Healthcare: the name of the game is (also) logistics

The Covid-19 healthcare emergency is putting tremendous pressure on the world’s healthcare systems and supply markets.

From a macro perspective, we are witnessing a fragmentation of demand for personal protective equipment (PPE) and ventilators on one hand, with volumes we’ve never seen before; on the other the distribution chain is feeling a shock, most intense during the initial outbreak of the pandemic, but continuing still today, and impacting certain categories of medical equipment and pharmaceuticals.

From a micro perspective, in particular at a national level, Italy’s public purchasing system is showing it has a long way to go in shifting orientation toward hub-and-spoke coordination, and seeking out public-private solutions to respond to emerging needs. Granted, in the emergency scenario of the last twelve months, regional purchasing hubs and local health authorities have shown themselves capable of contending with criticalities by leveraging the concessions to flexibility embedded in EU and national regulations. But we’ve never managed to come up with a specialization hub, or invent effective mechanisms for inter-institutional coordination.

Our focus here lies on the Italian context where the procurement system has traditionally been managed for the most part as a mere administrative function and not as a tool that serves to ensure resilience and efficacy of the healthcare service. In fact, during the Covid-19 emergency, the system was ill-prepared to deal with the complexity of purchasing what was needed, both in terms of volumes and rapid response. These criticalities not only involved the procurement of emergency provisions (PPE, testing kits, helmets for CPAP treatment) but also the equipment needed to set up new intensive care and sub-intensive care beds, along with the acquisition of software solutions for patient intake, especially chronic patients. Emerging as particularly vital are the logistics entailing products and drugs, which has caused a series of disservices for hospitals and healthcare facilities.

Faced with such an immense and unanticipated phenomenon like the Covid-19 pandemic, what actions can the healthcare system implement to limit risks and disservices on a logistical level, as far as stocking, shipping, and handling orders from centers of consumption to suppliers?

Four pillars appear to form the basis for future action:

1. The centrality of service and decision-making processes. In this sense, the main goal must be one and one alone: to satisfy consumption demand. So every choice to drive logistical efficiency must be reconsidered in light of achieving this goal.
2. The central role of inventory management. When materials are scarce, instead of localized warehouses near centers of consumption, far more effective is centralized inventory management, which facilitates more flexible and reactive logistics that can handle the unpredictable dynamics of demand. But above all centralization must be managerial, i.e. with a strong management team that can influence all levels of distribution.
3. The elimination of stock in distribution channels. When goods are scare, the different organizational units of consumption tend to stockpile surplus inventory to make sure they can cover their own needs. It’s easy to understand this phenomenon, a reaction based on caution and short-term objectives. But it leads to further imbalance in product availability throughout the entire system, causing peaks in demand due to the decision to stockpile (and not because of actual consumption). What’s more, some products in certain channels of the supply chain become out of stock and unavailable.
4. Targeted inventory management. Here the key is to aim for daily or multi-day deliveries with limited volumes, mirroring the dynamics of consumer demand. The lack of stock throughout the distribution channels also means paying careful attention to consumption demand and delivery times.

To see these principles in practice, we can look at what the Vercelli Health Authority has done, as explained by Dr. Leporati, Head of the Procurement Management. Already back in February 2020, PPE management was centralized, converging into a single warehouse, and all surplus stock was sent back to the central hub from various units. By doing so, all the PPE that arrives in the warehouse is checked by the competent offices before being distributed to the different units. Every unit receives all the available PPE it needs for daily healthcare activities; at the same time, the warehouse is always accessible (24/7). This new form of distribution increases the resources absorbed (man hours at all levels of the logistics chain), but despite this all demand from all medical units can now be satisfied.

So what emerges from all this is that logistical design and attention to operating procedures are indispensable ingredients to secure the resilience of the Italian healthcare service, which means that specialized skills, information systems and adequate structures are required. Unfortunately, due to divestments in managerial functions in the field of healthcare and procedures that create a disconnect between the physical management of pharmaceuticals and medical equipment with the governance of these products in pharmacies, local health authorities are almost never allowed to develop procedures themselves.

The criticalities in the field of healthcare and the relative solutions that came to light during the pandemic should serve as a launch pad for totally revamping procurement processes in healthcare. No doubt, this is not so much about regulatory changes in procurement rules (EU directives offer multiple tools to satisfy a range of needs). Instead it involves introducing innovative contracts and processes to generate value in the medium-term. But today these innovations don’t happen because of risk aversion, which is also fueled by a lack of competencies, and due to the barriers erected between the public and private spheres. But there is no change without - calculated and managed - risk.