01 / THE ARGUMENT
An inexpensive supply contract can leave an expensive clinical exposure
The price of a vial is visible at procurement. The cost of a missing vial appears across the system: a rescheduled treatment, a clinician's substitution decision, additional coordination and a disrupted service line. My thesis is that medicine supply resilience belongs in capital allocation. Leaders should decide which continuity capabilities to fund, which risks to share contractually and which exposure remains acceptable before a shortage forces improvisation.
FDA's report for calendar year 2025 records four new shortages and 93 ongoing shortages at December 31, 2025 across its tracked drug and biological product categories. It also reports 330 prevented shortages. These are FDA surveillance and agency activity figures; they are not a claim that every locally unavailable product has been counted or that shortages have disappeared. Persistent supply problems remain relevant even when the count of newly identified shortages declines. [1]
02 / THE ARGUMENT
Buffer inventory addresses a specific failure mode
Hwang, Choueiri and Vokinger's February 2026 JAMA Health Forum Viewpoint discusses Medicare's buffer-stock payment policy and argues for additional quality-based purchasing reforms. Its proposed reforms are expert policy recommendations, not evaluated outcomes. [2] CMS's current payment-system education states that an adjustment supports certain small, independent hospitals in establishing and maintaining essential-medicine buffer stock. Eligibility is bounded; this does not establish a universal reimbursement entitlement. [3]
My proposed decision rule is to match protection to the source of failure. Inventory can bridge a finite interruption only when usable stock, shelf life and replenishment support the expected interval. A long manufacturing outage may require an alternative qualified source or clinically approved substitution. An expiring buffer can consume cash while offering little protection. Pharmacy and finance should model depletion, replacement lead time, expiry and carrying cost together, with hospital-specific eligibility reviewed before assuming external reimbursement.
03 / THE ARGUMENT
New domestic capacity needs an operational path to usable supply
On June 29, 2026, FDA selected seven companies for its PreCheck pilot. The program provides earlier facility-readiness engagement and facility-focused interactions during application submission. The agency describes an intended improvement in manufacturing readiness and supply resilience; pilot selection is not product approval or proof that a plant has delivered medicine. [4] This distinction should shape both a manufacturer's capital case and a buyer's confidence in future capacity.
McKinsey's August 2025 capital-delivery analysis emphasizes project execution and the integration of commissioning, qualification and validation into facility delivery. I treat that material as consulting context, rather than an independently verified return forecast for a particular project. [5] My extension is to require a readiness chain from construction through qualified processes, quality release and dependable distribution. A buyer cannot use announced floor space as a substitute for evidence that the required formulation can reach the required site at the required time.
04 / THE ARGUMENT
Procurement should discover correlated risk before buying redundancy
I would classify a medicine by clinical criticality, feasible substitution, interruption tolerance and replacement lead time. The supplier assessment would then trace formulation, active ingredient, production site, quality-release dependencies and distribution arrangements to the extent that reliable information is available. Two commercial brands may still share a vulnerable upstream dependency. The procurement team should describe unknowns rather than award diversification credit to an unverified second label.
Contract design should make continuity responsibilities explicit: reporting of material disruption, agreed service levels, available allocation procedures and the handling of contingency supply. A resilience premium is an author-proposed commercial mechanism that must be assessed against the buyer's needs and legal constraints. It should purchase a documented capability. Paying more without a verifiable commitment does not create resilience; buying more than the system can responsibly use can transfer shortage risk into expiry and waste.
05 / THE ARGUMENT
A portfolio can protect care while keeping working capital accountable
My proposed finance model has a base case and disruption cases. The base case records purchase expense, buffer investment, storage, expiry and the cost of maintaining approved alternatives. Disruption cases estimate locally defensible operational losses and clinical access consequences. A probability-weighted calculation can help compare options, but leaders should also examine severe scenarios that threaten essential care. Monetary estimates should never erase the clinical judgment about which treatments require priority protection.
The operating cadence should join pharmacy, clinical service lines, procurement, finance and quality in one review. The review should examine upcoming demand, usable inventory, source concentration, supply notices and unresolved contingency actions. I would release additional capital only when the team can explain the protection being purchased and measure it during a real interruption or a well-specified exercise. Resilience becomes an executive capability when the organization can defend both continuity and capital discipline, then revise its assumptions as new evidence arrives.
FROM EVIDENCE TO ALLOCATION
The operating and investment case
Proposed design by Azis R. Dabas. These decisions and evaluation criteria are not outcomes established by the cited studies.
- Decision
- Approve a targeted continuity portfolio for selected clinically critical medicines rather than an undifferentiated increase in inventory across the formulary.
- Accountable owner
- Chief pharmacy officer with procurement, quality, service-line medical leadership and the CFO; each medicine has a named operational continuity owner.
The delivery sequence
- Classify clinical criticality, substitutions, existing stock and credible replenishment intervals.
- Map supplier dependencies and identify which interruption each proposed investment would bridge.
- Compare a measured buffer, qualified alternative, contractual commitment and manufacturing-readiness investment against the same scenarios.
- Review demand, expiry, fill performance and contingency readiness; reconcile any applicable reimbursement independently.
The economics
Author-proposed calculation: resilience cost includes carrying expense, storage, expected expiry, supplier premiums, verification and added capacity commitments. Its financial benefit is the locally estimated disruption loss avoided across explicit scenarios. Working-capital principal remains a balance-sheet commitment and should not be double-counted as annual expense. Report clinical access risk separately, disclose assumptions and avoid importing FDA counts or consulting benchmarks as local disruption probabilities.
The measures that govern expansion
- Critical treatment interruptions and their duration
- Usable coverage under defined disruption scenarios
- Verified dependence on shared production or ingredient sources
- Supplier fill performance and lead-time variability
- Working capital, expiry and recurring protection expense
Stop or redesign when
Rebalance or suspend additional purchases when demand falls, inventory will expire before use, a proposed alternate source shares the same unresolved dependency, or the funded commitment does not produce verifiable continuity protection.
THE EVIDENCE LEDGER
What supports the argument
Study findings, policy requirements and market signals support different claims. Their boundaries remain visible.
[1] policy · 2026 (exact release day not stated in retrieved report)
Thirteenth Annual Report on Drug Shortages for Calendar Year 2025
- Design or status
- Agency administrative surveillance and annual activity report
- Verified finding
- The report identifies four new shortages, 93 ongoing shortages at December 31, 2025 and 330 shortages prevented during calendar year 2025 within CDER and CBER reporting.
- Boundary
- FDA's surveillance scope and operational definitions do not enumerate every local availability problem. Agency prevention totals are reported activities, not a randomized measure of intervention impact.
[2] peer-reviewed · February 27, 2026
New Medicare Payment Policy on Drug Shortages
- Design or status
- Health policy Viewpoint
- Verified finding
- The authors discuss Medicare buffer-stock payment and propose additional reforms including quality-based purchasing to address structural shortage risks.
- Boundary
- This is a policy argument, not an evaluation proving that a payment or quality-purchasing program reduces shortages. It was corrected April 3, 2026 to fix an author's name.
[3] policy · FY 2027 version; accessed 2026-10-07
Medicare Payment Systems
- Design or status
- Official payment-system educational tool
- Verified finding
- CMS states that certain small, independent hospitals receive an IPPS payment adjustment for establishing and maintaining essential-medicine buffer stock.
- Boundary
- A summary is not a hospital-specific eligibility determination or a guarantee that any particular inventory cost will be reimbursed.
[4] policy · June 29, 2026
FDA Selects Seven Participants for PreCheck Pilot Program to Advance U.S. Drug Manufacturing
- Design or status
- Official pilot-program selection announcement
- Verified finding
- Seven companies were selected for a two-phase approach involving facility readiness and enhanced facility-focused engagement during application submission.
- Boundary
- Selection and program intentions do not establish facility approval, delivered production capacity, shortened timelines or reduced drug shortages.
[5] market · August 4, 2025
The speed-to-market imperative for life sciences capital delivery
- Design or status
- Consulting analysis of life-sciences capital delivery
- Verified finding
- The article discusses execution discipline and incorporating commissioning, qualification and validation into facility delivery.
- Boundary
- Consulting examples and modeled benefits are not an independently validated ROI forecast for a specific manufacturer or purchaser. No numerical McKinsey performance estimate is adopted here.
FOLLOW THE SOURCE
Sources and editorial method
Selected evidence was reviewed through October 7, 2026. Numbered references connect claims to their underlying records. Economic mechanisms and business cases are the author’s analysis unless a source is cited. The review is selective; publication dates retain the precision available in the source.
Thirteenth Annual Report on Drug Shortages for Calendar Year 2025
U.S. Food and Drug Administration. FDA Report to Congress. 2026 (exact release day not stated in retrieved report). policy.
New Medicare Payment Policy on Drug Shortages
Thomas J. Hwang, Toni K. Choueiri, Kerstin Noelle Vokinger. JAMA Health Forum. . peer-reviewed.
DOI: 10.1001/jamahealthforum.2025.6923 · Consensus paper record
Consensus citation count at retrieval: 0. This dated index count is not a measure of study quality.
Medicare Payment Systems
Centers for Medicare & Medicaid Services. Medicare Learning Network. FY 2027 version; accessed 2026-10-07. policy.
FDA Selects Seven Participants for PreCheck Pilot Program to Advance U.S. Drug Manufacturing
U.S. Food and Drug Administration. FDA. . policy.
The speed-to-market imperative for life sciences capital delivery
McKinsey & Company. McKinsey & Company. . market.
Study authors retain credit for their work. Researcher affiliations and publisher names do not imply affiliation with or endorsement of this analysis.