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Shortage-proof: Hospitals become their own suppliers

The pandemic prompted health systems to take control of the supply chain.
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· 5 min read

Hospitals faced widespread shortages of medical-grade masks and other personal protective equipment (PPE) at the start of the pandemic—a dearth of critical supplies that heightened Covid-19 risks and prompted hospital executives to rethink how they procure PPE.

The stakes were high: Without adequate PPE, healthcare workers are more likely to get sick or even die, leaving far fewer staff to treat patients. But getting more supplies proved difficult after Chinese manufacturers halted the export of PPE as Covid surged domestically.

The solution? Health systems began to take greater control of the supply chain rather than relying solely on foreign suppliers. Two systems, Ochsner Health of the Gulf South and Illinois-based OSF HealthCare, took it a step further by starting their own PPE manufacturing operations.

“We did that, one, to be self-sustaining [and also to] put people to work in the community as well,” said Mike Vermillion, VP of distribution operations at OSF.

Increasing US production

Let’s start at the beginning. In May 2020, 15 health systems joined global purchaser Premier to invest in American manufacturer Prestige Ameritech, which makes face masks and N95 respirators. The health systems—from Baptist Health South Florida to Banner Health based in Phoenix—acquired a minority stake in Prestige Ameritech with the aim of expanding domestic PPE manufacturing capacity.

“We never had a capability that we could lean on,” said Premier President and CEO Michael Alkire, who didn’t disclose the total investment. “We needed [Prestige] to expand production incredibly fast.”

Then Ochsner Health and OSF made their manufacturing moves.

Ochsner Health first used a 3D printer and got help from local manufacturers to create masks and other PPE prototypes, said Aimee Quirk, CEO of the health system’s venture capital fund, Ochsner Ventures. The system approached nonmedical companies that made products like ties, dog collars, or hotel furniture—companies that were all short on work in the early months of the pandemic—to produce PPE prototypes. Eventually, Ochsner Health worked with manufacturers outside New Orleans to secure hundreds of thousands of PPE supplies for the system’s stockpile, Quirk said.

Still, the health system needed a long-term solution, she said.

“Seeing the anxiety—the added stress that was put on our care teams, our physicians who were stressed by this—we knew we had to do something different,” said Quirk.

Producing PPE locally

In May 2021, when Covid cases were decreasing (until the Delta variant surged that summer), Ochsner Health announced its partnership with real estate firm Trax Development in a $150 million total deal to create a new Louisiana-based PPE manufacturer called SafeSource Direct.

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Quirk did not disclose to Healthcare Brew Ochsner Health’s investment in the joint venture. But she said that the health system is a minority investor, and that Ochsner Health is set to begin selling PPE to other providers soon, too.

Ochsner Health projects SafeSource will be one of the largest American manufacturers of the disposable nitrile gloves by early 2023. SafeSource employs more than 850 local workers at its two plants as of November 2022. The facilities have a combined capacity to produce 108,000 gloves and 5,280 surgical masks per hour, along with other personal protective equipment.

Although Quirk said the pricing will be competitive, she did not share the specific costs with Healthcare Brew. The health system can also purchase discounted PPE from SafeSource, said Ochsner Health spokesperson Shannon Yale.

For its part, OSF purchased its own manufacturing equipment in late 2021 and is relying on local labor to make PPE. The health system partnered with Peoria Production Solutions in Central Illinois, which provides the labor and houses OSF’s equipment, such as two PPE machines that together cost less than $500,000. OSF also supplies raw materials for the masks, said Vermillion.

Unlike Ochsner Health, OSF does not pay for the PPE it gets from the partnership, said Vermillion.

Vermillion did not share specifics on OSF’s total investment for its internal PPE manufacturing process, but said the PPE costs are on par with competitors in the marketplace.

Still not all American made

Even with these efforts, PPE production will continue overseas as a way to drive down costs, Alkire said.

Premier is building a highly automated facility in Malaysia to exclusively supply PPE to partnered health systems, he said. He added that the use of “near-shore” plants, like those in Mexico, Puerto Rico, or Central America, might also aid against future shortages.

“We look at that as a mix, because we need that muscle to flex in the event that there’s other natural disasters or other things that impact that supply chain in one of those other countries,” he said. “We think the most important thing is resiliency in the supply chain.”

That’s the ultimate aim of hospitals that experienced those white-knuckle moments waiting for PPE—to never be in that position again.

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