How Much Medicine Does Healthcare Throw Away Each Year?
Jul 14, 2016 - 9:57:14 AM
In fact, the issue may be bigger than you think. Working with our Future of Healthcare Advisory Board, we recently launched an initiative to get a sense of the scope of the problem and, if big enough, to work together as an industry to reduce the amount of medicine that we throw away each year due to expiry.
For an industry that has struggled to collaborate in the past on supply chain issues, this initiative makes a lot of sense. No one profits (at least no legitimate companies) from expired medicine. It's pure waste, and as such it's anathema to any supply chain professional. No matter what the size of the problem, any short-dated medicine we throw away is medicine that's not accessible to patients who may need it. Deploying that medicine before it expires to high-need areas would benefit society, in line with the mission of any healthcare organization.
A $10 billion opportunity?
Back to the size of the problem. In May, we ran a very short survey with a small number of healthcare companies to find out how much they write off due to expiry. We then calculated this amount as a percentage of revenue and took the average for the small group of companies. The aggregate revenue for the top 20 pharmaceutical companies (plus three smaller biotech companies we also included) is $496 billion a year. When we look at the percentage of that we're throwing away due to expiry, we get a $10 billion figure.
Now, this was all very unscientific and any statistician or data scientist would dismiss the results out of hand; but even if I'm 80-90% off, we're still talking about $1-2 billion in medicine being destroyed because of expiry issues. And remember, we're not talking about fruit and vegetables - these products last more than three years in many cases.
Moreover, the manufacturers who responded to our survey ship their products to first economic customers on average with around 28 months of remaining life. Consider that for a moment. Products are leaving manufacturers' docks with over two years of product shelf life left, and the industry in aggregate is throwing away around $10 billion due to short dates. If I were a manufacturer, I'd find that a tough pill to swallow!
Supply chain increasing healthcare access
There are myriad reasons for product expiry issues, and each one suggests solutions dependent on collaboration across the value chain: pharmaceutical batch sizes may be too large; demand uncertainty in different markets may be too volatile; visibility into inventory type and positioning across the value chain may be too dim; and data standards may be too fragmented to make the meaningful sharing of information viable.
The point, though, is that healthcare has a real opportunity to collaborate across the entire value chain and work in a fundamentally different way than it has in the past to improve the cost of care and to increase availability of medications to patients. If 1-2% of pharmaceutical product is being thrown away due to inefficiencies and inability to make the supply chain work, that is 1-2% less medication available to patients in need.
That may not sound like a lot, but when you extrapolate that figure to the amount of medicine dispensed globally and the amount of people worldwide without access, freeing up this waste and getting the product into patients' hands before it expires is a very meaningful exercise.
SCM World's larger mission is to help our members find innovative supply chain solutions to three of the world's fundamental challenges: global distribution of food, accessibility of healthcare and environmental sustainability.
Our Future of Healthcare Advisory Board is unified around the objective of increasing access to healthcare as wide and as deep as possible. Creating greater efficiency in how the value chain manages its inventory is a great place to begin these efforts. At the end of the day, we're looking to use the supply chain to create opportunities to get short-dated products into areas of need before the expiry date hits. If we prove collaboration works with this initiative, I have no doubt more opportunities will arise for supply chain to make its mark on increasing access to those in need.
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