By John Strong, Co-founder and Chief Consulting Officer, Access Strategy Partners Inc
June 2024 – The Journal of Healthcare Contracting
Can stockpiles be the solution?
On May 6, 2024, Senate Finance Committee Chairperson Ron Wyden (D-OR) announced the “Drug Shortage Prevention and Mitigation Act”1, with the goal being to spur manufacturing of drugs at risk of being in short supply. Hospitals would receive lump-sum Medicare payments of between 5% to 25% of the price of targeted drugs to build up stockpiles. You might say, “Wait a minute!”
The federal government says it is working hard to reduce the cost of healthcare. While drug shortages are a serious problem in the U.S., it seems like the “cure” hardly attacks the root problems. Stockpiling comes with inherent risks that the bill ignores:
- Expiration dates and outdating leading to waste and added expense for the entire health system;
- Ongoing inventory expense for the purchaser. With interest rates in the 6 to 7 percent range, holding excess inventory may only solve one problem and cost hospitals more;
- The lack of a common platform to locate pharmaceuticals and relocate them around the country;
- Indirect labor costs to manage hospital stockpiles will be higher; and
- The plan could cause supply chain “bullwhips” to occur with inventory spiking and then subsiding back to near-shortage levels.
Supply chain influence requires greater resources
Controlling expenses under a supply chain umbrella has always been a challenge, but is needed more than ever. A recent report by the American Hospital Association shows just how much influence supply and expense related matters can influence success. As the pie chart2 illustrates, Drugs and Supplies account for 21% of hospital expenses – and that does not include purchased services, which is included in “labor”.
As the same report notes, economy-wide inflation grew 12.4% between 2021 and 2023, while Medicare reimbursement grew 5.2%.
(Chart here)
Growth of expenses continues to lead adjusted discharges
On a calendar day basis, three sets of key materials-related expenses continue to grow faster than calendar day adjusted discharges, according to Kaufman Hall’s April 2024 “Hospital Flash Report.3” This is based on an April 2023 to April 2024 comparison.
(Charts here)
U.S. endoscope market growing
In 2023, the United States endoscope market accounted for approximately $4.4 billion in spend. Estimates4 indicate that it will grow to more than $10.4 billion by 2033, a 9% CAGR. These growth factors are influenced by an aging population, a rising demand for minimally invasive surgeries and a growing prevalence of gastrointestinal diseases in the U.S.
New technology is already available that improves outcomes and speeds up procedures. Screening programs are increasing, and health awareness is also contributing to this trend. At the same time, concerns about reusable endoscopes have led to significant interest in disposable endoscopes. This is driven by concerns about infection control and cross contamination from faulty cleaning.
Endoscopic procedure growth may be limited by reimbursement at both the inpatient and outpatient level. In some cases, inadequate reimbursement fails to cover even the materials required for certain procedures.5
Evolution of the organ transplant market
Organ transplant technology has not changed much over the years – until now. New methods are on the horizon, that feature “iceless” solutions that will extend the life of organs for transplant. Temperature and pressure maintenance, along with onboard sensors designed to minimize primary graft disfunction (PGD) are available now.
As chronic disease rates climb, so does the need for organ transplants. In parallel with organizational shifts in government-managed organ procurement services, medtech companies are stepping up to address a new pool of donors.6
Some of these companies are still in their early-funding rounds, and others have commercial products on the market. Here are three companies that are expanding the horizon of organ transplantation in the U.S.
| Company | Founded | Location | Indications |
| Paragonix Technologies | 2010 | Cambridge, MA | heart, lung, liver |
| Organ Recovery Systems | 1998 | Chicago, IL | kidney |
| TransMedics Group Inc. | 1999 | Andover, MA | heart, lung, liver |
1 McAuliff, Michael, “Modern Healthcare”, May 6, 2024.
2 American Hospital Association, “Hospitals and Health Systems Continue to Face Escalating Operational Costs and Economic Pressures as they Care for Patients and Communities”, April 2024, © American Hospital Association.
3 Kaufman Hall, “National Hospital Flash Report, April 2024”, © 2024 by Kaufman Hall.
4 At: www.linkedin.com/pulse/us-endoscopes-market-janet-bernard-wlfnf/
5 ASPI analysis of reimbursement data from Definitive Data, accessed May 14, 2024.
6 Miller, Collin, “Push for Evolution of Organ Transplant Market”, MedTech Strategist, April 2024, and original ASPI research.