2. Policies for enhancing supply chain security routinely
This chapter reviews the landscape of policies that could be implemented routinely, as a foundation, to enhance medical product supply chain security. First, it examines initiatives aimed at improving the ability to anticipate or avert risks of shortages, such as enhancing visibility across the whole supply chain. It then looks into policies that aim to mitigate or reduce exposure to these risks, including addressing the root causes of shortages and encouraging flexibility and agility into the system.
Shortages of medical goods were common and increasing in frequency prior to the COVID-19 pandemic, with issues of manufacturing, quality and market dynamics key contributors to supply disruptions. However, the pandemic significantly magnified pre-existing issues, with unprecedented spikes in demand and bottlenecks in supply exacerbating shortages of essential products.
Companies are responsible for and have an interest in ensuring the reliable supply of their products, and, in most cases, they deliver. The proliferation of shortages, however, has drawn policy attention and prompted calls for action. Policies are needed to enhance the resilience of medical supply chains and ensure continuity of supply, both routinely and in times of severe crisis (see Figure 2.1 for an analytical framework). This chapter focuses on the former, while the latter are discussed in Chapter 3.
Policies to enhance medical supply chain security routinely involve 1) better identification, anticipation and aversion of risks, and 2) mitigation of risks of shortages. In general, promoting the long-term resilience of medical supply chains would benefit from collaborative approaches that balance measures best undertaken by the private sector with those more appropriately managed by governments or supranationally.
Anticipating risks
Policy makers would benefit from improved visibility of supply chains to more readily anticipate and, where possible, avert shortages. As a first step, they could harness the information already required by regulatory agencies to identify and evaluate points of vulnerability in supply chains. Regulatory agencies collect information on manufacturing sites potentially involved in supply chains but do not routinely draw on it to analyse risks to supply or evaluate in real-time the impact of a natural disaster, for example. Second, policy makers need better visibility of flows in distribution chains. Although unique identifiers are being implemented for medicines (to fight fraud) and for medical devices (for materio-vigilance and assessment of performance in real world conditions), these systems do not generally allow tracking of the flows of medical products in the distribution chain, albeit with some exceptions (e.g. medicines in Türkiye). Tracking would enable better prediction of supply, demand, and available stocks; characterisation of the nature and scope of notified shortages in real-time (local, national or global) and organisation of effective (re)allocation of available stocks.
Policy makers could also consider implementing closer monitoring of volumes and flows of “critical products” – products identified as both “clinically essential” and having a vulnerable supply chain (according to criteria to be defined). Such a monitoring mechanism would need to be established in partnership with the suppliers of these products.
Gathering granular, real-time, information on supply chains and investing in data analytics are key to anticipating and preventing shortages.
Better anticipation of risks also depends on information sharing among stakeholders. Regulatory authorities should be authorised to share supply chain information with other government agencies and other countries, where appropriate.
Mitigating (or reducing exposure to) risks
The most effective way to reduce exposure to shortage risks is to address the root causes, as identified in former studies, i.e. quality failures, the most frequently reported reason for shortages, pressure on prices in off-patent markets and, to a lesser extent, reducing vulnerabilities arising from excessive concentration of sources of supply.
Improvements in quality management are critical. The International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use (ICH), recently published guidelines that aim to improve manufacturers’ quality risk management programmes, and seven regulatory agencies have already implemented them. Public authorities need to require manufacturers to maintain management systems meeting the highest established standards and to monitor their implementation.
In off-patent markets, 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. Further empirical analyses are needed, at local or regional level, to confirm these trends in different contexts. Some policy options, however, may facilitate 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, such as supply chain security, 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 may require further action beyond improving procurement methods. Re-shoring and near-shoring policies are high on the policy agendas of several countries seeking to reduce dependency on highly concentrated sources, certain raw materials, active pharmaceutical ingredients (APIs) 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 be focused on “critical products” as previously, ideally, defined at supranational level.
Encouraging agility and flexibility into the system can also help to reduce risks of potentially harmful supply disruptions.
Trade facilitation and harmonisation of regulatory requirements for marketing authorisation can ease movements of medical goods. As an example, e-leaflets, in particular for hospital-administered products, can facilitate re-allocation of products across countries with different languages and labelling requirements.
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. Countries have adopted a variety of strategies for stockpiling, with differences in the range of products, and in stock management and financing mechanisms. 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.
Digital technologies, such as big data analytics and artificial intelligence, could be harnessed by all stakeholders to gain a better understanding of and improve predictions of supply and demand, as well as of the movement of goods.
Note: API active pharmaceutical ingredient. “Routine circumstances” refers to routine or “business as usual” situations in which minor or major supply disruptions occur absent a major crisis. Severe crises refer to major events (e.g. pandemic, other type(s) of major events or health threats).
Chapter 2 presents a range of policy options that could be implemented routinely to enhance the resilience of medical product supply chains. The overall objective is to improve the ability to anticipate and assess the risks of shortages (Section 2.1) but also to mitigate or reduce exposure to these risks (Section 2.2) by addressing the root causes of shortages and encouraging flexibility and agility into the system. In recent years, the issues of supply chain security and resilience have been high on the agenda of policy makers, particularly in light of the COVID-19 pandemic. Many different initiatives spanning a range of policy areas have been developed, or are currently being discussed at national, regional, and international levels. Annex A presents some examples of these initiatives, although it should not be considered as an exhaustive list. As an example, in October 2023, the European Commission published a communication on “Addressing medicine shortages in the EU” (European Commission, 2023[1]). This wide-ranging document covers many different topics, including the strengthened mandate of the European Medicines Agency (EMA), the expansion of the Commission’s Health Emergency Preparedness and Response Authority (HERA), the Union Civil Protection Mechanism and the proposed reform of the European Union (EU) Pharmaceutical legislation. The communication sets out steps for mitigating shortages of critical products in the short and medium term, as well as more structural mid and long-term measures (ibid.). Other international efforts are ongoing in this space, particularly in the context of severe crises. These are discussed further in Chapter 3. Addressing rapid responses to shortages at the point of care, while important to mitigate the direct impact of shortages on patients, is out of scope of this particular report.
Anticipating the risks of supply chain disruptions relies mainly on effective oversight (i.e. visibility) of the whole supply chain. Ensuring the reliability of manufacturing supply chains is generally the responsibility of the marketing authorisation holder (MAH). Companies have an interest in sustaining supply and matching demand for their products. Until recently, public authorities had focused their attention on the quality of the manufacturing process, as part of their mandate to ensure access to safe and quality-assured products. The multiplication of shortages, however, has pushed many of them to act and no longer rely only on companies to ensure security of supply. This section examines regulatory agencies’ oversight on supply chains visibility and their ability to help prevent shortages, and suggests new approaches for more effective risk anticipation and prevention.
2.1.1. Enhancing visibility and harnessing information across the whole supply chain
Enhancing visibility and monitoring of the stages, participants, flows and stocks in supply chains are critical not only to preventing or anticipating disruptions, but also to mitigating their effects when they occur. The COVID-19 pandemic brought this issue to the forefront of health authorities’ attention, with many countries struggling to assess vulnerabilities in the supply of essential medical goods during the dramatic first months of the crisis, while also facing challenges in forecasting demand. Shortage management in non-crisis situations can also be severely hampered by a lack of visibility. Without accurate data from both supply and demand sides, it is very challenging to assess the nature, extent, and severity of a “shortage” (local, national or global, due to bottleneck in manufacturing and or distribution, etc.) or to identify how best to mitigate its impact.
Enhanced visibility across the whole supply chain would require data from several stakeholders, including MAHs, distributors, hospitals, and pharmacies, as well as some sophisticated digital IT infrastructure to gather and analyse them. Some of these data would be considered commercially sensitive, thus it is important to consider for whom improved visibility is essential, for what purpose, and for which products, as well as whether requirements for data collection can be harmonised. However, before attempting to embark on the establishment of a global system, it is important to clarify the nature and the extent of the data that are currently available and how they are used, and what supplementary data should be collected. As a first step towards improving visibility, the following sections describe the nature of the information currently available on manufacturing processes (i.e. sourcing of raw materials, primary manufacturing of active ingredients, secondary manufacturing of finished products) and on the flows of goods within distribution chains (e.g. through distributors, to hospitals and pharmacies).
Harnessing available information on manufacturing processes to assess vulnerabilities in supply chains
As part of this study, the OECD conducted a survey of regulators’ visibility of medicine and medical device supply chains, receiving responses from 24 countries and the European regulatory agency (European Medicines Agency – EMA).1 Information presented in the following paragraphs reflects insights drawn from responses to this survey (summarised in Table 2.1) and additional desk research.
Medicines
Regulatory agencies already collect information on manufacturing sites involved in the production of medicines approved for sale in their respective jurisdictions (see Table 2.1). Companies are required to declare all sites potentially involved in the production of the final product and these sites, wherever they are located, may be subject to quality inspections. In some jurisdictions, for example the United States, the regulatory agency is not allowed to publicly disclose this information. The New Zealand regulatory agency MedSafe, by contrast, makes this information available to the general public on its website. However, regulatory agencies do not generally use this information to assess vulnerabilities in supply chains. The information is not always structured in a way that would enable them to address questions such as whether any part of the manufacturing of a particular product is concentrated in a single site or which products in a domestic market might be affected by a natural disaster in any part of the world.
Requesting information on volumes produced in each site involved in the manufacture of a product for a specific market would be a step further. Companies generally regard this information as confidential and sensitive, making them hesitant to share it. In addition, when a company relies on several suppliers and serves several markets, it may apply some flexibility and adjust sourcing to fluctuations in domestic markets. Providing information to regulators in real-time would not only require goodwill but also a powerful digitalised and interoperable system. From policy makers’ point of view, however, only centralised information on volumes produced by individual sites would address questions such as: do all generics of active substance X have the same and unique active pharmaceutical ingredient (API) source?
According to OECD’s 2023 survey on supply chain visibility, some regulators already request information on volumes sold in their domestic markets. Since 2020 and the adoption of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in the United States, all US Food and Drug Administration (FDA) registered establishments are required to report annually the monthly quantities of each listed drug that they produce. They must also disclose their suppliers of components, but are not required to share information on the quantities provided by each of them (US Congress, 2020[2]; HHS, 2022[3]).
In some jurisdictions, MAHs are required to submit information on volumes only in certain circumstances. For example, EU regulation that expanded the mandate and responsibilities of EMA (EU Regulation 2022/123) requests MAHs to submit data on demand and supply volumes to EMA only during public health emergencies or major events, and for those medicines included in lists of critical medicines, to monitor and mitigate/prevent shortages (European Council and Parliament, 2022[4]). The EMA has no mandate to request volume data from industry at national level. Individual countries may, however, impose different rules. In Germany, in case of critical shortages, when requested, MAHs are required to submit data on production, sales, and demand to the national competent authorities. They are also required to submit this information every two months for certain “high risk” medicinal products. Data on the available stocks of medicinal products can also be obtained at wholesaler level, as well as from hospitals and hospital pharmacies. In Spain, this information is also collected in specific circumstances, for critical shortages, or every three months for medicines susceptible to shortages.
In other OECD countries that responded to the survey, regulatory authorities do not have access to this information. In Korea, for example, company data on volumes are considered trade secrets that can only be accessed through a legal procedure to obtain disclosure.
Another important feature of the system is the ability of regulatory agencies to share information about production sites and/or volumes with third parties for the purpose of addressing shortages. In the EU, according to Heads of Medicines Agencies (HMA)/EMA Guidance on the identification of commercially confidential information, information on production sites cannot be shared with third parties, unless authorised by MAHs, except information already made public lawfully (e.g. for biologicals) (HMA/EMA, 2012[5]). A general exception is permission to share confidential information (such as production sites) with other EU/EEA national competent authorities on a case-by-case basis. Permission to share information with other government agencies varies across countries; Lithuania may share information on volumes with the public, while Spain and Sweden may share information with their respective health ministries.
As regulator visibility of upstream supply chain information from which to assess supply vulnerability is generally poor, regulators mainly rely on notifications of shortages (or risks of shortages) by manufacturers. However, definitions, reporting methods, and requirements for shortage notifications, vary widely by country (see Box 1.4 in Chapter 1 and (Chapman, Dedet and Lopert, 2022[6]).
In some cases, regulators have discretionary powers to impose fines for non-reporting, on a case-by-case basis. Half of the 24 countries surveyed by Vogler and Fisher (2020[7]) indicated that fines may be applied to MAHs that do not comply with shortage reporting requirements. For example, the French agency for the safety of medicines and health products (ANSM) has the power to impose sanctions where companies fail to notify current or potential future shortages. Fines can be levied for amounts as high as 30% of the firm’s revenue from the product in shortage, determined according to a set of criteria that take into account the gravity and duration of the shortage, the degree of co-operation by the supplier in addressing the issue, and whether the supplier has repeatedly failed to fulfil its supply obligations (ANSM, 2022[8]). Since the release of the 2020 study, several countries have introduced legislation allowing regulators to sanction non-compliance with shortage reporting. In Sweden, new regulations came into force in July 2023 that impose fines ranging from EUR 2 200 to as much as EUR 8.7 million (Kleja, 2023[9]). By contrast, in the United States, the FDA does not have the authority to apply financial sanctions to manufacturers that do not comply with notification requirements.
Medical devices
According to the 2023 OECD survey, regulators have even less visibility of this information for medical device supply chains. Only a minority of countries indicated that regulatory authorities or notified bodies (for EU countries) collect information on all manufacturing sites involved in the production of medical devices and their main components (see Table 2.1), and this mainly applies to high-risk devices.
Improving knowledge of distribution chains to enhance supply-demand forecasting
Tracking the movement of medical goods in the distribution part of the supply chain offers an opportunity to improve the security of supply in several ways. In the event of local or regional shortages, knowing where existing stocks are being held within the distribution network may help, allowing stakeholders to co-operate to move stocks where they are most needed.2 This information could also be used to better predict changes in demand. For example, Snowdon and Forest (2021[10]) mention the case of Alberta, Canada, where a highly digitised supply chain infrastructure capable of tracking the location and utilisation of every product across the entire health system, enabled leaders to source personal protective equipment (PPE) in December 2019, well in advance of nearly every other jurisdiction. This degree of visibility requires the use of unique identifiers (UIs) to follow products to the last part of the supply chain. UIs are being implemented for medicines and medical devices in some parts of the world, for different reasons. Until now, they have not been used to prevent or address shortages.
Medicines
The progressive introduction of UIs for medicines began with the main objective of fighting falsification, fraud and counterfeiting. In theory, UIs allow the implementation of full track-and-trace systems in which participants in the supply chain can authenticate products and transmit digital data to a central management system that stores relevant information (e.g. expiry dates, recalls, falsification alerts) (Kootstra and Kleinhout-Vliek, 2021[11]). Current systems, however, are generally not capable of this.
For the time being, two types of track-and-trace systems exist:
In the “Point-of-dispense check” or “end-to-end” system, finished products are only scanned at the beginning and end of the distribution process of the supply chain (i.e. point of dispensing or administration). The main purpose is to protect patients by verifying the authenticity of a product by validating them at the dispensing points with a code designated in the manufacturing process (WHO, 2021[12]). This does not require scanning of products at every stage of the supply chain or at different transaction points (e.g. between wholesalers and distributors). Many European countries have implemented these systems, which are less costly to manage than full track-and-trace systems. Since February 2019, all prescription medicines, unless explicitly exempt, have been required to comply with safety measures specified in the Delegated Regulation (EU) 2016/161, which mandates the assignment of a unique identifier in packages. The European Medicines Verification System (EMVS) was created for this purpose. Packages are only scanned at the production and dispensing stages of the supply chain, and in many cases, only where there are concerns about falsification. As a result, unique identifiers cannot be used to track medicines throughout the supply chain in order to anticipate and mitigate risks of shortages. Moreover, the data centralised in the EMVS may only be accessed by regulatory authorities on request, for the purposes of investigating potential incidents of falsification, reimbursement or pharmacoepidemiology and pharmacovigilance (European Commission, 2016[13]). At the time of writing, the system had been implemented in all EU/EEA countries except Greece and Italy, which have their own serialisation systems. The deadline for these countries to comply with the EU regulation is February 2025. However, even with full participation, the EMVS cannot readily be used as a full track-and-trace system, which would require legal and technical adaptation.3 In the interim, the European Federation of Pharmaceutical Industries and Associations (EFPIA) has suggested that the information collected through the current systems, used with complementary data sources, could nonetheless be used to providing additional intelligence in monitoring shortages (Bouvy and Rotaru, 2021[14])
A “full” track-and-trace system follows products throughout the entire distribution chain, through a scan validation at every transfer of ownership, beginning with release from the manufacturer. It allows for real-time tracking and stock management along each stage of the distribution chain, thus facilitating timely detection and prevention of shortages, targeted recalls, and reduction of fraud, theft, and medication errors (Parmaksiz, Pisani and Kok, 2020[15]). Only a few countries that responded to the OECD survey reported having such a system (Bulgaria, Estonia, Norway, Korea, Türkiye and the United States). The Turkish and the US systems are described in Box 2.1. These systems have not been used so far to anticipate or avert shortages.
Ilaç Takip Sistemi (ITS), the Turkish track-and-trace system for essential medicines
ITS, the full track-and-trace system, was introduced in Türkiye in two phases. The first phase began as a pilot in 2010 with a point-of-dispense check system managed using software developed by the Ministry of Health. The system was originally implemented to fight reimbursement fraud. The second phase was launched in 2012, this time by a private company, and for the first time encompassing all actors within the regulated supply chain. The company and the Ministry of Health are jointly responsible for the maintenance and development of the platform. The data are pooled in a centralised database managed by the ministry, which provides the authorities with visibility of the supply chains of relevant products.
The system is based on cross-checking movements of products between each participant in the supply chain. A central database stores all information, and a cross-checking system compares sales and purchasing notifications at every step. Sales are disabled when notifications cannot be matched. A notification of provision is required for reimbursement by national health insurance (NHI).
The industry bears the costs of compliance with the regulation, investing in adding the track-and-trace system to their production and distribution flows. The obligation to comply with established rules to trigger reimbursement by NHI was a strong incentive, since 95% of the Turkish population are covered by NHI.
Since ITS registers purchases and sales throughout the entire supply chain up to dispensing, it allows health authorities to monitor stocks of medicines, and gives manufacturers, wholesalers, and pharmacies control over and visibility of inventories (Parmaksiz, Pisani and Kok, 2020[15]). However, the Ministry of Health recognises that the system is largely reactive, and that the data produced by ITS could be used more effectively to help avert shortages and stock-outs. For this reason, the government is looking to implement a proactive alert system that provides a notification when a particular product’s supply falls below a specified threshold (ibid.).
Track-and-trace system for medicines in the United States
In the United States, the Drug Supply Chain Security Act, enacted in November 2013, defined a procedure to implement an interoperable, electronic tracing of medicinal products to identify and trace certain prescription drugs as they are distributed. The system is intended to identify and remove potentially dangerous medicines from the supply chain and requires manufacturers, re-packagers, wholesale distributors, and dispensers to comply with standards for package-level tracing of medicines and data exchange of product tracing between participants in the supply chain (FDA, 2023[16]). Operators were initially expected to comply with this regulation by sharing information electronically or on paper. The implementation of an “all electronic” system was expected by November 2023. The FDA recently published guidance for suppliers to support this implementation (2023[17]), and operators were given one additional year in which to implement it (FDA, 2023[18]). For the time being, the regulation stipulates that regulatory authorities may only ask trading partners to share product tracing information in the event of a recall, or for the purposes of investigating a suspect or illegitimate product.
In March 2021, the World Health Organization (WHO) published a policy paper on the traceability of finished medicinal products from manufacture (i.e. lot/batch release) to the point of dispensing (i.e. pharmacies) or administration (e.g. hospitals) (WHO, 2021[12]). The paper outlines some of the main features of existing traceability systems that are designed to be used to identify falsified and substandard products and offers guidance for developing regulation on the topic. The findings were developed in consultation with regulators from WHO Member States, as well as in collaboration with the International Coalition of Medicines Regulatory Authorities (ICMRA) and the European Directorate for the Quality of Medicines and HealthCare (EDQM). The paper emphasises, inter alia, the importance of establishing an appropriate governance process, identifying costs and benefits of different approaches, and using global standards to maximise international interoperability. While not the intended purpose of most existing traceability systems, the paper also recognises their potential use in maintaining efficient stock management at different levels, and in identifying shortages and monitoring the reasons behind them.
In August 2021, ICMRA published a technical document with recommendations for interoperability of track-and-trace systems at global level that would enable different systems to exchange and use relevant information on medicines and their supply chains to advance various public health goals. The document recognises the potential benefits of traceability systems for supply chain management and mitigation of medicine shortages (ICMRA, 2021[19]).
In the absence of performant track-and-trace systems, initiatives relying on information from the distribution chain have helped to identify and address shortage issues, albeit on a more “reactive” basis (see Box 2.2). Furthermore, increasing the predictability of demand through better forecasting, where possible, and surveillance systems, as well as ensuring appropriateness of prescribing according to clinical guidelines, would help to anticipate and prevent shortage issues. In the vaccine space, for example, vaccine manufacturers have emphasised the importance and value of early collaboration between decision-makers and manufacturers in anticipating changes in demand (e.g. the introduction of a new vaccine to a national immunisation programme) in order to plan for adjustments to supply or increased production capacity (Jongh et al., 2021[20]). In other cases, inappropriate prescribing has resulted in shortages of some products (e.g. azithromycin during COVID-19). More recently, several agencies have called for appropriate use of a GLP-1 analogue that has been extensively promoted in social media and is being prescribed widely and inappropriately off-label for weight loss while at the same time being in short supply for authorised use in diabetes (Brafman, 2023[21]; TGA, 2023[22]).
In Spain, the Centre for Information on the Supply of Medicines (CISMED) is a pharmacy-based system which automatically detects supply issues affecting patients. The information provided by pharmacies can be used by health authorities to visualise and respond to shortages in supply on a regional or national level. From November 2019, Digital Health Europe, with funding from the European Commission, has launched a cross-border mechanism for information sharing on medicine supply chains between Spain, France, Italy and Portugal. Analyses of standardised shortages data provided by pharmacies has enabled the identification of similarities in trends in stockouts among the participating countries, such as increasing shortages of neurological medicines between 2019 and 2020 (Consejo General de Colegios Oficiales de Farmacéuticos, 2023[23]). The collaboration between pharmacy associations has illustrated how countries can work together to exchange valuable information on medicine shortages, and suggests that co-operation like this could be implemented at the European level (Digital Health Europe, 2023[24]). Learnings from this initiative could also help inform the implementation of the European Shortages Monitoring Platform.
In France, two systems have been implemented. In TRACStock, manufacturers feed stock level data into the system, which is managed by a third-party to ensure the appropriate utilisation of any sensitive or confidential information. Developed by the association representing the pharmaceutical industry (LEEM) TRACKStock can detect possible disruptions in advance and indicate alternative therapeutics for medicines in shortage, if any. While this tool is industry-led, the French agency for the safety of medicines and health products, ANSM, has full access. Another system, DP-Ruptures, was developed by the French Chamber of Pharmacists. It tracks pharmacies’ shipping requests and automatically notifies the MAH if a delivery is taking longer than 72 hours. The MAH can then inform pharmacists of any recurring issues in supply, the measures being taken to resolve the issue, and possible alternative medicines that could be substituted for the one in shortage. When more than 5% of pharmacies using DP-Ruptures report late deliveries of supplies, the shortage is included in a list and ANSM is notified (Ordre National des Pharmaciens, 2022[25]). Apart from keeping retailers better informed about disruptions in supply, MAHs can also benefit from greater transparency in the logistic systems delivering their medicines, which can aid the assessment of stock and production levels.
Medical devices
The progressive implementation of Unique Device Identifiers (UDIs) in the medical device sector has a different history and very different objectives: it was designed to improve materio-vigilance and to collect data to build real-world evidence on the performance of medical devices. The UDI system for medical devices, promoted by the International Medical Devices Regulators Forum (IMDRF) in a 2013 guidance document, provides a globally harmonised system for identification and coding of medical devices (WHO, 2021[12]; IMDRF, 2013[26]; IMDRF, 2019[27]). It is composed of two parts: the device identifier UDI-DI, which identifies a manufacturer’s product and package configuration; and the production identifier UDI-PI, which identifies the unit of device production. While the system was intended to provide globally accepted identification of medical devices, it also supports inventory management, pre- and post-market surveillance, vigilance, and reimbursement (WHO, 2021[12]).
The implementation of UDI systems began with high-risk medical devices, such as implantables. In Europe, EU regulations have required UDIs for some medical devices since May 2021 and for in-vitro diagnostics (IVDs) since May 2022.4 The data are kept in an electronic “UDI database”, part of the European Database on Medical Devices (EUDAMED), which is not yet fully operational. Manufacturers are responsible for the placement of the UDI in the labelling and packaging of the device, as well as the registration of the UDI in the EUDAMED database before the device is placed on the market (European Commission, 2020[28]). Outside the EU, Japan, Korea, Türkiye and Switzerland report having systems in place (see Table 2.1). To date, however, UDI information systems have not been used to track movements of goods in health systems or predict demand for specific devices.
In the United States, with the Unique Device Identification System Rule enforced in 2013, the FDA established a system to identify medical devices from manufacturing through distribution to patients. The system requires labelers (e.g. manufacturers) to include a UDI on labels and packages and to submit information on their devices to the Global Unique Device Identification Database (GUDID), available to the public. The GUDID only includes information on the labeler and the version or model of the device (FDA, 2023[16]; FDA, 2013[29]). The UDI system in the United States is in its final phase of implementation, and when fully deployed is expected to improve patient safety and post-market surveillance.
In Australia, the Therapeutic Goods Administration (TGA) launched three consultation processes (in 2019, 2020 and 2022) for the implementation of a UDI system. The system aims to strengthen patient safety by allowing tracking and tracing of medical devices, including patient use. However, the system has not yet been implemented (Department of Health and Aged Care, 2023[30])
Canada is currently assessing the feasibility of introducing a UDI system. In June 2021, Health Canada opened a public consultation to gather feedback on a proposal for the implementation of a UDI on devices and packaging, and the submission of the information to a database open to the public (Health Canada, 2021[31]).
Gathering real-time, granular information on supply chains and investing in data analytics are key to anticipating and averting shortages
Real-time information about medical devices and medicines can help issues to be anticipated and addressed quickly. Interest in greater supply chain visibility at different points in the supply chain and the use of real-time information has been highlighted by various stakeholders, for example by respondents to a recent public online consultation by Health Canada’s Drug Shortages Task Force (Health Canada, 2023[32]) (Annex A). Greater confidence in predicting the required supply may provide some lead time for manufacturers to buffer capacity (Chen et al., 2021[33]). Reporting platforms could also be improved through the development of new information systems, using data analytics to detect shortages in advance based upon real-time variations in supply and demand. Some countries already have such stock monitoring systems in place. Caution, however, must be made that any forecasts consider the possibility of stockpiling at any level (e.g. including at institutional level, in pharmacies and hospitals). Technologies such as smart labelling may also help to improve the transparency and traceability in medicine and medical device supply chains. Diprivan® (a brand of propofol), for example, is one of the first medications to benefit from a radio-frequency identification system (Fresenius Kabi, 2020[34]). So called “smart labels” may also help hospitals with inventory management and allow manufacturers to anticipate changes in demand.
In addition, various supply chain technologies (including digital technologies relying on predictive analytics, artificial intelligence and blockchain) are available to monitor supply chains and anticipate risks (Ye et al., 2022[35]). For example, encrypted blockchain technology can help build trust along the value chain, while also facilitating the exchange of information and collaborative relationships (Hosseini Bamakan, Ghasemzadeh Moghaddam and Dehghan Manshadi, 2021[36]). Governments can assist by ensuring that regulatory environments are favourable to the deployment of digital technologies, and by addressing issues such as governance, data ownership, privacy and security in data transmission, that are particularly important in the context of health systems (see Section 2.2.2 on harnessing digital technologies).
2.1.2. Identifying “critical” products for closer monitoring and increased information sharing
Given the vast array of medical products – particularly medical devices – available in the market, supply chain resilience efforts are best directed towards those products deemed “critical” by national (or regional) authorities. The definition of “critical” varies from country to country, in part depending on disease burden and the availability of alternatives, and may change with the advent of a major issue of public health concern. The terms “critical” and “essential” are being used with variable meanings. Different lists are being developed at national and supranational levels: lists of medical products deemed important for inclusion in the range of benefits covered by health systems; those that are deemed “essential” to always have in adequate quantities; and those that are deemed to be “critical” in the event of a major crisis. The last group is discussed in more detail in Chapter 3.
The subsections below outline examples of countries’ efforts to identify “critical” medical products for their national markets for objectives relating to supply chain security. While a “common language” is still missing, to improve supply chain security for these products it is pertinent to consider mechanisms for increasing visibility and information sharing, beyond those already described in Section 2.1.1. For example, sharing information on supply and demand volumes between relevant stakeholders would help in both anticipating risks and mitigating the impact of any supply disruptions on patients. In other cases, these lists may be used to guide stockpiling or re-shoring efforts.
Medicines
Most OECD countries already have lists of medicines deemed important for their populations and covered by health insurance or national schemes. Not all of these medicines would be considered “essential”, according to the WHO definition. Since 2007, WHO has established and regularly updates a Model List of Essential Medicines (WHO EML), which as of the year 2023 includes 643 medicines (and 143 therapeutic alternatives) (WHO, 2023[37]). The list is intended as a guide for countries in the development and updating of their national essential medicine lists. The inclusion of medicines in the WHO EML considers disease burden and public health relevance, safety and efficacy, and comparative cost-effectiveness. In OECD countries, the range of medicines covered is usually wider than the EML.
Several OECD countries have developed lists of critical medicines, although with different objectives and criteria for inclusion or exclusion. In 2021, Germany, the Slovak Republic and Spain had compiled their own national lists of critical medicines and medicines at high risk of shortage, and at least eight other European countries were considering doing so (Jongh et al., 2021[20]). Since then, several other countries have created lists, including Denmark and France. Some examples are included below:
Germany’s list was developed by a multi-stakeholder advisory board at the Federal Institute for Drugs and Medical Devices, with representation from patients, doctors, pharmacists, and industry, and focuses on prescription medicines that are relevant for the entire population (Bundesamt für Justiz, 2022[38]; BfArM, 2023[39]). For the ~400-500 medicines on the list, specific actions may be taken to avert or mitigate supply shortages. For example, stockpiling may be requested in the case of medicines containing a “supply critical active substance”. Electronic information on available stocks, API production and manufacturing sites, sales volumes etc., may be requested from manufacturers, wholesalers, and pharmacies.
Portugal has identified a list of ~250 “essential medicines of critical nature” for which specific measures may be applied (regulatory, economic, or other) in order to ensure access in the Portuguese market (Diário da República, 2023[40]; Infarmed, 2023[41]). The criteria include that a medicine must be considered an essential medicinal product; have a data protection period that is still valid; have a history of shortages; have identified vulnerabilities in the manufacturing and distribution chain (from raw material to final product) etc.
Spain’s national list of strategic medicines, developed by the Spanish Agency of Medicines and Medical Products, AEMPS, contains medicines that requires specific actions to ensure their availability (AEMPS, 2023[42]). The selection methodology takes into consideration two complementary criteria – the clinical importance of the medicines, and the availability of adequate alternatives – including only those medicines for which there are only one or two authorised medicines available with the same active(s) substance(s), strength, and dosage form. For each of the criteria, one of three risk levels (low, medium and high) is assigned to the product of interest.
France developed a list of essential medicines, published in June 2023, to serve as the basis of a roadmap for managing shortages (Ministère de la Santé et de la Prévention, 2023[43]; Ministère de la Santé et de la Prévention, 2023[44]). Based on the work of several learned societies, the list of nearly 450 medicines includes those based on criticality of need and therapeutic area (e.g. infectious diseases, anaesthesia, intensive care etc). The overall criticality of the medicine is determined by simultaneously considering (1) the required frequency of dosing (e.g. once a day, once a week) and (2) the significance of a disruption in supply (e.g. no alternative, and life-threatening if not available, significant impact, limited consequence of a delay, etc). The final list also includes 50 medicines for which production should be relocated or reinforced (see Box 2.4) (Ministère de l'Économie, 2023[45]).
The United States has taken a slightly different approach, and following Executive Order 13 944 in August 2020, established a “list of essential medicines, medical countermeasures and critical inputs that are medically necessary to have available at all times in an amount adequate to serve patient needs and in the appropriate dosage forms” (FDA, 2022[46]; FDA, 2020[47]). This list, developed by the US FDA in consultation with federal partners, also aims to ensure protection against emergency events such as infectious diseases, chemical, biological, radiological, and nuclear threats. It includes ~230 products in the drug category and ~100 devices. There are specific criteria for inclusion of medicines in the list, which preference products used in the treatment of severe acute conditions and those that can be used for the widest public health impact (see Box 2.3) (FDA, 2020[48]).
Building on these efforts, and in response to an Executive Order in February 2021 (The White House, 2021[49]), a prioritised list of essential medicines was developed for an initial analysis of supply chains in the United States (ASPR/ARMI/NextFAB, 2022[50]). Through comprehensive consultations with clinical stakeholders, the original FDA Essential Medicines List was narrowed to 86 medicines considered to be the most critical in acute care (e.g. life-saving, stabilising patients in hospital for discharge, emergency surgery). Some categories of medicines on the original list were excluded because of the specificity of their supply chains (e.g. blood and plasma products). The next steps will involve identifying specific supply chain and manufacturing vulnerabilities for the most critical of these medicines, to tailor any possible solutions.
Although the creation of national “critical” medicines lists has escalated since COVID-19, the idea of assigning “criticality” of medicines in shortage management is not new. In their analysis of shortage notification databases, Chapman, Dedet and Lopert (2022[6]) found that several countries (e.g. Australia, France, Switzerland and the United States) only report or publish data on shortages affecting a subset of medicines deemed to be critical or essential to their respective health systems. In Ireland, stakeholders agreed on a gradation of “low” and “medium or high” to describe the potential impact of a shortage, based on the existence of therapeutic alternatives and the likely effects on patient health (HPRA, 2023[51]).
More broadly, the European Medicines Agency published the Union list of critical medicines in December 2023. The first version contains 268 listed products (EMA, 2023[52]). The work on the list was initiated under the Structured Dialogue on the Security of Medicines Supply and the 2022 Staff Working Document (Directorate-General for Health and Food Safety, 2022[53]), and progressed under the planned guidance of the Joint Heads of Medicines Agencies (HMA)/European Medicines Agency (EMA) Task Force on the Availability of Authorised Medicines for Human and Veterinary Use (TF AAM) (EMA, 2023[54]; EMA, 2022[55]). The list includes medicines that are considered the most critical for EU/EEA health systems and need to be available at all times (i.e. not just during crises). It identifies those with a significant public health impact for which measures should be taken to strengthen security of supply. For these critical medicines, supply chain vulnerabilities will be assessed, EMA will be able to make recommendations on appropriate security of supply measures, and the Commission will be able to introduce measures to strengthen these. According to the EMA, the “criticality” of medicines is initially based on two criteria: (1) therapeutic indication and (2) availability of alternatives, with low, medium and high-risk levels assigned to each criterion. For example, medicines for acute life-threatening conditions are classified as high risk under criterion (1) while medicines without available alternatives are classified as high risk under criterion (2). The resulting risk matrix determines the categorisation of medicines as either “critical medicines”, “medicines at risk” or “other”. After assigning a risk category, an analysis of supply chain vulnerabilities is performed for “medicines at risk” to determine whether they should be upgraded to “critical medicines” (Directorate-General for Health and Food Safety, 2022[53]). Further details of the methodology for assessing supply chain vulnerabilities are not yet available. However, as an indication, in a report commissioned by the European Commission to analyse causes of medicine shortages and policy options, the supply chain of the product Epipen® (auto-injectors of adrenaline) was assessed as “vulnerable” because the product was in a dominant position in the market and the manufacturing capacity was highly concentrated (Jongh et al., 2021[20]). The analysis being carried out by the EMA will also draw from the Critical Medicines Alliance, a multi-stakeholder policy dialogue launched by the Belgium presidency of the Council of the EU in January 2024. The alliance will focus on a first subset of medicines from the Union critical medicine list and seek expert advice on the most appropriate tools and actions to address the most pressing issues. The alliance is planned to last for an initial five year period, with a first meeting scheduled for April 2024 (European Commission, 2024[56]) (see Annex A).
Beyond the preparation of this Union list of critical medicines, EMA is also in charge of developing specific lists in response to emergencies (see Chapter 3).
Selection of essential medicines
Approved medicines considered necessary to address immediately life-threatening medical conditions in acute care settings, and that are used to stabilise patients with these conditions to facilitate hospital discharge;
Selection of the medicines, including dosage form and presentation, is based on those that can be used for the widest populations encountered (e.g. if multiple medicines or medicine classes treat the same condition, the product that can treat the widest population is included; if more than one medicine class is identified, there is a preference for the option with a better safety profile; consideration for the inclusion of more than one medicine in a class in certain circumstances).
Selection of medicines included as medical countermeasures
Based on the definition of “Medical Countermeasures” included in the Executive Order 13 944, the selection included “qualified countermeasures” (all approved products in the Strategic National Stockpile), “qualified pandemic or epidemic products” (approved vaccines and antiviral medicines to treat influenza), and “security countermeasures” (approved products associated with prevention, mitigation or treatment of chemical, biological, and radiological/nuclear threats);
Selection was informed by available lists of medical countermeasures by FDA and other agencies;
Limited to medicines approved or legally marketed in the United States.
For each medicine or medical countermeasure, the list further identifies related critical inputs, i.e.:
All active ingredients or starting materials for biological or natural source products; and
Other ingredients or constituents that possess unique attributes essential for the use of the product.
Source: FDA (2022[46]), Executive Order 13944 List of Essential Medicines, Medical Countermeasures, and Critical Inputs, www.fda.gov/about-fda/reports/executive-order-13944-list-essential-medicines-medical-countermeasures-and-critical-inputs.
Medical Devices
Progress on the creation of national lists of critical medical devices is less advanced. WHO has developed several lists of priority medical devices (WHO, 2023[57]) In 2021, it introduced a list of over 500 priority medical devices essential for managing cardiovascular diseases and diabetes across all healthcare levels (WHO, 2021[58]), including in emergency situations such as cardiac arrest and stroke. This list offers clinical guidelines for specific conditions and associated interventions, encompassing surgical instruments, PPE, and diagnostic tools. Under the Priority Medical Device Project, WHO is continually updating lists for the management of high-burden diseases such as cancer and COVID-19, as well as for specific populations such as older adults, pregnant women, and neonates. The selection process involves reviewing clinical guidelines, determining the devices necessary for each care level, and consulting with a multidisciplinary group of experts. These lists support countries in developing or revising their national essential or priority lists to advance universal health coverage.
In the United States, critical device medical countermeasures are included in the list already described above (FDA, 2022[46]). The device medical countermeasures list includes products such as diagnostic testing kits and supplies for rapid test development, PPE, vital sign monitoring devices, vaccine delivery devices, and devices to manage acute conditions such as ventilators. Devices are included if it is medically necessary to always have an adequate available supply and they cannot be substituted with another device on the list. Critical inputs (i.e. components) of these devices are also included if they are essential for the use/manufacture of a device, reasonable substitutes are not easily available, and substitutions would require reassessment of device safety and performance. Critical inputs are also listed if they are a component common across multiple devices of a specific type.
Following a consultation with the private sector, the French agency for the safety of medicines and health products, ANSM, resolved to rely on companies to self-assess the risk that a shortage of an “indispensable” medical devices or IVDs would lead to a “critical situation”, i.e. a critical impact on patient health. The assessment considers the critical role of the medical device or IVD (e.g. no alternative or market share > 50%, and severe disease) as well as possible mitigation measures involving all actors (company, purchasers, healthcare institutions). If there is a significant risk of shortage, the information should be circulated as rapidly as possible to allow all stakeholders to contribute to mitigation efforts (ANSM, 2021[59]). Since 2021, the ANSM publishes a list of medical devices and IVDs at risk of, or in shortage, with reasons. (ANSM, 2023[60]). The system was originally established on a voluntary basis, but since 2023, companies have been required to declare any risk of disruption, and may face financial sanctions if they fail to do so. At least one company was fined for not having reported issues in its supply chain that led to a shortage of tests for Down Syndrome.
Mitigating the risks of supply chain disruptions involves addressing the underlying causes of shortages (Section 2.2.1), while also encouraging flexibility and agility into the system (Section 2.2.2).
2.2.1. Addressing root causes of shortages
Quality issues and pressure on prices are most frequently cited as the root causes of shortages, particularly for medicines, and to a lesser extent, vulnerabilities arising from excessive concentration of manufacturing capacity (see Chapter 1). The sections below describe some policy options aimed at addressing these root causes, from improving quality management, to market shaping, as well as strategies to diversify supply.
Encouraging improvements in quality management
Companies selling medical products are responsible for quality management in their supply chains, in accordance with standards set by regulators. Requirements for marketing authorisation are already stringent in most OECD countries, encompassing quality management standards for companies and inspections by regulatory authorities. For example, in guidance published in February 2023, the European Medicines Agency outlined manufacturers’ role in optimising quality management systems in the context of strengthening the reliability and resilience of supply (see Annex Table 2.A.1). Quality breaches nevertheless happen, potentially leading to shortages. An important issue for regulators is to ensure that this strict regulation is adhered to in the context of complex supply chains. In that respect, co-operation between regulatory agencies is being explored by several of the stringent regulators. For example, since 2011 an international active pharmaceutical ingredient inspection programme has enabled participating authorities to share information on good manufacturing practice (GMP) inspections related to API / active substance manufacturers, as well as planning and organising joint inspections. The programme currently includes 12 participating authorities, several European institutions, as well as those from Australia, Canada, Japan, the United Kingdom, the United States, and the World Health Organization (EMA, 2018[61]).
In January 2023, the International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use (ICH)5 adopted a revised version of its Q9 guideline that aims to improve current quality risk management programmes. The guidance invokes more objective risk assessments, which have the potential to reduce quality defects and, as a consequence, drug shortages. ICH guidelines are not binding, but many companies and national and supra-national regulatory agencies choose to follow their recommendations. At the time of writing, the new ICH Q9 guideline has been implemented by several regulatory agencies, including those in the European Union, Japan, the United Kingdom, the United States and Switzerland, and is currently being implemented in Canada and Korea (ICH, 2023[62]).
The International Medical Device Regulators Forum (IMDRF) is a voluntary group of medical device regulators worldwide that aims to accelerate international medical device regulatory convergence in several areas. Established in 2011, it builds on foundational work of the Global Harmonization Task Force on Medical Devices. OECD countries/regions that are current members of the IMDRF include Australia, Canada, the European Union, Japan, Korea, the United Kingdom and the United States. Individual working groups also draw upon expertise from various stakeholders such as healthcare professionals, patients, the industry, and academia. The improvement and alignment of quality management systems and risk management procedures are the focus of an ongoing working group of the IMDRF (IMDRF, 2023[63]).
Market shaping through pooled and strategic procurement
Pressure on prices, especially in off-patent markets, is often cited as an important issue affecting the reliability of supply. Low prices and limited profitability are thought to affect the ability to maintain high-quality supply chains, in some cases, leading to the exit of some players and market concentration, further adding to the vulnerability of supply. Empirical evidence is available mainly for the US generic market, which is quite specific. Vertically integrated joint ventures between large wholesale drug distributors and major retail drugstore chains have emerged, and in 2021 the three largest joint ventures were estimated to account for as much as 90% of all US generic drug purchases (FDA, 2019[64]).
In OECD countries, pharmaceutical markets are generally subject to a mix of price regulation and competition. Price regulation generally applies to “reimbursed” medicines sold by retail pharmacies, and often takes the form of a list of maximum reimbursement prices. Actual prices may be lower than these maximum prices, especially for off-patent products. Medicines purchased by hospitals are generally not subject to price regulation, with multi-source products often procured through tendering.
Multiple public and private actors purchase medical products at different levels within healthcare systems. While some countries have national procurement bodies that provide a range of medicines and medical devices to their healthcare systems (e.g. Denmark), most countries take a more decentralised approach, with pharmacies and hospitals purchasing products directly. The ways in which these systems are structured can be important in influencing how markets function and, consequently, on the availability of essential medical products. Procurement practices have the potential to create incentives for manufacturers to remain in the market, continue supply, and even develop buffer capacity. By adapting the duration, conditions and award criteria of public procurement contracts, governments can influence how medical supply chains work.
Collective cross-country purchasing of medical products (also known as joint procurement) is one of the key policies that countries can consider implementing to ensure market access and continuity of supply. Although generally regarded as a strategy to obtain lower prices for medical goods through purchasing higher volumes of products, pooled procurement can also enhance the availability of medicines and improve access to high-quality products, especially in smaller markets (Parmaksiz et al., 2022[65]). Huff-Rousselle (2012[66]) also mentions more rationalised choice processes through better-informed selection and standardisation, as well as less corruption, as additional advantages of implementing joint procurement.
Current cross-country pooled procurement initiatives vary in terms of the range of products covered, governance strategies and main objectives. Since 1977, the Pan American Health Organization (PAHO) has implemented a revolving fund for the collective purchasing of vaccines and immunisation supplies, for 41 countries in Latin America and the Caribbean region. The Fund is responsible for conducting multiple steps in the tendering process, from supporting and collecting countries’ demand forecasts, to preparing tenders, awarding bidders, and distributing supplies. More recently, the Nordic countries (Norway, Sweden, Denmark, Iceland and Finland) have also implemented a pooled procurement scheme, the Nordic Pharmaceutical Forum (NPF), which aims to increase their leverage in procuring older medicines, such as paracetamol and ampicillin.
As ensuring security of supply is not generally regarded as one of the main objectives of pooled procurement, these initiatives have not been assessed against this criterion (Parmaksiz et al., 2022[65]; Vogler, Salcher-Konrad and Habimana, 2022[67]). Nevertheless, they may improve the availability of medicines in countries not considered attractive for companies because of the size of the markets. This is particularly relevant for Iceland (Nordic Pharmaceutical Forum, 2023[68]) and several of the smaller Latin American countries.
Pooled procurement can also enhance the predictability and reliability of demand, which can facilitate better planning of production and supply, and may also reduce production shortfalls (DeRoeck et al., 2006[69]). Technical assistance with demand forecasting provided by PAHO is considered a key aspect of the Revolving Fund’s effectiveness. In contrast, other pooled procurement initiatives have been less successful due to a lack of co-ordinated net demand measurements. This was the case with some of the EU Joint Procurement Agreements (JPA) for medical equipment implemented during the COVID-19 pandemic, where national demand for equipment was duplicated through multiple procurement channels (local, national, and European) (MedTech Europe, 2021[70]). Thus in order for pooled procurement to be an effective tool for ensuring the accessibility and continuous supply of medical products, it is important that participating countries demonstrate a commitment to securing a share of supplies from the pooled mechanism. However, there is no evidence that pooled procurement reduces stock-outs of medicines per se (Parmaksiz et al., 2022[65]; Seidman and Atun, 2017[71]). PAHO’s revolving fund has already experienced vaccine shortages, particularly for products originating from sole suppliers. A 2006 study found that half the countries utilising the fund had reported delays in deliveries from PAHO (DeRoeck et al., 2006[69]).
One important factor that can undermine the ability of pooled procurement to improve security of supply is tenders awarded based solely on price. Strong pressure on bidders can push prices to non- or only marginally profitable levels, leading to the market exit of generics companies and fewer suppliers. To address this issue, procurement processes that capture multiple policy objectives in the award criteria can influence market practices and potentially improve supply security. EU Directive 2014/24, which regulates public procurement, requires public contracts to be awarded based on the most economically advantageous tender (MEAT) criteria, which can include environmental, quality, social and security of supply factors. Even though the directive has led to an increase in security of supply as an award criterion, the use of MEAT approaches only accounts for 24% of public procurement contracts for medicines in the EU, the European Free Trade Area (EFTA) and the United Kingdom (Vogler, Salcher-Konrad and Habimana, 2022[67]).
In designing its tender bidding procedures, the NPF has adopted several criteria that go beyond price alone. Supply chain security can account for 15 to 20% of bid scores, while price accounts for 25 to 55%, depending on the product and other included criteria (Sverrisson, 2023[72]). As one of the main goals of the procurement scheme, ensuring timely availability of supply is a top priority in tender contracts. In parallel with implementing the MEAT criteria, NPF tenders also apply other strategies to enhance supply security, such as longer contract periods (3 years being the norm) and awarding tenders to multiple winners. Although the impact of MEAT and other policies have not been evaluated explicitly, supply data for medicines procured by the NPF from the Norwegian Medical Products Agency indicate that availability for products procured this way has remained stable, even during the pandemic (Sverrisson, 2023[72]). According to a study on public procurement practices for medicines in the EU, EFTA and the United Kingdom, 10 out of 27 responding countries indicated that security of supply was a criterion applied when evaluating at least some tenders (see Table 2.2) (Vogler, Salcher-Konrad and Habimana, 2022[67]).
Experts have also raised the potential advantages of contracting multiple suppliers for the same product, to secure supply if one or more suppliers fail. Several purchasers have adopted this strategy, including pooled procurement mechanisms such as PAHO’s revolving fund and UNICEF’s vaccine procurement. However, while pre-arranged, multi-source contracts can improve continuity in supply, they cannot be effective in all circumstances, in particular if all contracted suppliers rely on a single API contractor who fails to supply. Dube et al. (2022[73]) found the literature on whether single or multi sourcing is more effective in improving supply resilience of ventilators inconclusive, with trade-offs applicable to both strategies – single sourcing may enable the establishment of a collaborative relationship with a supplier, while having multiple sources facilitates responsiveness to disruptions. Wiedmer et al. (2021[74]) noted that multi-sourcing can actually worsen the impact of a shock when it occurs, but facilitate faster recovery of volumes afterwards. The authors suggest that sourcing from multiple suppliers tends to aggravate disruptions during a crisis, as buyers have to contact and co-ordinate with multiple suppliers dealing with their own disruptions. However, greater volumes can then be sourced from these multiple suppliers in the recovery phase. A recent IQVIA analysis of medicine shortages in the United States showed that multi-source generic molecules are more likely to be in shortage (9% of multi-source generics) than single-source molecules (7% of single-source generics) (IQVIA, 2023[75]). The report concluded that market predictability for single-source suppliers may allow them to manage stocks more effectively and mitigate the impact of market volatility (ibid.). In EU countries, utilisation of multi-award winner contracts for the supply of medicines through public procurement has generally been adopted, but often limited to certain products, where shortages are more frequent or have more severe impact (see Table 2.2).
Public procurement-based policies may follow a “stick or carrot” approach in their relations with suppliers. In one scenario, procurement contracts may offer financial incentives (e.g. higher prices) to companies that accept additional requirements (e.g. increased supply reliability, stockholding requirements etc.). On the other hand, purchasers may apply harsh penalties for poor compliance with contractual obligations. In some cases, a mix of both “stick” and “carrot” approaches may coexist. A review of policies for addressing shortages in 24 countries undertaken in 2020 found that only 6 responding countries relied on sanctions in cases of non-supply by manufacturers, and the level of enforceability of penalties was reported to be generally low (Vogler and Fischer, 2020[7]).
Not-for-profit manufacturing as a response to low profitability
In 2018, in order to tackle problems in the US generic markets, three philanthropic organisations partnered with seven US health systems, whose hospitals were exposed to shortages, to establish a novel, not-for-profit manufacturing company – Civica Rx. At the end of 2019, more than 50 additional health systems had joined the initiative, covering more than 1 500 hospitals. Civica Rx functions as a “healthcare utility (HCU)”, with the objective of maximising access to medicines rather than maximising profits. Health systems conclude 5-year contracts for pre-specified volumes, typically 50% of the health system’s projected demand for a drug (referred to as the minimum viable volume or MVV), at a transparent, prespecified price. A recent study looking at the effectiveness of the system in preventing shortages found that for 20 products procured by one health system, Civica Rx supplied 96% of its guaranteed volumes (55 orders) while wholesalers had a significantly lower fulfilment rate of 86% (302 orders). In addition, the health system received 43% more product than the contracted MVV between 2020 and 2022, the period in which COVID-19 created a major increase in demand for some of these products (Dredge and Scholtes, 2023[76]). More research, however, would be needed to confirm the interest of this approach.
Re-shoring and near-shoring as options to diversify supply
Several countries have implemented policies to incentivise domestic or regional (re)-location of the production of pharmaceutical products and/or APIs (see Box 2.4). After examining the motivations of firms to re-configure their supply chains and the pros and cons of re-shoring/near-shoring, this section looks at OECD countries’ initiatives in this area.
Companies’ motivations to re-configure their supply chains:
In the last two decades, medical supply chains have become more internationalised, albeit with a degree of geographical concentration in the manufacturing of finished pharmaceutical products (FPPs) and APIs. In some supply chains, the existence of only a small number of geographically concentrated API producers is seen as high risk, as it can worsen the effects where natural disasters and public emergencies are localised (Baraldi, Ciabuschi and Fratocchi, 2023[77]).
Even before the COVID-19 pandemic, risks and uncertainties in supply were among factors leading pharmaceutical companies to “bring production back home” (re-shoring) or relocate it to a less distant country (near-shoring). However, this process often involves the insourcing and re-shoring of core products and activities while still relying on offshore outsourcing or offshore insourcing for others (Huq, Pawar and Rogers, 2016[78]). Since the pandemic, there have been examples of European firms expanding their facilities in Europe, including Roche, and GlaxoSmithKline in the United Kingdom, Ipsen in France, Allergan in Ireland, and Lundbeck in Italy (Somoza Medina, 2022[79]). For Roche (a Swiss firm) and Lundbeck (a Danish firm), these are examples of near-shoring.
Motivations for re-shoring include better control on product quality, greater environmental sustainability, production closer to consumers, and restoration of brand value (Barbieri et al., 2020[80]). Interviews with re-shoring firms in the United Kingdom conducted by Theyel, Hofmann and Gregory (2018[81]) suggest that some may have overestimated the benefits of offshoring and underestimated the advantages of retaining manufacturing at home. For pharmaceutical companies, the interviews highlighted ensuring product quality in a highly regulated sector as a motivation for re-shoring or retaining production in the United Kingdom, as well as more effective waste and inventory management (Theyel, Hofmann and Gregory, 2018[81]). In the post-COVID context, decisions to re-shore may also be motivated by the increased frequency of disruptions to global supply chains; rising labour, transport and insurance costs; and government incentives to relocate production (Somoza Medina, 2022[79]).
The pros and cons of re-shoring/near-shoring:
In a study on antibiotics in Sweden, Baraldi, Ciabuschi and Fratocchi (2023[77]) suggested that re-shoring or near-shoring production could reduce delivery times, increase the ability to adapt to sudden changes in demand, and lower supply chain risks by bringing the different stages of the supply chain (MAHs, FPPs, and APIs) closer. Strengthening regional and domestic supply chains could create a more geographically diverse production structure, while reducing the dependence on a small number of suppliers in Asia. In addition, in the specific case of antibiotics, re-shoring or near-shoring production may result in reducing environmental impact, which is crucial to containing the alarming levels of antibiotic resistance caused by uncontrolled discharges in open waters at offshore locations (Baraldi, Ciabuschi and Fratocchi, 2023[77]).
However, the study also noted that these advantages must be weighed against certain negative effects, such as increases in direct costs leading to more expensive medicines, and expensive investment (including for the training of skilled workers and specialists). For policy makers, the advantages (security of supply, job creation, expansion of local industry) must also be weighed against potentially costly subsidies or the risk of international trade disputes (Baraldi, Ciabuschi and Fratocchi, 2023[77]). In addition, it can be argued that higher production costs in re-shored locations will not address the key commercial issue of low margins for off-patent medicines such as antibiotics. Baraldi, Ciabuschi and Fratocchi (2023[77]) concluded that, in the case of Sweden, the domestic market size is not large enough to counterbalance the investments needed to re-shore manufacturing, and that relocation decisions would be more attractive if conceived at a supra-national level. Barbieri et al. (2020[80]) also highlight that it may be challenging to re-locate a whole supply chain within the borders of a single nation, and for this reason, effective co-operation between nations in nearby macro-regions might be the key to promoting near-shoring initiatives.
Sanchez and Muzzio (2021[82]) discuss the limitations and challenges of re-shoring the production of off-patented pharmaceutical products to the United States. The main constraint is the lack of local availability of intermediate materials used for the synthesis of APIs. Other constraints identified were taxes and tariffs, access to technologies for API manufacturing, the environmental impact of API manufacturing resulting from waste generation, the availability of skilled workforce, and regulatory constraints (Sanchez and Muzzio, 2021[82]).
A report by Ernst & Young (Stark and Botos, 2021[83]) illustrated the high costs and time associated with the extension of available capacity or the development of new facilities for the production of APIs (small molecule), drug substance (biopharma) and formulation in the United States. According to this report, upgrading an existing small molecule API facility could take 12 to 18 months and would cost between USD 15 and 150 million. Creating a new facility for the same purpose would raise costs to between USD 300 million and 1.5 billion and take 48 to 60 months. Gaining the necessary regulatory approvals would take several additional months (from 9 to 18 months). The costs of upgrading or creating a facility to produce a drug substance for a biological product would be even higher. These estimates do not cover the costs of producing the finished products (i.e. formulation). In addition, these estimates do not consider the challenges highlighted above with respect to the availability of skilled workforce and local availability of intermediate materials. Developing the full pharmaceutical ecosystem and training new workers can substantially increase the costs and time needed to expand existing capacity or build new facilities.
Another study by Berger (2018[84]) highlighted that relocating antibiotic API production in Europe might not be economically feasible due to high costs and the lack of availability of some inputs. The report suggested that in the case of generic cephalosporins (a class of antibiotics), local production in Germany of quantities sufficient to serve the German market would involve transferring EUR 55 million to private companies (equivalent to additional costs of 46 cents per daily drug dose) to cover the operational costs.
This suggests that public financial support should target medicines with evidence of vulnerable supply chains, as all shortages do not result from “offshored” production. In a 2020 study on API provenance of products supplied in the EU market, Mundicare highlighted that two-thirds of the certificates issued to produce APIs for products marketed in Europe6 were held by Asian manufacturers, many of them located in two regions of India and China (Progenerika, 2020[85]). API manufacturing was quite concentrated with more than half of all APIs produced by only 1 to 5 suppliers. However, the report looked more closely at supply chains for 21 critical APIs and showed wide variations in the countries involved in their production (Figure 2.2). Policy making in this domain should be informed by reliable and granular information on supply chains and should prioritise the diversification of supply.
Note: Data labels at the top show total European demand in tonnes. API active pharmaceutical ingredient.
* Estimation, Data basis limited; ** API mainly in combination with Tazobactam (exclusively produced in Asia).
Source: Reproduced from Progenerika (2020[85]), Where do our active pharmaceutical ingredients come from? – A world map of API production, https://progenerika.de/app/uploads/2020/11/API-Study_long-version_EN.pdf.
Program for Promoting Investment in Japan to Strengthen Supply Chains
Since the 1980s, Japanese industries have increasingly transferred manufacturing to neighbouring China, which has led to increased dependence on Chinese imports. In 2020, after the outbreak of COVID-19, Japan introduced policy incentives to on-shore production of goods considered essential, including for public health. The project, which was included in Japan’s substantial COVID-19 relief package, reserved JPY 220 billion (USD 2.1 billion) to support companies that decided to move production to the country. The measure also included USD 220 million in incentives to support near-shoring initiatives in countries that are part of the Association of Southeast Asian Nations (ASEAN). Among the medical products that received funding for relocation to Japan were antigen and PCR test kits, medical gloves, and low-temperature logistics refrigerators (Ministry of Economy, 2023[86]).
United States’ Supply Chains
In the United States, Presidential Executive Order 14 017, signed on 24 February 2021, initiated a 100-Day Supply Chain Review covering four critical groups of products: semiconductors, large capacity batteries, critical minerals and materials, and pharmaceuticals and APIs. The objective was to identify vulnerabilities, assess risks, and develop strategies to promote resilience. Recommendations from the Review led to the establishment by the US Department of Health and Human Services (HHS) of a public-private consortium for advanced manufacturing and on-shoring of domestic essential medicines production. The first task of the consortium was to identify the medicines to be prioritised. In addition, funds were committed to develop novel platform technologies to increase domestic capacity for the production of APIs. As of June 2023, over USD 500 million had been invested. An additional action was the launch of a National Biotechnology and Biomanufacturing initiative in 2022, aimed at increasing R&D and growing domestic biomanufacturing capacity. In November 2023, more measures to support the domestic production of APIs and pharmaceuticals were announced as part of the creation of a Council on Supply Chain Resilience, including broadened use of the Defense Production Act to enable investment in the production of essential medicines and critical inputs. Finally, through the CHIPS and Science Act (2022), the United States provided support for the domestic manufacturing of semiconductors, including those needed for the production of medical devices (The White House, 2023[87]).
France Relance and France 2030
As the fifth largest manufacturer of medicines globally, France has seen its share of the global pharmaceutical market wane in recent decades, with many companies moving production offshore to reduce costs. Led by the Ministry of Economics and Finance, France’s COVID-19 relief package (i.e. France Relance) included incentives to support the relocation of manufacturing in strategic sectors through co-financing schemes with manufacturers. By June 2023, EUR 800 million had been awarded in aid, as well as EUR 1.7 billion of productive investment in the health sector. Launched in 2022, France 2030 is a parallel large-scale investment project in the re-industrialisation of the country, focusing on investing in manufacturing modernisation and capacity-building in different sectors, including medical products. In June 2023, a list of 50 medicines whose production should be relocated or reinforced was identified, commencing with a smaller list of 25 essential medicines that includes antibiotics (e.g. amoxicillin), urgent care medicines (e.g. morphine, propofol, clonazepam) and oncology drugs (e.g. oxaliplatin and busulfan). France 2030 has an allocated budget of EUR 7.5 billion to be spent over the next seven years (Ministère de l'Économie, 2023[45]; Ministère de l’Économie, 2022[88]).
European Chips Act
The European Chips Act (Regulation 2023/1 781) establishes a framework for the semiconductor ecosystem in the EU and acknowledges the importance of secure supply for the manufacturing of medical devices. The second pillar of the Act foresees some support to attract investments and to develop EU production capacity.
2023 European Commission’s communication on addressing shortages in the EU
In a recent communication, the European Commission announced a number of strategies to address shortages, including boosting Europe’s capacity to produce and innovate in the manufacturing of critical medicines and ingredients, through national and EU financial support. The Commission advocates for co-ordinated action to define criteria and priorities for such actions (European Commission, 2023[1]).
Sources: As cited. See also Annex A.
Because of the constraints and challenges of re-shoring strategies, some scholars suggest that policy makers should instead focus on policies that promote innovation, digitalisation, and the improvement of professional skills. This could lead to greater productivity in developed economies that would indirectly stimulate the repatriation of manufacturing processes (Somoza Medina, 2022[79]). With the expanded use of digital and Industry 4.0 technologies (e.g. robotics, automation, computerised manufacturing, 3D printing, artificial intelligence, etc), some authors suggest that the input cost advantages of offshoring locations may be reduced (Dachs, Kinkel and Jäger, 2019[89]; De Backer and Flaig, 2017[90]).
2.2.2. Encouraging flexibility and agility into the system
Encouraging agility and flexibility into the system can also help to reduce risks of potentially harmful supply disruptions. The sections below discuss the use of trade facilitation and regulatory co-operation, as well as co-ordinated and efficient stockpiling strategies and the harnessing of digital technologies.
Trade facilitation to allow movement of supply
Trade facilitation encompasses a series of policies and border measures aimed at reducing the time and cost of moving goods. The WTO Trade Facilitation Agreement (TFA), which entered into force in 2017, includes provisions encouraging countries to take action to streamline and harmonise export and import processes, including through co-operation between customs authorities. Trade facilitation measures are important for the smooth functioning of medical supply chains and contribute to flexibility by allowing firms to easily move final products and inputs where they are needed (OECD, 2018[91]). The implementation of the TFA and additional measures that countries can take to automate and simplify border processes for the movement of medical products are part of the package of trade policy measures that can contribute to resilience (OECD, 2020[92]).
While progress has been recorded across all regions in the areas of information availability, simplifying and harmonising documents, and automating and streamlining procedures, there is still a gap between the regulatory frameworks and their implementation in some countries (Sorescu and Bollig, 2022[93]). It should be kept in mind that each additional day spent in clearing products at a border translates into additional costs, including additional inventories to continue to meet demand.
In addition, reducing tariffs and non-tariff measures (NTMs) on exchanges of medical goods and services can further increase the level of flexibility and the potential for firms and markets facing shortages to source from alternative partners. The 1994 Agreement on Trade in Pharmaceutical Products is a sectoral initiative by which some WTO Members agreed to eliminate or reduce tariffs on a list of finished pharmaceutical products and APIs or chemicals used by the pharmaceutical industry. While trade barriers have been significantly reduced by some countries, there are still tariffs and NTMs on essential medicines (OECD, 2023[94]).
Facilitating the exchange of medicines between countries on a voluntary and solidarity basis can also be relevant in addressing localised shortages and limiting wastage of essential products. Although countries are able to send donations of excess supplies to regions in need, this process usually involves complex regulatory procedures that could be streamlined, particularly in the case of health emergencies. One possible solution would be to implement frameworks that would allow countries to signal a need for specific products, and for donating countries to send such items in a more timely and less bureaucratic fashion. The EU Voluntary Solidarity Mechanism for medicines is one example of an institutionalised system that facilitates such exchanges between member countries. Introduced in October 2023 as a new tool of the Union Civil Protection Mechanism, it allows Member States to signal a need for products in shortage and to co-ordinate transfers and deliveries. The centralised body responsible for the EU-level stockpile, the European Response Co-ordination Centre (ERCC), is tasked with providing logistical support. A series of criteria that are evaluated by the Executive Steering Group on Shortages and Safety of Medicinal Products (MSSG) are also in place to make sure the mechanism is only activated by member countries as an option of last resort (EMA, 2023[95]).
Regulatory co-operation and flexibility
Co-operation and co-ordination between regulatory agencies have been ongoing for many years and can take different forms. Regulatory agencies responsible for the approval (and post-approval changes) of medicines and medical devices have different capabilities, approaches, evidentiary requirements, and assessments. The OECD’s Pharmaceutical Innovation and Access to Medicines report (2018[96]) highlighted areas and initiatives in which regulatory authorities have been co-operating, through harmonising various regulatory standards and the establishment of shared working arrangements and in some cases, mutual recognition agreements. In addition, Section 2.2.1 above on Encouraging improvements in quality management describes regulatory co-operation for manufacturing site inspections and guidance for quality management systems for medicines and medical devices.
Regulatory co-operation and flexibility can also contribute to mitigating the impact of potential or actual supply disruptions on patients. A 2020 cross-sectional study on measures to address medicine shortages (primarily pre-COVID-19) found that 20 of 24 countries had previously enacted simplified procedures for marketing authorisation and distribution of imported substitute products, including exceptions to packaging and labelling requirements, and the acceptance of information leaflets in other languages (Vogler and Fischer, 2020[7]). The COVID-19 pandemic demonstrated the usefulness of added regulatory flexibility to enhance security of supply of essential products. Building on the positive experience from COVID-19 and to support longer and medium-term resilience of supply chains of critical medicines in the EU, a Joint Action on regulatory flexibilities is planned to be launched in 2024 (European Commission, 2023[1]). Another Joint Action aims to support the Co-ordination and Harmonisation of the Existing Systems against Shortages of Medicines – European Network (CHESSMEN) through seven different work packages between 2023 and 2026 (Annex A). As part of this, regulatory agencies in CHESSMEN intend to work together to identify countries’ best practices in managing and preventing medicine shortages.
In addition to multi-language packaging, the idea of electronic package leaflets (or electronic product information or e-leaflets) has been discussed by stakeholders as a potential tool to facilitate imports of medicines from abroad and shifting of stock between countries in times of shortage, particularly for hospital products. Here, healthcare providers (or in some cases, patients) would be able to scan a barcode to access information related to the product in electronic form. Healthcare professionals would still be able to communicate the necessary information about the product to the patient and print out consumer product information leaflets when prescribing or dispensing. Product information (including on quality and safety) is updated throughout the product life cycle, and having electronic information would facilitate dissemination of up-to-date information (and in several languages) in a timely manner. It would also be in line with the digital health transition and is envisaged to reduce costs and have environmental benefits. Thus far in Europe, and as described in a recent commentary by Skogman-Lindqvist et al. (2023[97]), implementation of digital leaflets has been limited to pilot projects in hospital settings, as package leaflets are a legal requirement in the European Union. For example, Belgium, Luxembourg, Spain, the Baltics (Estonia, Latvia and Lithuania) and Iceland have ongoing pilot initiatives targeting hospital products. Several countries have also developed websites or apps for use by patients and/or healthcare professionals (Germany, Finland, Sweden, Norway, Denmark) (ibid.). In other countries, e-leaflets are already implemented. In Japan, digitalisation of package inserts (i.e. inserts with information on precautions for prescribed medicines and medical devices, intended for use by health professionals) started in August 2021, with access to their contents available on the Pharmaceuticals and Medical Devices Agency website via scanning the GS17 barcode on the outer box (Nagaoka and Takamine, 2022[98]). The transition to digital package inserts was completed in Japan in July 2023. In Australia, e-leaflets have been in use for several years, and from September 2023 printed product information for injectable medicines (e.g. vaccines) that are administered in hospitals is no longer required (TGA, 2023[99]).8 In summary, implementation of digital leaflets could be implemented more readily at least for medicines administered by health professionals, for example vaccines, whereby there is substantial diversity in presentation and packaging and labelling requirements between countries (even within Europe). It is also a step towards common packaging, which would have the benefit of reducing waste and facilitating the movement of products across countries.
Using vaccines as an example, the harmonisation of regulatory requirements and enhancing systems for mutual recognition outside times of crisis could aid the resilience of vaccine supply chains and reduce bottlenecks in supply. As described in Chapter 1, vaccine manufacture is highly concentrated geographically and among companies, with the complexity of production and testing resulting in long lead times and difficulty in scaling up production quickly (e.g. in response to unpredictable increases in demand). Frequent post-approval changes are required to be submitted by manufacturers (e.g. due to improvement in facilities, changes in equipment or process, quality control issues, changes in testing or suppliers etc.), affecting many different licenses (Pasté et al., 2022[100]). ICH and WHO have made progress towards greater global harmonisation of regulatory requirements and standards, but despite this, national requirements (particularly for older vaccines) remain variable, and post-approval changes complex. As suggested by vaccine manufacturers, better alignment of post-approval changes could facilitate improved product availability (Pasté et al., 2022[100]; Jongh et al., 2021[20]). Another suggestion is to promote the implementation of mutual recognition agreements (or reliance mechanisms) between authorities for approvals of these post-approval changes, as well as for independent batch releases by official medicines control laboratories (Pasté et al., 2022[100]).
Using plasma-derived medicinal products (PDMPs) as an example, harmonisation and streamlining of the regulatory framework for plasma donation would directly impact the amount of the final product that is obtained (Kluszczynski, Rohr and Ernst, 2020[101]). To guarantee patient safety, regulatory requirements in certain countries and regions are stringent, and manufacturers must comply with multiple overlapping regulations at different jurisdictional levels (regional-national-local). For example, the EU Blood Directive (2002/98/EC) provides clear quality and safety standards for the collection, testing, processing, storage, and distribution of human blood and blood components. However, EU countries must not only comply with the EU Common Codex, the EU Blood Directive, and Annex 14 of EU Good Manufacturing Practice (GMP) applying to medicinal products derived from human blood or plasma. They should also comply with requirements of the WHO Annex 4 Guidelines for sampling of pharmaceutical products and related materials,9 the ICH), the Pharmaceutical Inspection Co-operation Scheme (PIC/S) Guide to Inspections of Source Plasma Establishments and Plasma Warehouses, the EDQM, and the EMA. Streamlining the regulatory environment for plasma could help to avoid overlapping requirements and double compliance standards.
Since fractionation and purification processes need to meet high quality and maximum safety standards, PDMPs require licensing by regulatory bodies such as the EMA and the US FDA. For this, manufacturing sites need to undergo regular inspections (Kluszczynski, Rohr and Ernst, 2020[101]; Strengers, 2023[102]). In the EU for example, marketing authorisation is obtained on completion of the plasma master file (PMF) in accordance with Commission Directive 2003/63/EC, in which the manufacturer must submit all the required scientific data on the quality and safety of its plasma (EMA, 2023[103]). However, biennial inspections of fractionation plants have resulted in a huge backlog for plasma manufacturers, as the availability of inspectors is limited and there are no mutual recognition agreements between regions, such as the United States and EU that frequently trade plasma. Such an agreement would carry the benefit of reducing duplication of inspections by the regulatory authorities.
Beyond that, the EU Directive does not differentiate between whole blood and plasma donations, although both products are different in terms of manufacturing and usage. While plasma undergoes a rigorous fractionation and a multi-step purification process with several inactivation steps, the same does not apply to blood donations. Despite that, both products face similar regulatory treatment with respect to safety requirements even though an assessment of over 12 million plasma donations showed that donor adverse events are rare and 99.84% of the donations safe (Purohit et al., 2023[104]). In that regard, separate regulatory environments for blood and plasma collections, where the latter face less stringent requirements in light of purification and inactivation steps that they undergo during the manufacturing process, could aid in mitigating supply bottlenecks for PDMPs.
Certain donor requirements, including compensation schemes, and rules regarding the frequency and volume of donations, could also be reconsidered. Policies to increase the security of supply need to consider the importance of public awareness and willingness to donate, while protecting citizens from commercialisation of the human body. For example, at EU-level the Blood Directive is currently being revisited to propose a system of reasonable and proportional monetary compensation for donors’ expenses and inconvenience (European Commission, 2022[105]). To date, only the United States and four European countries (Austria, Czechia, Germany and Hungary) that allow for private collection of plasma, offer monetary compensation.10 In other countries where collection is administered by public entities, tax benefits, free public transport, compensated leave or other compensation may be applied. This is only meant to cover the expenses incurred and give recognition to the time spent and the inconvenience of donation. A relevant EU project (SUPPLY) is currently underway that aims to investigate what measures can be taken to strengthen voluntary non-renumerated plasma collection capacity in Europe (European Blood Alliance, 2024[106]). Furthermore, the frequency and volume of donations that are allowed per donor differ across countries. The regulated frequency of possible donations according to respective national laws varies from one plasma donation every 14 days in Czechia, France, Italy and the Netherlands, to a maximum of 60 donations per year in Germany -i.e. one donation every 6 days (Kluszczynski, Rohr and Ernst, 2020[101]).
Promoting appropriate inventory strategies to ensure contingency planning
Inventories are the first layer in risk management strategies (Sodhi and Tang, 2021[107]). Pharmaceutical companies maintain inventories to cover annual demand for their products and can generally absorb small variations in demand through these buffer stocks. Their finished product inventories are generally higher than those for consumer goods: 60 to 90 days as opposed to 10 to 40 days (Argiyantari, Simatupang and Hasan Basri, 2020[108]). However, the cost of inventories quickly becomes prohibitive, and inventories cannot address extremes of demand during a global crisis. When there is a large spike in demand, companies with large inventories can supply consumers for a few more days or weeks, but eventually shortages are unavoidable (Choi et al., 2023[109]). In its February 2023 guidance, the EMA recommended that MAHs and manufacturers should assess their own inventory strategies to ensure a margin of contingency stock, particularly for important medicines (see Annex Table 2.A.1).
While lean management was criticised during COVID-19, it is actually a strategy that allows firms to quickly adjust to disruptions, in particular because it implements decentralised decision-making and promotes the continuous improvement of production processes in close co-operation with suppliers (Birkie, 2016[110]). Lean management is not about holding no inventory, but creating efficient supply chains (Choi et al., 2023[109]). For example, lean management was essential for Moderna to create the new mRNA vaccine supply chains during COVID-19 (Mixson, 2023[111]). That said, it is important for firms to regularly review their inventory strategies to ensure that they have adequate levels of stock for business continuity in routine circumstances, acknowledging that other risk management strategies are necessary in major health crises.
The intensive globalisation of medical supply chains, and increased pressure for efficiency gains and lower prices for pharmaceuticals, have led to reduced inventory levels in companies. Seasonal or unexpected variations in demand are in principle anticipated by manufacturers, and regular risk management systems by actors in the supply chain can be effective in dealing with volatile demand on a small or medium scale. Yet, in various scenarios (e.g. sudden change in clinical guidelines, public health crisis etc), demand for certain essential products can increase dramatically, and within a very short time frame. Close and timely collaboration between manufactures and national authorities is critical to ensuring continued supply of essential medicines.
Ensuring co-ordinated and efficient stockpiling in collaboration with companies
Stockpiling of essential medicines and other medical goods is increasingly used as a risk management tool to mitigate the effects of sudden increases in demand and/or disruptions caused by supply chain failures. In general, seasonal or unexpected volatility in demand on a small or medium scale are managed at company level. However, with more dramatic increases in demand during health crisis scenarios, national risk management policies are required (OECD, 2021[112]).
OECD countries have implemented national stockpiling systems, with variable scope, objectives, governance, and financing arrangements (see Annex A for some examples in Australia, Canada, Colombia, Korea, Spain, Switzerland and the United States; and Box 2.5 for a review of existing or planned stockpiling systems in the context of antimicrobial resistance (AMR) in the EU). Management of stockpiles can be the responsibility of public health authorities, or manufacturers, or both. When stockpiling is fully managed by governments and financed with public funds, health authorities at different levels (federal, regional, and local) are responsible for selecting and procuring essential products. This is the case in Denmark, Lithuania, Portugal, Norway and Slovenia with respect to stockpiling antibiotics against AMR. When private firms are required to maintain publicly mandated stockpiles, these can either be implemented through privately-owned physical stockpiles (i.e. MAHs and/or wholesalers are required to increase their inventories to a certain level) or through pre-arranged reserves with firms. Examples of the former can be found in France and Finland, and pre-arranged reserves in Hungary and Iceland. Mixed models with different levels of public and private arrangements may be found in the United States, Australia, Belgium and Poland (European Commission, 2022[113]; Australian National Audit Office, 2021[114]; Congressional Research Service, 2023[115]).
All stockpiling governance systems must integrate both manufacturer and government strategies to ensure well-balanced, efficient, and sustainable medical reserves. Mandatory stockpiling policies must therefore take a careful approach to suppliers’ incentives and limitations, to avoid posing excessively cumbersome burdens on manufacturers, which can in turn increase the risk of shortages. Countries adopt different approaches to ensure compliance by companies in the case of privately managed schemes. In Finland, for example, funding is provided through direct payments or compensation through higher prices for manufacturers that are required to stockpile products. France, on the other hand, exercises compliance by levying fines against firms that do not abide by the regulations (European Commission, 2022[113]).
Government managed and financed stockpiles faced challenges when dealing with extreme shocks in demand. The US Strategic National Stockpile (SNS) and the Australian National Medical Stockpile (NMS) are two national stockpiling strategies in which almost all stocks are managed by public authorities11 (see Annex A for further information on these systems). Evaluations of both schemes’ performance during the COVID-19 pandemic showed that narrow stockpiling objectives limited the implementation of pre-established plans during the crisis (Australian National Audit Office, 2021[114]; Congressional Research Service, 2023[115]). Co-ordination with stakeholders was also considered a major challenge for the effective functioning of the SNS and the NMS. For the latter, a public audit suggested that health authorities should conduct regular deployment drills, and that deployment plans should be based on a strategic analysis of risk in co-ordination with relevant stakeholders. The evaluation of the US system by Handfield et al. (2020[116]) noted structural deficiencies in both supply- and demand-side stakeholder engagement. A lack of market intelligence and information on supply capacity and constraints severely limited the SNS’ capability to procure essential products. At the same time, the absence of strategic forecasting with users (e.g. hospitals and other healthcare suppliers) and of barcode-tracking for inventory management hampered its ability to anticipate shortages and other supply needs. The financial sustainability of national stockpiles has also been questioned, especially when comparing requirements to address a wide range of crises with available resources. Although the appropriation for the SNS in 2022 was USD 845 million, government projections from 2019 stated that USD 1.04 billion would have to be spent to secure stocks for anthrax and smallpox alone (Congressional Research Service, 2023[115]). Prioritising essential products for stockpiling and rotating stocks can help ensure more efficient application of this policy option.
Switzerland maintains a compulsory rolling stock system for essential goods, which includes a diverse set of medicines such as anti-infectives, analgesics, selected vaccines, and veterinary medicines. While public authorities determine the products and volumes that must be stockpiled, stocks are maintained and owned by private firms. The Federal Office of National Economic Supply (FONES) can order the release of privately held supplies when faced with a shortage. During the first months of the COVID-19 pandemic, the Swiss Federal Office of Public Health (FOPH), in partnership with FONES, developed a prioritisation strategy to allocate essential medicines to hospitals facing shortages. This strategy also allowed for a better monitoring of available supply and current demand. After the first wave of 2020, FOPH developed a catalogue of 30 APIs that were considered relevant to respond to the pandemic. Strict weekly monitoring of stocks, deliveries and demand for these products was implemented. These rolling stockpiles were considered an efficient and effective strategy for responding to shortages during COVID-19. However, public audits noted a lack of international co-ordination and global market oversight as key areas of improvement (FOPH, 2022[117]).
In July 2023, Australia implemented new minimum stockholding requirements for MAHs. This policy targets predominantly lower priced medicines that are subject to more frequent shortages. Manufacturers of certain medicines are required to hold either four or six months of stock in the country. The government supported the investment of the industry in meeting these requirements through one-off price increases on 1 October 2022 and the establishment of “floor price” protections for lower cost medicines – medicines subject to stockholdings will not be subject to future price reductions, and the approved ex-manufacturer prices will not fall below AUD 4 per pack (Pharmaceutical Benefits Scheme, 2023[118]). A review of the effectiveness of the minimum stockholding requirements is planned 24 months after its implementation.
The sustainability and efficiency of stockpiling schemes could likely benefit from increased cross-country co-operation and joint initiatives. Increased volumes of national or subnational stockholdings of supplies for essential medical products may produce counterproductive outcomes, such as shortages of such products for regular use, price hikes, and wastage of unused stock. Stockpiling at the individual institution (e.g. hospital) level can also be an issue, as was seen during the COVID-19 pandemic. A 2021 study on global health security identified that among OECD countries, only Chile, Costa Rica and Luxembourg12 did not provide any evidence of implementing a stockpile for medical countermeasures (GHS, 2021[119]). International co-operation can therefore help mitigate the inefficiencies of such schemes, pooling procurement for stocks and co-ordinating more rational and equitable allocation of resources across countries according to pre-established guidelines. The mechanism created for medical countermeasures in Europe provides a good example of co-ordinated stockpiling (see Chapter 3).
To inform a feasibility assessment on the stockpiling of antimicrobials against antimicrobial resistance (AMR), a HERA commissioned study published in September 2022 reviewed existing and planned stockpiling systems at the individual EU member state and EU-wide level, as well as other relevant stockpiling systems more broadly (European Commission, 2022[113]). In a survey focusing on anti-microbials conducted by the European Medicine Agency’s (EMA) Medicine Shortages Single Point of Contact (SPOC) Working Party, 13 of 20 EU and EFTA respondent countries reported a national stockpile that included antimicrobials (including finished products and/or APIs). The findings are summarised below and in Table 2.3, although the report noted that the analysis of public and privately-owned stockpiles is limited by lack of transparency.
Governance model
Physical stockpile managed by public authorities and fully financed by public (national) funds: Denmark, Lithuania, Norway, Portugal, Slovenia
Privately-owned physical stockpiles (i.e. whereby obligations are placed on marketing authorisation holders and/or wholesalers to increase their inventories to a certain level): France, Finland, the Netherlands
Mixed stockpile governance system (i.e. public and/or private and/or pre-arranged reserves): Belgium, Sweden, Poland
National health authorities managed the stockpiles in most countries; regional-level stockpiles were also noted by Denmark and Sweden; a few countries (Austria, Finland and Norway) reported hospital-level stockpiles.
Funding / reimbursement arrangements
Limited survey data on funding arrangements indicated that public-sector physical stockpiles were fully financed by national (public) funds. For privately managed stockpiling systems, in some cases governments reimburse firms through direct payments, or compensate payers through higher prices (Finland). In France, no compensation is provided for mandatory stockpiling, and compliance is exercised through the levying of fines against firms that do not adhere to the regulations.
Stock management
To avoid waste and ensure efficiency in stockpile management, most countries reported having rotating stocks, with medicines nearing their expiry date reintroduced to the market through wholesalers or through direct transfers to hospitals. Publicly-owned stockpiles have also reported donating medicines to third countries. Privately-owned stockpiles tend to rotate stock into the commercial supply chain, with countries imposing different requirements regarding stockpile volumes.
As part of broader analyses of stockpiling systems included in the report, there is also an estimate of the inventory stockpiled by different actors in the antibiotic commercial value chain. According to this estimation, pharmacists typically stock around one to four weeks of antibiotics, wholesalers one month, manufacturers around 60 to 90 days based on expected demand, fill and finish facilities around three months of APIs, and API manufacturers around one month of input supplies (European Commission, 2022[113]).
Source: Adapted from European Commission (2022[113]), HERA AMR feasibility study on stockpiling, https://op.europa.eu/en/publication-detail/-/publication/712bbfff-801e-11ed-9887-01aa75ed71a1.
Public information on the costs of stockpiling is sparse. The U.S. Congressional Research Service estimated that the annual budget for the National Stockpiling System and the BioShield Project13 amounted to around USD 1.7 billion (i.e. about USD 5 per inhabitant) in 2021, without accounting for supplemental budget allocated to respond to COVID-19 (Congressional Research Service, 2023[115]). Only a proportion of stockpiled medicines will be cycled out to the US health system, while others will be retained for exceptional events and may never be needed. In Australia, the Australian National Audit Office estimated the value of products in the national stockpile in 2019 at AUD 123.1 million (USD 85.5 million, or USD 3.4 per inhabitant) (Australian National Audit Office, 2021[114]). An academic study of the economics of PPE stockpiling in the United States observed that purchasing PPE to stockpile was far less costly than purchasing it at much higher prices during a pandemic. Based on observed prices of PPE before and during the COVID-19 pandemics, the authors estimated that procuring an adequate PPE stockpile in advance at non-pandemic prices would cost only 17% of the projected amount needed to procure it at current pandemic-inflated prices, and that maintaining the stockpile would be cheaper than real-time purchases even if it was not needed for another 35 years (Dow, Lee and Lucia, 2020[120]).
Evidence of the cost-effectiveness of stockpiling is even more difficult to find. Plans-Rubio (2020[121]) looked at the cost-effectiveness of several preparedness strategies, including stockpiling of vaccines, antiviral treatments, and ventilators. The author highlighted several difficulties in estimating cost-effectiveness, including the fact that the virulence and infectiousness of the next pandemic pathogen is unpredictable and that many assumptions have to be formulated to take these uncertainties into account. In addition, the effectiveness of the stockpiled vaccines on the circulating pathogen cannot be known in advance (Plans-Rubió, 2020[121]). Another short paper observes that the incremental cost-effectiveness of stockpiling pneumococcal vaccines to prevent secondary bacterial infections (especially Streptococcus pneumoniae infections) during past influenza pandemics is very dependent on the replacement costs of the stockpile (Dhankhar, Dasbach and Elbasha, 2009[122]).
Harnessing digital technologies to improve the flexibility and agility of supply chains
A large body of literature highlights the important role of digital technologies in improving supply chain resilience (Ivanov, Blackhurst and Das, 2021[123]). Digital technologies help firms increase their dynamic capabilities, such as flexibility and agility, as well as providing more visibility in the supply chain, as described in Section 2.1.1. For example, AI-driven technologies offer the capacity to learn from real-time data and to adjust decision-making to react rapidly to disruptions, enhancing visibility and real-time co-ordination and providing adaptive capabilities to build supply chain resilience (Belhadi et al., 2021[124]). Big data analytics and blockchain are two other digital technologies that are mentioned for the improvement of visibility in the supply chain and the early detection of disruptions and variations in demand. More simply, the use of digital product information in e-leaflets can facilitate the swift movement of goods across borders to areas in need (see Section 2.2.1 on Regulatory co-operation and flexibility). The use of digital technologies for supply chain resilience relies on harmonised approaches to health data governance across the supply chain.
These technologies can also benefit national or international health agencies. During the COVID-19 pandemic, the Pan-American Health Organization implemented two AI solutions into their existing planning infrastructure to facilitate the expedited procurement of medical products by member states, including COVID-19 vaccines. The first platform assisted the purchase of strategic products by automating the order requisition process, and the other generated advance shipment notifications (PAHO, 2023[125]). The Vaccine Innovation Prioritisation Strategy (VIPS), a collaboration between Gavi, WHO, Bill & Melinda Gates Foundation, United Nations Children’s Fund (UNICEF) and PATH (formerly known as the Program for Appropriate Technology in Health), has been exploring the use case for barcodes on vaccines and the feasibility of their implementation. Automated stock and inventory management was highlighted as a possible use case at the 2023 Vaccine Industry Consultation meeting held in September 2023 (UNICEF, 2023[126]).
The deployment of digital technologies in the health sector is an ongoing process driven by innovative firms. However, there are regulatory issues for which governments can provide support, in particular in relation to the transmission and sharing of data. Supply chain data are less sensitive than patient health data, yet they are subject to regulations and standards across borders. Ensuring the security and interoperability of data exchanges requires appropriate regulatory environments both at national and international level. While health-specific regulations are developed to improve the traceability of medicines (e.g. the U.S. Drug Supply Chain Security Act), facilitating exchange of data along the supply chain could also play a role in resilience. There are opportunities for alignment with the OECD Council Recommendation on Health Data Governance (2016[127]) and for governments to work within their countries to harmonise policies and standards for health data across supply chains. Further, to enable cross-border collaboration of supply chains, there are opportunities for cross-border harmonisation of health data governance in alignment with the OECD Council Recommendation.
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Medicine shortages are a complex global problem, with many different supply chain actors involved. In February 2023, the European Medicines Agency published a Good practices for industry for the prevention of human medicinal product shortages (2023[128]), which outlines the general roles and responsibilities of different supply chain actors14 in preventing and mitigating shortages, and proposes some best practices. While these good practices were developed for the European context, they have global relevance. Annex Table 2.A.1 summarises the main takeaways from this document as they pertain to marketing authorisation holders, manufacturers, and wholesale distributors. These preventive strategies are aimed at addressing the underlying root causes of shortages, such as quality and manufacturing issue, unexpected increases in demand, regulatory issues, and distribution issues. It is important to recognise, however, that there is no “one-size-fits-all approach”, and several strategies may need to be employed to respond to a shortage.
Notes
← 1. In the EU, marketing authorisation can be obtained through one of three processes. The centralised procedure is mandatory for all new active substances indicated for conditions that include cancer, diabetes, neurodegenerative diseases, and viral and autoimmune diseases, as well as medicines derived from biotechnology processes, advanced-therapy medicinal products and orphan medicines. It may also be used voluntarily for other products. As a result, almost all products containing new active substances are approved by this route (about 80 per year). However, the vast majority of product approvals are granted at the national level through decentralised procedures, or in a small number of cases via mutual recognition (usually over 1 000 products per year). These procedures mainly concern generic medicines or similar applications (799 procedures in 2020). For more information see https://health.ec.europa.eu/system/files/2023-05/mp_ia_revision-pharma-legislation_annex_5_en.pdf.
← 2. In EU countries, 8% of the reported causes of shortages mentioned distribution issues as the root cause of shortages (Jongh et al., 2021[20]).
← 3. See the Pharmaceutical Group of the European Union’s (PGEU) position paper, available at www.pgeu.eu/wp-content/uploads/2020/08/PGEU-Statement-on-the-potential-use-of-the-EMVS-to-monitor-shortages.pdf.
← 4. The implementation has been progressive, with the obligation for placing the UDI carriers in medical devices and IVDs applying according to different deadlines: Implantable devices and Class III devices by 26 May 2021; Class IIa and Class IIb devices by 26 May 2023; Class D IVDs: 26 May 2023; Class I devices by 26 May 2025; Class C and B IVDs by 26 May 2025; and Class A IDVs by 26 May 2027.
← 5. The International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use (ICH), established in 1990, gathers representatives of regulatory authorities and of industry. ICH has been working on guidance to improve quality and safety of pharmaceutical development and their regulation, with the aim to harmonise existing practices and requirements.
← 6. Certificate of suitability to the monographs of the European Pharmacopoeia (CEP). The analysis related to around 550 APIs involved in the production of generics in Europe.
← 7. The use of the GS1 coding system, rather than QR codes, was implemented considering the opinions of the industry. GS1 codes have been used for production distribution and control in the pharmaceutical industry, with a precedent not set in the case of QR codes. Adoption of QR codes were considered to involve large costs and times to change product design.
← 8. Product information leaflets provide scientific information about safe and effective use of prescription medicines, and are primarily used by health professionals. Injectable products used by patients will still have a printed copy of the product information.
← 9. WHO Annex 4 Guidelines for sampling of pharmaceutical products and related materials requires equal treatment of whole blood and plasma donation, even though only the latter is manufactured.
← 10. In European countries, compensation is based on fixed rate allowance usually following the minimum salary in the relevant country. In the United States, compensation schemes are more flexible.
← 11. In the case of the United States, vendor-managed inventories account for 10% of current SNS contracts and are directly funded by SNS These inventories are reportedly particularly useful in maintaining a rotating system, which avoids storage of expired medicines and waste (ASPR, n.d.[129]).
← 12. Taking into consideration OECD’s assessment of Luxembourg’s response to the COVID-19 pandemic, work is underway in Luxembourg to set up a system for the supply and storage of critical medical products. The project has been approved by the Government Council, with a bill expected to be tabled in the first quarter of 2024 (personal communication, 2023).
← 13. The SNS includes medicines and vaccines approved by the FDA and other medical countermeasures, while the Bioshield project adds 22 products to the SNS, including vaccines against anthrax and smallpox and treatments for anthrax, botulism, nerve agents, radiation, and thermal burns.
← 14. Roles and responsibilities are described for the following supply chain actors: marketing authorisation holders, manufacturers, wholesale distributors, national competent authority, European Medicines Agency, national health service provider, Ministry of Health, healthcare professionals, and patient representative groups.