Strategic Imperatives for Healthcare Provider Supply Chain Resilience During the New Normal Era

I. The Healthcare Supply Chain's "New Normal"

In recent years, healthcare delivery has faced significant challenges. Among these, the industry is facing ongoing supply chain problems. Healthcare has long been vulnerable to these disruptions, but they have now shifted from urgent crises to regular management issues that carry profound implications for patient care and the operational stability of healthcare organizations. The COVID-19 pandemic acted as a stark illuminator, highlighting the pre-existing frailties within global healthcare supply networks. The cessation of the acute pandemic phase has not heralded a return to stability. Disruptions have persisted, necessitating strategic responses from all stakeholders. This ongoing fragility of the healthcare supply chain marks a "new normal.”

The accompanying challenges pose a significant risk of crisis fatigue. As organizations face ongoing supply chain disruptions, there is a concern that a state of heightened alertness may become a permanent condition. This normalization can paradoxically lead to a decreased sense of urgency in implementing the systemic changes required for long-term resilience. If operating in a reactive mode becomes the standard, significant upfront investments in technology, supplier diversification, and contingency planning may be deferred or altogether dismissed. This desensitization to risk can be concerning. For healthcare leaders, addressing these challenges is crucial for effective risk management, ensuring compliance and, most importantly, delivering high-quality patient care.

This Article examines the U.S. healthcare supply chain as a strategic imperative with significant business and legal risks that must be addressed. It serves as a roadmap for tackling healthcare supply chain challenges, beginning with an examination of the ripple effects of disruptions on patients, providers, and public health. It goes on to explore the underlying causes of disruptions, including geopolitical pressures, manufacturing vulnerabilities, and logistical challenges, and how these factors interact. In its final section, this Article presents business actionable solutions for effective supply chain risk management and resilience, including supplier diversification, supply chain risk assessments, and robust supplier contracting. It concludes with a call to action for stakeholders to collaborate in ensuring high-quality patient care.

A. The Ripple Effect: Impact on Patients, Providers, & Public Health

The healthcare industry critically depends on reliable and efficient supply chains for effective patient care. Supply chain disruptions are not abstract economic or logistical problems. They manifest in tangible, often severe, consequences that ripple through the healthcare system, directly affecting patient care, provider financial and operational viability, and the overall integrity of the public health system.

Healthcare supply chains face unique challenges compared to other industries. When disruptions occur in healthcare, the consequences extend beyond financial implications to directly impact patient outcomes and safety. This connection between supply reliability and patient care creates an added strategic mandate for healthcare organizations that must simultaneously navigate supply shortages while maintaining their standard of care obligations.

B. Patient Care at Risk: The Human Cost of Scarcity & Provider Financial Toll

The most critical impact of healthcare supply chain failures is on patient safety and outcomes. As I’ve said before in the healthcare cybersecurity context, “we’re talkin’ real human lives.” Shortages of essential medicines, medical devices, and other supplies frequently result in delayed or canceled medical procedures, including life-saving surgeries. When primary treatments are unavailable, clinicians may resort to less effective alternatives that carry higher risks, including side effects, or are unfamiliar to the medical team, increasing the potential for adverse outcomes. Unfortunately, in some instances, these disruptions result in life-threatening situations. Notably, vulnerable patient populations often bear a disproportionate share of the burden. Rural areas with fewer resources are often more adversely affected.

Beyond the direct impact on patient care, supply chain disruptions result in significant financial and operational burdens on healthcare providers. When faced with a supply chain disruption, healthcare providers can incur substantial, unplanned expenses. These include paying premium prices to secure scarce supplies, the costs associated with identifying, vetting, and implementing alternative products or treatments, as well as significant labor costs, as staff dedicate countless hours to managing shortages. As in the case with patient outcomes discussed above, financial pressures can be especially existential for smaller or rural facilities with less purchasing power and even thinner margins. The diversion of skilled clinical and administrative staff from their primary duties relating to patient care can be a considerable financial burden and a precursor to burnout, leading to increased errors and staff turnover. Medical staff shortages and provider burnout persist as ongoing issues. An institution's failure to robustly manage the risks associated with adapting to shortages can result in significant business losses.  

C. Supply Chain Disruption as a Public Health Concern

The impact of healthcare supply chain disruptions extends even beyond individual patients and providers to affect the broader public health system. Widespread shortages of essential supplies or critical medications, such as those used in cancer treatment or emergency care, can severely compromise a nation's ability to respond to fundamental health needs, leading to significant public health crises. The U.S. Government Accountability Office (GAO) has explicitly identified drug shortages as a serious public health concern.  

When essential treatments become unreliable or unavailable, it can erode public trust in the healthcare system. This was illustrated during the COVID-19 pandemic, where shortages of personal protective equipment (PPE) for healthcare workers, as well as delays or cancellations of procedures for patients, hindered the nation’s response and fueled public anxiety. The inability to reliably provide necessary medical care due to supply chain failures has far-reaching implications for societal well-being and public confidence. Addressing these disruptions is not just an operational or economic issue for providers, but a matter of public policy and national preparedness.

II. Anatomy of a Supply Chain Crisis: Unpacking the Core Causes of Disruption

The fragility of the healthcare supply chain arises from a complex interplay of factors, each capable of causing significant disruption. It rarely results from a single isolated cause. More often, it arises from a confluence of disruptive forces acting concurrently or in rapid succession. The origins of these disruptions are multifaceted, ranging from geopolitical tremors to logistical shortcomings. Often, these causes are interconnected, creating a cascading set of challenges across the supply network.

For example, a significant manufacturing region might be struck by a natural disaster simultaneously as a geopolitical conflict disrupts global shipping routes. This situation is not merely two separate problems. Instead, it represents a multiplicative crisis. It may unfold in this way: the natural disaster halts local production, while the geopolitical conflict prevents alternative suppliers from shipping products or renders it prohibitively expensive to do so. With no easy way to pivot, these compounded constraints dramatically amplify the initial supply shock.

The supply chain’s inherently dynamic nature demands that supply chain risk management evolve into a holistic approach, mapping interdependencies throughout the network. This reality renders risk models based on single-point failures increasingly inadequate. Supply chain risk strategies must therefore account for cascading, compound scenarios by implementing more comprehensive business continuity plans and by establishing contractual safeguards that address multiple concurrent risk factors. To address these linked risks, organizations should consider conducting more rigorous due diligence in their supplier relationships.

Successfully navigating this volatile environment necessitates a shift from reactive problem-solving to proactive initiatives. Only through such concerted efforts can healthcare organizations build enduring supply chain resilience and ensure the continuity of patient care. Understanding these root causes is the first step towards developing effective risk management and mitigation strategies. Key driving forces include geopolitical and trade pressures, manufacturing and quality vulnerabilities, logistical and operational challenges, as well as natural disasters and public health emergencies.

A. Geopolitical and Trade Pressures

An over-reliance on a few geographically concentrated manufacturing hubs for critical medical supplies is a significant structural weakness. If a key region suffers a disruption, whether from a natural disaster, political instability, or an economic downturn, it can have a disproportionately large impact on global supply. Tariffs and trade policies can lead to increased procurement costs, potential shortages, and the need to find alternative suppliers. This weakness is compounded by dependence on single-source suppliers for certain critical items. For example, many active pharmaceutical ingredients (APIs) are sourced from just a few countries (primarily China and India), and a large share of medical devices and finished pharmaceuticals is imported from Europe and Asia. Over-reliance on specific geographic regions for APIs can cause heightened vulnerability to localized disruptions and reduced supplier options. Healthcare organizations should consider alternative sourcing arrangements and negotiate more robust supply guarantees to minimize this vulnerability (more on this below). External pressures underscore the importance of healthcare organizations incorporating geopolitical risk assessments into their sourcing strategies and advocating for trade policies that ensure continued access to essential medical supplies.

Underlying economic factors contribute to chronic supply shortages. Beyond tariffs and trade policies, the GAO has pointed to a lack of incentives for manufacturers to produce particular, less profitable but medically critical drugs. This dynamic can lead to market consolidation, where only a few manufacturers remain for some older yet essential generic medicines, making those supply chains particularly fragile. Addressing these economic drivers may require broader policy interventions. Healthcare providers can take mitigation steps such as entering longer-term contracts, exploring pooled procurement for at-risk items, and advocating for policies that stabilize the market for essential medicines.

B. Manufacturing and Quality Vulnerabilities

Manufacturing and quality issues related to goods are another primary driver of drug shortages. This problem underscores the importance of conducting rigorous supplier due diligence and establishing robust quality agreements in contracts. It also demands strategies to identify and mitigate risks associated with manufacturing concentration and quality lapses (discussed more below).

C. Logistical and Operational Challenges      

Logistical failures can prevent essential medical supplies from reaching patients. Disruptions in transportation networks caused by port congestion, trucking shortages, or infrastructure damage often result in significant delays. Additionally, the widespread use of “just-in-time” (JIT) inventory systems, while efficient in stable conditions, proved to be a significant vulnerability during the pandemic and continues to pose risks in volatile conditions. JIT models minimize on-hand inventory, leaving little buffer to absorb unexpected or sudden shocks.

Health systems are rethinking "just-in-time" inventory strategies in favor of "just-in-case" preparedness. Effective inventory management is a critical buffer against supply chain disruptions. This involves a careful re-evaluation of traditional "just-in-time" (JIT) inventory models, which minimize holding costs but offer little protection against sudden supply shocks. While JIT can still play a role, it must be balanced with maintaining adequate safety stock for critical items. The optimal level of safety stock requires careful calculation, considering factors like lead time variability, demand uncertainty, and the criticality of the item (outlined below in more detail).

Beyond safety stock, robust demand forecasting is essential. Advanced analytics, including machine learning algorithms, can analyze historical utilization patterns, seasonal trends, epidemiological data, and demographic shifts to predict future needs with greater accuracy. For capital equipment, predictive replacement planning and developing a multi-year roadmap for equipment purchases can help optimize spending, avoid reactive purchases at inflated prices during shortages, and potentially secure favorable pricing with manufacturers.

Internal operational issues can cause supply chain disruptions. Many healthcare organizations struggle with fragmented systems, data silos, and manual processes that introduce inefficiencies and errors into their supply management processes. Without robust systems to facilitate automated procurement-to-payment transactions, many teams resort to manual, time-consuming processes that increase operational costs and legal exposure through documentation gaps and compliance vulnerabilities.

Labor shortages and workforce disruptions across the supply chain, from manufacturing plant workers to transportation personnel, also create bottlenecks and reduce capacity. These workforce challenges extend beyond clinical staff. Shortages of supply chain professionals place additional pressure on procurement, logistics, and inventory management. They also carry implications for staffing requirements, outsourcing arrangements, and compliance monitoring.

Cyber attacks can disrupt supply chains by targeting providers, suppliers, and manufacturers, leading to production halts, logistics issues, data breaches, and delayed care. Healthcare leaders should intensify efforts to protect supply chains from these threats. Strong cybersecurity measures, like incident response plans, are integral to overall risk management. This involves implementing effective verification protocols and security audits for suppliers, as well as strengthening the organization’s overall cyber posture to protect against various threats, including AI-driven attacks. Robust cybersecurity risk assessments should be conducted for supply chain partners, ensuring contracts address data security obligations and liabilities. Organizations should also secure data exchange protocols to protect their information systems. They may need to adopt certain security standards to meet cyber insurance requirements and demonstrate due diligence.

D. Natural Disasters and Public Health Emergencies

Large-scale events, such as hurricanes, earthquakes, and pandemics, deliver a dual blow to the healthcare supply chain. They can disable production facilities while simultaneously increasing demand for medical supplies. Sudden, unpredictable shifts in demand can quickly overwhelm existing supply capacity. For instance, Hurricane Helene severely disrupted IV fluid production. Similarly, the COVID-19 pandemic illustrated this dynamic on a global scale by disrupting the production and export of medical supplies, including certain medications and personal protective equipment (PPE), while generating unprecedented demand for these essential supplies. These examples illustrate how a natural disaster and public health emergency can result in nationwide shortages of critical medical supplies. Similar spikes can occur for specific drugs or devices during disease outbreaks or when treatment protocols change. Although such events are often regarded as force majeure (i.e., an “act of God”), their frequency and severity necessitate robust disaster preparedness, supply chain–inclusive business continuity planning, and geographically diversified sourcing to mitigate the impact on patient care. 

Addressing these core supply chain disruption driving forces requires careful planning and execution. Organizations should establish contingency plans and reassess inventory strategies to strike a practical balance between efficiency and resilience.

III. Navigating Towards Resilient Healthcare Supply Chains: Strategic Planning & Business Actionable Solutions

The severity of healthcare supply chain disruptions has prompted healthcare providers, suppliers, manufacturers, and other stakeholders to expand their oversight efforts in an attempt to strengthen their supply chain resilience. Much of the focus is on proactive measures such as early-warning systems and enhanced forecasting to mitigate adverse impacts from shortages. Despite these initiatives, challenges such as fragmented supply chain visibility and limited resources and knowledge contribute to critical gaps.

The necessity of emergency procurement can expose providers to risks (e.g., if alternative sources or products fail to meet established standards). The regulatory landscape for healthcare supplies, which includes manufacturing, procurement, and use, is becoming increasingly complex. Healthcare organizations navigating this landscape face complex operational and compliance challenges that make it difficult to demonstrate effective management of supply chain risks and vulnerabilities. On the compliance front, they must manage various international, federal (e.g., FDA requirements), and state laws, which can conflict or create overlapping obligations. This Article does not purport to provide specific guidance on any such laws or regulations. The application of laws will vary considerably based on each organization. It is advisable to consult an expert on healthcare supply chain compliance.

This Article offers a practical framework for addressing healthcare supply chain issues. Working collaboratively with stakeholders, addressing security threats, and investing in advanced technologies (e.g., joint industry analytics using secure multi-party computation) is vital for managing disruptions. Strengthening internal policies, adopting flexible sourcing strategies, and developing robust contingency plans are also essential. Organizations should prioritize supplier diversification, effective supply chain risk management, established protocols for shortages, risk-based contractual considerations, robust cybersecurity measures, and investments in technical solutions.

A. Strategic Supplier Diversification: The Foundation of Resilience

A foundational element of supply chain resilience is the strategic management of procurement processes and supplier relationships. A key strategy is to diversify the supplier base, reducing over-reliance on single sources or geographically concentrated manufacturing hubs. Organizations with diversified supplier networks are often significantly less likely to experience critical shortages during supply chain disruptions. This involves not only identifying multiple suppliers for critical items but also considering geographic diversification to manage risks from regional disruptions.

Many leading healthcare systems strive to maintain supplier networks across several major regions to ensure a steady supply of essential supplies. Using vendors from different areas helps prevent a localized disaster or geopolitical event from crippling the supply chain. For instance, splitting orders among manufacturers in different countries or climates can insulate an organization from region-specific disruptions. Geographic diversity adds resilience by preventing overreliance on any single country or region.

Vendor diversification has emerged as a key strategy for healthcare supply chain resilience. By sourcing critical supplies from multiple vendors rather than relying on a single supplier, organizations can minimize the risk of disruptions. This approach requires effective vendor management systems to maintain proper oversight of multiple relationships simultaneously.

B. Supply Chain Risk Management: Best Practices

Healthcare organizations must enhance supply chain resilience strategies during routine risk assessments, factoring in associated risks. Much like their overall risk management process, they should systematically ensure that the supply chain component is tailored to their specific relevant characteristics. For example, their procurement and contingency planning should adequately address risks and vulnerabilities in their routine risk assessments.

Supply chain risk assessments should follow a structured, cyclical approach integrated with the organization’s existing Enterprise Risk Management (ERM) framework. Healthcare organizations should assess risks at least annually, provide quarterly updates for high-risk categories to decision-makers, and monitor critical supplies in real-time. Assessments should comprehensively evaluate all supply chain risks, including supplier performance and market variables, with a focus on high-risk areas and emerging threats. Incorporating feedback from real-time tracking of essential medical supplies is vital. Organizations should also conduct assessments after events that trigger significant concerns, such as market disruptions or supplier issues. Involving supply chain experts in risk assessment and management is mission-critical.

To conduct thorough assessments of supply chain risks and vulnerabilities, healthcare organizations should consider the following:

• Establish a multidisciplinary risk assessment committee with clinical expertise to evaluate patient safety impacts.

• Implement effective incident response and regularly practice (i.e., tabletop exercises).

• Create a supply chain risk map that includes all suppliers, their supplies, and related personnel and processes.

• Evaluate the overlap between supply chain and cyber risk management, addressing associated vulnerabilities (more on this below).

• Develop a risk scoring methodology and complete initial risk scoring, highlighting critical areas like supplies with no readily available alternatives.

• Monitor regulatory changes and implement compliance protocols.

• Conduct routine horizon scanning to assess impacts on supply chains and audit processes.

• Address compliance gaps in healthcare supply management practices.

• Address contractual risks and vulnerabilities in supplier agreements (more on this below).

• Maintain updated relevant policies and procedures, including disaster recovery and business continuity plans (discussed below).

• Evaluate overall potential business and legal liability exposure related to supply chain disruptions, including insurance and indemnification provisions.

• Continuously evaluate and vet suppliers, including their cyber posture and financial health (e.g., suppliers’ risk of bankruptcy).

• Develop risk mitigation recommendations based on the assessment, considering the organization’s risk tolerance and business priorities.

• Integrate risk mitigations into supply chain workflows like procurement and third-party management.

• Implement real-time monitoring systems for supplier performance, focusing on key risk indicators like inventory levels and relevant news. Request timely updates from suppliers.

• Implement continuous improvement processes with a feedback loop to promptly address new risks.

  
  

C. Emergency Preparedness and Shortage Management Protocols

Emergency preparedness is a crucial component of supply chain risk assessment. Within a healthcare organization’s ERM framework, this involves converting identified risks into proactive internal readiness plans. Treating emergency preparedness as part of ERM helps providers anticipate and mitigate disruptions through synchronized protocols. Supply chain experts must participate in top-level risk planning, having a “seat at the table,” to ensure an organization-wide commitment to resilience. Business continuity, disaster recovery, and supply chain management plans are essential for maintaining operations and ensuring recovery during adverse events.

D. Key Components of Emergency Preparedness and Shortage Management

• Emergency decision-making structures: Establish a clear chain of command and an incident management team to address supply chain disruptions. Roles and responsibilities should be pre-defined to enable swift decisions on sourcing, allocation, and logistics during emergencies. Supply chain leaders should be part of the core emergency management team to ensure supply needs are represented in operational decisions, ensuring a tested structure for evaluating situations and authorizing actions (e.g., activating backup suppliers). External communication is also important. Building strong, collaborative relationships with suppliers, moving beyond purely transactional interactions, can also foster greater transparency and flexibility in navigating unforeseen challenges.

• Documented continuity and recovery plans: Maintain up-to-date written plans detailing how to sustain or restore supply chain operations during and after a crisis. This includes business continuity plans for critical functions (i.e., procurement, inventory management, distribution) and Disaster Recovery plans for restoring supply chain systems (e.g., IT systems and distribution networks). Document protocols for handling essential supply shortages. Regular review, testing (e.g., drills), and updating of these plans is crucial for clarity, execution under stress, after-action reviews, and liability purposes. 

• Inventory and shortage mitigation strategies: Build resilience into inventory management to absorb shocks. This includes maintaining safety stocks, diversifying suppliers, and establishing trigger points for conservation measures. For instance, stockpiling essential items or securing agreements with alternate vendors for resupply. Implement a formal response protocol for assessing inventory, prioritizing distribution, and substituting products during shortages (e.g., rationing based on patient acuity). Such strategies should stem from risk assessments; organizations must prepare for critical supply shortages. The supply chain team should always have a “Plan B” (or C, D, etc.) for essential materials. Additionally, proactively identifying cost-effective, clinically acceptable functional equivalents for medical products can provide crucial alternatives if primary supplies become unavailable or prohibitively expensive due to tariffs or shortages.

• Integration with risk assessment and ERM governance: Emergency preparedness and shortage plans should inform the organization’s risk assessment cycle. Supply chain risk assessments (e.g., single-source suppliers, geopolitical risks) should directly inform preparedness measures. These plans and protocols should be incorporated into ERM governance (e.g., included in the risk register and overseen by a safety committee). Supply chain leadership should report regularly on preparedness status (inventory resilience, drill results, emerging risks) to the ERM oversight group. This integration aligns resource allocation with supply risks, ensuring that preparedness efforts support operational risk mitigation and contribute to strategic resilience goals.

A proactive, integrated emergency preparedness program is indispensable for resilience in the healthcare supply chain. It enables effective incident response by embedding readiness into operations. By aligning decision-making, planning, and shortage protocols with ERM, healthcare organizations can ensure patient care during disruptions, turning risk insights into action. This approach highlights that supply chain risk management is a strategic priority and that supply chain leaders are essential in safeguarding the organization’s mission under all conditions.

E. Healthcare Provider Supply Contract Review & Risk Allocation

Healthcare organizations must effectively conduct contract reviews and allocate risks, in addition to diversifying suppliers and managing risks, to achieve resilience. Supply agreements warrant scrutiny in the current environment. Organizations should analyze agreements to understand the risk allocation and adjust accordingly to secure favorable terms. Vetting prospective vendors is key. This includes assessing their financial stability, quality control, regulatory compliance, cyber posture, and supply chain vulnerabilities. Contracts must outline clear terms regarding supply assurance, quality standards, lead times, and liability and consequences in the event of disruptions.

Organizations should tighten contract terms for better risk allocation and accountability. Supplier contracts should include provisions requiring notification of potential disruptions, consequences for materially delayed or non-delivery of crucial supplies, and obligations for emergency stock or secondary sourcing. Strengthening contract terms is vital for supply chain resilience, possibly requiring dual-sourcing or minimum inventory levels from vendors. It could also entail requiring contracts with vendors to include adequate business continuity and cybersecurity clauses (e.g., requiring vendors to have contingency plans or allowing contract termination in the event of a material cyber incident that disrupts supply). Additionally, providers may demand visibility into suppliers' sub-tier supply chains (Tier 2/3 supplier visibility), which can be specified in agreements. These strategies reflect an understanding that clear, well-crafted contracts can reduce uncertainty in the healthcare supply chain.

Healthcare organizations should tighten their contractual protections and proactively restructure supplier agreements to better guard against disruption risks. Key elements to consider include:

• Specific performance requirements during defined disruption scenarios.

• Graduated response obligations based on disruption severity and other factors.

• Alternative sourcing provisions with pre-approved quality standards.

• Financial consequences are tied to the failure to maintain minimum inventory levels.

• Data sharing protocols and technology integration requirements to improve visibility across the supply chain while preserving the privacy and security of sensitive data.

• Performance guarantees with meaningful remedies for non-performance.

• Transparency requirements regarding the supplier's own supply chain.

• Notification obligations when suppliers anticipate potential disruptions.

• Contingency planning requirements and collaborative response protocols.

• Clear allocation provisions specifying how limited supplies will be distributed.

  
  

Let’s dig deeper. Legal teams can include provisions in their agreements to minimize the liability of healthcare organizations associated with supply chain issues. Such provisions may consist of:

• A proficiently crafted limitation of liability clause.

• Exclusion of consequential damages and lost profits in the case of loss.

• Inclusion of a dollar cap on total damages arising from a loss.

• Indemnity.

• No third-party beneficiary clauses.

• Warranty.

  
  

A limitation of liability clause can protect an organization concerning parties in the supply chain. Consider adding a substituted remedy clause to replace remedies from common law or the Uniform Commercial Code (UCC) for goods contracts. Default remedies favor the buyer, while negotiated contracts often favor the supplier.

Loss may occur due to actions outside the privity of contract. To protect against such losses, a well-drafted indemnity clause is critical. Stakeholders not in direct privity may claim third-party beneficiary status to initiate a claim. Organizations typically prefer limiting claims to direct, named parties. A clause stating there are no third-party beneficiaries can prevent such claims.

Warranty provisions should be drafted with great precision to outline clearly everything the supplier is providing. They must be both all-inclusive and accurate to describe what the product is supposed to do. For a supply chain, a common description of the product and what it is supposed to do needs to be universally accepted within the chain.

Determine the best structure for the supply agreement, which may entail the buyer placing orders during the contract term. Alternatively, an output contract arrangement, whereby the purchaser will acquire all products the supplier can produce or furnish, or a requirements contract that supplies all products the buyer needs during the agreement term.

Here are additional considerations for supply chain agreements:

• Identify the goods to be sold, and if any new products might be included.

• Additional goods should only be added through a written agreement.

• Clearly identify any products or brands to be excluded.

• Ensure restrictions do not raise anti-competition concerns.

• Establish terms and procedures for placing orders, including necessary information like quantity, prices, payment terms, requested receipt date, delivery addresses, and export/import details.

• Specify if the provider, as buyer, can alter an order before delivery.

• Include terms for how suppliers will accept orders and if partial acceptance is allowed.

• Define circumstances for rejecting or delaying orders, and establish reasonable lead times for delivery dates.

• Set pricing terms, including what costs are included (e.g., packaging, handling, transportation, taxes). Include provisions for notifying the buyer of price changes to allow for planning.

• Set payment terms, such as timing, manner, currency, and late payment interest.

• Clarify shipment and packaging responsibilities as well as the associated costs borne by the buyer.

• Define rights and obligations regarding delayed or canceled shipments, as the supplier may attempt to limit liability for delays.

• Remove clauses that prevent buyers from recovering damages for critical late shipments.

• Address the supplier's obligations in cases of inventory shortages and misreporting. Suppliers usually prefer to allocate inventory at their discretion during shortages. Buyers may seek a fair allocation.

• Include terms on the supplier's rights regarding discontinuation or changes to products, including providing the buyer with reasonable notice to inform users and seek alternatives.

The supply agreement should outline the parties' obligations to maintain insurance throughout its term. Consult internal stakeholders and a risk management/insurance professional to determine the necessary coverage types and amounts to protect the organization’s interests in light of the contemplated transactions under the sales agreement. Evaluate if insurance should continue post-termination to cover any obligations like warranty and indemnification. Buyers will likely want adequate coverage for product liability claims, especially if the supplier also manufactures the goods. Assess whether the insurance carriers need specific ratings, if any party should be an additional insured, if a waiver of subrogation rights is required, and if carriers must notify of cancellations or material changes. For some cross-border transactions, political risk insurance might be necessary to safeguard against losses in high-risk jurisdictions with frequent unrest. These provisions help create a framework for proactively managing supply chain disruption risks rather than through adversarial claims processes after problems arise.

F. Risk Allocation and Management Strategies   

Healthcare organizations should consider allocating supply chain risks among parties and explore collaborative networks for effective cooperation.

One example in the healthcare supply chain is risk-sharing agreements, where providers and suppliers split certain costs or losses during disruptions. For example, if the prices of raw materials increase or if shipments are delayed, providers might absorb a portion of the additional costs through a previously established price adjustment, leaving suppliers to manage the remainder. This arrangement prevents one party from bearing the full burden and promotes collaboration on contingency planning, inventory buffers, or alternative sourcing. By sharing financial and operational risks, both parties are incentivized to invest in resiliency measures, ultimately reducing the chances of shortages or cost overruns.

Legal and compliance teams can facilitate risk allocation strategies by:

• Developing arrangements with key suppliers for priority allocation during shortages.

• Creating group purchasing and cost-sharing arrangements (e.g., shared inventory buffers, technology platforms, or quality-improvement initiatives).

• Establishing contingency agreements with alternative suppliers.

• Forming mutual aid agreements for appropriate emergencies.

• Implementing inventory management protocols for shared storage responsibilities and real-time visibility across facilities.

• Setting up information-sharing networks with appropriate privacy and security protections.

• Considering in-house manufacturing capabilities for supplies with chronic shortages.

• Implementing governance structures across organizations for swift decision-making during shortages.

  
  

G. The Key to a Secure Healthcare Supply Chain

In today's digital supply chain, cybersecurity is crucial for resilience. For example, cyberattacks on healthcare provider organizations, suppliers, and manufacturers can disrupt operations, leading to hindered patient care, production delays, data breaches, and financial losses. The healthcare sector is especially vulnerable to cyber threats, partly due to the nature of its valuable data. Digital healthcare supply chains pose significant data protection risks, raising liability and security concerns.

This Article does not discuss data privacy and security. For more on this topic, refer to my previous article, which takes a very close look at that. For the purposes of this Article, it's sufficient to understand that, under HIPAA, providers are covered entities, while vendors, such as suppliers, are considered business associates. This arrangement requires compliance with established standards, including the execution of a business associate agreement. In addition to HIPAA, organizations need to comply with other applicable privacy and cybersecurity laws. It is advisable to consult a legal or compliance professional for this.

Aside from compliance, a key aspect to note regarding security and privacy in the supply chain context is the importance of securing data exchanges. Failure to do so increases the likelihood and severity of the impact of supply chain disruptions caused by a cyber incident. Also, organizations should comply with applicable security and privacy laws. It is advisable to consult a legal or compliance professional in the space for guidance.

H. Leveraging Technology: Supply Chain Resilience with AI & Data Analytics

Technology is emerging as a transformative enabler of supply chain resilience. Predictive analytics and AI-powered forecasting tools are at the forefront, helping organizations anticipate demand fluctuations and potential disruptions with unprecedented accuracy. The FDA is itself exploring AI to better predict shortages, signaling a broader trend. In specific use cases, it also promises to improve efficiency and responsiveness.

Advanced technologies offer promising solutions for healthcare supply chain challenges. Artificial intelligence and blockchain technologies can enhance visibility, improve forecasting accuracy, and strengthen security across supply networks. However, these technologies also introduce some legal, business, and ethical considerations, particularly regarding data privacy and accountability for automated decisions. Organizations aiming to leverage technology for intelligent insights from sensitive data while ensuring privacy and security can adopt privacy-enhancing technologies like secure multi-party computation, homomorphic encryption, and federated learning.

Healthcare organizations implementing new supply chain technologies should ensure their legal and compliance teams are involved from the planning stages to identify and address potential compliance challenges. This collaborative approach helps prevent downstream complications while leveraging technology to improve supply chain resilience.

IV. Building a Resilient Healthcare Supply Chain in the Name of Patient Care

The U.S. healthcare supply chain is at a crossroads. Providers, manufacturers, and suppliers must contend with this “new normal” in the face of the ever-present threat of disruptions. Challenges from various causes impact patient care, provider viability, and public health. The past few years highlight that supply chain integrity is essential for effective and sustainable healthcare. Building resilience in the supply chain is vital for the economy and patient well-being. It's crucial to examine every link and invest in resilience.

Navigating this complex environment requires a shift from reactive crisis management to proactive resilience. This involves a commitment to ERM through strategic procurement, optimized inventory management, risk assessments, streamlined contracts, the use of AI technologies, strengthened cybersecurity, and compliance with relevant regulations. Improved governance and response protocols are necessary for healthcare providers to address these challenges.

A resilient healthcare future depends on effective leadership that is willing to invest in systems and processes, guiding organizations through evolving risks and vendor relationships in challenging times. Healthcare executives need to stay informed about geopolitical trends. Effective management of supply chains requires collaboration among internal and external teams, including supply chain, clinical, legal, compliance, IT, and operations departments. Interdisciplinary teams are essential for managing risks, ensuring compliance, and developing innovative solutions. By breaking down silos, organizations can adopt holistic approaches that enhance resilience and minimize risk. Successful approaches strike a balance between immediate operational needs and long-term strategies, recognizing supply chain management as a central component of healthcare delivery. Balancing economic realities with the need for resilience necessitates innovative policies and collaborative networks, including public-private partnerships.

In recent years, we have learned harsh lessons that highlight an important truth: a resilient and effective healthcare supply chain is more than just a cost center or administrative function. It is essential for public health and should be seen as a valuable asset. By addressing vulnerabilities and embracing innovation, the industry can transition from a reactive to a proactive approach. This shift enables healthcare leaders to ensure that our supply chains remain intact when faced with future crises, be it a pandemic, cyberattack, or geopolitical disruption, allowing patients to receive uninterrupted care and necessary treatments. The insights gained from the past must be transformed into enduring strategies, ensuring that our ability to provide care stays strong, dependable, and responsive to every patient's needs, regardless of the challenges that may come our way.

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