions, or pandemics can exacerbate existing medical product supply shortages and bring about new ones (Schondelmeyer et al., 2020). Over the course of the COVID-19 pandemic, the United States and the world witnessed both demand surges and supply constraints for medical products. Health care systems increased orders and began hoarding products in response to the pandemic, while the pandemic simultaneously prompted manufacturing facilities to close and slowed or halted trade. Drugs used to treat COVID-19 patients, mechanical ventilators, and personal protective equipment (PPE) are all examples of medical products that have experienced shortages during the COVID-19 pandemic (Branson et al., 2021; Kaplan, 2020). As of late 2021, 24 of the 40 (60 percent) critical drugs for the treatment of COVID-19 patients were under short supply (CIDRAP, 2022).While the extremely rapid development, production, and distribution of vaccines against COVID-19 has demonstrated the impressive capabilities of some global medical product supply chains, the pandemic has also laid bare the fragility of others, including supply chains that Americans depend on for their health and safety during emergencies and routine times.

Charge to the Committee

Congress charged this committee with the task of assessing and evaluating the effect of U.S. dependence on critical drugs and devices sourced or manufactured outside of the United States and to provide recommendations to address the vulnerabilities of medical product supply chains and increase their resilience (see Box 1-1).

BOX 1-1

Statement of Task.

To carry out this study, the National Academies convened the Committee on Security of America’s Medical Product Supply Chain whose members have expertise in crisis standards of care, emergency and critical care medicine, drug and device development and manufacturing, drug shortages, regulatory policy, health economics, medical logistics, supply chain management, risk and emergency management, operations research, public health preparedness and response, and state and local public health (see Appendix E for biographical sketches of committee members). The project was supported by the Office of the Assistant Secretary for Preparedness and Response (ASPR) within HHS. This report presents the committee’s conclusions and the evidence that supports them, as well as recommendations to a diverse set of stakeholders.

The Committee’s Interpretation of the Charge

To identify effective and efficient ways to increase medical product supply chain security and resilience, the committee adopted a system-wide perspective that captures the fundamental dynamics of supply chain behavior. Sensible allocation of the finite resources available to improve supply chain resilience requires attention to costs. This in turn requires a framework to help systematically enumerate measures, to identify synergies between different policies, and to evaluate the relative cost-efficiency of alternatives to improve the resilience of medical product supply chains. An effective supply chain resilience strategy must be diversified and comprehensive to address the array of supply chain risks that threaten the public health and national security of the United States. This observation is the underlying motivation for the rest of this report that describes medical product supply chains, examines their vulnerabilities, and develops a systematic framework for building resilience in order to identify and motivate strategic, cost-effective recommendations.

STUDY APPROACH

In developing this report and the recommendations presented herein, the committee deliberated for over a year, holding five milestone committee meetings and monthly committee calls virtually. The committee held six meetings that included portions open to the public as well as one virtual, public workshop. These sessions provided the committee an opportunity to hear from the study sponsor (ASPR) and other medical product supply chain field experts and stakeholders on what they consider to be the most pressing issues within medical product supply chains, steps they are currently taking to alleviate these issues, and recommendations for building more resilient medical product supply chains. Public meeting agendas can be found in Appendix A. When researching and developing the report, the committee considered input from relevant government agencies.

The committee began by scoping the literature in the medical product supply chain field (see detailed study methods in Appendix A). The National Academies’ Research Center staff and study staff conducted literature reviews to find relevant peer-reviewed and gray literature that fell under the statement of task. Additionally, committee members submitted peer-reviewed journal articles to study staff and the committee for consideration. A review of key terms in this study and their definitions is presented in Box 1-2.

BOX 1-2

Key Terminology and Definitions.

The committee also commissioned an economic modeling analysis of policies and practices to improve the resilience of medical product supply chains as well as a series of case studies on critical drugs and devices to illustrate key issues related to improving the resilience of medical product supply chains. These case studies addressed COVID-19 vaccine, heparin, N95 masks (PPE), and saline. Throughout this report, the committee uses boxes to highlight insights from these case studies that illustrate gaps in resilience for specific supply chains. The economic modeling analysis is included in Appendix D.

Although the COVID-19 pandemic triggered this report, it does not solely focus on pandemic-specific medical product supply chain issues. This report discusses broader, systemic supply chain problems that existed prior to the COVID-19 pandemic, problems that led to drug and device shortages in noncrisis times and exacerbated them during the pandemic. To identify options for increasing resilience, the committee examined the full length of medical product supply chains—from raw materials to finished products, including all intermediate steps, plus transportation and the administration of the medical product to the end user and management of shortages by end users to mitigate their adverse effects.

Defining Key Terminology

The medical and supply chain fields on which this study is based do not always have consistent terms for the concepts discussed in this report. Therefore, to promote clarity, Box 1-2 presents the committee’s definitions for core terms. In addition to these terms, the report defines other important terms throughout, alongside the relevant discussion.

Defining Supply Chain Critical Medical Products

Multiple groups, including FDA, the Center for Infectious Disease Research and Policy at the University of Minnesota, and the World Health Organization (WHO), have previously defined “critical acute drugs” and “essential medicines,” and have created lists of such medical products (Schondelmeyer et al., 2020; WHO, 2019). In August 2020, Executive Order 13944 directed FDA to identify a list of “essential medicines, medical countermeasures, and critical inputs that are medically necessary to have available at all times, in an amount adequate to serve patient needs and in the appropriate dosage forms” (The White House, 2020). This Essential Medicines List established criteria for each of the categories in consultation with subject matter experts and multiple federal agencies and partners. While the list is currently being refined based on further consultations and public comments, the initial publishing in October 2020 focuses on products necessary to address immediately life-threatening medical conditions encountered in U.S. acute care facilities, rather than medicines to manage longer-term chronic conditions (FDA, 2020).

All of the above definitions and lists focus exclusively on the clinical importance of medical products.^⁷ However, a product that is medically essential, but already has a highly reliable supply chain, is a poor target for resilience investments. Therefore, the committee defines “supply chain critical” medical products as those that are both medically essential and vulnerable to shortages.

How to Use This Report

Owing to their complexity and interconnectedness, there are a variety of stakeholders involved in medical product supply chains. These stakeholders include government agencies, raw material suppliers, manufacturers, distributors, group purchasing organizations (GPOs), health systems, providers, and patients (see Figure 1-1).

FIGURE 1-1

Stakeholders in a medical product supply chain. NOTE: GPO = group purchasing organization. SOURCE: Adapted from ASPR_TRACIE, 2019.

The committee designed this report to help policy makers, manufacturers, government agencies, and other stakeholders understand and use the available evidence to inform their decision making. These different stakeholders play different roles and therefore can use the framework and results of this report in different ways.

Government Agencies

The U.S. government plays multiple roles in medical product supply chains: as a direct participant, as a policy maker, and as the regulator that dictates the ground rules by which supply chains must operate. A number of federal agencies have diverse responsibilities to oversee and regulate medical product supply chains (see Table 1-1); however, gaps in oversight of medical product supply chains remain. The roles and responsibilities of the various federal agencies for various aspects of medical product supply chains have been unclear causing confusion at the state and local levels—especially during COVID-19. Moving forward and as agencies form new supply chain-related offices and undertake relevant initiatives, it will be important that these roles are clarified and codified in guidance. Some government agencies also function as consumers, purchasing medical products for federally run health programs (e.g., U.S. Veterans Administration and the Centers for Medicare & Medicaid Services) and for stockpiling, such as the Strategic National Stockpile. Government agencies at the federal, state, territory, tribal, and local levels can use the report to identify and address gaps in medical product supply chains and plan for future public health emergencies. Policy makers may find the report useful in informing decisions regarding legislation and regulations aimed at promoting the security and resilience of the medical product supply chain during routine functioning and any potential emergency events that may occur.

TABLE 1-1

Select Federal Agencies with Responsibilities in Medical Product Supply Chains.

Supplier/Manufacturers/Distributors

A medical product supply chain typically begins at the point of the raw materials supplier. While raw materials suppliers represent a wide variety of industries (e.g., latex, reagents, starting compounds, steel), these industries can be geographically concentrated making them vulnerable to disruptions from natural disasters (NASEM, 2018). Stakeholders can make use of the framework of this report to identify ways to reduce risks of disruption as internal business continuity measures and as contributions to public health and safety initiatives.

Manufacturers of medical products are a diverse group of stakeholders, representing small and large firms, from manufacturers of APIs, excipients, and device components to finished dosage forms and medical devices. While some manufacturers actually make the individual components of the drug product that are used to make the finished drug product, other firms also referred to as “manufacturers” may work through one or more “contract manufacturing organizations” to coordinate and link together the various steps that lead to production of a drug as a finished dosage form. These stakeholders can make use of the framework of this report to assess vulnerabilities in their own supply chains and to increase their supply chain resilience for both business and compliance purposes.

Medical products may pass through a wholesale distributor, entities that purchase the product directly from the manufacturer before reselling it to a health system or a secondary distributor (Rockefeller et al., 2012). Similar to wholesale distributors, GPOs serve as an intermediary between health systems and the product manufacturers, though GPOs may also purchase from wholesale distributors (GAO, 2014). Health systems may choose to become a member of a GPO, which negotiates contracts for medical products on behalf of its members with the intent of sourcing from multiple suppliers in order to provide a more reliable supply to members at a lower cost. These stakeholders can use the report to identify areas within their supply chains that need to be secured, and improve the resilience of the supply chains they depend on to continue conducting business.

Health Systems, Public Health Agencies, and Providers

Ultimately, a medical product supply chain is designed to deliver products to consumers, which are composed of public health agencies, health systems, pharmacies, and nursing homes—in which physicians, nurses, pharmacists, and other care providers administer and deliver services to the patients that rely on them. Hospitals and medical facilities can use the report to develop and strengthen their business continuity plans and inform institutional guidelines and best practices.

Clinicians and Care Providers

Clinicians and care providers rely on medical product supply chains to be able to appropriately treat their patients. They may also play a role in the early detection and reporting of local shortages as well as in implementing contingency plans to mitigate the adverse effects of shortages. Practitioners may use the report to more fully understand the effects of medical product shortages and appreciate their role in contributing to supply chain resilience.

Patients

The final consumers in a medical product supply chain are patients. Patients require medical products for their health, and therefore drive demand for medical products. The general public can use this report to understand and recognize that medical product supply chains may have shortages, which can affect clinical outcomes for individual patients and broader communities. They can also use this report to inform their personal opinions on actions for security and resilience.

Organization of the Report

This report is organized into two parts and nine chapters. Part I provides an overview of global medical product supply chains and consists of Chapters 2 through 4. Chapter 2 provides an overview of medical products and the supply chains that deliver them. Chapter 3 examines medical product supply chain globalization and describes the implications for public health, supply chain resilience, and policy options. Chapter 4 enumerates the root causes of medical product shortages and discusses the effects of shortages.

Part II discusses measures for improving the resilience of medical product supply chains and consists of Chapters 5 through 9. Chapter 5 presents the committee’s medical product supply chain resilience framework, which categorizes resilience policies into awareness, mitigation, preparedness, and response strategies. Chapter 6 addresses awareness measures for promoting supply chain resilience and discusses the importance of transparency in the medical product supply chains. It concludes with recommendations for improving transparency as a basis for many other medical product supply chain resilience measures. Chapter 7 addresses mitigation measures and focuses specifically on issues that plague medical product supply chains during nonemergency conditions, including quality concerns, infrastructure, and purchasing practices. This chapter concludes with a recommendation for how health systems, as consumers, can play an important role in improving the resilience of medical product supply chains. Chapter 8 addresses the full range of preparedness measures and concludes with two complementary recommendations for improving the ability of inventory stockpiling and capacity buffering measures (in conjunction with contingency planning and readiness) to protect people from harm caused by shortages of medical products. Finally, Chapter 9 addresses response measures for improving organizational capabilities to deal with major public health emergencies. It concludes with two recommendations focused on international cooperation and management of the “last mile” (i.e., delivery to patients) of medical product supply chains.

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Footnotes

1: This report does not focus in detail on supply chains for biologics or vaccines given the distinct features in their supply chains. However, as some biologics and vaccines are high-margin, patent-protected pharmaceuticals while others are not, the discussion of profit margins and incentives between originator and generic drugs is still applicable to these medical products. Furthermore, four new reports from the National Academy of Medicine focus on how to prepare for seasonal and pandemic influenza through lessons learned from COVID-19—with one report in particular focusing on globally resilient supply chains for pandemic and seasonal influenza vaccines. These reports can be accessed here: https://nam.edu/four-new-reports-from-the-national-academy-of-medicine-focus-on-how-to-prepare-for-seasonal-and-pandemic-influenza-through-lessons-learned-from-covid-19/.
2: Information given by testimony of Janet Woodcock (House Committee on Energy and Commerce, 2019).
3: APIs are the drug substances formulated into tablets, capsules, and injections.
4: Information given by testimony of Janet Woodcock (House Committee on Energy and Commerce, 2019).
5: CARES Act, Public Law 116-136, § 301 (2020).
6: 21 U.S.C. 356j. Discontinuance or interruption in the production of medical devices.
7: While this report briefly mentions WHO’s Model List of Essential Medicines, more on this list and how it fits into the security of America’s medical supply chains can be found in the proceedings of a workshop the committee held in the spring of 2021 (see NASEM, 2021).

Bookshelf ID: NBK583751

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