According to a 2015 survey of hospital executives commissioned by Cardinal Health, services reimbursement followed closely by the increasingly higher costs of supplies are two of the biggest challenges facing these executives. Financial issues, drug shortages and efficiency of the overall organization follow as major concerns.
One can notice a common theme among hospital executives that are often directly related to lack of supply chain efficiencies.
A 2015 white paper, 10 Barriers to Effective Inventory Management, points to the continued need for addressing barriers to effective supply chain and inventory management in hospital settings. This is especially important in operating room or cardiac catheterization settings where medical devices are expensive and inventory management policies often stem from individual physician or surgeon relationships with individual device manufacturers. Cardinal’s white paper cites one report as indicating that supply chain inefficiency, waste and lack of visibility result in a $5 billion in inefficiencies each year in the implantable device market alone.
In operating room settings, surgeons, scrub technicians, resource nurses or operating room managers assume responsibility for maintaining relationships with manufacturers of implantable devices. They do so to insure access to the latest technology and patient safety innovations as well as surgeon preferences for certain devices. In emergency surgery situations, adequate inventory takes on an all-important life and death dimension, one that must be supported by accurate data related to demand incidence.
These complex relationships often extend to rendering orders and managing inventory. The result can often lead to lack of visibility of existing inventory in terms of expired, obsolete or recalled devices. There are also miscommunications and emotion among clinicians and hospital procurement professionals as to inventory exposure and cost. This is an area that has long been fertile for improvements in inventory management, particularly in advanced methods of item-level tracking.
As a major healthcare products distributor for hospitals and health care providers, Cardinal Health is working with hospitals in availability of more innovative inventory management practices in this area.
In November, this author had the opportunity to visit the Cardinal Health Healthcare Supply Chain Innovation Lab located in Concord Massachusetts. This is essentially an R&D facility dedicated to reducing waste in the health care supply chain for implantable devices utilizing an Internet of Things (IoT) item-level technology approach. The lab serves as a hub to explore innovative technology approaches such as smart sensors and near-field communications (NFC) in addressing healthcare supply chain product demand and supply inefficiencies.
At the conclusion of the tour and a comprehensive briefing from Jean-Claude Saghbini, Cardinal Vice President and GM for Inventory Management Solutions, this author was impressed.
My impressions stemmed not only from the leveraging of advanced technology to challenging healthcare focused inventory management process needs, but in the notion that healthcare supply chains as a whole, and we as healthcare consumers, can greatly benefit from the application of such technology.
Cardinal’s approach to inventory management is described as product agnostic and can include devices not distributed by Cardinal. The initial focus on medical, orthopedic and implantable device inventory is obvious, in that this inventory is expensive and as noted above, there has been a long history of process inefficiency. While surgeons strive to be up-to-date with the latest in medical technology, their concerns should not be inventory and supply chain management. That is the purview of hospital administration.
We observed RFID enabled storage cabinets where inventory is RFID tagged by either suppliers or hospital teams. Storage cabinets constantly monitor item-level inventory including serialized devices. An operating room nurse or physician removes an item from the cabinet and inventory status is immediately adjusted. Within the OR setting, a nurse scans a bar code affixed to the patient and the inventory transaction is automatically updated to include association with a patient. If the item withdrawn is not accompanied by a patient scan, an inventory alert is generated.
Cabinets monitor and report inventory balances at prescribed intervals and can automatically generate replenishment orders when inventories drop to prescribed levels. If one particular hospital does not have a particular implantable device on-hand, a quick search of other networked cabinets quickly indicates which nearby or healthcare network hospitals have the specific device. The process works similarly for consignment inventory placed adjacent to operating rooms, helping hospital administration to control premium inventory costs.
Analytics associated with this automated process that are available to hospital administrators include open and completed inventory withdrawals, device consumption patterns to calculate replenishment thresholds, inventory nearing shelf-life expiration, inventory subject to product recall, or data needed to ascertain opportunities for specific device standardization.
Physicians and care givers can also take advantage of embedded analytics in searching for specific devices implanted in patients by serial number, or in queries related to historic procedures, or proper item stocking levels based on actual consumption data.
The value-proposition of Cardinal’s approach is that technology allows care givers more opportunities to better concentrate on patient care and patient outcomes, removing the administrative burden of inventory management. Hospital administrators and procurement team’s in-turn gain valuable efficiencies and inventory knowledge to help in improving overall efficiencies.
This author remains convinced that healthcare product suppliers, product distributors, hospitals and caregivers must continue to come together to collaboratively address the chronic inefficiencies of today’s healthcare supply chains. The visit to Cardinal’s Healthcare Supply Chain Innovation Lab and the exchange of ideas with staff convinces me that today’s advanced supply chain item-level and IoT focused technology can and will provide significant strides in overcoming such inefficiencies.
As our blog nameplate connotes, supply chains do matter in many industry settings and in healthcare supply chains, the opportunities for increased efficiencies and process innovation are vast.
In our continuing efforts to provide broader market education, Supply Chain Matters provides broader awareness to advanced technology approaches that are making their way to industry settings. In this commentary, we focus on a rather unique software-centric approach to product authentication across various tiers of the finished product supply chain.
The challenges for overcoming fraudulent and counterfeit products that exist across the global supply chain remains significant. This is especially of-concern for manufacturers and/or distributors whose supply chains reside in a regulated industry or whose products are of high brand or product value. There have been many attempts to address such challenges, often resulting in added expense for marginal mitigation. Counterfeiters themselves have become far more sophisticated in their methods and in their presence.
Systech International, a long-established technology provider addressing brand protection needs, recently launched its UniSecure application. We were somewhat intrigued by this application and underlying technology and subsequently conducted a product briefing with Systech executives.
This provider has been in existence for decades, with a prior focus on manufacturing automation and vision systems that evolved into support for manufacturing item-level product serialization needs. Much of this support was focused in support of pharmaceutical, life sciences, and food and beverage manufacturers in their needs for unique product identification. Beyond these efforts, Systech began to recognize that counterfeiters have become far more sophisticated in their methods, and there was growing a need for a less infrastructure-intensive approach to supporting product authentication needs for products flowing across global supply chains.
Scientists recognized that every printed label or barcode has character and signature-unique characteristics that vary with the make and model of the specific printer at the time of printing. According to this vendor, no two labels or printed data carriers are identical and are affected by environmental factors that produce small-scale variations. The UniSecure approach is to capture these unique character elements of the printed identifier signature and store this in the Cloud, for future authentication in subsequent movements through the supply chain. Further along the supply chain, a mobile or smartphone based reader can read the existing barcode utilizing the UniScan mobile app, which sends the image to the Cloud for authentication to the original label signature to determine if that product is authentic. This unique scanning capability can also be utilized by clients to enable point-of-sale, consumer engagement or loyalty as well as product security focused processes.
Supply Chain Matters has previously highlighted newer smart labeling technology just coming to market that opens opportunities to address both supply chain authentication and consumer engagement processes by leveraging existing near-field cellular (NFC) and other internal Wi-Fi communication networks
Thus far, pilots involve scanning of products by wholesalers and distributors, but some customers have plans to deploy the technology further into fulfillment channels. We probed whether existing high-speed label readers could be leveraged for volume scanning but that seems to be a work-in-progress at this point, subject to customer and vendor investment needs.
A further promising use of this technology is described in product recall situations where products can be scanned to determine if specific products are subject to withdrawal from the supply chain.
Industry pilots of the UniSecure technology are underway across multiple industry verticals to including pharmaceutical, animal health, precious metals and consumer goods focused supply chain settings.
UniSecure is a unique approach, one that bears watching for broader deployment use cases and overall scalability. The uniqueness stems from its software-centric emphasis along with its leveraging of existing item-level identification processes across the supply chain.
Supply shortages involving critical drugs across multiple pharmaceutical focused supply chains should not be a surprise to our Supply Chain Matters readers. We have called attention to this situation since 2011-2012. However, what should be of concern is the ongoing persistence of this problem and how it impacts timely and quality-focused delivery of life-saving healthcare services. Further, there are now brewing perceptions that the industry may have other intentions, namely, not concentrating on the increased supply needs of generic drugs.
On Monday, The Wall Street Journal featured a page one report: Drug Shortages Plaque U.S. Medical System. (paid subscription required) The report cites University of Utah Drug Information Service stats indicating that the number of drugs in short supply in the U.S. has risen 74 percent in five years. Once more, a graph indicating the reasons for such shortages has the top three categories listed as: “Unknown” accounting for 47 percent; “Manufacturing shortages” accounting for 25 percent; “Supply and demand” accounting for 17 percent. These statistics, by our lens, should not by any stretch, be viewed or perceived as being complimentary to pharmaceutical supply chains, especially when “Unknown” is the leading reason.
The article’s authors cite interviews with company executives, pharmacists and regulators pointing to several causes that are noted as not building enough production capacity, not adequately maintaining production equipment and failure to control contamination in aging plants. There is a further observation that crackdowns on shoddy quality by the U.S. Food and Drug Administration (FDA) have worsened the shortages because some companies have responded by shutting down all production of a particular drug. But the authors also point to another theme: (we quote)
“Many of the scarce drugs are older, injectable treatments that can be complex and costly to manufacture, but which command relatively low prices because they aren’t protected by patent. Hospitals and doctors’ offices are the main buyers of the drugs. Companies can’t easily increase prices because insurers reimburse many generic hospital-administered drugs under a payment system that is more frugal than for other medicines.”
This theme of generic drug shortages is similar to previously reported shortages.
A U.S. federal law passed in 2012 provides the FDA with increased powers to prevent and resolve drug shortages. Supply Chain Matters called reader attention to the new powers of the FDA in a 2012 commentary on the crackdown on Ranbaxy. According to the WSJ, the number of declared new shortages decreased by 44 in 2014, from a peak of 251 in 2011. That obviously is some progress made in the last four years but more is definitely needed.
The article goes on to call attention to continued global-wide shortages of critical drugs such as BCG, a potentially life-cycle drug utilized to treat bladder cancer and how specific manufacturers have not responded to market need. It notes how doctors have been forced to either postpone or suspend BCG treatments since shipping delays are expected to persist in next year.
Supply Chain Matters is calling attention and making wider visibility to the continued supply shortages because we feel strongly that the industry needs to face up to its problems and work with regulators and physicians in constructive solutions to such problems. Supply shortages will continue to motivate illicit and unsavory global distributors to introduce more counterfeit or lower quality supply in the market.
The open question remains as to which organization is directing supply chain supply strategy. In the meantime, quality healthcare outcomes continue to be at-risk.
In the period between 2008-2010, pharmaceutical and healthcare products provider Johnson & Johnson, and in particular, its McNeil Consumer Products operating unit, faced a building crisis involving multiple branded OTC healthcare remedies such as Tylenol, because of quality and process issues focused on a specific production facility in Fort Washington Pennsylvania. After numerous product recalls, that plant was subsequently shutdown for remedial actions and has yet to re-open.
This week, McNeil announced an agreement with the U.S. Attorney’s Office for the Eastern District of Pennsylvania and the U.S. Department of Justice to resolve the previously disclosed government investigation relating to the manufacturing of certain over-the-counter products at its Fort Washington facility. The company agreed to pay a $20 million criminal fine and forfeit $5 million. Under this agreement, McNeil reportedly pleaded guilty to a misdemeanor violation and accepted responsibility for the inadequate filing of required documentation during the manufacturing process. In its announcement, McNeil states in-part:
“McNeil has been implementing enhanced quality and oversight standards across its entire business to ensure we are best able to meet our commitment to consumers, patients and doctors who rely on our products.”
In a July 2013 Supply Chain Matters commentary, we highlighted all of the efforts that were underway to transform all of Johnson & Johnson’s supply chain processes. Senior executive changes were part of that transformation effort along with a declaration of five strategic priorities:
- Deliver on FDA consent decree milestones
- Ensure reliable supply of OTC products to retailers and consumers
- Achieve brand leadership
- Rebuild customer trust including top retail customers
- Execute a return to market plan for core U.S. brands and SKU’
J&J subsequently centralized its supply chain efforts under a singular leadership model, along with a singular quality and compliance model. In the systems area, a four year program was outlined to consolidate an overall systems landscape that was described as 60 different ERP systems supporting 275 operating companies
The McNeil statement indicates: “this plea agreement fully and finally resolves the federal government’s investigation, and closes a chapter on actions that led the company to review and significantly improve its procedures.”
In its reporting, The Wall Street Journal cited the U.S. Justice Department as indicating that McNeil continues working to bring the Fort Washington facility into regulatory compliance and plans to re-open the facility once it gains approval from the U.S. Food and Drug Administration. McNeill’s other production facilities are reportedly running under a 2011 permanent injunction and Consent Decree. McNeil indicates that a third party cGMP expert has now submitted written certification to the FDA after determining all sites are conforming with applicable laws and regulations.
Seven years and a considerable financial sum later, J&J continues in its organizational wide efforts to address consistency in good manufacturing practices.
No doubt, this has been an expensive lesson for Johnson & Johnson, as well as a rather important learning for the remainder of the industry regarding the critical importance of consistent product quality and supply chain wide standards in avoiding negative business outcomes.
Supply Chain Matters has opined on more than one occasion that the wheels of justice seems too often crank very slow even though today’s clock speed of business moves at lightning speed. For pharmaceutical supply chains, the mitigation of such thefts remains a rather important component in supply chain risk management and mitigation.
One of the largest warehouse thefts in U.S. history occurred in March 2010 and involved the theft of an estimated $80 million worth of pharmaceuticals from an Eli Lilly warehouse in Enfield Connecticut. In May of 2012, federal authorities arrested two people in connection with the Eli Lilly incident. According to reports at that time, the arrests were described as a takedown of a major prolific cargo theft ring. Two Cuban born brothers were indicted on federal conspiracy and theft charges and ten additional persons were also charged in federal court.
Since that time, the U.S. Attorney for the District of Connecticut accused five individuals in the conspiracy and participation in the theft that occurred in the Enfield Connecticut warehouse. All five have since pleaded guilty. According to evidence and statements collected, the thieves climbed through the roof, slid down ropes and disabled the alarm system and then loaded the 40 pallets of stolen goods into an awaiting tractor trailer utilizing existing fork lifts. The stolen goods were then transported to a public storage facility in the Miami Florida area for black-market distribution.
According to a report published by The Wall Street Journal, the stolen pharmaceuticals included Lily’s antipsychotic drug Zyprexa, antidepressants Cymbalta and Prozac, the cancer treating drug Gemzar, among other drugs. The thieves were obviously seeking high-value goods. These drugs were destined for retail distributors along the U.S. east coast.
Last week, a U.S. federal judge sentenced the first of these criminals, a Cuban citizen living in Florida, to a six year and three month prison sentence in regards to his role in the pharmaceutical theft. Prosecutors were seeking a seven to nine year sentence, citing the seriousness of the crime. However, defense attorneys argued leniency by the defendant’s guilty plea and subsequent actions.
Thus, roughly six years after this high visibility theft, the wheels of justice have begun to close the loop.
Meanwhile, pharmaceutical companies have since garnered a more astute understanding of the increasing occurrences of cargo and retail thefts and the risks that these incidents pose to legitimate pharmaceutical supply chains as well as public health. While the wheels of justice indeed move slow, deterrence, supply chain risk identification and mitigation remain important ongoing initiatives.