Politics. Had Joe Biden been president in the fall of 2020, the Department of Labor’s Emergency Temporary Standard to protect workers from COVID would have probably been more aggressive than it turned out. Biden campaigned on enhancing workplace standards including widespread testing and provision of PPE and faulted then President Trump for his policy of voluntary compliance.
For the first time in a generation, the new president directed the Department of Labor to establish a new mandatory standard for workers to combat the spread of COVID-19. Not wanting to let the opportunity go to waste, nurses, teachers, restaurant and food workers' unions lobbied the proposed Emergency Temporary Standard intensely. They sought nationwide changes to workplace standards that had been on their agenda for years, from small class sizes to slower line speeds.
It was not to be. The president's policy was, as we love to say in politics, overtaken by events.
The dual effects of a crisis that was not the national shared experience many in Washington think and its accelerating retreat made union demands difficult to brook in the face of heavy industry opposition. It did not help the union cause that President Biden is now facing a donnybrook over inflation which will no doubt be aggravated by repatriation of critical parts of the supply chain.
In the end, the White House determined that only the health care setting would be covered by the ETS. It is a politically elegant exit for the White House. Health care settings are and will likely continue to observe high standards for infection control. Additionally, the open wallet the federal treasury has shown the industry leaves little room for complaints. If the burden of compliance does become too great, the federal reimbursement system via Medicare and Medicaid can come to the rescue.
While the American Federation of Teachers and the United Food and Commercial Workers union go home empty-handed for now, the Nurses Association and the Service Employees International Union claim victory.
Policy. The inevitable pivot from restrictions and mandates, vaccination and testing to a post-COVID health care economy begins with an examination of critical parts of the U.S. supply chain. The Intelligence Community, the DoD and the Food and Drug Administration have, for years, raised concerns about the limited and offshore sources of active pharmaceutical ingredients.
Last week, the White House released a report on supply chain resiliency. The report cited cost pressures as a primary driver of offshoring drug manufacturing, especially generics. The usual suspects are at work; nations seeking market share drive down prices through state-sponsored subsidies and consolidation of health systems shift market power away from manufacturers.
Specific to pharmaceutical APIs, the power of GPOs – PINC, Vizient, CAH, MCK, ABC – with aggressive contracting policies that has enforced their consolidated nature is also playing a role as is the variability of manufacturing quality across the world.
The report lays out next steps of which these are worth highlighting:
- Identify 50-100 critical medicines that must always be available to U.S. patients.
- Leverage the Defense Production Act processes to determine that incentives are necessary to onshore and near-shore critical medicines
- Identify reimbursement policies that discourage domestic production.
The federal government’s role in health care is so significant, paying a bit more to encourage domestic production of APIs is not a heavy lift. The always plugged-in politically Blackstone/Carlyle duo’s LBO of Medline would seem to be banking on it.
A more interesting policy question is whether disentangling the highly concentrated GPOs/suppliers from the health care system is both desired and necessary. HCA’s recent announcement that it was going to be supplying itself seems to suggest, for systems of a certain size, PINC et al are not value-added especially if the manufacturing facility is in North Carolina instead of Vietnam.
Like PBMs, GPOs probably have their place in health care but squeezing the last half of a cent out of API manufacturers does have its costs and federal policy is to recognize and remediate that reality.
Power. The most striking thing about the White House’s latest policy work on workplace standards and supply chain is that it represents industrial policy. In fact, the White House refers to its work as such. You must be of a certain age to recall the last time a White House spoke in such c. 1950 terms.
It was just a couple of years ago that, in response to President Trump’s promise to re-domesticate American manufacturing, a chorus of “those jobs aren’t coming back” arose. Of course that was before COVID-19 but it was and probably still is a blindness to the high cost of low cost stuff.
Across the industries with empty shelves of late; microchips, food, drugs; a theme persists. Consolidation, often brought about by nefarious trade practices, has made supply chains fragile and labor practices exploitive. The Biden administration, with no apologies and probably, if everyone is being honest, bipartisan support is seeking to reverse much of that.
The U.S. is the largest consumer of pharmaceuticals made primarily in China and India. To re-domesticate some or all that industrial production means fewer jobs abroad. Likewise, medical devices and the raw materials of their batteries and other components are made elsewhere but largely consumed by the massive U.S. health care system.
The world’s loss is the U.S.’s gain – in a very positive way – as the report notes: When manufacturing heads offshore, innovation follows. The Department of Commerce notes that large-scale public investment in semiconductor fabrication has allowed Korean and Taiwanese firms to outpace U.S.-based firms. As the Department of Commerce warns, “ultimately, volume drives both innovation and operational learning; in the absence of the commercial volume, the United States will not be able to keep up […] with the technology, in terms of quality, cost or workforce.”
We sound like a broken record here but health care is going to get very interesting.
Emily Evans
Managing Director – Health Policy
Twitter
LinkedIn
