Introduction

Public Health Supply Chain and Industrial Base
One-Year Report

On February 24, 2021, President Joseph R. Biden, Jr. issued Executive Order (EO) 14017 on America’s Supply Chains to help the United States ensure its prosperity, public health, and national security.ⁱ As we approach the one-year anniversary of the issuance of this order, the Department of Health and Human Services (HHS) is proud to report what it has done to help make our public health supply chains and biological preparedness industrial base more resilient, diverse, and secure. This report identifies the successes and practical strategies that HHS is implementing to further the U.S. Government’s goals for America’s public health supply chain and industrial base.

This report explores the public health supply chain and industrial base’s vulnerabilities. It outlines HHS’s existing and growing role and ongoing activities to strengthen the public health supply chain and industrial base and the importance of partnering with external stakeholders. It addresses personal protective equipment (PPE) and durable medical equipment (DME), testing and diagnostics, and pharmaceuticals—including therapeutics, vaccines, and active pharmaceutical ingredients (APIs); describes the status of these supply chains and industrial bases; and explains HHS’s current and planned actions to address challenges.

In 2022 and beyond, HHS will take additional decisive actions to strengthen the U.S. public health supply chain and industrial base to address evolving coronavirus disease 2019 (COVID-19) challenges and to prepare for future public health emergencies and complex public health challenges. This report highlights planned and future actions the U.S. Government can take to further protect the public health supply chain.

This report relies and builds on the following U.S. Government analyses, which are all a part of the Biden Administration’s ongoing efforts to build and sustain U.S. preparedness and response capabilities for future pandemics:

• National Strategy for a Resilient Public Health Supply Chain (the National Strategy)
• American Pandemic Preparedness Plan: Transforming Our Capabilities
• Building Resilient Supply Chains, Revitalizing American Manufacturing, and Fostering Broad-Based Growth (the 100-Day Report)

Definitions

A supply chain is the means for providing supplies and equipment to end-users. The public health supply chain system produces and delivers medical supplies to support the healthcare and public health (HPH) sector and includes both domestic and international suppliers and manufacturers. It provides PPE, DME, diagnostics, other medical devices, and pharmaceuticals (therapeutics and vaccines) to the American people.ⁱⁱ The public health supply chain and industrial base are primarily within the purview of the private sector. However, the U.S. Government has a role to play to ensure the foundations of our market economy provide for resilient and transparent supply chains, which are critical to the economic prosperity and national security of the United States. In addition, the U.S. Government has a continued interest in ensuring needed supplies are available to address the current COVID-19 pandemic, future public health emergencies, and its internal needs.¹ The public health supply chain is, therefore, of great importance to the U.S. Government.

The public health industrial base (PHIB) includes all entities manufacturing or producing medical products and medical countermeasures (MCMs)² including medical devices, medical equipment, pharmaceutical products, and other products designed to improve patient outcomes. The PHIB also includes associated workforces, including research and development facilities, which help produce essential medicines,³ MCMs, and critical inputs for the HPH sector. It does not include the ability of distributors to source medical products from foreign sources to distribute within the U.S. healthcare system. Unlike the defense industrial base⁴, the PHIB is driven by the private market, which creates unique challenges, such as incentivizing domestic industry to maintain capacity which might be less economical than foreign competitors.

Support to the Supply Chain and Industrial Base During the COVID-19 Pandemic

HHS took decisive actions to address the COVID-19 pandemic. HHS is supporting the public health supply chain and the PHIB and providing crucial assistance to frontline workers and the American people. In 2021:

HHS allocated $76B in COVID-19 emergency supplemental funding, including investing

• $3B to accelerate production of rapid tests, expand production capacity, and lead the Administration’s procurement of 500 million over-the-counter COVID-19 diagnostic tests;
• $250M in PPE manufacturing;
• $65M in vaccine vial manufacturing.

Since the beginning of the COVID-19 response in 2020, the Strategic National Stockpile (SNS) has utilized approximately $12B from COVID-19 supplemental appropriations to acquire approximately

• 747 million N95 respirators (59 times pre-pandemic levels);
• 274 million surgical and procedure face masks (8.5 times pre-pandemic levels);
• 19.6 million face shields (two times pre-pandemic levels);
• 59.6 million gowns and coveralls (12.5 times pre-pandemic levels);
• 4 billion gloves (240 times pre-pandemic levels);
• 158,000 ventilators (10 times pre-pandemic levels).⁵
  

HHS has strengthened capabilities to monitor and manage supply chain bottlenecks by issuing 66 priority ratings under the Defense Production Act⁶ (DPA) for U.S. Government contracts for health resources, eight priority ratings for industrial expansion, three priority ratings for non-U.S. Government contracts to support the production of resins for diagnostics and infusion pumps, and the manufacture of closed suction catheters for treatment of patients with COVID-19. These ratings allow the U.S. Government to ensure priority is given to urgently needed items, helping to prevent supply bottlenecks from halting production of needed goods.

As a result of all these actions, it was possible to

• administer 600 million COVID-19 vaccines doses and provide 78.4 percent of the U.S. population (ages 5+) at least one dose of a COVID-19 vaccine as of the beginning of January 2022;ⁱⁱⁱ
  
• donate and deliver 327.5 million vaccines to other nations;^iv
  
• procure 30 million treatment courses, distribute over 3.3 million monoclonal antibody (mAb) doses and 182 million diagnostics kits, and administer 2.9 million treatment courses;
• ship over 40 million rapid antigen tests and 2.3 million point-of-care polymerase chain reaction tests to the most vulnerable populations, including nursing homes, federally qualified health centers, and long-term care facilities since May 2021;
• place 1.5 billion doses of vaccine under contract and award contracts for 78 MCM projects to aid the COVID-19 response, including 16 therapeutics, 55 diagnostics, and seven vaccine candidates.

Supply Chain Vulnerabilities

The COVID-19 pandemic has strained global supply chains and exposed critical vulnerabilities in the Nation’s ability to deliver effective health care during times of high demand. Offshore manufacturing and just-in-time inventory management, combined with the increased demands of the pandemic, have stretched the PHIB’s supply chains beyond their capacities and created shortages, resulting in significant disruption for manufacturers and consumers. Although the U.S. Government has made great strides in addressing these vulnerabilities, challenges remain. The U.S. Government needs to help create adequate domestic stockpiles and capable domestic suppliers with surge capacity. The first step towards doing this is to identify vulnerabilities within the public health supply chain. Factors contributing to the insecurity of public health supply chains include:

Foreign Dependencies: The United States relies on foreign sources for components of its public health supplies. This can affect patient outcomes in the United States whether or not there is an ongoing public health emergency and limits the Nation’s ability to implement prevention strategies that help maintain crucial operations. In addition:

• Foreign reliance puts the U.S. public health supply chain at risk of disruptions from logistical challenges, such as shipping and regulatory delays as well as port congestion. This can lead to production shortages when coupled with increased demand and just-in-time delivery processes.^v
  
• Foreign labor shortages due to the COVID-19 pandemic, shifting demographics, natural disasters, conflicts, government regulations, or other origins can also disrupt supply chains.
• Ethical considerations, such as avoiding the products of forced labor, can limit the overall number of suppliers.
• Single source suppliers exacerbate foreign dependency challenges. Due in part to inconsistent international standards, it may be difficult to find sources of some medical-grade components that comply with FDA requirements. These challenges may lead to the sourcing of many medical-grade components solely from one country of origin. As a result, source material in the country of origin may become difficult to obtain, especially when national interests are prioritized, such as during increased demand periods, a localized event that disrupts the supply chain, or a public health emergency.
• Foreign sourcing makes the United States vulnerable to other countries’ export restrictions and other trade-restrictive measures. Such measures can disrupt the supply of critical public health supplies, thereby posing a risk to national health security.
• Product constraints have been exacerbated by limited access to raw materials produced overseas and shortages of subcomponents, like aluminum capacitors, which directly impact the medical device industry.

Economic Pressures: Competition for economies of scale⁷ and the lowest available cost have contributed to offshoring production of many raw materials and finished products, reducing diversity across the supply chain.

• Companies operating overseas can often outcompete companies with U.S.-based production because of lower overhead costs, fewer regulatory requirements, and lower taxes. These advantages help expand foreign companies’ market share, leading to further consolidation through sole source manufacturing.
• Foreign anticompetitive practices – such as state subsidies to businesses and labor, price fixing, or state-ownership of raw materials – provide further economic advantages to foreign locations over U.S. locations. The consolidation of the global container shipping industry into a small number of dominant foreign-owned lines and alliances can disadvantage U.S. exporters.
• Consumers, both individuals and wholesale purchasers, prefer low-cost goods, which are often foreign made, as opposed to more expensive goods produced domestically. This preference may cause existing suppliers to halt operations and new suppliers to lose interest in entering the domestic market.
• Industry emphasis on cost-cutting has led to a large-scale acceptance of just-in-time inventory management, which leads to limited stock on hand to help withstand disruptions.
• Unpredictable fluctuations in demand stress supply chains’ financial stability and reduce manufacturers’ willingness to scale up production for peak demand periods. To be resilient and manage the demand fluctuation, a supply chain needs to balance a push-and-pull strategy.⁸
  

Workforce Challenges: Challenges filling entry-level and non-entry level positions and heightened training needs, resulting from lengthy machine operating training and certification requirements, increase the risk of suboptimal production and capacity for some public health supplies. Difficult jobs with poor working conditions contribute to high turnover and prolonged job openings. When coupled with port congestion, this creates problems with receiving products from overseas manufacturers. Insufficient production supplies, prolonged job openings, absences due to illness, or a lack of technical skills can cause downstream delays of materials and ultimately production scarcity, leading to systemic disruptions.^vi COVID-19 has also affected workers through policies related to onsite personnel capacity, vaccine mandates, and conditions for returning to work.

Barriers to Entry and Expansion: For some U.S. companies, complex and expensive startup costs, including those associated with infrastructure and lengthy regulatory and approval processes, are challenges to building or expanding manufacturing capabilities. Some manufacturers face reduced incentives to upgrade equipment, improve supply chains, or expand capacity,^vii which contributes to dependency on a limited group of suppliers. Critical domestic environmental protections that safeguard public health and welfare, including the health and welfare of communities adjacent to manufacturing facilities, do not always exist in foreign supply chains. Subpar environmental and public health protections result in lower production costs that allow offshore competitors to undercut U.S. products. In addition, equipment for capital expansion of production lines is often produced overseas, which complicates rapid industrial expansion.

Lack of Visibility and Coordination: Federal and state, local, tribal, and territorial (SLTT) authorities need to better understand supply chain networks and improve coordination, including in storage and transportation, to mitigate supply chain challenges in the future. Suppliers and private industry constitute a complex web that make up part of the public health supply chain. Purchasers do not always know the origins of all goods.^viii Various factors can contribute to the maldistribution of finished drug and PPE products, including wholesale distributors and manufacturers not knowing whether purchases reflect clinical need or are being made in anticipation of possible shortage in the future. As a result, purchasers may acquire drug and PPE products in excess of clinical need, thereby exacerbating or creating unnecessary shortages. The lack of coordinated efforts can also lead to purchasing without a wide range of efficacy and reliability, resulting in increased supply chain risks due to counterfeit products, unvetted suppliers, and more.

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^1. For example, the National Institutes of Health’s (NIH) Clinical Center is the nation’s largest hospital devoted entirely to clinical research and therefore is an important government consumer of products from the public health supply chain and industrial base. NIH Clinical Center, accessed February 16, 2022.

^2. MCMs include both pharmaceutical interventions (e.g., vaccines, antimicrobials, antidotes, and antitoxins) and non-pharmaceutical interventions (e.g., medical devices—including diagnostics—ventilators, personal protective equipment, and patient decontamination) as well as other needed medical products that may be used to prevent, mitigate, or treat the adverse health effects of an intentional, accidental, or naturally occurring public health emergency. They include, but are not limited to, qualified countermeasures as defined in section 319F–1(a)(2) of the Public Health Service Act (42 U.S.C. § 247d–6a(a)(2)), qualified pandemic or epidemic products as defined in section 319F–3(i)(7) of the Public Health Service Act (42 U.S.C. § 247d–6d(i)(7))), and security countermeasures as defined in section 319F‐2(c)(1)(B) of the Public Health Service Act (42 U.S.C. § 247d–6b(c)(1)(B)), accessed February 16, 2022.

^3. “Generally, the essential medicines we identified are those that are most needed for patients in U.S. acute care medical facilities, which specialize in short-term treatment for severe injuries or illnesses, and urgent medical conditions. The medical countermeasures we identified are FDA-regulated products (biologics, drugs and devices) that meet the definition of a ‘medical countermeasure’ provided in the executive order and that we anticipate will be needed to respond to future pandemics, epidemics, and chemical, biological and radiological/nuclear threats. When identifying essential medicines and medical countermeasures, we focused on including those that are medically necessary to have available in adequate supply which can be used for the widest populations to have the greatest potential impact on public health,” FDA Publishes List of Essential Medicines, Medical Countermeasures, Critical Inputs, Required by Executive Order, accessed February 13, 2022.

^4. “The Defense Industrial Base Sector is the worldwide industrial complex that enables research and development, as well as design, production, delivery, and maintenance of military weapons systems, subsystems, and components or parts, to meet U.S. military requirements,” Defense Industrial Base Sector, accessed February 16, 2022.

^5. Figures accurate as of December 29, 2021.

^6. Section 101 of the DPA authorizes the President to require acceptance and priority performance of contracts or orders and to allocate materials, services, and facilities to promote the national defense or to maximize domestic energy supplies. The President’s priorities and allocations authority is delegated, in E.O. 13603, to the Departments of Agriculture, Energy, Health and Human Services, Transportation, Defense, and Commerce (referred to as "Resource Departments") with respect to resources within each department’s jurisdiction, accessed January 26, 2022.

^7. “Economies of scale exist when increased size of production capacity results in lower unity costs,” Daniel J. Alesch and L. A. Dougharty, Economies-of-Scale Analysis in State and Local Government, accessed February 10, 2022.

^8. Push-based supply chains ship products from the manufacturing site to retailers based on anticipated demand. Pull-based supply chains are demand-driven rather than prediction-based, National Strategy for a Resilient Public Health Supply Chain, accessed February 10, 2022.