BUILDING RESILIENCE
into the Nation’s
MEDICAL PRODUCT
SUPPLY CHAINS

Wallace J. Hopp, Lisa Brown, and Carolyn Shore, Editors

Committee on Security of America’s Medical Product Supply Chain

Board on Health Sciences Policy

Health and Medicine Division

A Consensus Study Report of

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International Standard Book Number-13: 978-0-309-27469-2
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Digital Object Identifier: https://doi.org/10.17226/26420

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Suggested citation: National Academies of Sciences, Rngineering, and Medicine. 2022. Building resilience into the nation’s medical product supply chains. Washington, DC: The National Academies Press. https://doi.org/10.17226/26420.

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COMMITTEE ON SECURITY OF AMERICA’S MEDICAL PRODUCT SUPPLY CHAIN¹

WALLACE J. HOPP (Chair), Distinguished University Professor of Business and Engineering, Stephen M. Ross School of Business, University of Michigan

MAHSHID ABIR, Associate Professor, Department of Emergency Medicine, University of Michigan

GEORGE BALL, Associate Professor, Operations and Decision Technologies Department, Kelley School of Business, Indiana University Bloomington

RAQUEL C. BONO, Principal, RCB Consulting (resigned from the committee February 2021)

LEE BRANSTETTER, Professor of Economics and Public Policy, Carnegie Mellon University

ROBERT CALIFF, Former Medical Strategy and Senior Advisor at Alphabet Inc., Verily Life Sciences and Google Health (resigned from the committee November 2021)

ASHA DEVEREAUX, Physician, Sharp Healthcare System

OZLEM ERGUN, Professor and Associate Chair for Graduate Affairs, Department of Industrial and Mechanical Engineering, Northeastern University College of Engineering

ERIN R. FOX, Senior Pharmacy Director, Drug Information and Support Services, Department of Pharmacy Services, University of Utah Health

LARRY M. GLASSCOCK, Chief Operating Officer, NFH, Inc.

LEWIS GROSSMAN, Professor of Law, Washington College of Law, American University

W. CRAIG VANDERWAGEN, Partner, East West Protection, LLC

ALASTAIR WOOD, Emeritus Professor of Medicine and Pharmacology, Vanderbilt University

MARTA WOSINSKA, Former Deputy Director, Policy at the DukeMargolis Center for Health Policy (resigned from the committee April 2021)

MATTHEW K. WYNIA, Director, Center for Bioethics and Humanities, University of Colorado

Study Staff

LISA BROWN, Study Co-Director

CAROLYN SHORE, Study Co-Director

LEAH CAIRNS, Program Officer (from June 2021)

___________________

¹ NOTE: See Appendix F, Disclosure of Unavoidable Conflict of Interest.

KELSEY R. BABIK, Associate Program Officer (from August 2021)

BEN KAHN, Associate Program Officer (until June 2021)

EESHAN KHANDEKAR, Associate Program Officer (until October 2020)

ANDREW MARCH, Associate Program Officer

SHALINI SINGARAVELU, Associate Program Officer (from August 2021)

REBECCA CHEVAT, Research Associate (until June 2021)

MARGARET MCCARTHY, Research Associate (from August 2021)

KIMBERLY SUTTON, Senior Program Assistant (from June 2021)

MELVIN JOPPY, Senior Program Assistant (until June 2021)

ANDREW M. POPE, Senior Director, Board on Health Sciences Policy

Science Writers

JOANNA LOCKE, Locke Public Health

ANNA NICHOLSON, Doxastic LLC

EVAN RANDALL, Doxastic LLC

Commissioned Paper Author

PHILIP ELLIS, Ellis Health Policy

Reviewers

This Consensus Study Report was reviewed in draft form by individuals chosen for their diverse perspectives and technical expertise. The purpose of this independent review is to provide candid and critical comments that will assist the National Academies of Sciences, Engineering, and Medicine in making each published report as sound as possible and to ensure that it meets the institutional standards for quality, objectivity, evidence, and responsiveness to the study charge. The review comments and draft manuscript remain confidential to protect the integrity of the deliberative process.

We thank the following individuals for their review of this report:

Although the reviewers listed above provided many constructive comments and suggestions, they were not asked to endorse the conclusions or recommendations of this report nor did they see the final draft before its release. The review of this report was overseen by DAVID R. CHALLONER, University of Florida, and VINOD K. SAHNEY, Northeastern University. They were responsible for making certain that an independent examination of this report was carried out in accordance with the standards of the National Academies and that all review comments were carefully considered. Responsibility for the final content rests entirely with the authoring committee and the National Academies.

Preface

Supply chains have never had a higher profile than they do right now. Once the arcane purview of specialists and scholars, the field of supply chain management has been front page news throughout the COVID-19 pandemic. Unfortunately, the reason for this newfound notoriety is that everything, from cars to coffee, seems to be in irritatingly short supply. These shortages have awakened us all to the reality that the products we take for granted are delivered through complex, global supply chains, which can break down.

Not being able to buy toilet paper or a television set is certainly an inconvenience. But not being able to get a chemotherapy drug or mechanical ventilator is life threatening. Of the many supply chains whose fragility was exposed by the pandemic, none are more vital to public health and safety than those for medical products. Recognizing this, Congress, as part of the 2020 CARES Act, called for establishment of an ad hoc committee to examine the security and resilience of U.S. medical product supply chains. This report is the result of a year-long study by that committee.

To focus its work, the committee interpreted “resilience” to refer to the ability of medical product supply chains to match supply with demand under both normal and emergency conditions, so that patients and providers can count on access to medical products when they need them. But matching supply with demand is precisely the role of supply chain management. Why then have we experienced so many shortfalls in normal times, such as chronic shortages of generic injectable drugs for over a decade, and during emergencies, such as inadequate supplies of N95 masks to meet surging demand during the recent pandemic?

The kneejerk response in the media and elsewhere has been to blame globalization. And to be sure, long supply chains with many production stages spread over many locations with many transportation links between them have more failure modes than short domestic supply chains. However, there are also reasons supply chains have become increasingly globalized. Locating production of the various steps in places with cost or capability advantages can facilitate lower prices, higher quality, wider variety, and more innovation. On-shoring a global supply chain by moving all production stages to domestic sites would therefore have consequences. Most prominently, on-shoring could increase costs and reduce affordability of medical products. Indeed, affordability concerns are the reason domestic companies that stepped up to produce N95 masks at the beginning of the pandemic found themselves struggling to survive once international supplies resumed and health systems shifted back to them to reduce costs.

Beyond cost concerns, the resilience benefits of on-shoring depend on what stages are domesticated and how. Moving only the final assembly stage to the United States, as is often proposed in glib on-shoring proposals, will have a limited impact on resilience because it leaves the supply chain vulnerable to disruptions of component and raw material supplies. Even if all stages of a medical product supply chain could be on-shored, if this served to concentrate production of a key stage in a single location, it could leave the very supply chains we are trying to protect more vulnerable to disruption by local disasters like earthquakes or hurricanes.

Finally, even if we could overcome the economic obstacles and risks of supply concentration, it would be irresponsible to on-shore medical products if there were more cost-effective ways to achieve medical product supply chain resiliency. For example, if holding a vast stockpile of a critical medical product would provide more protection for less cost than onshoring the product, why wouldn’t we do it? As a country, we have many social priorities. Unnecessary spending on one means less funds will be available for another.

All this quickly led the committee to the realization that our focus could not be limited to assessing risks of globalization and finding ways to on-shore critical medical products. Nor could it be to simply enumerate ways to make medical product supply chains more resilient. To serve the overarching goal of making the American public safer and more secure, we had to create a framework for systematically enumerating, evaluating, and combining measures into a cost-effective medical product supply chain resiliency strategy.

Fortunately, the committee was comprised of experts in supply chain management, economics, and medicine. While this sometimes led to discussions that sounded like those of the five blind men describing an elephant, it allowed us to leverage our different disciplinary lenses to create

a medical product supply chain resilience framework. We made use of this framework, which contains four tiers that address awareness, mitigation, preparedness, and response, to craft and motivate our recommendations. Under the awareness category, we propose measures to collect, compile, and disseminate information about medical product supply chain risks and vulnerabilities. Under the mitigation category, we advocate steps to reduce the likelihood and magnitude of supply disruptions. Under the preparedness category, we describe a range of options for preventing a supply shortage from impacting patients and medical personnel. Under the response category, we suggest policies for building organizational capabilities that protect health during emergency disruptions.

In the end, as our report makes abundantly clear, there is no single “silver bullet” for the medical product supply chain problem. Instead, we believe it is a case of the quote, “God is in the details.” Slogans won’t make us safer in the next crisis than we were in this one, but a host of coordinated activities by medical product supply chain managers, government agents, and medical providers will.

Lastly, I want to express my deepest gratitude to the committee members and the National Academies staff members who worked on this study. The volunteers on the committee devoted major amounts of time and energy on top of their regular professional responsibilities that were heightened by the added burden of dealing with a pandemic. In the case of the clinical members of the committee, this often meant rotating in and out of meetings to treat patients. It was truly an example of America at its best, with people helping people in every way they could. But the discussions, emails, snippets of text, and comments on drafts from these dedicated committee members could not have become a report without the writing and editing skills of the staff. In particular, Lisa Brown and Carolyn Shore organized both the activities of the committee and the writing of the report with exceptional vision and leadership, while Kelsey Babik, Leah Cairns, Andrew March, Margaret McCarthy, and Shalini Singaravelu skillfully bore the brunt of the writing responsibility. It was an honor and a delight to work with all of these wonderful people.

Wallace (Wally) Hopp, Chair
Committee on Security of America’s
Medical Product Supply Chain

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Abstract

During the coronavirus disease 2019 (COVID-19) pandemic, shortages of medical devices, supplies, and drugs have risked the lives of Americans and have compromised the ability to deliver care. However, medical product shortages are not a new problem, and over the past several decades supply chain disruptions have repeatedly plagued the U.S. health care system, costing health care systems millions of dollars per year, threatening the clinical research enterprise, and most importantly, imperiling the health and lives of patients. In 2020, a committee convened by the National Academies of Sciences, Engineering, and Medicine was charged to address this important issue by examining the root causes of medical product shortages and identifying ways to enhance the resilience and security of America’s medical product supply chains—both in so-called normal times and during public health emergencies.

Because medical product supply chains are complex, multilevel, globally distributed systems that involve people, processes, technologies, and policies, they are vulnerable to many types of risk, as well as amenable to many types of remediation. To identify measures that will have the greatest impact on public health and safety, the committee focused on supply chain critical medical products, which are defined as those that are both medically essential and vulnerable to shortages. Market incentives play a key role in determining the vulnerability of medical product supplies. For example, high margins on patented drugs provide strong incentive for manufacturers to build in supply continuity protections, while low margins on generic drugs do not. Consequently, identifying supply chain critical medical prod-

ucts requires both an evaluation of medical need and an assessment of a mismatch between private and public incentives.

To prioritize the myriad ways the supply chains for these critical products can be made more resilient, the committee invoked basic concepts of system reliability and supply chain management to create a framework that categorizes measures into four layers of protection. These layers address the timeline from a disruptive event to impact on human health by considering awareness, mitigation, preparedness, and response (see Chapter 5).

Awareness measures identify, analyze, and share information essential to understanding and reducing medical product supply chain risks (see Chapter 6). As such, awareness is a prerequisite to mitigate, prepare for, or respond to supply chain disruptions. Mitigation measures reduce the likelihood or magnitude of disruptive events that could lead to medical product shortages (see Chapter 7). For example, a quality rating system that avoids a medical product recall is a mitigation measure that prevents a recall-induced shortage before it can happen. Preparedness measures are actions taken prior to a disruptive event that will reduce the negative impacts on health and safety if the event occurs (see Chapter 8). An example is inventory stockpiling, which does not stop a capacity disruption or demand surge event from occurring, but can prevent end users from experiencing a supply shortage. Response measures include steps taken after a shortage has occurred to prevent or reduce public harm (see Chapter 9). For example, crisis standards of care, which alter and prioritize use of scarce medical products, do not avoid or reduce a supply shortage, but when implemented, they can protect health by maximizing the effectiveness of the limited supply, and are therefore an important response measure. This medical product supply chain resilience framework can be used to identify a set of effective and complementary policies for enhancing supply resilience for a specific medical product.

The committee leveraged the framework to identify high-priority, high-impact recommendations within the four protective layers to build an integrated strategy to address the most significant gaps in medical product supply chain resilience.

• Awareness: To enhance awareness of medical product supply chain risks and remedies, the committee recommends the U.S. Food and Drug Administration (FDA) make sourcing, quality, volume, and capacity information publicly available for all medical products approved or cleared for sale in the United States (Recommendation 1) and establish a public database to share this information and to promote analyses of these data by interested parties (Recommendation 2). Novel approaches to mitigation, preparedness, and response will come from these analyses.

• Mitigation: To reduce the risk and magnitude of disruptive events that cause supply shortages, particularly under nonemergency conditions, the committee recommends that health systems deliberately incorporate quality and reliability, in addition to price, in contracting, purchasing, and inventory decisions (Recommendation 3).
• Preparedness: To prevent or reduce shortages from disruptive events that do occur, the committee recommends the Office of the Assistant Secretary for Preparedness and Response (ASPR) modernize and optimize inventory stockpiling management as protection against medical product shortages at the national and regional levels (Recommendation 4) and that ASPR and FDA complement stockpiling with capacity buffering policies to enhance cost efficiency and to improve protection in major emergencies (Recommendation 5).
• Response: To protect health against supply shortages that do reach end users, the committee recommends negotiating an international, plurilateral treaty with other major medical product exporters to make more effective use of limited global supplies by ruling out export bans on key medical products and components (Recommendation 6) and that ASPR and the Centers for Disease Control and Prevention establish a domestic working group to examine ways to improve effectiveness of the final delivery stage within the United States (“last mile”) of medical product supply chains and to engage end users in planning for emergency response to medical product shortages (Recommendation 7).

Collectively, these seven recommendations will improve supply reliability for medical products during normal conditions and will protect public health and safety during emergencies.

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Contents

ACRONYMS AND ABBREVIATIONS

SUMMARY

PART I: OVERVIEW OF GLOBAL MEDICAL PRODUCT SUPPLY CHAINS

1 INTRODUCTION

Context for This Study

Study Approach

References

2 UNDERSTANDING MEDICAL PRODUCT SUPPLY CHAINS

Overview of the Medical Product Supply Chain System

Differences in Supply Chain Economics by Product Category

Policy Underpinnings of U.S. Medical Product Supply Chains

Concluding Remarks

References

3 GLOBALIZATION OF U.S. MEDICAL PRODUCT SUPPLY CHAINS

Global Landscape of Medical Product Supply Chains

Geographical Considerations for Medical Product Supply Chains

Impacts of Globalization

Concluding Remarks

References

4 CAUSES AND CONSEQUENCES OF MEDICAL PRODUCT SUPPLY CHAIN FAILURES

Mechanics of Medical Product Supply Chain Failures

Demand Surges

Capacity Reductions

Coordination Failure

Effects of Medical Product Shortages

Concluding Remarks

References

PART II: MEASURES FOR ENHANCING THE RESILIENCY OF MEDICAL PRODUCT SUPPLY CHAINS

5 A FRAMEWORK FOR RESILIENT MEDICAL PRODUCT SUPPLY CHAINS

Defining Resilience for Medical Product Supply Chains

Multilayered Protection

The Committee’s Medical Product Supply Chains Resilience Framework

Concluding Remarks and Overview of Committee Recommendations

References

6 AWARENESS MEASURES FOR RESILIENT MEDICAL PRODUCT SUPPLY CHAINS

Transparency

Analytics

Communication

Current Efforts to Increase Awareness

Recommendations

References

7 MITIGATION MEASURES FOR RESILIENT MEDICAL PRODUCT SUPPLY CHAINS

Incentives for Quality and Reliability

Hardening Day-to-Day Medical Product Supply Chains

Diversification of Medical Product Supply Chains

Recommendation

References

8 PREPAREDNESS MEASURES FOR RESILIENT MEDICAL PRODUCT SUPPLY CHAINS

Inventory Stockpiling

Capacity Buffering

But Buffer Flexibility

Contingency Planning and Readiness

Recommendations

References

9 RESPONSE MEASURES FOR RESILIENT MEDICAL PRODUCT SUPPLY CHAINS

Response Measures for Global Medical Product Supply Chains

Response Measures for Last-Mile Delivery and End Users

Recommendations

References

APPENDIXES

A STUDY METHODS AND PUBLIC AGENDAS

B SUMMARY OF RECOMMENDATIONS FROM CONTEMPORARY REPORTS

C DETERMINING RISK VALUES WHEN EVALUATING MEDICAL PRODUCT SUPPLY CHAIN RESILIENCE

D COMMISSIONED ECONOMIC ANALYSIS

E COMMITTEE AND STAFF BIOSKETCHES

F DISCLOSURE OF UNAVOIDABLE CONFLICT OF INTEREST

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Boxes, Figures, and Tables

BOXES

S-1 Summary of Recommendations

1-1 Statement of Task

1-2 Key Terminology and Definitions

2-1 Current Tools for FDA to Address Supply Chain Shortages

3-1 Key Terminology and Definitions Regarding Geographic Location Based Production

3-2 The Role of Global Collaboration in Developing Vaccines Against COVID-19

4-1 Case Study on N95 Masks

4-2 Case Study on Saline

4-3 Case Study on Heparin

5-1 Breakdown Example of a Multilayered Defense System

5-2 Relative Economics of Inventory Stockpiling and Capacity Buffering

5-3 Summary of Recommendations

6-1 Benefits of Information Sharing in Supply Chain Management

6-2 FDA’s Site Selection Model: Risk Factors

7-1 Resources for Addressing Medical Product Shortages and Quality Concerns

8-1 Overview of Roadmap for Selecting Preparedness Measures

8-2 3M’s Use of Capacity Buffering

8-3 Comparing the Economics of On-Shoring and Stockpiling

8-4 Resources for Crisis Standards of Care

9-1 Summary of Recommendations from Regulating Medicines in a Globalized World

FIGURES

S-1 Simple schematic of medical product supply chains under normal conditions

S-2 The three causes of shortages in medical product supply chains—demand surges, capacity reductions, and coordination failures—and examples of each

S-3 Medical product supply chains resilience framework: potential trigger events and resilience measures

1-1 Stakeholders in a medical product supply chain

2-1 Simple schematic of a medical product supply chain under normal conditions

3-1 U.S. imports of pharmaceuticals and medical equipment, products, and supplies in 2019

3-2 Percentage of API and FDF manufacturing facilities for human drugs in the U.S. market by country or region, May 2020

4-1 Simple schematic of a medical product supply chain under normal conditions

4-2 Schematic of a typical shortage found in a medical product supply chain

4-3 How shortages propagate through a medical product supply chain

4-4 The three causes of shortages in medical product supply chains—demand surges, capacity reductions, and coordination failures—and examples of each

5-1 Cumulative probability distribution of supply disruption time

5-2 Swiss cheese model of system failure

5-3 Swiss cheese model of medication error

5-4 Medical product supply chains resilience framework: potential trigger events and resilience measures

5-5 A layered protection strategy for matching resilience measures to medical products

6-1 Medical product supply chain resilience framework: potential awareness measures

7-1 Medical product supply chain resilience framework: potential mitigation measures

8-1 Medical product supply chain resilience framework: potential preparedness measures

8-2 Cost comparison of stockpiling and on-shoring

9-1 Medical product supply chains resilience framework: potential response measures

C-1 Cumulative probability distributions of shortage volume

C-2 Conditional cumulative probability distributions of shortage duration for a reference scenario

TABLES

1-1 Select Federal Agencies with Responsibilities in Medical Product Supply Chains

3-1 Countries with the Largest Global Pharmaceutical Markets in the World

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Acronyms and Abbreviations

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