Update: The Current State of Healthcare Supply Chain Disruptions

Key takeaways:

• Russia’s invasion of Ukraine and COVID-19 lockdowns across China are exacerbating global supply chain issues.
• The rising costs of energy, transportation, food, labor present additional challenges.
• Premier remains committed to supporting healthcare providers and suppliers in finding innovative ways to solve for these issues and enable hospitals access to vital supplies.

For more on this topic:

• Download our comprehensive overview document on supply chain risks associated with Russia’s invasion of Ukraine.
• See how Premier’s GPO contracts are a powerful tool in the fight against inflation.
• Read our blog that provides information on recent shortages of saline and other fluids.
• Register for our upcoming HFMA webinar to learn about how one healthcare organization is leveraging technology and data to help stay ahead of disruptions.

The end-to-end global supply chain continues to experience unprecedented disruptions, which are affecting multiple economies and industries, including the U.S. healthcare industry.

What follows is an overview of the latest market updates, insights, resources and guidance for providers as we continue to navigate global supply chain disruptions.

Supply Chain Impacts Persist as Russian Attacks in Ukraine Continue

Russia’s invasion of Ukraine carries on into its second month just as the world is entering year three of the pandemic – further exacerbating ongoing constraints on global supply chains. The war and sanctions on Russia are anticipated to exacerbate existing energy, transportation, and manufacturing (limiting access to raw materials) challenges.

• With crude prices holding steady at over $100 per barrel, healthcare and other suppliers with manufacturing locations and operations throughout Europe are now paying significantly higher transportation rates.
• Disruptions to oil and natural gas production in the region could have a direct impact on the global supply and pricing of plastics. Both natural resources are used in plastics production, which in turn, are used to manufacture healthcare products such as trays, syringes, specimen bottles, sharps containers, and more.
• Supply availability and pricing of key base metals and other raw materials sourced in the region could disrupt healthcare categories that utilize those materials in manufacturing. Categories include semiconductors, surgical instruments, orthopedic implantable products and durable medical equipment.

Spotlight on Semiconductors

Russia’s invasion of Ukraine is disrupting access to critical raw materials used in semiconductor production, including rare neon gas, chemical C4F6, and multiple types of metals (palladium, nickel, rhodium, and titanium). Healthcare has many supplies where semiconductors are used ─ MRI machines, pacemakers, blood pressure monitors, chemistry and blood gas analyzers, and bedside and wireless patient monitors.

At this time, we are not seeing direct shortages of semiconductors in healthcare resulting in impacts to patient care, yet a proactive approach is warranted to mitigate potential disruptions. On April 12, Premier joined a Semiconductor Roundtable hosted by White House staff ─ and was the only GPO to attend the meeting. The forum’s purpose was to discuss concerns with semiconductor access and how investments in the Bipartisan Innovation Act can spur U.S. manufacturing and strengthen our supply chains.

Overall, Premier believes semiconductors should be prioritized for healthcare supplies. Unlike the consumer tech and automotive industries, healthcare has smaller volumes of chips comparatively (less than 1% of the overall market), yet the need exceeds that of other industries given the potential for patient harm.

Premier is encouraging Congress to include the CHIPS Act as part of the conference on the COMPETES Act. We support its movement and arrival for signature on the President’s desk as expeditiously as possible.

Food Availability and Pricing

The FAO Food Price Index (FFPI) is a measure of the monthly change in international prices of a basket of food commodities. In March 2022, the FFPI averaged 159.3 points ─ an increase of 12.6 percent from February and the highest level since its inception in 1990.

The latest increase reflects new all-time highs for vegetable oils, cereals and meat sub-indices, while sugar and dairy products also rose significantly. Additionally, there are growing concerns that the Russia-Ukraine war can lead to additional inflation and potential food shortages in upcoming months.

Here in the U.S., Premier is monitoring the situation related to new cases of bird flu. As of April 22, the USDA Animal and Plant Health Inspection Service (APHIS) reports that there are approximately 31 million birds affected in at least 29 different states.

Premier Assessed Impacts:

• Chicken: Spread has been limited to broiler chickens. The Premier food team currently anticipates minimal impacts for the chicken category.

• Turkey: All major turkey suppliers have been affected and freezer supplies are limited. Avian influenza has been detected at several farms, and allocations are expected.

• There are currently allocations in place for shell eggs, and liquid eggs are largely unaffected at this time.

COVID-19 Lockdowns Across China

Adding to global supply chain challenges is the COVID-19 outbreak in China, resulting in workplace closures and extra precautions that can slow manufacturing and the flow of commerce ─ and further increase port congestion.

The nation’s largest city of Shanghai, a major global shipping and manufacturing center, was scheduled to re-open on April 1, but the lockdown has been extended indefinitely ─ a move that casts further uncertainty over Chinese supply chains.

While major Chinese ports remain open, the number of ships waiting to load or discharge at Shanghai's port had skyrocketed five-fold to more than 300 in late March 2022. Overall global port congestion has also reached an all-time high in late March, with major increases on the U.S. East Coast and North Europe.

As a result of additional pressures from both Chinese lockdowns and the Russian/Ukraine war, tightened transportation capacity and rising fuel costs are anticipated to sustain higher ocean and air cargo rates over the next several months, and at a time of the year that usually sees rates decrease. Asia-U.S. West Coast prices are at $15,811/FEU ─ 168% higher than the same time last year. Pre-pandemic, ocean freight costs for this same route averaged between $3-6K per container.

Added Domestic Challenges

Premier is closely monitoring a potential dock worker strike on the U.S. West Coast. The International Longshore and Warehouse Union’s (ILWU) contract, representing 22,000 workers over 29 West Coast ports, is expiring at the end of June. If the parties cannot come to a resolution, port congestion and supply chain delays could further increase.

Additionally, recent data points to a shortage of approximately 80,000 truck drivers in the U.S., which is projected to double by 2030 if current trends continue.

• The U.S. trucking industry transports 72% of all goods throughout supply chain and has a turnover rate averaging 90% for many carriers.
• During the past year, trucking costs increased more than 20% due to increased demand for goods driven by the pandemic.

Since the White House released its action plans, there have been historic increases in trucking employment, with 2021 marking the highest jobs growth in the industry since 1994. Premier is supportive of expanding and improving trucking jobs, which we believe helps enable a modern good movement system that can boost U.S. competitiveness and reduce costs.

What We Can Do

Providers should continue to consider ordering early and rethinking inventory management strategies as product lead times ─ the timeline between placing an order and receiving it ─ have increased significantly. In addition, and alongside the Strategic National Stockpile (SNS), hospitals should maintain judicious conservation and stockpiling strategies to help keep supply levels maintained.

Premier is continuously assessing medical categories that:

1. Have largely not been stockpiled;
2. Are not included the SNS;
3. Are critical to patient care and experiencing potential disruptions due to global supply chain issues.

As such, we’ve developed a Category Watch List, inclusive of products that require additional risk and resiliency measures due to limited suppliers in the market, raw material constraints, offshore manufacturing locations and/or have increased usage. Examples of current categories we’re monitoring:

• Hot and Cold Packs
• Hemodialysis Fluid
• Laboratory Specimen
• Chest Drainage
• Suction Canisters
• Flush Syringes, Normal Saline and Sterile Water Vials, IV Therapy Products

Premier’s full Category Watch List and other related resources are available for members on our Disaster Response and Shortages and Disruptions pages within PremierConnect.

Premier continues to take aggressive steps to help ensure a smooth and continuous flow of medical products and supplies ─ and pursue strategies that offset rising costs.

• Our contract portfolio includes 540+ distinct supplier partners in 300+ categories who manufacture in diverse locations outside of China, including the United States, North America, South America, Europe, Africa, and Asia. Overall, Premier is committed to contracting with suppliers that demonstrate manufacturing resiliency, redundancy and quality investments.
• To overcome expensive overseas shipping and transportation costs, Premier, along with members, have made investments in and/or long-term purchasing commitments with U.S. manufacturers, including Prestige Ameritech for N95 respirators and face masks, DeRoyal Industries for isolation gowns, Honeywell for nitrile exam gloves and Exela Pharma Sciences for pharmaceuticals, including some critical shortage drugs. Through these initiatives, participating Premier members can diversify their supply sources at a price point competitive with overseas manufacturing ─ effectively avoiding price increases that foreign suppliers have forced others to accept. In addition, these suppliers have increased their production to protect providers from shortages that continue to plague the market.
• ProvideGx® ensures a buyer base if a manufacturer agrees to enter a new market or increase production of shortage products. With committed volume and distribution, manufacturers gain predictable revenue, stable ordering and operating capital necessary to increase production and/or contingency supply. At the same time, providers gain reliable access to vital products at a fair price point. This model is working ─ effectively delisting 14 different generic drugs from the FDA’s shortage list since 2019.
• Premier continues to work closely with federal and state agencies on strategies to gather data; forecast demand; identify needed regulatory changes; and increase available supplies and allocate based on need. We’re also working with White House leadership to help manage the nation’s supply chain issues ─ providing data and insights on backorders and potential shortages and advocating for priority transportation of critical products.
• Premier’s GPO Contracts are a powerful tool in the fight against inflation. Since the pandemic began in Q1 of 2020, Premier’s contracted portfolio has observed a 1.5 percent inflationary increase, whereas other supplier spend increased by 5.2 percent over the same time period ─ a differential of nearly 3X (as measured with actual dollars spent over the course of Q1 2020 compared to Q1 2022).
• Premier continues to create innovative solutions that can extend and improve the efficiency of scarce workforce resources with labor benchmarking tools to identify bottlenecks; consulting services to optimize workflows; clinical decision support to automate administrative tasks such as documentation and coding and prior authorizations; and back-office technologies that can automate and optimize healthcare purchasing.

Amid this dynamic environment, Premier continues to arm our members with the information, tools and support needed to both tackle cost imperatives and enable the vital supplies needed to care for patients.