In this week’s Video Forum, Chip Davis, president and chief executive officer of the Healthcare Distribution Alliance, talks about the resilience the pharmaceutical supply has shown during the COVID pandemic, and the lessons that the experience of the past 14 and a half months holds for the future. In addition, he addresses the ongoing implementation of the Drug Supply Chain Security Act, HDA’s new media campaign and the industry’s top priorities.
The full transcript is included below:
WOLDT: The COVID pandemic has put the pharmaceutical supply chain to the test. Maybe you can tell me how you think your members have responded thus far.
DAVIS: I’m happy to do so. It’s amazing … in this moment where we’re hopefully beginning to see the future that’s ahead of us, it’s also important to remember back 14 months ago when we were all coming to grips with COVID.
And I think that as both the U.S. and the world, in many aspects, were shutting down, the pharmaceutical ecosystem in many ways was rising up. … I think it’s been well documented — rightfully so — the tremendous work of the manufacturers that have been engaged in the discovery and development of the vaccines.
But I also think it’s important to remember that there are other manufacturers that were focused on bringing therapeutics to the market while we were waiting on the vaccines … Then even the larger pharma network that was making sure that those medicines that were needed to manage respiratory issues, particularly in hot spots, and pain issues in hot spots — they rose to the challenge as well.
And because of the partnerships that our members, the health care distributors, have with those approximately 1,400 manufacturers and over 180,000 providers, we’re actually the linchpin that connects the manufacturing community to the provider community.
It was absolutely essential that our members were leveraging those relationships both upstream with the front-end manufacturers and downstream with the frontline providers to make sure that as we were all coming to grips with just the massive scale of impact that COVID had we were getting the care and the therapeutics and the treatments to those places in the country that needed it most, and distributors played an invaluable role in making that happen.
WOLDT: You guys have done a great job, and I have not heard of major disruptions in the pharmaceutical supply chain.
DAVIS: Thank you for that. I will tell you candidly, we actually issued a report last fall through our foundation that looked at how the pharmaceutical supply chain worked in the first 90 days of COVID.
And, long story short — it’s available on our website for anybody that’s interested — is that the system was absolutely stretched. And we like to say it’s sort of like an NFL defense: It bent, but it didn’t break.
And … as someone who was new to the industry; I literally started in the distribution sector two weeks before COVID was in full force here in the United States. It was amazing to see the response and the resiliency of the supply chain.
I go back to the early days again of COVID, and you can remember walking in to, say, a supermarket or convenience store and seeing paper goods — [and] the aisle was empty.
That didn’t happen in the pharmacies by and large, Jeff — and that didn’t happen by accident. That was again that coordination, the logistics expertise of our distributors to be able to anticipate where the growing hot spots were in places like New York, New Jersey and Connecticut, the Pacific Northwest, just to name two [geographies].
And I think that was just a great reflection on, first and foremost, the health care heroes, the frontline providers, to be able to communicate back upstream. But then to our members to be able to manage that information, that data coming in, to adjust and adapt to it, and to be able to make sure that all the providers were getting the medicines and the therapeutics that they needed.
WOLDT: And did the industry cooperate more closely than usual under the threat of COVID?
DAVIS: I think [this cooperation] was necessitated by [COVID-19]. I mean, just to be candid, as you well know this is a very competitive industry. Rightfully so; it actually helps keep health costs down.
The annual estimated savings that distributors provide, just as a simple reference point, is $33 billion to $53 billion a year in savings to the U.S. health care system. So we get that way in part because we’re a very competitive industry.
Competition, to be candid, had to be put to the side, because it was not the priority at that time. I think what was really — when we looked back on the early stages — and it’s something that we’ve carried forward here at HDA with our members — is we focused on the ‘three C’s,’ as I like to talk about it … communication, coordination and collaboration.
Communication, obviously, was within the health care sector, as I reference manufacturers as well as providers. …[C]oordination was with both your health care suppliers and the federal government; the state governments; and local governments, particularly those that were besieged with cases and high incidence rates.
And then the collaboration was one where, quite frankly, it was sometimes if you were not able to meet demand based upon something coming in, there would be a secondary wholesaler so that when legally permissible you could reach out and say, “Are you able to step into this breach and help provide the necessary medicine?” Or personal protective equipment or whatever the case may be.
And so I think those three C’s are some things that we’ve always done. They were magnified through the early stages of COVID, and it’s something that I think we’ve continued to see, as we anticipated the vaccines and certainly since the vaccines have come out and become available.
WOLDT: We’re seeing the situation start to improve, at least here in the United States. What role do you see your members, the drug wholesalers, playing as we try to accelerate the final push for getting everyone vaccinated?
DAVIS: Multiple is the short answer. What I mean by that is we have members that are serving in roles everywhere from the centralized distributor of the vaccines for the federal government, to partnering with state governments. Once the state public health department is in receipt, then they’re turning to other members beyond just a centralized distributor as well, which has played a vital role to make sure that those vaccines are getting to the administration sites.
A number of our members, Jeff, as you may know as well, have really strong partnerships with the pharmacy community, both the chain and the independents, and that’s why it was so great from our perspective to see the Biden administration expand the federal retail pharmacy partnership program.
Strong, independent network pharmacies, community pharmacies … many of them rely on our members [to] handle a lot of their logistics, their ordering, their financial management.
And so we’ve had a number of our members — both the largest ones whose names you’re familiar with as well as some regional and smaller distributors who are not as well known — play a vital role in making sure that as those independent and community pharmacies, which again as you know, have such an incredibly high, rightfully so, trust threshold with their patients, as they’ve come on board to begin to administer the vaccines distributors have sort of been locked in arms to make sure that all their needs are being taken care of so they can focus on the patient.
WOLDT: I saw a story in The Wall Street Journal talking about a shortage of — not vaccines — but of syringes. Is that something that you guys are concerned about or are trying to address?
DAVIS: They are in short supply, and I think one of the things that as we hopefully begin to see the other side of coming out of COVID — the reality is, Jeff, as you know, we’re going to be living with this for a while, right?
So on the vaccine front — just as a quick aside, you know, the questions that are now before the scientific community are what’s next? Is it going to be a booster shot this fall? Or is it going to transition into more like a traditional flu vaccine on an annual basis? You know, we’ll wait for the science to tell us where to go on that.
But the reality is, we would submit that discussions around supply chain resiliency — both in terms of medicine and medical/surgical supplies, PPE — [that there will] be a discussion here in Washington and at the state level for years to come to make sure that again, with an eye [toward], say, those first 90 to 180 days [of] COVID, that we make sure we learn the lessons of what we need to do in order to be even better prepared next time. The supply, the availability, the manufacturing, of medical/surgical equipment, which, as you know, is a big issue — what’s manufactured overseas, what’s manufactured in the U.S., and then the balance — are [part of] a debate that we know is already happening.
And it is one that I think is going to increase in frequency in the state capitols as well as here in Washington, D.C.
[As] distributors, we’ll be prepared as we always have to be able to move that supply. But one of the focuses we need to make sure of is that there is adequate supply for times of need like the one we’ve been in the last 14 months.
WOLDT: Do you expect some of that production to be brought back into North America, at least, and then maybe a little less global?
DAVIS: As you know, there’s a lot of discussion around that right now. And again, as part of that dialogue, we expect that discussion will continue.
So I think the short answer is yes, provided that we all don’t collectively and individually lose sight of the underlying economic issues that have gotten us to where we are.
We did not, for instance, end up with such a high degree … of active pharmaceutical ingredient coming in from countries like China and India.
You know, that did not happen the last two to three years. That has been decades in the making. Now, you have to understand what the underlying market-base realities and economic incentives have been and have not been that have led to that situation being where we are.
So, we’re very supportive of making sure that there’s more onshoring or near-shoring of manufacturing for health care products including pharmaceuticals but not limited to here in the United States.
But we also want to make sure we don’t lose sight of the fact that having a global supply chain actually creates certain effectiveness and efficiencies … including proximities to patient populations in the instances of, say, natural disasters, which, as you know, happen all over the world.
So we just have to get that balance right, and I think that will be a debate that will take up a lot of our focus and attention in the next several years.
WOLDT: We’re talking about importing active ingredients, different things. How about the question of importation of finished pharmaceuticals? I know that’s an issue — many politicians say it will help drive costs down. That’s something HDA is opposed to. Can you tell us why?
DAVIS: Sure. I’ve had a lot of experience on the policies around importing drugs from my time in the manufacturing side and now here. … I think [there are] two reasons why it may be a good talking point or sound bite, to be completely candid, but I don’t think it’s practical in terms of its implementation.
One is the safety issue, right? [We] have the safest supply chain. It’s a global supply chain, but it’s a closed supply chain that’s regulated by the FDA. And if you begin to globally import from other markets around the world, you’re not going to be able to do this just from Canada, right? Canada is one-tenth the size of the United States.
If you actually figured out a way to do it, you would take the entire Canadian drug supply, you know, off the table within the first 30 days. And I think our friends to the north would not be particularly pleased with that. In fact, they’re on public record as saying that.
I think the other thing we can look for is, you know, to a degree, there’s a comparison in Europe with parallel trade that’s been around for years.
But it has much more to do, I would submit, with what patients are paying at the pharmacy counter, how their formularies are structured. These are real policy issues that if the Congress or the states addressed them, would provide relief where it matters most to the patient.
And so, I think … if importation is ultimately legalized in the United States, if there’s any value in the system to be had, any financial value, I would respectfully submit, based on the experience in Europe, that that value is going to be extracted through arbitrage, and it won’t make its way to the end user. [Not] to mention the fact, as you well know, we are in the process — a 10-year process — of implementing legislation, DSCSA, which was passed back in 2013 to make the safest drug supply chain in the world even safer. And that law certainly did not anticipate widescale commercial importation of pharmaceuticals.
So we’re getting closer to the finish line there. Its full implementation is November of 2023. And if you look to disrupt that now, you’re going to have a lot of us going back to the drawing board on an issue that had widespread support through the entire pharmaceutical supply chain.
WOLDT: I want to go back to the implementation process in a second. Correct me if I’m wrong, but Europe has, even prior COVID, had a bigger problem with drug shortages than in the U.S., correct?
DAVIS: Very much so, right. So again, there are lessons to be learned by looking at other markets.
WOLDT: Maybe you could talk a little bit about the implementation of the drug supply chain security app and how that’s progressing. I know you guys were involved in some tests recently. Maybe you could tell us about that.
DAVIS: Happy to do so. It’s been really an astounding achievement … you’ll recall that the construct behind DSCSA, which was passed by the Congress in November of 2013, really originated at the state level.
… You may remember that something of this scale, when you have a national market for pharmaceuticals, as we do, is something that needed to be passed by and then ultimately implemented at a national level by the FDA.
… HDA led the effort back then — so credit to my colleagues here for being able to drive that over the finish line.
But they had to make sure that they had alignment with the manufacturing community as well as the frontline provider community, because this is implementing new obligations and responsibilities across the entire pharmaceutical ecosystem.
So, you know, we are on the leading governance group [i.e., the Partnership for DSCSA Governance]. We have a board seat to ensure that as we move forward with the implementation that that alignment that ultimately led to the bill being passed is keeping as much intact as it possibly can through the implementation phases.
And obviously, recently, by November of 2019, we had to have the VRS system in place for saleable returns. HDA led the way on that.
We’re also trying to work, as I mentioned earlier, with our very strong partnership with the pharmacy community. There are not insignificant new expectations and obligations on the pharmacy providers. And a lot of them, as you know, the independents and community pharmacies, don’t have vast administrative resources.
So being able to provide that level of support, partnership and expertise is an area that our members are very much focused on to be able to try and take some of that burden off of the independent and community pharmacies as we head [toward] … the full implementation in just a few years.
I would say just to add to that, you know, we’re in a place where COVID did slow things down a little bit. But we’re optimistic that we can continue on the 10-year deadline for full implementation, and that’s what we’re focused on.
WOLDT: Chip, recently you guys launched a media campaign Health Delivered. Maybe you can tell us a little bit about it and what your goal is with that.
DAVIS: Sure. Happy to do so. Health Delivered is, from our perspective, the theme around an effort that we’re making to ensure that the voice of the distribution sector on so many of these policy issues … that we’ve been talking about is front and center in the discussions.
Both within the context of the current needs related to COVID 19, but also moving forward to increase the amount of times that we’re engaged on the key health care-related policy discussions that will [impact the distribution sector] — and by extension, the pharmaceutical ecosystem and the entire health care system.
I think sometimes when you are somewhere along the continuum of any working relationship, as I said before, we feel that we’re the nexus between the front-end manufacturers and frontline providers.
Sometimes it’s easy to get lost in that a little bit. And when that happens, you run the risk of potentially others seeking to define your value proposition or even lack thereof.
… As a result of that, one of the things that was made very clear to me as I joined HDA, was that the member companies, from the largest distributor to the smallest, said, you know, we provide a lot of incredible value, not just financial savings, but incredible value in terms of health care accessibility to our system on a daily basis. And we want to make sure that as policy makers are considering these very difficult, very challenging complex issues, that they understand that value proposition and despite best intentions, don’t unduly disrupt a supply chain that by and large has worked very, very well for a number of years.
WOLDT: A final question for you. Assuming that COVID continues to recede here in the U.S. and things get back to normal, what would be the top priorities for HDA?
DAVIS: Sure, sure. A number of issues come to mind. You’re beginning to see the debate around drug pricing come back in some ways; some would argue it never left.
But certainly the focus on it moving forward in a new administration and a new Congress; you’re seeing a lot of discussion around it at the state level as well. So that’s a priority topic for us.
This issue around supply chain resiliency will move forward. You know, there are a number of working groups already analyzing the strategic national stockpile and how that may need to work more effectively as we move forward and prepare for the next national — either pandemic or natural disaster.
You’re seeing a number of states, Jeff, talking about creating their own state-level strategic stockpile. That will put increased burden and demand on the supply chain, and we need to make sure — while, again, it’s very well intentioned — that it doesn’t have the unintended consequences of disrupting the strategic national stockpile at the federal level.
I think DSCSA implementation will obviously be very, very important as well. And we’re also beginning to see something we focused on this year is a number of our distributors — I talked about the importance of the relationship they have with the pharmacy community.
A lot of them have created what are called PSAOs, pharmacy services administrative organizations, where they actually partner with their community and independent pharmacies.
And you’re actually seeing it being driven by other aspects of the health care sector an increased interest at the state level of potentially either regulating — which some degree of regulation is fine; we would support — but actually putting on regulatory burdens that would compromise the ability of distributors to provide much of that back office support to those independent community pharmacies when they don’t have it in and of their own capability and resources.
So we’re making sure that on behalf of both the distributors and our pharmacy partners we’re actively engaged in those discussions as well.