Four ways to reduce medicine shortages in hospitals

The COVID-19 pandemic amplified the worsening problems with the world medicine supply chain, which has led to frequent shortages of critical medicines in Australia.

Many factors that contribute to medicine shortages, such as manufacturers’ production processes and business decisions, are outside the control of Australian stakeholders. But there are other factors that are within our control.

A number of pragmatic strategies and actions have been explored which could achieve a significant reduction in the number and frequency of medicine shortages in Australian hospitals and reduce the negative impact on healthcare providers and patients.

Strategy 1: Change the practices and policies of state hospital tender authorities

Hospitals need to find a balance between price and certainty of supply. The loss of some potential direct savings can be offset by increasing certainty of supply, which in turn can improve the ability to provide uninterrupted patient care, decrease indirect costs, and result in more productive pharmacy and clinical activities.

Potential actions for state hospital tender authorities to consider include:

  • staggering the start and end dates of each states’ pharmaceutical contracts
  • inviting tenderers to offer two prices in their response to a request for tender (RFT) where the lower price (Price A) would come with a ‘best effort’ to supply, and the higher price (Price B) with a guarantee of supply
  • implementing different supply obligations and penalty options for successful Price A and Price B tenderers and participating hospitals
  • establishing a fixed period of two years for state pharmaceutical contracts, with one-year plus one-year extension options, and
  • implementing additional weighting to local production as an evaluation criteria in the tender selection process to reward those which have a TGA-licensed manufacturing facility in Australia.

Strategy 2: Reform stock allocation strategies of pharmaceutical wholesalers

One of the most noticeable and discussed social behaviours observed during the COVID-19 pandemic was panic stockpiling and hoarding of essential consumables. Predominantly driven by a fear of missing out (FOMO), this behaviour was also observed in hospitals, stimulated by rumours of impending shortages and driven by pharmacists’ desire to ensure sufficient stock to patient demand.

Potential actions for pharmaceutical wholesalers to consider include:

  • coordinating with each other and sponsors to ration available stock at times of TGA-notified shortages, and
  • allocating available stock on the basis of the average monthly volume in the wholesaler’s hospital sales channel, and each hospital’s average monthly purchases of the product from the wholesaler.

Strategy 3: Share hospital data and information with manufacturers and wholesalers

For manufacturers and wholesalers, the lack of access to accurate and timely information about demand for medicines is one of the most important contributors to insufficient preparedness for stock shortages and supply chain resilience.

Potential actions for hospitals, manufacturers and wholesalers to consider include:

  • initiating a biannual forum for hospitals and industry to discuss and share the information needed to increase the reliability of the medicines supply chain
  • supplementing this forum with an annual survey of directors of pharmacy to provide broad information on planned changes in hospital case mix, occupancy, formulary, and other factors likely to impact demand, to help manufacturers more effectively plan production, and
  • establishing a national medicines-substitutes information service to investigate substitutes for medicines in short supply and for products not registered in Australia.

Strategy 4: Incentivise manufacturers to produce and / or hold stock of critical medicines in Australia

According to the findings of the Productivity Commission Interim Report on Vulnerable Supply Chains published in March 2021, Australia imports most of its medicines from Europe and the US, which are increasingly relying on active pharmaceutical ingredients manufactured in India and China. During the COVID-19 pandemic, manufacturers were reserving emergency stocks of ingredients, halving manufacturing capacity and increasing local stockholding levels in Australia.

Potential actions for state hospital tender authorities to consider include:

  • increasing certainty for manufacturers through commitments to purchase pre-agreed volumes
  • increasing incentives for manufacturers to participate in hospital tenders and to produce and / or hold stock of critical medicines in Australia, and
  • providing information on likely changes within hospitals, which will impact demand for medicines to enable manufacturers to plan production more effectively to meet anticipated demand.

In summary

The implementation of these strategies requires active collaboration by key stakeholders in hospitals, tender authorities, and manufacturer and wholesaler companies. It is important for stakeholders to think differently about the problem, and to act more collaboratively using the proposed strategies and actions as a framework for change.

Michael Ryan, Managing Director of PharmConsult, recently wrote about this in detail in the article titled Medicine Shortages: there are solutions! Actions to take to reduce medicine shortages published in the Australian Health Review. The full article can be read here

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