Legislative Reform Is Causing Pain in the Healthcare Supply Chain

June 17, 2010
Managing costs tops the list of healthcare companies' supply chain concerns, and legislative reforms are placing unprecedented pressure on these companies

The healthcare industry is experiencing "a huge dose of uncertainty about every aspect of their business, inside and outside the United States," says Bill Hook, vice president, global strategy, UPS Healthcare Logistics. "Reform as well as other industry factors are placing unprecedented pressure on healthcare companies and stressing their supply chains. Logistically, healthcare companies will have to re-examine their strategy."

UPS recently commissioned a study of senior-level healthcare supply chain executives, which was conducted by Harris Interactive. Now in its third year, the survey is designed to identify the greatest pain points and future trends in the supply chains of companies in the pharmaceutical, medical device and supplies and biotech sectors.

Of the senior supply chain executives surveyed, a third believe that healthcare reform will either open up new markets or create new customers. But 20% doubt the ability of their companies "to afford to operate" in the coming new world; 26% say flatly that reform will hamper their research and development programs, and another 22% say their firms do not have the infrastructure needed to compete in the future.

Beyond the issues of healthcare reform and globalization, the 2010 survey also explored healthcare companies' top business and supply chain issues. Not surprisingly, the top business concern remains what the industry considers an escalation of complex regulations around the world. The top supply chain concern is managing costs.

Many 2010 survey findings centered around healthcare companies' global operations and expansion plans, with nearly half (47%) of respondents planning to expand into new or emerging markets in the next 18 months.

China, India and Brazil are the emerging markets with the most current healthcare business. These countries, along with Argentina, also are the top four markets into which healthcare companies are most likely to expand in the next two to three years.

"Globalization of the healthcare market has led to numerous opportunities while simultaneously creating challenges," Hook observes. "Among these challenges are country-specific regulatory hurdles; the security of high-value, temperature-sensitive products, and the difficulties of managing multiple suppliers. To manage risks while reaching new customers, companies must focus on building greater flexibility and visibility into their supply chains."

While most companies already are participating in some activity abroad (selling, manufacturing, sourcing and/or clinical trials), 21% of healthcare companies surveyed don't participate in any of these activities outside the United States.

The ability to access new global and emerging markets is a growing concern for many healthcare companies, with 22% more respondents reporting concerns around this in 2010 versus 2009 findings. Only 32% of this year's respondents claim success with accessing global markets. Country regulations are the largest barrier to global expansion, cited by 54% of respondents.

As the top business concern ("increasing regulations") and second largest supply chain concern ("regulatory compliance"), industry regulations are a critical focus area for healthcare companies. In addition to country regulations being named the largest barrier to global expansion, 60% of companies are "very" or "extremely concerned" with regulatory compliance as a supply chain issue. Fifty-eight percent rank increasing regulations as their top business concern, making this the top overall business concern ahead of such things as intellectual property protection, increasing competition and patent expirations.

For the third year in a row, managing costs tops the list of healthcare companies' supply chain concerns. Sixty-four percent of respondents report being "very" or "extremely concerned" with managing supply chain costs, up from 55% in 2009. At the same time, only 44% of companies report success in addressing cost management.