How to Prevent Future Shortages in the Medical Supply Chain
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By Tyler Parmelee
The COVID-19 pandemic has shined a spotlight on several vulnerabilities throughout American society, from dismantled state unemployment systems and chronically underfunded school districts to fragile service sector employment and a lackluster social safety net. One particular vulnerability could have uniquely devastating consequences during future crises if left unaddressed: the U.S. health care system’s overreliance on foreign manufacturers in its medical supply chain.
Acknowledging this overexposure to foreign manufacturers is not tantamount to an argument for protectionism. The benefits of free trade have provided American firms and consumers with cheaper goods, thousands of additional jobs, and increased economic growth and productivity. However, COVID-19 has exposed the limitations of free trade and the importance of bolstering domestic manufacturing in the pharmaceutical and medical supply sectors.
72% of active pharmaceutical ingredient (API) manufacturing takes place outside of the U.S. and is increasingly taking place in China. Under normal circumstances, the U.S. can efficiently import crucial drugs, but natural disasters, political turmoil, or a global pandemic can cripple production and cause major supply chain disruptions. For instance, in February 2020, the FDA announced the shortage of an undisclosed drug, “due to an issue with the manufacturing of an active pharmaceutical ingredient used in the drug,” adding that the deficit was caused by “circumstances on the ground in China.” China supplies over 90% of U.S. antibiotics, 70% of acetaminophen, and 40% of heparin, so a more severe disruption is quite plausible.
In 2021, Americans witnessed firsthand the painful effects of congestion in the supply chain when inflation caused the costs of once reasonably-priced goods such as lumber, home goods, cars, and electronics to skyrocket. These items are undeniably key components of everyday life in America, but the effect of their inaccessibility pales in comparison to the needs of patients and providers who were unable to readily acquire oxygen, crutches, CT scanners, heart monitors, and raw materials for pharmaceuticals.
U.S. policymakers must consider ways to diversify the country’s supply chain and incorporate more domestic manufacturers capable of producing and stockpiling critical medical supplies in anticipation of future disruptions. The Strategic National Stockpile (SNS), which is supposed to fulfill this role by shielding the U.S. healthcare system from the effects of short- to medium-term supply chain shortages, has failed to make up the difference: to this day, the FDA categorizes medical gloves, surgical gowns, other PPE, ventilators, testing equipment, and dialysis supplies as “in limited supply.” We can learn lessons from countries like Finland, where an emphasis on emergency preparedness resulted in a stockpile of masks, gloves, ventilators, and critical medications large enough to weather the worst of the initial pandemic-induced shortages.
Currently, lawmakers have several tools at their disposal that they could implement to ensure the U.S. has a strong SNS and can prevent tumultuous supply disruptions within the healthcare system in the event of future global disruptions. Under Title 28, Section 1498 of the U.S. Code, the federal government has the authority to usurp any patent exclusivity rights, with “reasonable and entire compensation for such use and manufacture,” not only during national crises but in peacetime as well. The federal government can use domestic manufacturers to build an adequate stockpile of PPE, pharmaceuticals, and other medical equipment in order to serve as a buffer against the effects of supply chain disruptions.
The Defense Production Act (DPA) offers similar powers, with the caveat that patent takeovers or outright manufacturing mandates must be “necessary or appropriate to promote the national defense…to help ensure that the nation has an adequate supply of, or the ability to produce, essential materials and goods necessary for the national defense.” It would not be far-fetched to use the DPA to supplement the supply chain with domestic manufacturing on the basis of national defense. The Pentagon published an article in July 2020 outlining national security vulnerabilities in the supply chain brought to light by the pandemic and highlighted how detrimental it would be to mission readiness if we remain unable to procure necessary drugs and medical equipment.
There is also precedent for using DPA and Section 1498 authorizations to influence drug costs and equipment production. For example, during the anthrax scare of September 2001, the German pharmaceutical company Bayer lowered the price of Cipro, an anti-anthrax drug. In Louisiana in 2017, the American company Gilead Sciences dropped the price of Epclusa, a Hepatitis C drug, after the mere threat of a Section 1498 authorization from both the federal government and Louisiana State Department of Health. Additionally, the Trump administration invoked the DPA over 30 times in 2020 to increase the production of N95 respirators, ventilators, and testing equipment, explicitly citing supply chain issues in the authorization. In short, the federal government has the tools at its disposal to provide licenses for numerous domestic manufacturers to produce the drugs, PPE, and hardware necessary to supplement the medical supply chain and build an adequate SNS, and it has used these tools before.
As former Undersecretary of Defense for Acquisition and Sustainment Ellen M. Lord noted, “If there’s one silver lining from the COVID-19 pandemic, it’s that it’s helped expose vulnerabilities in the U.S. and Defense Department supply chain.” The truth of this statement extends far beyond defense acquisition. Indeed, the silver lining of COVID-19 is that it exposed vulnerabilities in the U.S. healthcare system caused by our overreliance on foreign manufacturing in the medical supply chain. To prevent mass shortages during the next global catastrophe, the U.S. must bolster domestic manufacturing and establish an adequate SNS. Lawmakers have the requisite legal authority; they only need the political will.
