Algorithms and accountability

Pharmaceutical CommercePharmaceutical Commerce - June 2021
Volume 16
Issue 2

Drug shortages are inevitable—being caught off guard isn’t. The best ways distributors can use and position data to drive today’s inventory solutions

Data-driven decision-making is more than number crunching. Gathering and synthesizing information from a whole host of sources helps paint the big picture to provide a solid basis for planning. For health system pharmacies, the sheer volume of available information may make the prospect of analyzing it seem overwhelming. Some data sets focus on order history. Others show current factors affecting the supply chain, from sourcing to delivery. Still others, using advanced machine-learning algorithms, provide strikingly accurate forecasts of the demand and availability of certain drugs. Pharmaceutical distributors can help turn these data into actionable information. While no distributors are immune to industry-wide drug shortages, those with the right tools for analytics and forecasting—and the willingness to be transparent—can provide timely insights that will help customers make informed decisions.

Critical items inventory

As the pandemic taught us, access to critical care drug inventory is crucial. McKesson has always prioritized supply reserves of the most crucial items requested by health systems across our distribution centers. Until the effects of Covid-19 created a strain on the supply chain, our teams of procurement specialists, pharmacists, administrators and other professionals functioned separately to secure supplies. But the pandemic called for a different approach, so we created a Critical Care Drug Task Force. Teams shared their expertise with the entire task force to monitor the situation using all available data and analytics to track the disease and identify what health-system pharmacies would need to treat patients. The cross-functional approach has proven invaluable during the pandemic and will be continued after the threat of the virus subsides.

Drug shortages and supply disruptions

The supply of both branded and generic drugs is an ongoing issue for health-system pharmacies. A number of events can cause shortages, from market-wide supply constraints to product-specific issues, to financially driven supplier decisions. In order to collect and analyze the right data to help health systems make informed decisions, distributors must consider the complex causes that may be involved.

  • Sourcing constraints
    The supply of drugs is directly related to the availability of the materials used to make them. In many cases, only one supplier produces the active pharmaceutical ingredient (API) that manufacturers need to make a drug. Any disruption to such a limited supply chain has a significant effect on the market. And even when the materials are available, manufacturers are under strict controls on production in order to ensure safety and quality.

  • Product-specific issues
    The complexity and narrow therapeutic application of some drugs requires that manufacturers have a long lead time for production. The slightest disruption to timely receipt of ingredients means lower availability of these medications. Changes to the APIs also contribute to product shortages. In many cases, the sources for these ingredients are considered proprietary, making market intelligence difficult to obtain.

  • Manufacturer decisions
    Product rationalization is a fact of life in the US drug market. As margins shrink on generic drugs, manufacturers may eliminate the products, shifting the burden of producing them to other makers that may not be prepared to handle the volume. Other products, both name-brand and generic, are subject to decisions to discontinue certain pack sizes or eliminate the product altogether, resulting in shortages.

The high costs of low drug supply

Even before the pandemic sparked unprecedented challenges surrounding drug production, delivery and demand, an early 2019 report by the American Hospital Association (AHA), the Federation of American Hospitals (FAH) and the American Society of Health-System Pharmacists (ASHP) revealed sobering financial facts about drug shortages. Among them:

  1. Increases of over 80% of unit price were seen across various classes of drugs.
  2. More than 90% of hospitals pivoted to alternate drug options in response to skyrocketing drug prices.
  3. One in four hospitals were compelled to cut staff due to budget pressures.
  4. Almost 80% of hospitals reported spending more time, effort and money to obtain drugs in short supply.

Fortunately, partnering with a data-driven distributor can provide insight that helps mitigate the effects on your pharmacy. For example, we use proprietary supply chain analytics tools to more accurately forecast product availability disruption. This data supports proactive decision-making and helps health systems serve patients more efficiently and cost-effectively.

Supplier accountability

Data-driven distributors with strong supplier relationships can share product demand forecasts that effectively hold manufacturers accountable for maintaining the right levels of inventory. This allows more reliable sourcing and delivery of needed products to customers.

At McKesson, we use expanded data sets and algorithms to provide inventory optimization methods that help detect patient demand patterns, taking into account seasonality, volatility, response to supply availability fluctuations and regional trends. By staying ahead of customer demand, we can identify potential risks to supply and have inventory in place where and when needed. Purchasing inventory ahead of disruptions allows us to fulfill customer demand even during shortages.

End-to-end supply chain optimization

While drug supplies are likely to continually ebb and flow, distributors can help health systems reduce the impact on patients by sharing information gained through data aggregation, supplier partnerships, machine learning and predictive analytics. Data-driven forecasting provides end-to-end supply chain optimization that improves pharmacy management and patient care. Partnering with a distributor with the capabilities and experience to translate data into actionable information can help health systems lower costs, focus on progress and reduce complexity systemwide.

About the author

Dave Ehlert, PharmD, MBA, FASHP, is Area Vice President at McKesson Health Systems.

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