Domestic demand

GPO, health systems acquire stake in domestic manufacturer of face masks

Premier Inc. and 15 health systems announced they had acquired a minority stake in Prestige Ameritech, the largest domestic manufacturer of face masks, including N95 respirators and surgical masks.

Under the agreement, Premier members commit to purchase a portion of all face masks they use annually from Prestige Ameritech for up to six years, inclusive of a three-year renewal option. The arrangement with Prestige Ameritech is part of a Premier strategy to work with members to invest in domestic and geographically diverse suppliers of PPE and other medical equipment currently in shortage due to the COVID-19 pandemic, according to the company.

“With past outbreaks such as SARS, H1N1 and Ebola, the nation talked about domestic manufacturing and expanding supply sources as the keys to preventing shortages, only to return to the same overleveraged overseas markets once the crisis was over,” said Premier President Michael J. Alkire. “This move is the latest step in our long-term commitment to changing the way we source critical products so that we never again experience shortages as a result of overreliance. Our economic prosperity can no longer be tied to things we buy – it must also come from things we make.”

Share Moving Media, publisher of Repertoire Magazine and The Journal of Healthcare Contracting, reached out to Premier, as well as one of the health systems participating in the program, for insights into the agreement, PPE demand, and future of the market. Responding were Michael J. Alkire, president, Premier Inc.; and Raymond Davis, vice president, Supply Chain, Universal Health Services.

UHS

JHC: Can you give us some perspective of how COVID-19 affected your PPE needs? What were your typical needs before COVID-19? What about during?

Raymond Davis: Prior to COVID-19, at Universal Health Services (UHS), our typical supply usage was relatively consistent year over year. We would experience increased usage due to seasonality at certain times of the year. However, for the most part demand was both consistent and forecastable.

COVID-19 created a substantial increase in demand for all personal protective equipment (PPE). We have experienced supply demand spikes in excess of 300% for a majority of PPE items. Due to these demand increases we have had to vet and partner with alternative vendors to ensure access to adequate supplies. 

Prior to COVID-19, PPE supplies were monitored and managed as one important area of many within the Supply Chain (other similar priorities would include blood products, trauma and surgical packs, etc.) but now it has become the highest priority. 

UHS owns and operates 26 Acute Care Hospitals in the U.S. and 200+ Behavioral Health Hospitals. We care for 3.5 million patients/year so our PPE supply requirements are significant.

JHC: What are the long-term projections of what the need will be?

Davis: The UHS supply chain team is modeling several scenarios based on our current demands and the potential ongoing increase needs due to COVID.

In addition, we believe there will be long-term implications on standards of care, specialized screening equipment needs, and changes in supply usage practices driving us to think differently about future needs.

We are currently in the process of aligning new standards for temperature monitoring equipment, PPE usage, and evaluation of all current supplier channels to ensure we create redundancy within our supply chain. 

JHC: Why is it important for your organization to partner with an effort to have an expansion of domestic PPE production?

Davis: Partnering with the largest domestic supplier is important to UHS for several reasons: it is vital for UHS to support U.S.-based companies, having a partnership domestically allows for less risk in the supply chain, and these types of partnerships create a platform for us to have a deeper level of influence and control.

JHC: How will healthcare look different moving forward as a result of what has happened with supply/demand of PPE?

Davis: There will be a substantial push for companies to partner with or create new types of relationships with domestic manufacturers, supply chain redundancy, visibility of inventory from end to end (manufacture to customer), and greater analytics around demand signals will all be areas of dynamic change and evolution across the healthcare supply chain.

Premier

JHC: Can you give us a snapshot of PPE supply/demand before COVID-19 and during? How much did demand spike among Premier members?

Michael Alkire: According to Premier’s purchasing data, hospitals and health systems across the United States typically buy 22-25 million N95 face masks each year. As COVID-19 cases grew across the U.S., Premier conducted several surveys of our members to understand their PPE inventory on hand, increasing consumption rates and unmet needs.

Our data showed that during January and February, demand for N95s surged, up 400% and 585%, respectively, and by mid-February, most healthcare facilities were receiving just 44% of the N95s and 82% of the surgical masks they ordered. In mid-March, as new hotspots were emerging, our member survey showed that active cases of COVID-19 created surge demand of 17 times the typical burn rate for N95 respirators, 8.6 times for face shields, 6x for swabs, 5x for isolation gowns and 3.3x for surgical masks. And as the pandemic heightened in April, when annual N95 usage was calculated to be more than 200 million masks per year, our survey data showed that isolation gowns replaced N95 masks as the top shortage concerns among hospitals and health systems treating COVID-19 patients. This was likely a result of conservation measures put in place to extend the use of N95s.

In the post-acute setting, we found in March that more than two-thirds of skilled nursing and assisted living facilities could not obtain the necessary N95 masks, face shields and other PPE needed to care for current or suspected cases of COVID-19. In early April, we checked in again to find that 24% did not have N95 masks on hand, and the majority of respondents had fewer than two weeks’ supply of surgical masks, isolation gowns and face shields.

JHC: What are the long-term projections of what the need will be? Why was it important to have a commitment of up to six years?

Alkire: Sixty-eight percent of product disruptions occur due to poor demand signaling. It takes significant capital and resource investment by a manufacturer to effectively build and plan capacity to meet long-term demand, and to create adequate redundancy and the safety stock that is needed to ensure a continuous supply of product to customers. Manufacturers can do this if they have long-term, predictable demand that is provided by long-term agreements.

To balance the risk of any potential disruption, Premier aims to work with manufacturers that have onshore, nearshore and off-shore options. With this specific agreement, Prestige Ameritech now has long-term, multi-year commitments from Premier and multiple members that give them certainty and allow them to dedicate the resources necessary to increase PPE production for the foreseeable future.

JHC: Can you provide us some details of the agreement with Prestige?

Alkire: This agreement with Prestige Ameritech is part of Premier’s newly announced initiative to work with members to invest in domestic and geographically diverse suppliers of PPE and other medical equipment currently in shortage due to the COVID-19 pandemic. Prestige Ameritech represents a vertically integrated domestic supply chain, with production of raw materials and finished goods completed in the United States. Prestige also sells 100% of its products to U.S. customers. Prestige produces a range of PPE, including N95 respirators, surgical masks, face shields, surgical gowns goggles, tube holders and ear loop elastics. We plan to purchase a minimum of 46 million masks each year through the transaction, with the ability to scale for additional demand from the broader Premier membership.

JHC: What are some other parts of Premier’s strategy to invest in domestic and geographically diverse suppliers of PPE?

Alkire: Premier’s approach is about balance, ensuring that supplies come from diverse regions, countries and continents, and, for some critical products, demanding at least one domestic source. Our investment with our members in Prestige Ameritech is part of a larger, overarching Premier initiative to ensure a healthy supply chain through diversification, which we’ve been talking about for over a decade. As an example, we’ve operated a company called S2S Global for nearly a decade, and it is grounded in global and dynamic sourcing. Through S2S Global, our members have the ability to dictate the specifications of certain supplies or products, and we go factory-direct to the country of origin and work with manufactures to produce these products to their specifications. This creates an alternative sourcing channel for our members, while providing financial incentive and security to the manufacturers. 

In early 2019, Premier launched ProvideGx to address drug shortages. The ProvideGx model allows Premier to:

  1. Utilize unique contracting mechanisms to incentivize manufacturers to enter the marketplace for shortage drugs;
  2. Align a committed group of members with a manufacturer to effectively build and plan capacity to meet long-term demand, and create adequate redundancy and safety stock to ensure a continuous supply of product for customers; and
  3. Invest alongside manufacturers to help alleviate the financial strain associated with bringing these older drugs to market.

One key tenet of the ProvideGx program is prioritizing manufacturing of these drugs in the United States where possible. Sixteen of the 18 drugs brought back to market through ProvideGx in its first year were manufactured in the United States.

JHC: How will healthcare look different moving forward as a result of what has happened with supply/demand of PPE?

Alkire: The pandemic has shed a light on how the United States is overly reliant on overseas markets for a host of goods, with less than 10% of isolation gowns made in the U.S. and less than 10% of disposable PPE products made in the U.S. Going forward, Premier will ensure that our nation is going to have access to a healthier and more predictable supply chain, which will include domestic capacity and geographic diversity for critical medical supplies.

Many healthcare providers rely on a “just-in-time” inventory process that is going to change, whether due to federal guidelines, state regulations or more sophisticated supply chains. Providers will work more closely with their supply chain partners and group purchasing organizations to ensure diversified sourcing, as evidenced by Premier’s investment with its members in Prestige Ameritech.

Premier members participating in the initial investment include:

  • AdventHealth (Altamonte Springs, FL)
  • Adventist Health (Roseville, CA)
  • Advocate Aurora Health (Downers Grove, IL, and Milwaukee, WI)
  • Ballad Health (Johnson City, TN)
  • Banner Health (Phoenix, AZ)
  • Baptist Health South Florida (Miami, FL)
  • CommonSpirit Health (Chicago, IL)
  • Genesis Health System (Davenport, IA)
  • Henry Ford Health System (Detroit, MI)
  • McLaren Health Care (Grand Blanc, MI)
  • Riverside Health System (Newport News, VA)
  • St. Luke’s University Health Network (Bethlehem, PA)
  • Texas Health Resources (Arlington, TX)
  • Universal Health Services, Inc. (King of Prussia, PA)
  • University Hospitals (Cleveland, OH)

PPE products critical for the daily operations of health systems are overwhelmingly sourced overseas, with approximately 80% coming from China and Southeast Asia, Premier said in a release. “The risks of this overreliance on Asia came into sharp focus as COVID-19 swept across the globe and these nations closed borders and prevented U.S. access to supplies, triggering widespread shortages of PPE needed to protect healthcare workers and patients. In contrast, Prestige Ameritech represents a domestic supply chain, with production completed in the United States. Prestige also sells 100% of its products to U.S. customers.”