In many industries, transformation overhaul designed to restructure processes for improved long-term benefits and market gain is not uncommon. For the life sciences space, such changes will only continue as a number of factors—including increased patient safety, improved product accountability and changing federal mandates—govern healthcare. In fact, under the Patient Protection and Affordable Care Act (PPACA)—signed into law in 2010 with an aim to reduce overall healthcare cost—come 2014 citizens without healthcare coverage will have to pay a penalty (certain provisions, exemptions and clauses pending). As a result, a potential consumer shift in increased healthcare service adoption—in addition to the changing landscape of requested consumer care—would put added pressure on all supply chain elements of the life sciences space.
To prepare, service and technology providers in the pharmaceutical, medical device and biotechnology space must adapt to new business models and strategy adoption to combat with the changing scale of healthcare.
Changes are happening now
Regulatory compliance (65 percent), reform and legislation continue to reign at the top of the list (generally, above 50 percent) of general business concerns of the healthcare industry. In fact, in both 2011 and 2012, increasing regulations beat cost management as the top supply chain issue, according to a 2012 “Pain in the (Supply) Chain Survey” report from UPS.
Issues including increased competition, consolidation and access to funding such as for technological investments—while equally important—made up a lower percentage of concerns, according to the report.
“Many hospitals have a capital budget that is already pre-set,” explained Margie Rivera, Manager, Supply Chain and Contracting, Cardiovascular Institute, Florida Hospital Orlando. “Some hospitals don’t like to spend money on capital—only on machinery or equipment they need. They outweigh investing in RFID technology or having an ultrasound machine. You have to prove the reason why you need it.”
Only 41 percent of respondents surveyed in the “Pain in the Supply Chain” survey reported success in addressing cost management.
“The executive level teams in hospitals—which are usually the clinicians and not always business people—don’t always understand these things and don’t work well in being able to get the ROI,” Rivera continued. “You need to have a supply chain analyst that can identify the value it can bring and what they need to do—that has authority to smart buy to efficiently move their inventory and has the backup from their executive level team. So it’s a challenge to prove to a hospital why you need to use such tools.”
Besides regulatory pressure, also relevant are the current supply chain changes in healthcare which are causing a need for new distribution channels and models.
Approximately 33 billion this year alone in patent-protected pharmaceuticals are transitioning to generic with an estimated 26 billion next year to follow suit, according to Scott Szwast, Director of Marketing, Healthcare, UPS, which “creates a lot of impetus now for these companies to suddenly improve and focus on the supply chain,” he explained.
“Solutions that are needed for everything from product protection to regulatory compliance to pharmaceuticals—there really is not a one-size-fits-all approach,” said Szwast. “Up until fairly recently, there was not a lot of impetus for supply chain improvement because there was a lot of cash moving in the supply chain because of the cost of the pharmaceuticals. Right now, specialty drugs that are very tailored for specific and very narrowly-defined patient universe make up about 17 percent of the total drug market. By 2020, that’s going to be 40 percent.”