Executive summary
Reliable medical supply chains are a cornerstone of resilient health systems. Supply chains, in the context of this report, refer to the flows of goods and services needed from production to distribution, and ultimately to final consumption (or use) of a medical product – medicine or medical device – by patients, health professionals or healthcare institutions. Each product supply chain is unique, as products are often made up of many different components sourced and produced across different sites and countries and involving many stakeholders. A supply chain failure occurs when supply cannot meet demand for a product marketed in a given country. Shortages of medicines were common and increasing in frequency prior to the COVID-19 pandemic, the latter generating specific challenges for a range of medical products. Medical product shortages can have major implications on health and societies – e.g. delayed treatment and diagnoses, strain on already stretched healthcare systems, increased healthcare costs, loss of productivity, to name a few. Their proliferation has drawn policy attention and prompted calls for action to strengthen medical supply chains – both routinely and in anticipation of the next health crisis.
Medical product supply chains are complex and often spread across multiple locations, in different countries, even different continents. They involve many stakeholders. While there may be similarities in the organisation of some supply chains, particularly for medicines, each product supply chain is unique. Medical device supply chains exhibit greater variability than medicines, and often use multiple suppliers of components, some of which are specific to individual devices, while other components are used to produce non-medical goods.
In the last decades, medical supply chains have become more internationalised, albeit with a degree of geographical concentration in the manufacturing of some finished pharmaceutical products and active pharmaceutical ingredients. Global trade in pharmaceuticals increased 10-fold over the past 30 years, reaching USD 900 billion in 2022, and intermediate inputs (e.g. active pharmaceutical ingredients) now account for half of the total movement of goods by value, likely much more by volume. Over the past 30 years, global trade in medical devices has increased 7-fold in value, reaching a total of USD 700 billion in 2022, of which one-third are intermediate goods, one-third are finished products, and approximately one-third are capital goods (durable equipment). The internationalisation of medical supply chains has played an important role in the development of capacities to produce more affordable medicines and medical devices, while also providing flexibility to producers and governments to source essential medical products.
Shortages were already common and increasing prior to COVID-19. Across OECD countries, medicine shortages mainly affect older, off-patent medicines, and are particularly prevalent among central nervous system, cardiovascular and anti-infective medicines. Manufacturing and quality issues are the most frequently reported reasons (50-60%) for shortages, while “commercial issues” are often cited in generic markets where competitive price pressures are intense. In the EU, 8% of shortages are reportedly due to distribution issues. Prior to the COVID-19 crisis, shortages of medical devices received less attention than medicine shortages. Nevertheless, several sources of risk to medical device supplies have been identified, including reforms to the EU medical device and in-vitro-diagnostic (IVD) regulation; competition with other sectors for raw materials and electronic components; and recently, significant inflation in the costs of inputs. Data on shortages of medical devices and IVDs and their causes are scant, however, as reporting requirements are less stringent than for medicines.
The COVID-19 pandemic imposed immense strain on already stretched supply chains both due to unprecedented levels of global demand and widespread disruptions to supply. During the initial stages of the pandemic, there were shortages of key medicines, testing reagents, and personal protective equipment. This global crisis showed that even though internationalisation and complexity cannot be considered as the root cause of shortages or disruptions in medical supply chains, they have implications for the transmission of shocks, and interdependencies among producing and consuming economies.
The proliferation of medicine and medical device shortages has raised the need to strengthen supply chains both routinely and in anticipation of future crises. Until recently, initiatives to increase medical supply chain security have most commonly been implemented at country-level. In the context of global supply chains, however, national policy action is challenging and should be complemented by international co-operation and co-ordination, as well as collaboration with the private sector. Supply chains are complex adaptive systems with no single point of control, especially when they span across a large number of countries. While evaluations of the effectiveness of different policies implemented thus far are scarce, policy makers can consider several options.
A first action is to improve visibility and harness information across the whole supply chain, to anticipate and, where possible, avert shortages more readily. Today, regulators lack information on upstream supply chains to assess their vulnerability and mainly rely on manufacturers to notify shortages or potential risks of shortages. What happens in distribution chains is even less clear. As a first step, policy makers should consider how to harness information already reported to regulators by manufacturers to identify and assess points of vulnerability in manufacturing supply chains. On the distribution side, implementing track-and-trace systems building on unique identifiers already required in many countries for medicines (to fight fraud) and high-risk medical devices (for materio-vigilance and real-world performance assessment) would enable better monitoring of supply, demand, and available stocks; characterisation of the nature and scope of notified shortages in real-time; and the organisation of effective re-allocation of available stocks. For critical products – e.g. essential medicines with vulnerable supply chains – closer monitoring of volumes and flows should be established in partnership with suppliers. In general, achieving better visibility requires more routine collection of granular, real-time information on the structure, content, and status of medical supply chains. This would entail an enabling regulatory environment, as well as investments in data infrastructure and analytics – both by firms and governments. Better anticipation of risks also requires information sharing between stakeholders, which should be permitted where appropriate and necessary.
Second, policy action should focus on addressing the root causes of shortages, to mitigate (or reduce exposure to) risks of shortages. To address quality issues, public authorities need to require manufacturers to maintain quality management systems meeting the highest established standards and to monitor their implementation. For markets where excessive pressure on prices is suspected to lead to degradation of quality standards, product withdrawals and market exits, as well as concentration of supply to achieve economies of scale, some policy options may contribute to market shaping. Cross-country pooled procurement can be useful, for example to enhance prediction of demand and to secure supply for small markets that might not be supplied otherwise. The Pan-American Health Organisation’s revolving fund for the purchase of vaccines is a good example. Strategic public procurement approaches that consider criteria other than price alone can also relieve some pressure on prices while elevating the importance of supply security in decision making. The “most-economically advantageous tender” (MEAT) criteria for public procurement recommended by the European Commission is a potential vehicle for more strategic procurement. Procurers of medical goods could also consider the diversification of supply as a rationale for splitting awards. Diversification of supply, however, may require further action. Re-shoring and near-shoring policies are high on the policy agendas of several countries seeking to reduce dependency on highly concentrated sources of certain raw materials, active pharmaceutical ingredients and finished products. These policies can expand production capacity, reduce concentration, and help meet increasing global demand. However, careful consideration should precede their implementation as they entail substantial cost. They should only be focused on “critical products” as previously, ideally, defined at supranational level.
Third, policy action should encourage greater agility and flexibility into the system, to reduce risks of potentially harmful supply disruptions. Trade facilitation and harmonisation of regulatory requirements for marketing authorisation would ease the movement of goods across countries. Appropriate inventory strategies and co-ordinated stockpiling policies can help mitigate shortages due to spikes in demand and/or interruptions in supply chains in the short term but are of limited effectiveness in long-term disruptions. The proliferation of national stockpiling policies, however, can potentially worsen supply gaps. Regional and co-ordinated stockpiling may be an option for responding to short-term mismatches between supply and demand, by allowing swift re-allocation of stocks where they are most needed.
Countries need additional capabilities to prepare for and mitigate risks on medical supply chains in the event of a severe crisis. Here, international co-operation and close collaboration between the private sector and governments are important to ensure a cohesive, collective, and efficient response.
Severe crises call for better preparedness for quicker responses. Preparedness plans, for pandemics and other shocks, should include specific measures to address medical supply chain issues that can be rapidly enacted. Stakeholders must work together to establish processes for defining lists of critical products specific to different emergency situations and putting in place mechanisms to monitor international and regional flows of these products. These lists could also be used for multi-country pooled procurement. Countries should also agree on clear mechanisms to share critical medical products’ supply and demand data, and additional regulatory flexibilities such as rules refraining them from exacerbating supply chains issues through hoarding and export restrictions. Multilateral or regional trade agreements could – before the next crisis occurs – include provisions for co-operation in ensuring the continuity of supply of medical goods.
Severe crises also require that mechanisms are already in place to mitigate risks of shortages. Policy makers may need to support expanding production capacity in cases of surging demand and mandate prioritisation of the medical sector for the supply of raw materials and electronic components. Preparing and implementing necessary legislation in advance is critical to facilitating rapid responses. Regardless of the policy approach chosen, policy makers should ensure that mechanisms are in place to facilitate worldwide access and fair allocation of existing technologies, while supporting R&D efforts and encouraging the transfer of technologies developed during crises (such as new vaccines and treatments).