Government procurement is a large and growing segment of the healthcare distribution market. That’s why HIDA recently published our Federal Procurement Market Report, to quantify the contribution of federal spending to the medical supply chain in unprecedented detail. With a total spend of $8.2 billion in contracts to healthcare distributors and manufacturers in 2021, the federal government is a major purchaser of medical supplies.
Purchases dropped 38% from FY 2020, but remained well above pre-pandemic numbers. In FY 2021, civilian departments/agencies accounted for $4.7 billion and defense departments/agencies $3.4 billion in medical supply purchases. About 98% of the federal government’s medical supply purchases were made by four departments. It makes sense for the overwhelming majority of federal purchases in the medical supply chain to be made by agencies tasked with preparedness (Department of Homeland Security), agencies with significant patient needs (Department of Defense, Veterans Affairs), or both (Health and Human Services).
Federal purchases related to the COVID-19 pandemic have followed a cyclical pattern tied to public health priorities. The Administration for Strategic Preparedness and Response (ASPR) – which manages the Strategic National Stockpile – went from approximately $4.5 billion in purchases in FY 2020 to approximately $842 million in FY 2021. This accounts for approximately $3.7 billion of the approximately $4.9 billion federal government purchasing difference between FY 2020 and FY 2021.
Small businesses accounted for a significant proportion of the federal government’s medical supply purchases. Federal incentives for small business provide opportunities for the many small and independent distributors and manufacturers in the medical supply chain. Such support for all businesses – from national to local – diversifies the source of medical supplies, building resilience and capacity in the event of future surges in demand.
In FY 2021, there were $1.35 billion in purchases of medical supplies from diverse small businesses. This reflects a significant federal strategic commitment to provide equitable access to purchasing and contracting opportunities for diverse businesses. Supplier diversity is an important goal for both the public and the private sectors. It promotes innovation, identifies new sources of talent and rewards experience.
The COVID-19 pandemic proved that the public and private sectors have complementary roles to play in supply chain operations. The private sector has expertise in the manufacture and distribution of medical products across the entire continuum of care. The public sector has greater resources and access to information to respond effectively to a pandemic. Private companies and government agencies must work together to ensure the seamless functioning of the medical supply chain.