Healthcare Reform: A Wakeup Call to Global Life Sciences Companies

Pharmaceutical, medical device and biotechnology companies must act now to prepare for the changing landscape of life sciences

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.”

An area that typically served well under patent protection, branded pharmaceuticals serve a niche market which ordinarily had very little competition “but where you still have the ability to command very enviable margins for that product,” Szwast continued. “And matching the supply chain needs of a product that has to stay within a two-degree Celsius temperature range are very different than the needs of matching generic pharmaceuticals. Their supply chains have to be different. So there has to be a lot more healthcare optimization to create value in the healthcare space.”

The globalization of the middle class—which warranted added attention most recently as some question its impact on the economy and job situation—is another factor impacting healthcare. Such a population shift, if it continues, will affect healthcare supply chains and the outsourced production model.

“The middle class is estimated to be about 430 million persons, the majority of them living in the industrialized world,” said Szwast. “But by 2020, it’s projected that it is going to be in excess of 1.2 billion people and two-thirds of that growth comes from China and India alone. Because of globalization in the middle class—because of where the population shift is occurring—the significant opportunity for a lot of these companies is exporting. And a number of them are also realizing opportunity from importing which is one of the things that is underlying the rise of generic drug manufacturing—which outside the U.S. for the U.S. market is among the fastest growing part of the healthcare business today. But that creates challenges for companies whose supply chains were previously based on production of drugs in New Jersey or even in Puerto Rico. Now, they have to source product from India or China—significantly further and a much more complex supply chain,” Szwast explained.

The increased adoption for more healthcare services on a larger base by consumers also goes hand in hand with improved product security and product protection (prevention of product damage or spoilage)—two areas that have become significantly important most currently than in previous years of the UPS “Pain in the (Supply) Chain Survey,” Szwast confirmed. And while most companies surveyed in the report confirmed that they are “cautiously optimistic” (38 percent) on the state of the healthcare industry today, the majority of U.S. companies (83 percent of those surveyed in the UPS report) plan to invest—over the next three to five years—in global market opportunities with technology adoption as the top strategy.

The link between

While resources such as the Health Information and Publications Network (HIPNet) are available to healthcare and garnering more industry discussion, global technology solutions and service providers in the life sciences space also help service providers address such issues as product traceability and streamlined inventory management.

“We’ve used technology to help link our customers up with their supply base,” explained Matt Walker, Executive Vice President, Supply Chain for TAKE Solutions, Princeton, N.J. “We try to be as full service as possible to companies—whether they are conducting clinical activity or are in the process of dealing with their commercialized product and moving that around efficiently. When it comes to healthcare providers, this issue of serialization requires our customers to be very complete and thorough in the tracking of their product all the way through to consumption of that serialized product by the end user.”

Carola Endicott, Senior Vice President of Operations and Services for Littleton, Mass.-based WaveMark Inc., echoed similar sentiments.

“The link that we provide between hospitals and their suppliers is the supply chain intelligence,” said Endicott. “In some ways we don’t really sell an RFID product. We use RFID to drive the efficiencies and automation. RFID is an enabler but what we really sell is savings and piece of mind. Our focus on building the supply chain capabilities of the software and enabling it to be incredibly flexible and able to obtain those cost goals of our customers—that is what is different about WaveMark’s technology.”

As mentioned prior, the changing shift in healthcare service care consequently creates this added need for traceability and inventory tracking. One of the fastest growing areas of care in the U.S. and in the industrialized world is home and hospice care, clinical care and in surgical centers, according to Szwast.

“In fact, when you look at care expenditures on home and hospice care, it’s growing in excess of 10 percent per year,” he confirmed. “This year, Medicare is going to spend $38.6 billion on home and hospice care. It’s projected that by 2016 it’s going to be $51 billion. In the case of a lot of pharmaceutical and medical devices, products have to travel further—they have to go direct to clinic, direct to pharmacy, or in many cases right now, direct to the patient’s residence for care. So there comes additional concern about ‘how do we maintain the integrity, efficacy and security of these products?’” Szwast questioned.

In support of that, providers such as TAKE Solutions also are starting to deal with the “full chain of custody” maintenance of a product as it moves from its customers to third party logistics (3PL) providers to wholesalers and on to pharmacies for disbursement to consumers.

“And so that is not an area that we’ve had to really worry about—once it left the shipping dock of our customer we were mostly done with our responsibility,” said Walker. “That is now changing. We’re trying to help our customers ensure that they can track that and know all actions that take place with their product and tie it all back to the serial numbers associated with those products as they move through the supply chain all the way to consumption.”

This could include knowing what transitions—from packaging to transport to receiving or repacking—a particular product went through.

In the field

Florida Hospital is one such healthcare facility and service provider who understands the pains of tracking inventory to improve product management and improve its supply chain efficiency.

To do so, in 2008 it implemented WaveMark’s clinical inventory management solution (CIMS) to track over 5,000 high-value items in the catheterization (Cath) lab and Electrophysiology (EP) lab, helping to optimize inventory levels and effectively track product expirations and recalls.

Since then, WaveMark's technology, which leverages RFID via its smart cabinets and Point of Service (POS) readers, was also deployed in the Ginsburg Tower, which houses the Florida Hospital Cardiovascular Institute that conducts nearly 15,000 advanced cardiac procedures annually.

WaveMark also expanded into the Cardiovascular Operating Room (CVOR), which includes a pediatric hybrid operating room (OR), interventional cardiology and electrophysiology. The expansion to the pediatrics OR marks the hospital’s most recent, as it was completed earlier this year.

“Without WaveMark, we would have to have two or three more employees and would probably not reorder efficiently,” said Rivera. “We have 12 cath labs operating at the same time. So every technician would be responsible for every item that was used on every patient and giving this information to our staff so they can reorder efficiently. And that’s not feasible—it doesn’t always happen that way.”

Even more significant for cardiology, having inventory to cover the extensive scope of the human anatomy is also crucial and adds to the demand of inventory management tracked by personnel.

“A patient can have 10 different vessels with different sizes,” Rivera continued. “So for every type of item, you have to have more than one size. And as we use one, we have to reorder. It becomes very difficult to manage.”

To alleviate this, the RFID cabinets provide real-time visibility into items about to expire, recall items or management of “just-in-time” items, e.g., items that healthcare service providers may stock up on in fear of running out based on past experiences. The WaveMark CIMS also enables the user to view all of the data in real time via Web-based reporting.

“Inventory in hospitals is a huge headache—and it is largely driven by a series of manual processes that require human compliance,” said Endicott. “The other big problem is that the frontline staff put in charge of this inventory really cares about something else—patient care. What WaveMark does, is we take the manual process out of inventory and we automate it with these smart cabinets. So instead of calculating inventory based on an in- and out-series of transactions, the system reads the inventory in real time to provide a positive read of that inventory on a continuous basis.”

Consignment is another problem in the healthcare space as most inventory systems are not always capable of differentiating owned items from consigned items.

“For the cardiovascular space, a lot of the inventory is on consignment,” said Lars Rohrberg, Vice President of Marketing for WaveMark. “It’s a difficult task for a medical device supplier to keep track of where the inventory is in what can be thousands of locations in the U.S. or in Europe or Asia. Having a much more granular and automated way to capture the information that can be used through the Web to do analysis can help address the question ‘does it match up to what is being consumed in that location?’ You can have data that you now share between the supplier and the hospital to have discussions on what is a regional approach to inventory management between the two parties.”

Initiate practices now to plan for the future

A surplus on inventory, expired items and lost or misplaced devices not only lead to operational inefficiencies and increased inventory cost but also increase the potential impact of quality of care provided.

And while such RFID and barcode-enabled solutions prove beneficial to the life sciences space, adoption of content management technologies—e.g., automated solutions to transition healthcare from paper-based to electronic processes—also impact the overall supply chain’s effectiveness to improve maintenance of data analysis from end to end.

“A big part of our life sciences focus right now is content management in the general sense, so companies that are now implementing global systems to ensure that they can house all the various content that they are responsible for including large volumes of electronic documentation,” said Walker.

“And we’re seeing this not just in life sciences but across a number of industries. Much more of a focus on implementing such systems to ensure that they can house and provide visibility to all of that documentation—from the very beginning of acquiring active ingredient material, to the end of distributing those products to the end user and all the clinical trials that happen in between.”

From changes in drug and medical device manufacturing, to stricter regimes and practices in healthcare settings requiring new strategies to global expansion—there’s no doubt that major upheavals in the life sciences space will continue. Add the need for patient safety and improved product accountability to the mix and the result is an industry that continues to grow in excess of six percent per year.

As massive changes continue to occur over the next five to 10 years, the life sciences space will have to adapt and adopt new ways to deliver necessary innovation and proficient patient service to continue driving this industry forward.