What a shortage of IV bags tells us about the impact of climate change on supply chains

A plant producing most of the nation's IV bags was wiped out by Hurricane Helene. It's another warning of financial risk.

In the wake of Hurricane Helene, the nation experienced an abrupt shortage of saline solution–critical for emergency care and used in a wide range of medical settings. The storm wiped out Baxter International, the source of 60 percent of the nation's saline solution supplies. This story viscerally reminds us that fragile supply chains are financial risks in the context of the escalating effects of the changing climate, just like risky mortgages and mispriced muni bonds.

To cope, companies will need to shift from "just in time" to "just in case" ways of planning—to put physical risks to their supply chains on the table in the same way they look at physical risks to their facilities. Like everything else in the climate adaptation matrix, this shift will be disruptive and expensive. But coping now will be less expensive than reacting and scrambling in the future.

The Baxter story is a crystallization of supply-chain vulnerability: What happens when a basic, low-dollar element of almost everything that happens in healthcare, an input that people take for granted, suddenly goes missing?

Baxter International's 1.4 million square foot plant is located 35 miles from Asheville, North Carolina, where the rolling landscape of the Piedmont meets the mountains. The storm in late September rose up against those hills and dumped its load of water on the ground below. The mayor of the nearby town of Marion, North Carolina (the county seat of McDowell County), Steve Little, told the Post & Courier that the resulting flood "was like shooting a cannon." Roads were wiped out, houses were ruined, and rail lines in the county had the dirt beneath them swept away.

Baxter's plant sits in the hills above a giant underground aquifer that makes possible the production of 1.5 million sterile IV fluid bags every day. That location gives easy access to water, but also makes the plant risky: its deliveries rely on a single bridge over which trucks trundle to reach a mountain highway. Following Helene, both that single outgoing bridge and bridges on the highway in both directions were damaged. And the plant itself, which supplies 60 percent of liter-and-larger bags of saline fluids used nationwide, was drenched with four feet of water and covered in mud.

The IV solutions that Baxter supplies are infused with salts, sugars, and electrolytes and used for rehydrating patients, making areas around joints visible during surgeries, delivering medications, dialysis (including at-home nighttime treatments), chemotherapy, and home infusion of medications. When Helene knocked the Baxter plant offline, hospitals around the country immediately had to ration fluids and cancel or delay surgeries. Dialysis appointments were disrupted. Anesthesiologists, in particular, are used to feeding medication into lines of saline to manage patients' blood pressure, keep people stable during surgery, and avoid nausea and discomfort following these procedures. Following Helene, they had to improvise. Much of the US medical system scrambled, prioritized, and conserved.

The federal government moved quickly, invoking the Defense Production Act—a wartime power—to get resources to Baxter quickly so it could clean up and rebuild its facility. The FDA is also temporarily allowing Baxter to import products from its plants in other countries, has extended the permissible shelf life of Baxter's existing IV fluids (making older products available for use), and has allowed more importation of fluids from other countries.

As of last week, Baxter is still not up to its pre-Helene manufacturing pace, and IV fluid is still scarce. The knock-on effects of this supply issue are many: Companies that sell or lease medical devices or equipment for elective surgeries suddenly are making less money; people who need at-home supplies are still having a very hard time finding them; hospitals are still prioritizing uses of these precious bags; and patients are still being urged to rehydrate using Gatorade if they possibly can. The hurricane affected the entire country.

The effects of climate change expose existing fragilities in many legal and financial systems, and supply chains are no exception. Sterile IV solutions are low-margin products that are heavy and take up a lot of space. At the same time, they have to meet regulatory safety requirements. All of these elements make IV solution like basic infrastructure, characterized by high barriers to entry and plenty of incentives to consolidate so as to avoid competition. That's why Baxter has emerged as the dominant player among just four major manufacturers in the US, with many sole-source contracts with consolidated hospital systems. The IV fluid market was experiencing shortages before Helene hit. But things got much worse after the storm.

What's the right response? The first step is for companies to put climate-driven physical risks to supply chains on the table and drive investment in safer, redundant operations. This isn't news. The White House put out a 250-page paper back in June 2021 about the need to secure supply chains, and noted that policies that promote climate risk assessment and disclosure from actors along all supply chains could both "increase awareness of the exposure to climate shocks and prompt appropriate investment in resilience and adaptation strategies."

Investors should demand these assessments and disclosures. So should banks granting credit.

Mispriced and under-recognized financial risk stemming from physical climate change is beginning to be reflected in insurance markets and property values. Meanwhile, the repricing risks presented by supply chain disruptions caused by the increasingly ferocious effects of climate change remain hidden in plain sight.

The IV story serves as a useful, simple demonstration that climate-driven disruptions cascade and compound across multiple markets. It's another warning bell: When it comes to physical supply-chain risks, the effects of accelerating climate change will have increasingly non-linear consequences for human lives. Both the public and private sector need to be investing more, planning more carefully, and acknowledging the climbing risks that our shared "just in time," optimization-minded inclinations are creating for all of us.

If we aren't able to safely produce salt and water in a bag following a storm, just imagine what's in store in the years to come.

Boone, North Carolina, Sept. 27, 2024. Jonathan Drake, Reuters