This is an excerpt from Medically Necessary, a health care supply chain newsletter. Subscribe here.
The challenge: Near the end of June, the number of COVID-19 cases in the U.S. reached the lowest levels since the spring of 2020, and demand for elective procedures and prescription drugs had essentially returned to pre-pandemic levels.
Some companies were designing game plans for transitioning to a post-pandemic environment with lower case numbers.
In July, COVID-19 cases, driven by the more contagious delta variant, came roaring back, and that surge is adding uncertainty to the health care supply chain.
After months of recovery in health care utilization, the delta variant is forcing some hospital systems to scale back or cancel elective procedures. At the same time, waning demand for personal protective equipment rebounded.
As cases continue to rise, companies in the health care supply chain are mobilizing to make sure providers have what they need to care for patients now.
But they’re also keeping a close eye on how the pandemic progresses to predict what patients and providers will need going forward, which could prove to be a much bigger challenge.
“It’s a little bit of art, a little bit of science,” Joe Przepiorka, vice president of marketing at the PPE maker Shawmut, told FreightWaves. “We’ve been constantly talking to our channel partners to gauge what they’re hearing and … forecast what we think will happen.”
The good news is that, from a supply perspective, health care providers are in a much better position than they were during previous surges because they’ve stocked up on critical supplies.
The group purchasing organization Premier recently conducted a survey of member hospitals and found that most felt comfortable with their PPE inventory.
However, Andy Brailo, chief customer officer for Premier, said there are new obstacles. The wider economy has opened up significantly since the start of the pandemic, and now it’s difficult to find drivers to deliver medical supplies.
“Drivers are getting sick. So they’ve got fewer drivers to make deliveries. Those deliveries are now spread across traditional business and the health care side,” Brailo told FreightWaves. “These are new things that we didn’t have to deal with last time around.”
In addition, health care, like every other industry, is facing supply chain disruptions due to increasing freight costs, clogged international ports and scarce raw materials.
Brailo said he’s also keeping an eye on specialized pediatric supplies because the current wave of COVID-19 cases includes far more unvaccinated children.
“We’re keeping our fingers crossed, as colleges are going back, schools are going back. We have to watch these vulnerable [patients] … because they require different products and needs than us adults do,” he said.
The forecast: In 2020, many public companies didn’t offer any financial guidance because it was too difficult to predict how the pandemic would affect their business.
So far, public companies are more willing to offer some guidance for 2021 and beyond, but those predictions often come with caveats because of the delta variant.
On a recent earnings call, Premier CFO Craig McKesson said health care providers and policymakers now have much more information about COVID-19, which provides some solid ground.
“Health care providers are going to continue to provide services. They’ve learned how to manage COVID patients much more effectively and continue to try and provide the other services,” he said. “There have been some delays in elective procedures … but for the most part, we think that business will continue to operate.”
Executives from distributor Owens and Minor, medical device maker Becton, Dickinson and Co., and drugmaker Teva came to similar conclusions.
Demand for diagnostic testing is similarly hard to predict. Device maker Abbott Laboratories started slowing its production of COVID-19 tests in May.
On an earnings call in late July, CEO Robert Ford said demand in the U.S. was still low, but demand from other countries was stronger, possibly because of the delta variant. The company is keeping close tabs on case numbers to predict what will happen next.
“That’s really the question here. How will testing play itself out in the second half of the year?” he said. “Variants, vaccination rates, etc. That’s something we’re paying attention to.”
The response: While the delta variant adds more uncertainty, health care companies have been operating in an unpredictable environment for well over a year.
Emily Berlin, director of strategic marketing for laboratory products at Cardinal Health, said her team monitors case numbers and market demand several times a week to determine how many COVID-19 tests to buy. Delta doesn’t really change that.
“It just is a continuation of the processes that we’ve built early on to be adaptable,” Berlin told FreightWaves. “What we have had to do organizationally is leverage … as much information as possible to make inventory and purchasing decisions.”
For Cardinal, demand for COVID-19 tests increased 50% from June to July.
Still, Cardinal is trying to stay ahead of trends driven by the delta variant. The company recently partnered with Abbott and Quidel to offer more over-the-counter COVID-19 tests. Cardinal hopes to sell those tests to organizations outside of health care, such as large employers or schools, that are trying to safely reopen in the midst of surging cases.
On the PPE side, Przepiorka said Shawmut’s goal is to be prepared both for surges in new cases and lulls in demand. The company reduced its production capacity when demand fell this summer but continued to produce masks and build its inventory so it would be ready for a rebound.
“We’ve got enough of a buffer so that if we have some short-term spikes, they’re covered,” he said. “And we’ve got the ability to turn on those idle capacities, probably within a couple of weeks’ time. So we do have a game plan in place.”
Przepiorka said Shawmut, which primarily serves the automotive industry, originally entered the PPE space to add diversity to the company’s portfolio of products. That means the company can lean on other types of business until PPE demand becomes more predictable.
“That’s kind of the game plan. We’re not closing up shop just because masks have fallen off,” he said. “We’ve got the rest of our business. We can use the funding from that to invest in this business for a little bit.”
The goal is to get through the instability caused by the original coronavirus and its subsequent variants. He’s hoping the business will be a bit less volatile on the other side of the pandemic.
