Michael Einhorn, chief executive of Dealmed, has been troubled for a good long while about the strategies commonly deployed when it comes to the supply chain for medical supplies.
“I’ve been vocal for a long time that the medical supply chain is not healthy,” he says. “In a 2019 interview, I even said that if there was a pandemic, we’d have shortages.” He’s not happy to have been proved right, but he does hope the strains of the last two years will lead to systemic improvements in how medical supplies from bandages to vaccines are sourced, manufactured and distributed.
It’s tough to tell if a business community long reliant on a just-in-time (JIT) supply chain approach can switch to a model less vulnerable to disruptions. “Just-in-time works fine, until it doesn’t. That’s problem number one,” Einhorn says. There are other systemic problems too, and they’re not confined to the medical supplies industry. “Products are often made by the same factories in China, or somewhere else, so if one company has a shortage, everyone does because of consolidation.”
A potent example of this problem was cited in a January opinion piece in the STAT medical news website by Jeff Fischer, president of Bethesda, Maryland-based Longhorn Vaccines and Diagnostics LLC. As the pandemic took hold and there was a massive spike in demand worldwide for virus sample-collection supplies, it turned out the major producer of swabs and sample-collection devices was based in northern Italy. And that’s where the pandemic hit hardest first. Meanwhile, U.S. production for those items historically made up less than half of an average year of U.S. demand, and was unable to ramp up in time to meet that demand. Copycat products were also manufactured in China, but not at sufficiently large scale.
“The domestic manufacturing capacity that my company and others in the testing and diagnostic industry have established must be protected from foreign competitors to ensure people have access to COVID-19 supplies and testing,” argues Fischer.
Einhorn, who describes his company as the largest independent medical supply distributor in New York, New Jersey, Connecticut and Pennsylvania, adds that there are added peculiarities specific to the medical supplies supply chain that add pressure when those chains are strained. “There’s a problem with buying patterns in health care,” he says. “The way large surgeries and hospitals buy is through group purchasing organizations [GPOs], which control the supply spend and the contracts. And it’s very hard to get contracts with these guys, so that limits what you can buy and from whom. That leads to a lack of innovation and investments, and so the products still all come from the same factory, and you end up with the situation that we did.”
It doesn’t have to be this way, Einhorn counters. “What makes us unique is that we’ve taken a bit of a different approach, and what differentiates us is our attitude to the supply chain,” he says. “Our approach was not to rely on just-in-time supply. We opted for a slightly bulkier inventory, with more safety stock, and that really distinguished us from our larger national competitors.” He says Dealmed got a boost from avoiding relying exclusively on China. “We’re still getting product from China, but we take a more diversified approach than relying on one singular region to get our products. We look for production in the U.S. where we can, also Europe and other Asian countries. The product is just as good. Sometimes, it’s a little more expensive, which is tough because we consider ourselves a low-cost leader. But this approach paid off tremendously during COVID.”
Einhorn believes the JIT approach will continue to some extent, albeit countered by the fact that some states have mandated stockpiles of medical products. “That’s great, but fundamentally, nothing’s changed in the supply chain,” he says. “Is the answer to these problems having a 90-day stockpile? No, that’s not the answer. That’s not redesigning a better supply chain.”
Einhorn says several things have to change. First, there must be incentives for health care providers not to rely on JIT supplies. He sees opportunities to restructure billing, including to Medicare and Medicaid. Secondly, he thinks there needs to be deliberate stimulus that leads to expanded domestic production of essential supplies. Thirdly, he believes hospitals and other health care providers should be encouraged to buy and use superior products.
“Products made in the U.S. tend to be superior to that made in Asia,” Einhorn says. “Sure, you need to pay a little more. You’re not just looking at cheapest option, but the best option. Then you have more choices. You can source from Europe, Mexico, other Asian countries.”
Finally, Einhorn says, while the GPOs do a great job of negotiating prices for hospitals and large health care networks, having an intermediary almost always involved in those purchases doesn’t make for an efficient supply chain. “They need to look at what new role they can they play, how they encourage growth and innovation,” he argues. “More than anything, we need to focus on getting a more diverse supplier base.”
“The shortages we’re seeing today are nothing new,” says Einhorn. “They existed before COVID. Health care has always had a very cumbersome and inefficient lifecycle and supply chain, in terms of how products are made, where they’re made, and the delivery models used.”
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