STRATEGIC LEADERSHIP FOR FINANCIAL AND CLINICAL HEALTHCARE EXECUTIVES • A TWELVE MONTH OUTLOOK • SPRING 2015
OUTLOOK LEADERSHIP
MANAGING DIRECTOR Kayla Sutton
EDITORIAL STAFF
E XECUTIVE SPONSORS Mike Alkire, chief operating officer Durral Gilbert, president, supply chain services Amy Denny, vice president, strategy, supply chain services A special thanks to Dave Natale, Cheryl Fahlman, Paula Gurz, Tina Harlan, Eric Johnson, Erin Linville, Scott Pope, Matt Shimshock, Rich Westbay, Tracey Worrell, and Laura Yandell for their contributions to this edition of the Outlook.
DESIGN AND PRODUCTION Chris Cardelli, director, creative services Sung Ginader, project manager, creative services Dave Dixon, senior graphic designer, creative services Kimberly Diedrich, associate graphic designer, creative services EDITORIAL SUPPORT Amanda Forster, vice president, public relations Bryan Alsop, senior manager, corporate communications Morgan Bridges-Guthrie, manager, public relations
LETTER 01
EXECUTIVE LETTER
Supply chain buried treasure Mike Alkire, chief operating officer / Premier, Inc.
FEATURES | SUPPLY CHAIN LIFE CYCLES
04 A BREAK ON PHARMACEUTICAL COSTS
PERSPECTIVES 22 Creative ventures in supply chain
TRENDS 32 Redefining risk: Radiology’s new cost imperatives 36 Survival of the cleanest 40 From fragile to fit: Creating healthier markets for vaccines 42 Proven processes for improving care quality
08 PURCHASED SERVICES: REINING IN ROGUE SPEND
13 UNIQUE DEVICE IDENTIFIER IMPLEMENTATION GUIDE
ECONOMICS 46 A conversation with an economist 50 An update on hospital performance metrics 55 Patient volume trends 59 Premier’s supply chain solutions 60 Inflation summary
16 WHAT WORKS: INFLUENTIAL DATA FOR SUPPLY PROCUREMENT
COMMODITIES 62 Minimizing raw materials risk 64 2015 market overview: Indicators for pricing 66 Copper market overview 68 Cotton market overview 70 Energy market overview 72 Food market overview 76 Plastic resins market overview 78 Natural and synthetic rubber market overview 80 Steel market overview 82 References
About the cover As health systems expand as end-to-end care facilities – including home health aides, palliative care, urgent care and physician offices – it’s important that their internal processes follow suit. Similarly, increasingly capable and integrated data systems give health system executives and employees the visibility necessary to drive improvements in cost, quality and outcomes across disparate departments and facilities. This edition of the Economic Outlook highlights the power of coordinating the supply chain life cycle, whether in procurement of supplies or a full-scale change in the way services are contracted and savings monitored.
About the publication The Economic Outlook is Premier’s flag-
The content in this edition is intended
ship publication that highlights emerging
to help our readership better understand
economic and industry trends impacting
the implications of healthcare reform and
our membership and shaping the health-
provide insights into existing and evolving
care landscape. As an important thought
opportunities for healthcare stakeholders
leadership resource, the publication pro-
to improve connectivity and patient care
vides strategic insight to financial, clinical
in a newly-shaped marketplace.
and supply chain healthcare executives across the country. A key aspect of the long-term strategy for the Outlook is to collaborate with internal and external subject matter experts to build consensus from diverse points of view. The publication harnesses the expertise of our network of healthcare leadership to illuminate best practices and strategies needed to drive performance improvement. We strive to provide our members and healthcare organizations with valuable, timely information and business intelligence derived from the industry’s most progressive participants.
We welcome your comments and questions. For additional information, please email economicoutlook@premierinc.com. premierinc.com/economicoutlook outlookmarketplace.hostedbywebstore.com
EX E C U TI V E LE TTER
Supply chain buried treasure
No team of experts: A health system’s supply chain team has members who have expertise in different areas, such as surgical products, IT, or imaging equipment. Managers of service contracts may be experts in a particular specialty or function but may have no way of knowing if they are getting a fair price on the services they buy. It’s often not even within the scope of their jobs to monitor or administer an agreement and its terms. No centralized service contract repository: Service contracts often reside in the facility or department using them. The contracts seldom overlap with other facilities or departments that use the same services. Without a central data
MEMBERS OF THE PREMIER ALLIANCE, With the help of a GPO, much of supply chain savings is what we call low-hanging fruit – fairly easy to see, and with the right team, easy to reach. Yet, today’s financial pressures on healthcare providers require much greater effort to find the savings necessary to thrive. For instance, the purchased services category accounts for approximately 20 percent of an average hospital’s total operating spend, but cost reduction opportunities there have largely been ignored. These services encompass anything outsourced to another company and range from laundry to lawn care to staff recruitment. While it is a new wave for many health systems, Premier teams have found ample savings in purchased services. Health systems typically have high-single or double-digit percent savings overall. To supply chain operations, purchased services pose specific challenges that include: No typical contract life cycle: Supplies are sourced by a centralized team that identifies vendors, negotiates terms and pricing, and compares products through value analysis. Not so
hub, different facilities or departments may have no idea that a similar contract already exists. “Purchased services is a future hotbed of activity in terms of reducing costs system wide,” says LeAnn Born, vice president, supply chain, Fairview Health Services (Minneapolis, MN). “But it’s not like supplies; purchased services are messy. Getting our arms around all of this spend is challenging.” Like 45 percent of Economic Outlook survey respondents – who say their organizations’ cost savings goals are the biggest factors in supply chain decisions this year – Born was charged with realizing savings for her organization several years ago, when Fairview first started looking at purchased services as an area of opportunity. Not knowing exactly what her team’s strategy would be, Born decided to assign a $1 million savings marker to the initiative. “Early on, we weren’t sure how we were going to get our arms around purchased services and actually realize savings,” she says, “but we knew the opportunities were plentiful.” A number of health systems, in addition to Fairview, have determined that supply chain teams are best equipped to rein in rogue purchased services spending. The problem lies in how to apply some of the same methodologies that have long existed for supply procurement to services.
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EX E C U TI V E LE TTER
Supply chain buried treasure
The potential savings opportunities are similar to buried
For that, we need benchmarking.
treasure. It’s easy to have a hunch it exists, but reaping the reward requires a lot of digging.
Just like buried treasure, benchmarking for purchased services is easier to talk about than to realize. While supplies have a unit
This is where the data comes in.
cost that can be compared across vendors, many services are not priced by unit. Or the units themselves may differ among vendors.
Categorization tools like Premier’s can quickly sort purchased services spend into buckets that identifies areas where there are
Using snow removal as an example, one vendor might price
issues, such as:
its service by square footage, while another might use square
• Departments that have large service spend;
footage and inches of snow, while a third might price by hours of
• Multiple vendors providing the same service (e.g., snow
labor. Another example is surgical instrument and scope repair,
removal); and • Nearby facilities using different vendors.
where there are hundreds of different prices for each product that is serviced. With this lack of consistency and no real visibility into pricing, it’s no wonder it’s so hard to determine
Spend categorization, coupled with our knowledge and
the “best price.”
expertise in national and custom service contracts, allows us to first put a number on a health system’s saving opportunities. On
That’s why a regional or national repository of price
average, health systems we’ve looked at could save 10 percent
benchmarks, such as the one Premier is building, can be vitally
overall across its service contracts. For a health system with
important in identifying where a health system’s service pricing
$1.5 billion in purchased services spend, that equates to
is out of line with its peers. As health systems expand their
$150 million in savings.
delivery networks to include acute, physician practices, longterm care, rehabilitation centers, and more, the opportunity
The categorization tool also highlights the number of vendors
to streamline services costs becomes even greater. Once the
being used and the number of disparate facilities within a health
front-end work of collecting disparate contracts across a
system that are contracting for the same services.
health system is done, supply chain managers will be able to easily integrate ongoing procurement of services on life cycle
Typically, fewer than five vendors account for 80 percent of spend
management tools like PremierConnect Supply Chain.
in a category, even if a facility has 20-30 vendors with current service contracts. As we’ve historically done with supplies,
From easy to more complicated service categories, varying
consolidating business to fewer vendors means better volume
levels of data can give hospitals the transparency they need to
pricing. Through custom contracting, we’re able to renegotiate
find that buried treasure of purchased service savings.
existing agreements or identify 2-3 vendors that could assume all or most of the service.
In healthcare, “X” doesn’t mark the spot. The data does.
While collecting this data across a health system can help identify inconsistent pricing or target categories where there are abundant vendors being used, it doesn’t help determine if pricing is fair for the regional market.
2
LETTER ©2015 by Premier Inc. All rights reserved.
– MIKE ALKIRE Chief operating officer
/ Premier, Inc.
Features
A break on pharmaceutical costs: Biosimilars to hit the market, 4 Purchased services: Reining in rogue spend, 8 Unique Device Identifier implementation guide, 13 What works: Influential data for supply procurement, 16
T E K R A M E H T IT H O T S R A IL B IO S IM
©2015 STEPHANIE DALTON COWAN C/O THEISPOT.COM
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Bryant Mangum Chief pharmacy officer / Premier, Inc.
With more than 25 years of experience in pharmacy and materials management services, Bryant Mangum was instrumental in the reorganization of Premier’s pharmacy department. He continues to advance its programs in contracting, medication management, and regulatory issues. Prior to joining Premier, he held senior management positions with NCS
S
pending on specialty drugs is expected to reach $400 billion in 2020, up from $87 billion in 2012.1,2 Biologics, which account for the vast majority of these drugs, are large, complex molecules produced by living organisms. They are very often high-cost treatment regimens
for chronic illnesses such as cancers, autoimmune diseases, and hepatitis. 3 While the expense of specialty drugs can be a challenge for many patients – the
average prescription costs $1,776 – high utilizers, such as Medicare beneficiaries, have approximately double the spend per person compared to commercial health plan members.4 Currently, only half of the costs are covered by Medicare premiums, taxes,
Healthcare, Tenet, and SunHealth (one
and the interest on those taxes.5 As 10,000 baby boomers become newly eligible for
of Premier’s heritage organizations).
Medicare each day, the cost pressures on Medicare become even less sustainable.
As an authority on clinical and pharmacy
As a result of rising costs and growing demand from the aging population,
operations, procurement, and contract
the ACA included the Biologics Price Competition and Innovation Act
negotiations, he provides Premier’s
(BPCIA), which has largely impacted the specialty pharmaceutical market.
members with unsurpassed quality sourcing
The act provides a way for the FDA to approve non-innovator biologics,
in a rapidly changing marketplace. He
known as biosimilars, when an original biologic’s patent expires.6 As when
received his Pharmacy degree from the
generics first hit the market in the 1980s, biosimilars increase the number
University of North Carolina and currently serves on its Pharmacy School Board.
of options available to patients and typically offer financial savings.7 By 2024, biosimilars are anticipated to eliminate $250 billion in healthcare spending if biosimilars for 11 specific blockbuster biologics are approved (see Figure 1). The Rand Corporation estimates a 4 percent decrease (approximately $44.2 billion) in direct biologic spending from 2014 to 2024, while total savings will be largely determined by the FDA’s final regulation on its biosimilar pathway.8 As with many new FDA approvals, getting products to market has been slower than originally predicted. However, in late 2013, Teva introduced the first “follow-on” biologic, Granix (a similar product to Amgen’s Neupogen). Unlike many biosimilars to come, Teva sought approval through the traditional biologics license application, 351(a), instead of the new biosimilar application, 351(k). The main difference between the two lies in demonstrating interchangeability of the follow-on product to the original. At the time Granix received approval, the FDA had not issued final guidelines on the interchangeability aspect of the biosimilar pathway.9 Unlike generic drugs, which have the same active ingredients, dose, strength, OUTLOOK
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Fig.1
$250 billion could be saved in the next decade if these 11 biosimilars are approved
$5.7B Potential savings Avastin (bevacizumab)
$120B
®
Epogen® (epoetin alfa) $100B
® Herceptin (trastuzumab)
Humira® (adalimumab)
$80B
$250B
$60B
Intron A® (interferon alfa-2a) Potential savings
® Neulasta (pegfilgrastim)
2014
$17B
® Neupogen (filgrastim)*
2024 Potential savings
Pegintron (peginterferon alfa-2b) ®
$40B
Procrit® (epoetin alfa) $20B
® Remicade (infiximab)*
Rituxan® (rituximab) $0 2014
2016
2018
2020
Cost WITHOUT Biosimilars
2022
2014
2024
Cost WITH Biosimilars
Source: Express Scripts, “The Need for U.S. Biosimilars,” http://lab.express-scripts.com/~/media/7bc55bb374b545d8841bbda8c5b866f1.ashx
Fig.2
*Awaiting FDA approval.
Biosimilar applications pending FDA review
Sponsor and product
Reference
Date of filing
Estimated user fee date
Sandoz, filgrastim
Amgen’s Neupogen
May 2014
March 2015
Advisory committee Voted unanimously Jan. 7, 2015 to recommend approval (“Sandoz’s Biosimilar Filgrastim Sail Through FDA Panel” – “The Pink Sheet” DAILY, Jan. 7, 2015) *Approved March 6, 2015
Celltrion, infliximab
Johnson & Johnson’s Remicade
August 2014
June 2015
Delayed from March 17, 2015
Apotex, pegfilgrastim
Amgen’s Neulasta
October or November 2014
August or September 2015
No announcement yet
Hospira, epoetin alfa
Amgen’s Epogen and Janssen’s Procrit
December 16, 2014
October 2015
No announcement yet
Apotex, filgrastim
Amgen’s Neupogen
December 2014
October 2015
No announcement yet
Source: Pharma & MedTech Business Intelligence, “The Pink Sheet” Daily, February 18, 2015.
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2024
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and use guidelines as their branded
The next/first wave of biosimilars
Amgen’s Neulasta, is currently
counterparts, the nature of biologics
The first wave of true biosimilars –
awaiting FDA review. Apotex’s
makes them impossible to identically
those that follow the 351(k) pathway – is
application for filgrastim, a biosimilar
replicate. Since biologics are produced
quickly approaching (see Figure 2). In
of Amgen’s Neupogen, is also waiting
in living systems, biosimilar products
early January 2015, Sandoz’s biosimilar
for the agency’s evaluation, making
are intended to closely approximate
filgrastim, Zarxio, was recommended
Apotex the first company to have
the originator product and have
for approval by the FDA Oncologic
more than one biosimilar under
many of the same characteristics.
Drugs Advisory Committee and was
review.14 Anticipated turnaround
approved March 6, 2015.12 At the front
time from the FDA is 10 months.15
of the FDA’s current biosimilar review
Many other biosimilars are in
10
Impact on pharmacy formularies
C
queue is Celltrion’s version of Janssen’s
development and will be joining the
adoption on pharmacy formularies will
Remicade, which will be discussed at
queue for review. Though it’s taken
require greater oversight than generic
the Arthritis Advisory Committee’s
longer than expected, now that the first
introductions. General guidelines
spring meeting. Unlike Sandoz’s
biosimilars – and follow-on biologics
for formulary review include:
product, which already has a large
– have hit the market, a steady stream
number of users in Europe, Celltrion’s
of others are coming. Not only will this
product has a smaller worldwide patient
wave of biosimilars likely drive down
population. The relatively small number
pharmaceutical costs in the area of
of users may delay FDA approval.
greatest growth and expense, it will
Due to their complexity, biosimilar
11
• The product approval pathway and data package; • Appropriate indications (on and off-label) for use; • Extrapolation considerations; • Therapeutic interchange
13
The first biosimilar out of Apotex, a pegfilgrastim filing similar to
provide greater access and options for patients with chronic healthcare needs.
and guided use policies; • Transitions of care; and
REFERENCES
• Payer mix.
1. UnitedHealth Center for Health Reform & Modernization, The Growth of Specialty Pharmacy: Current trends and future opportunities, Issue Brief (Minnetonka, MN: United Health Group, 2014), http://www.unitedhealthgroup.com/~/media/UHG/ PDF/2014/UNH-The-Growth-Of-Specialty-Pharmacy.ashx. 2. CVS Health, “New CVS Caremark Report Projects Annual Specialty Drug Spending will Quadruple to $402 Billion by 2020,” news release, November 20, 2013, http://www.cvshealth.com/newsroom/press-releases/pharmacy-services/new-cvs-caremarkreport-projects-annual-specialty-drug. 3. Center for Healthcare Supply Chain Research, 2014 Specialty Pharmaceuticals: Facts, Figures and Trends. 4. UnitedHealth Center for Health Reform & Modernization, The Growth of Specialty Pharmacy: Current trends and future opportunities, Issue Brief (Minnetonka, MN: United Health Group, 2014), http://www.unitedhealthgroup.com/~/media/UHG/ PDF/2014/UNH-The-Growth-Of-Specialty-Pharmacy.ashx. 5. Bryan R. Lawrence, “Why we can’t afford Medicare,” The Washington Post, May 30, 2012, http://www.washingtonpost.com/ opinions/why-we-cant-afford-medicare/2012/05/30/gJQAqIGh2U_story.html. 6. Patient Protection and Affordable Care Act, Public Law 111-148, U.S. Statutes at Large 156 (2010). 7. Center for Healthcare Supply Chain Research, 2014 Specialty Pharmaceuticals: Facts, Figures and Trends. 8. Andrew W. Mulcahy, Zachary Predmore, and Soeren Mattke, Perspective: The Cost Savings Potential of Biosimilar Drugs in the United States, Rand Corporation, 2014, http://www.rand.org/content/dam/rand/pubs/perspectives/PE100/PE127/RAND_PE127.pdf. 9. C. Lee Ventola, “Biosimilars Part 1: Proposed Regulatory Criteria for FDA Approval,” Pharmacy and Therapeutics 38, no. 5 (2013): 270–287, http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3737980/pdf/ptj3805270.pdf. 10. Steven Lucio, “Clinical and Formulary Considerations for Biosimilars,” in Biosimilars 101: The Science, Approval Process, and Implications for your Practice, supplement 1, Hospital Pharmacy 49 (March 2014), http://www.thomasland.com/ hospitalpharmacy.html. 11. Steven D. Lucio, James G. Stevenson, and James M. Hoffman, “Biosimilars: Implications for health-system pharmacists,” Am J Health Syst Pharm 70, no. 22 (November 15, 2013): 2004-2017, doi:10.2146/ajhp130119.L. 12. Novartis, “Sandoz biosimilar filgrastim recommended for approval by FDA Oncologic Drugs Advisory Committee,” media release, January 7, 2015, http://www.novartis.com/newsroom/media-releases/en/2015/1885139.shtml. 13. FDANEWS, “FDA Advisory Committee Will Consider Remicade Biosimilar,” drug daily bulletin, February 17, 2015, http://www. fdanews.com/articles/169965-fda-advisory-committee-will-consider -remicade-biosimilar. 14. Derrick Gingery, “The Leading U.S. Biosimilars Company Is – Apotex!?!,” The Pink Sheet Daily, Pharma & MedTech Business Intelligence, February 18, 2015, https://www.pharmamedtechbi.com/publications/the-pink-sheet-daily/2015/2/18/the-leadingus-biosimilars-company-is--apotex. 15. Derrick Gingery, “Apotex Biosimilar Goes To FDA, But May Enter Crowded Market,” The Pink Sheet Daily, Pharma & MedTech Business Intelligence, December 18, 2014, https://www.pharmamedtechbi.com/publications/the-pink-sheet-daily/2014/12/17/ apotex-biosimilar-goes-to-fda-but-may-enter-crowded-market.
This could mean hospital formularies and pharmacy benefit managers (PBMs) will be able to decrease drug prices by adding biosimilars. For instance, there are several new anti-cholesterol drugs currently in the process of biosimilar approval. Once approved, formularies can choose to offer one of these drugs to more effectively control pharmaceutical costs for their organization and their patients. For the inpatient setting, interchangeability laws likely will not affect the ability to dispense a biosimilar in lieu of the biologic product. However, some states are trying to make therapeutic interchange more difficult for retail and/or specialty pharmacies.
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Where did all these contracts come from?
services, however, doesn’t flow quite
by a set percentage, often without
Even though purchased services
that smoothly. First, contracting for
consideration by the facility as to
accounts for approximately
services is generally decentralized,
whether the pricing is still competitive.
20 percent of a hospital’s total operating
with the process owned by several areas
spend, it has often been overlooked
within a health system. For instance, HR
negotiator or centralized review
in cost-reduction efforts. But that is
managers often find their own service
process, other unfavorable terms
no longer the case. Given the growing
providers for benefits management
and conditions may be overlooked.
pressure on budgets and the work that
or staffing solutions and negotiate
health systems have already done to
their own pricing. Facilities managers
across and within regions is made
reduce supply and labor expenses,
select and contract with their own
more difficult by differing offerings
purchased services is poised to be
construction companies, landscapers,
and service-level expectations.
the next major area of focus.
and laundry service providers.
Other complications include a lack
One of the primary challenges
The contract life cycle for purchased
All of these contracts exist in
result in prices that increase annually
Finally, without an experienced
The inability to compare pricing
of transparency and the absence
associated with purchased services is
disparate departments within an
of standard benchmarks.
that the contracting process doesn’t
organization. Without a central
usually follow the typical contract
manager, it’s difficult to have an
a variety of functional areas can be
life cycle. In supply contracting, a
overall view of the vendors providing
overwhelming without a process that
centralized team identifies the relevant
services or their negotiated prices.
can identify overall purchased services
vendors, negotiates terms and pricing,
There may be significant opportunity
spend and where it is occurring.
and completes an apples-to-apples
for savings simply by consolidating
comparison to other vendors. Based on
agreements held with the same
the findings, an award decision is made.
vendors in different business units
Getting organized and identifying opportunities
The agreement is then managed by
Corralling multiple contracts across
or departments. This is particularly
1. The first place to start is by capturing
supply chain professionals who make
true for consulting firms that serve
all of the facility’s or health system’s
sure the negotiated terms, pricing,
in multiple organizational areas.
spend data in one place, such as in
Further, many of the contracts
an accounts payable file. However,
and value are maintained. During the length of the agreement, that
include evergreen clauses that
while these files usually include a
same supply chain team sees that the
automatically renew unless cancelled
description of the expense, it may be
agreed-upon products are provided at
by one of the parties involved.
inaccurate or not specific enough.
agreed-upon prices and that any rebates
Without a set expiration date, it can
or other offers are issued. Before the
be challenging to monitor agreements
services category list as well. This
contract expires, the team evaluates
and evaluate whether the services
usually encompasses all areas of
satisfaction with the provider and
provided meet the original scope of
service spend in a way that identifies
begins the contracting process again.
the agreement. These clauses can also
where the expense resides. It may
It’s helpful to have a purchased
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Fig.1
Example of health system’s spend subcategorized 1% 1%
4%
4%
Lawn care services Fire, life, safety, security systems and services
6% 29% 6%
General facilities services Parking management equipment and services Construction services Pest elimination services
8%
Property management Floor care equipment and services 10%
Maintenance, repair and operations 27%
Power and electric services
even provide a point of contact. For
These fall into such categories as:
example, knowing that an expense
• Areas where a large number of
Since many purchased services vendors have a regional, rather
is for waste management may not be
vendors are used for the same
than national presence, these
particularly helpful. Hospitals could
service in the same geographic
identified areas of opportunity can
contract for several different types
region. If 80 percent of the total
be combined into local, custom
of waste management services with
category spend is directed to a few
contracts, either for a single health
different price points and terms (e.g.,
vendors, it could be advantageous
system or among several facilities
hazardous waste removal, dumpster
to eliminate at least some of those
within the same geographic region.
rental, or water treatment services).
that are used less frequently.
The example health system’s spend
Many hospitals still struggle
• Areas within a facility that
on facilities services illustrates
to categorize purchased services
purchase similar services
a few easy wins (see Figure 2):
spend manually. Premier offers an
but aren’t using the same
• In lawn care services, the system
automated process that can assign
vendors (e.g., transcription
is using 35 different vendors.
categories (e.g., facilities services) and
or translation services).
Depending on the geographic
subcategories (e.g., lawn care services
• Facilities where like-services are
spread of the system, much
or snow removal) to the vendors in an
not centralized. Centralization
of its lawn care services can
accounts payable file (see Figure 1).
makes it easier to manage
likely be provided by the same
agreements and leverage volume.
two or three vendors. More
2. Once spend has been categorized, the next step is to evaluate the top areas of expense and identify any easy wins.
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FEATURES ©2015 by Premier Inc. All rights reserved.
• Contracts with limited service complexity and clear expectations.
remote or rural facilities may require different vendors. • Pest elimination and floor care
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Example of health system’s facilities spend with additional data
Spend
Percent of total
Number of vendors
Number of facilities
Average savings (%)
Potential savings (%)
Difficulty level
Lawn care services
$2,792,235
29%
35
15
Fire, life safety, security systems and services
5-15%
10%
$279,224
•
$2,565,783
27%
28
12
8-16%
12%
$307,894
•
General facilities services
$962,194
10%
Parking management equipment and services
15
12
8-16%
12%
$115,463
•
$753,118
8%
8
6
8-16%
12%
$90,374
•
Construction services
$543,974
6%
14
10
5-15%
10%
$54,397
•
Pest elimination services
$539,500
6%
7
15
5-15%
10%
$53,950
•
Property management
$370,937
4%
15
13
5-15%
10%
$37,094
•
Floor care equipment and services
$343,456
4%
6
5
8-16%
12%
$41,215
•
Maintenance, repair and operations
$142,797
1%
30
15
3-10%
7%
$9,996
•
Power and electric services
$135,645
1%
3
15
8-16%
12%
$16,277
•
Subcategories
Savings range (%)
equipment and services are
that won’t necessarily determine
categories in which savings
best pricing in the market. Working
could consider regional opportunities
can often be found with little
with an organization like Premier,
for local custom contracting. The
effort. In this case, the average
which can aggregate benchmarks
custom contracts could then be
return for this health system
from many health systems, can
extended to all facilities within
would be nearly $100,000.
demonstrate where spend is elevated
the system and to the system’s
within an entire system compared to
affiliates, driving standardization
its geographic peers or competitors.
and cost savings. System-wide
3. Services that are moderate or difficult to negotiate can be
Additionally, the healthcare system
coordination of purchased services
targeted for cost reduction with
Long-term wins
will result in increased purchasing
the help of benchmarks.
Longer-term best practices should
leverage and better pricing.
Purchased services present several
include creating a centralized team for
The road to gaining a holistic view
challenges for benchmarking,
negotiating and managing all purchased
of purchased services spend can be a
including geographic differences in
services agreements. This team will
challenging one. But the opportunities
pricing (e.g., snow removal in NY
be the go-to resource for knowing
that are uncovered should make
versus NC), limited transparency
which vendors are used for specific
the journey well worthwhile.
in unit of measure, and lack
services and their pricing, resulting
of standard benchmarks.
in enhanced transparency within the
While larger health systems can
facility. This team should also monitor
try to benchmark by comparing price
the agreements to ensure services are
per unit across their various facilities,
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A FEW YEARS AGO, Fairview Health Services (Minneapolis, MN) challenged its leaders to tackle a large cost-savings goal for the entire health system. LeAnn Born, vice president, supply chain, and her team zeroed in on purchased services with what turned out to be a $1 million solution. “Purchased services is a future hotbed of activity in terms of reducing costs system-wide,” Born says. “But it’s not like supplies; purchased services are messy. Getting our arms around all of this spend is challenging.” Born’s team got started by analyzing annual accounts payable data, which they now do on an annual basis. First, they identified areas with high spend and expiring contracts. Next, using an existing tracking application to capture all anticipated cost savings, they optimistically projected $1 million for purchased services. “Early on, we weren’t sure how we were going to actually realize savings,” Born says, “but we knew the opportunities were plentiful. So we just left that $1 million target on paper as our goal, and sure enough, we met it!” Fairview’s cost savings challenges are similar to those facing other health systems, Born says. “Like everyone else, we used to focus heavily on our supply chain’s low-hanging fruit, but that approach just wasn’t applicable to purchased services. There were too many spend categories with relatively small dollar amounts. When combined, though, they added up to significant costs for our system. It can seem like the juice is so little for the squeeze, but we still needed to address all of it.”
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FEATURES ©2015 by Premier Inc. All rights reserved.
In fact, targeting those smaller spend areas has helped to create more long-term benefits for the Fairview system, Born says. “Our team learned that when process improvements stick, then category management is easier going forward.” Though Fairview has decentralized contracting – meaning different sites can enter into their own contracts for services – all contracts are entered into a central enterprise resource planning (ERP) system. Current vendors are available in a drop-down menu, but new vendors need to be entered into the program, prompting requestors to consider whether an existing vendor might fulfill their service needs. This also gives contract managers the visibility necessary to follow up with requestors and connect them with contracts already in place that offer the same or similar services. Recently, Fairview engaged Premier’s custom contracting team to evaluate other complicated areas. For example, Born says, “We’d already reduced our courier vendors and pickups as part of our system-wide sustainability program. We were getting greener while realizing more savings and process improvements. Now, Premier’s custom contracting team is like an extension of our supply chain team. Together, we’ve started a broader logistics project that looks at third-party freight management, inbound and outbound freight, fleet management, and more.” Fairview has also successfully cut spend in waste management and elevator maintenance. In short, system leaders keep digging deeper to mine more cost savings, or as Born likes to say, “We keep squeezing the most juice.”
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Cheryl Fahlman, BSP, MBA, PhD Director, program evaluation / Premier Research Institute Principal research scientist / Premier, Inc.
Dr. Fahlman has over 25 years of experience
UDI
as a clinician and researcher in health policy, focusing on a variety of areas including
U NI Q U E D EV I C E I D ENT I F I ER
cost, access and quality of care. She is currently leading the Premier research group, working with the Partnership for Patients (PFP) Hospital Engagement Network funded through CMMI. Within Premier she develops, tests, and conducts surveys and assessments for a variety of programs including PFP, QUEST, and other Premier collaboratives. Previously, while working for NORC as coproject manager, she worked closely with the Division of Hospital and Medication Measures within CMS for Hospital Compare and other hospital-based quality measurement programs to provide public reporting on hospital quality measures. On a companion project, Dr. Fahlman was the task leader working with CMS to develop an implementation plan for the Centers to align physician quality reporting as specified in the Affordable Care Act. Dr.
I M P L EM EN TAT ION G U ID E
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he Food and Drug Administration’s new Unique Device Identifier (UDI) system will help healthcare organizations improve supply chain efficiency, enhance patient care, and reduce operating costs. But before it can do any of those things, it must first be incorporated
into the electronic databases used to purchase and track medical devices. Implementation for high-risk devices began in September 2014.1 UDIs for other devices
Fahlman was also a health researcher at
are scheduled to be phased in over seven years, although that may happen more quickly as
Mathematica Policy Research and the Center
manufacturers sell off non-identified devices and install UDIs across their product lines.
for Studying Health System Change, a senior research associate at the Health Research and Education Trust, and a research assistant at the Lamy Center on Drug Therapy and Aging at the University of Maryland, Baltimore.
This innovation, which assigns each medical device with an exclusive code corresponding to its make and model, will replace catalog numbers and other device nomenclature. It will also provide a standard, unambiguous product identifier. For some devices, particularly implanted products, UDI benefits will extend beyond the supply chain and into the clinical suite, electronic health records (EHRs), and claims administration. OUTLOOK
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That’s because UDIs can:
Fig.1
• Facilitate recalls when devices malfunction; • Encourage comparative research
Benefits of global location number (GLN) implementation12
SUPPLY CHAIN
HEALTHCARE SETTING
Uniquely identify individual delivery points and the final destination of a product
on device performance; • Allow more accurate reporting of failures; • Prevent medical errors; and • Reduce manual, nonstandardized device data entry. All device purchasers will be rewarded with better cash flow, reduced labor costs, simplified supply
Improve traceability and more efficient management of devices Reduce errors and increase quality by more easily identifying missing or damaged devices and equipment
E-Commerce: correct pricing applied so that ordering and delivery processes can become more efficient
Improve sterile equipment management Provide reliable and accurate location identification for devices
Real time tracking of medical equipment within the hospital
chain management, and more efficient payment and reporting processes. As hospitals begin implementing
• Identifies potential safety issues
The FDA permits three UDI formats:
UDIs for lower-risk devices, they
in near real-time from a variety of
those created by GS1, by the Health
should see the results envisioned
privacy-protected data sources;
Industry Business Communications
by the FDA and articulated in the
• Reduces the burden and
Council (HIBCC), and by the
Brookings Institution’s UDI Roadmap
cost of medical device post-
International Council for Commonality
for Effective Implementation, which was
market surveillance; and
in Blood Bank Automation (ICCBBA),
developed by materials management,
• Facilitates the clearance and approval
clinical, and administrative experts
process for both new devices, and
from hospitals and health systems.
new uses of existing products.
This guide provides hands-on advice
All in all, the creation of the
which is used exclusively for blood, tissue, and organ products. UDI numbers do not change based on the organization that is receiving the
from healthcare organizations already
Unique Device Identifier presents
device. However, they can change when
using UDIs. Each section of the guide
an opportunity for healthcare
there is a significant alteration in the
describes key features as well as
systems to improve patient care
device itself, including its specifications,
workflow and technology changes
while reducing expenses.
needed to improve device tracking.
performance, size, composition, package
Each UDI consists of two parts.
4
quantity/dimensions, or distributor.
The first is a device identifier (DI) that
What is a Unique Device Identifier?
contains the manufacturer name and
Over the last few years, the FDA has
the version or model of the product. The
Why have a Unique Device Identifier?
worked to improve data collection
second is a production identifier (PI)
Hospitals, physicians, patients,
for medical devices. The result is a
that includes current manufacturing
and health plans can benefit from
new surveillance system that:
information for that specific device, such
the UDI system, because:
as the lot, batch, or serial number and
• It is often difficult to locate recalled
2,3
• Communicates timely, accurate, systematic, and prioritized
the expiration date. While every device
devices, whether they are on hospital
device risk/benefit assessments
will have a DI, some may have only
shelves or implanted in patients.
throughout its life cycle;
partial product information (perhaps
The UDI system will allow improved
just an expiration date) or maybe
tracking of devices through searches
structured, electronic
none. All UDIs must be readable both
of inventory databases, health records,
health-related data;
electronically and by the human eye.
and other information sources.
• Uses quality, standardized,
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FEATURES ©2015 by Premier Inc. All rights reserved.
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Areas of consideration in calculating return on investment transform healthcare operations and
SUPPLY CHAIN MANAGEMENT
PURCHASING MANAGEMENT
LABOR MANAGEMENT
• Wrong product received due to incorrect purchase order • Right product but - No/incorrect GS1 bar code - Not in organization’s database • Use of non-preferred vendors
• Incorrect product information from vendor
• Hours for tracking product identification numbers
• Incomplete product information from vendor or GPO
• Hours for dealing with product problems and errors
capture product information grows.
• Provider time for monitoring products for patient charges and reordering
taken the lead by creating the system,
• Incomplete/inaccurate supplier information
• Wrong product returned
effectiveness. The next few years should offer unprecedented opportunities to leverage this innovation as more devices receive UDIs and the need to The FDA and manufacturers have and the next step is up to healthcare providers. Currently there is no requirement for implementing UDIs or
• Distribution of wrong product in hospital
a financial penalty for not doing so. But as early adopters have quickly learned,
• The UDI system will standardize how devices are identified, thereby creating operational and clinical efficiencies that allow more time for direct patient care.5 • UDIs are expected to replace nonstandardized catalog numbers and improve procurement and inventory management. That will help hospitals reduce on-hand inventory and ensure that products are used before their expiration dates. • Providers, patients, and
– looking at return across the supply
the benefits far outweigh the costs.
chain and how changes before and after adoption have affected areas that might not be considered part of a standard ROI, including staff time, resource use, and error rate.13
What about the future? Since the UDI system’s introduction last year, medical device tracking has been on the verge of an evolution that is expected to dramatically
This work was supported with funding from The Pew Charitable Trusts. The full implementation guide is available at: https:// www.premierinc.com/download/pew-udiimplementation-guide/?wpdmdl=6286&ind=0.
manufacturers will be better able to evaluate long-term risks and device effectiveness, since outcomes can more easily be tracked. • In addition to the aforementioned cost and efficiency benefits, UDIs may increase patient safety by reducing medical errors and providing more accurate information about the devices, including postmarket surveillance.6,7,8,9,10,11 Since UDI adoption can involve significant changes to the entire supply chain process, it is a good idea to take a holistic view when calculating ROI
REFERENCES 1. FDA, Medical Devices: Unique Device Identification (UDI), 2014, http://www.fda.gov/MedicalDevices/ DeviceRegulationandGuidance/UniqueDeviceIdentification/default.htm (accessed April 25, 2014). 2. FDA, Strengthening our National System for Medical Device Post Market Surveillance, 2012. 3. FDA, Strengthening our National System for Medical Device Post Market Surveillance: Update and Next Steps, 2013. 4. FDA, Medical Devices: Unique Device Identification (UDI), 2014, http://www.fda.gov/MedicalDevices/ DeviceRegulationandGuidance/UniqueDeviceIdentification/default.htm. (accessed April 25, 2014). 5. N. A. Wilson and J. Drozda, “Value of unique device identification in the digital health infrastructure,” JAMA: The Journal of the American Medical Association 309, no. 20(2013): 2107-2108. 6. Ibid. 7. C. Sorenson and M. Drummond, “Improving medical device regulation: the United States and Europe in perspective,” The Milbank Quarterly 92 no.1 (2014): 114-150. 8. S. Normand, et al., “Postmarket surveillance for medical devices: America’s new strategy,” BMJ (Clinical Research Ed.) 345 (2012): e6848-e6848. 9. T. P. Gross and J. Crowley, “Unique device identification in the service of public health,” The New England Journal Of Medicine 367, no. 17(2012): 1583-1585. 10. Unique Device Identifiers: Facilitating the Capture and Transmission of UDI, wedi, 2014, 28. 11. S. Barlas, “New FDA medical device rule imposes minimal burden on hospitals: facilities able to scan unique device identifiers will benefit,” P & T: A Peer-Reviewed Journal For Formulary Management 38, no. 12 (2013): 720-720. 12. GS1, GLN in Healthcare: Implementation Guide, 2012. 13. GS1, Healthcare Provider Tool Kit: Global Trade Item Number (GTIN), http://www.gs1us.org/DesktopModules/Bring2mind/ DMX/Download.aspx?Command=Core_Download&EntryId=920&PortalId=0&TabId=785 (accessed October 10, 2014).
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The PremierConnect ® Supply Chain procurement cycle
NON-ACUTE
ACUTE HOSPITAL
PHYSICIAN OFFICE
LONG-TERM CARE
PREMIERCONNECT® SUPPLY CHAIN
Plan
H
Source
Contract
Buy
Receive
Pay
Manage
ospitals are under
on total supply expenses. This visibility,
tremendous pressure
while difficult to achieve, is possible
871 acute-care members, Premier
to reduce costs by as
with the help of automated analytics.
recently determined that many
much as 30 percent
In evaluating information from
progressive supply chain organizations
to balance reimbursement cuts and
The procurement cycle
are realigning resources to focus on
increased patient volume created by
Progressive organizations are taking a
product introductions that have the
the Affordable Care Act. To optimize
big picture view and looking at overall
most impact on cost and quality. Our
productivity and profitability, supply
service line management. They evaluate
study revealed that new products and
chain leaders must look beyond
innovative technology offerings,
services accounted for more than $277
routine cost cutting and take a more
not only for costs, but also for their
million in increased expenditures from
holistic approach that focuses on
impact on operations, quality, patient
April – September 2014. While these
heightened visibility into less obvious,
satisfaction, revenue, and outcomes.
costs grew, overall prices decreased by
1
expense-reduction opportunities. The largest supply spend increases
Supply chain managers who
nearly $36 million. Although that is a
use technology holistically
significant savings, it is nearly eight
come from volume growth of new
are able to (see Figure 1):
times less than the cost of new products.
products and technology inflation,
• View cost changes and trends
rather than from simple price changes. In fact, 83 percent of supply chain savings are generated by improved
across their health systems; • Identify opportunities to control pricing and standardize savings;
Controlling product mix and technology inflation We used PremierConnect Supply
resource use, increased standardization,
• Consolidate contract administration;
Chain to compare purchase orders
and waste elimination.2
• Customize and control item
and invoices from our study group
masters and formularies;
from April – September 2014 to the
Increased visibility into top cost drivers is critical for success. Yet
• Find, buy, manage, receive, and
same period in 2013. These facilities
value analysis teams often struggle
pay for supplies and services
are representative of Premier’s
to keep up with new products and
with a cohesive process; and
membership in terms of size, geographic
technologies, much less their impacts
• Oversee purchases and operations
location, and aggregation group.
across diverse facilities. OUTLOOK
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The analysis examined three core change metrics for all unique SKUs or
Fig.2
Core metric changes (six-month period in 2013, compared to 2014)
transactions within a facility, including:
Net change
Percent change
($35,763,590)
-0.92%
$7,958,362
0.21%
$277,529,410
7.15%
• Price, or the net impact of average price changes between the periods; • Volume, or the net impact of purchased quantity changes by units; and • Product mix, or the net impact
Price Volume Product mix
of products introduced versus products no longer purchased. Overall pricing was reduced by $36 million, or nearly 1 percent, during the
Fig.3
Changes in core metrics in select contract categories
six-month period (see Figure 2). While volume remained relatively flat (up 0.2 percent), product mix increased by more than 7 percent ($277 million annually). We also separated the expenditures into unique purchasing groups or contract categories (see Figure 3). The categories are a mixture of physician preference items (orthopedic total joints and spinal implants), clinical preference items (pulse oximetry and safety IV catheters), and commodity
Contract category
Price change
Volume change
Product mix change
Orthopedic total joints
-2.82%
7.08%
7.36%
Spinal implants
-3.67%
3.47%
6.37%
Pulse oximetry
-0.36%
7.59%
4.54%
Safety IV catheters
-0.07%
2.90%
3.88%
Paper towels and tissues
-2.09%
4.88%
-4.04%
Tape products
-9.25%
10.20%
0.37%
supplies (paper towels/tissues and tape products). Every contract category except paper towels and tissues had an overall spend increase, primarily due to large product mix changes. The largest product mix increases occurred in the physician preference categories (orthopedic total joints, 7 percent; spinal implants, 6 percent) and the smallest with commodity categories (paper towels/tissues, -4 percent; tape products, < 1 percent). Although every category had an overall expenditure increase, each category also had a net price decrease. The largest total price decrease was
18
FEATURES ©2015 by Premier Inc. All rights reserved.
in spinal implants, at $3.3 million,
The data, showing declining prices
and the largest percentage decrease
and mixed volume, point to product mix
was in tape products, at -9 percent.
growth as the primary reason for overall
Not every category trended equally,
expenditure increases. Determining
but the data clearly demonstrated
specifics reasons for product mix
decreasing price trends.
growth at each facility is difficult, but
Among the selected categories, volume trends were mixed. The largest increases occurred in the
nevertheless, some clear indications within the aggregate data emerged. For example, information on one of
commodity (tape products, 10 percent)
the largest new growth items, spinal
and clinical preference (pulse
implants, indicated little use until
oximetry, 8 percent) categories.
December 2013. Then usage quadrupled over the next six months (see Figure 4).
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Most products, like the sample, go
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categories where margins are still
Common metrics include percentage
through a common cycle of growth,
extremely high. This effect is apparent
of spend on contract and number
maturity, and decline (see Figure
in all non-commodity medical surgical
of file and non-file purchases. More
5). After a new product is launched,
categories, but it is more pronounced in
advanced metrics include total spend by
marketing and sales focus on quick
categories where the margin is higher.
category per a usage denominator (e.g.,
customer adoption, many times
surgical services spend per operating
associated with the cannibalization
Trusted insights
room case). These are important
of an existing product line. This
Providers can reduce these costs by:
metrics but do not clearly explain why
behavior occurs frequently in the
• Measuring the impact of product mix
the true expense increases occur.
medical technology industry.
changes and technology inflation;
Premier has created an advanced
Spinal implants have been available
• Realigning supply chain and
for years, and over time, advancements
service line organizations
Chain that measures the impact of
in technology improved the devices.
to focus on cost, quality, and
product mix and ties it to a standard
outcome improvements; and
financial budget report. By reviewing
However, each small improvement typically introduced with a new device,
metric within PremierConnect Supply
• Communicating results
overall trends in pricing, volume, and
with new branding and a premium
and share best practices to
product mix, supply chain leaders can
price. Pure price benchmarking will
service line leadership.
focus on cost drivers in the most affected
Most supply chain organizations
category (see Figure 6). Financial
never catch up with the impact of device change inflation. In the spinal implant
are consumed with basic procure-to-
managers can also use these metrics to
industry, new technologies are released
pay processes and measures rather
identify impact based on timeframes,
almost quarterly and are consistent
than specific metrics that support
such as FY2013 versus FY2014, and
with other physician preference
monitoring of technology inflation.
change forecasts or budgets accordingly.
Fig.4
Growth in spend of sample product, December 2013 – May 2014
$200,000 $175,000 $150,000 $125,000 $100,000 $75,000 $50,000 $25,000 $0 Dec 2013
Jan 2014
Feb 2014
Mar 2014
Apr 2014
May 2014 OUTLOOK
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Collective knowledge Historically, supply chain purchasing
Fig.5
Typical product cycle of growth, maturity and decline
professionals have been trained Growth
to manage contracts and supplier relationships. Their focus tends to gravitate to what they can control and where past successes have generated significant savings. Traditional sourcing
Sales
P
activities include price negotiations, contract analytics, standardization,
A successful extension strategy could increase sales
12345 Launch
price discrepancy management, and
Saturation
price-tier management. Organizations
Maturity
Decline
Time
inherently reward individuals for improvement in these areas and incentivize contracting professionals to achieve better price concessions.
Fig.6
PremierConnect Supply Chain analytics
Supply chain leaders of the future need skillsets that support a broader definition of success, one that encompasses clinical and financial outcomes. They must also: • Measure total expenditures within a contract category over a defined period, rather than focusing on contract savings at one point in time; • Understand technology changes and their effect on quality and budget; and • Review the number and effectiveness of purchasing, contracting, and value analysis employees. They must also realize that many technology changes with increased
Measuring true patient outcomes is
More visibility into supply analytics –
costs can be a net positive for
difficult, but it can be done. Through
including product mix, volume,
healthcare organizations. If the device
Accountable Care Organizations
spend, and related areas of the
or supply truly improves overall
(ACOs), many providers are using
procurement cycle – can make the
care, then marginal cost increases
advanced population health data to
difference in an environment where
may be acceptable. Unfortunately,
support overall cost, quality, outcome,
every dollar matters and every day
many times the benefits of new
and supply chain improvements.
brings a new budgetary challenge.
technologies are measurable only after a patient leaves the hospital.
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FEATURES ©2015 by Premier Inc. All rights reserved.
REFERENCES 1. Health Affairs, “Reducing waste in healthcare,” December 13, 2012, http://www.healthaffairs.org/healthpolicybriefs/brief. php?brief_id=82 2. A database maintained by Premier, Inc.
Perspectives
Creative ventures in supply chain, 22
C R E AT I V E V E N T U R E S IN
S U P P LY C H A I N
PERS PECTIVES
T
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ospital leaders today
business lines to help identify and
struggle to trump
drive out unnecessary expense.
crushing financial pressures that hammer
Results from the spring 2015 survey
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IT and telecommunications investments continue to top capital budgets. Almost half (42 percent)
show that, when searching for ways
of respondents say it’s their largest
them from every direction. They look
to reduce total costs, 63 percent of
area of capital expense for the next 12
for different, winning strategies to
supply chain and C-suite respondents
months, primarily due to ongoing EHR
reduce total costs while re-examining
point to supply use as an easy win.
implementations and investments
the tried-and-true methods that
Still, they also report cost-reduction
in advanced data analytics to meet
have served them well in the past.
initiatives in other areas, including:
quality metrics (see Figure 3).
For example, trimming expenses on
• Resource use in purchased
supplies, once an effective means of cost reduction, just isn’t good enough anymore. Leaders understand they
services (43 percent); • Staffing and labor efficiency, nursing (43 percent);
Investments in infrastructure, such as construction costs, are the largest area of capital expense for 30 percent of respondents. Population health efforts
must cast a wider net and dig deeper
• Length of stay (38 percent);
emphasize the necessity of making
to unearth savings, such as efficient
• Staffing and labor efficiency,
healthcare accessible to all. Health
staffing of physicians and physician
outsourcing (30 percent);
extenders, or the improvement of quality outcomes that decrease pay for performance penalties on readmissions. Ultimately though, cost savings goals
• Staffing and labor efficiency, physicians (29 percent); and • Level of care (27 percent). Additionally, many organizations
systems are looking for ways to modify existing facilities to meet increasing demand for outpatient services. They are also building, buying, and renovating ambulatory care centers.
still rule as the top factor impacting the
in recent years have limited their
supply chain, according to respondents
capital expense budgets to align with
management is another way that
to Premier’s surveys since fall 2012.
cost-savings goals and survive in the
health systems are maximizing their
Indeed, 45 percent of supply chain and
face of mounting financial demands.
budgets. In 2014, Allegiance Health
C-suite leaders who replied to the 2015
However, 69 percent of spring 2015
(Jackson, MI) began an initiative to
spring survey continue to cite cost
respondents report flat or increasing
centralize equipment management
savings goals as the number one factor
capital budgets this year over last.
in its main hospital, hoping to
impacting supply chain (see Figure 1).
In fact, compared with the fall 2014
reduce waste in its processes.
The supply chain is an area where
survey, more respondents (18 percent,
Capital equipment planning and
“We were experiencing uncertainty in
health systems have historically
compared to 11 percent) report
equipment availability, loss and waste
reduced costs through standardization,
capital budgets are increasing 10 to
in nursing and support staff time spent
improved resource use, and similar
29 percent, possibly in recognition
hunting and gathering small capital
initiatives. Successful cost savings
of further investments needed in a
equipment. Our process of getting
are then routinely passed on to other
technology infrastructure to support
capital equipment to the right place in
population health (see Figure 2). OUTLOOK
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the hospital was decentralized rather
Association for Healthcare Resource &
central sterile processing, surgical
than proactive. In addition, we had
Materials Management (AHRMM)
services, biomedical services, and
redundancy in equipment inventory
and made a site visit to the Detroit
patient transport – we documented
stored in multiple locations across
Medical Center, which already had
both current and future state process
the hospital where storage is tight,”
a centralized process in place.
flows using an assumption that we
says Dan Bissot, director, supply chain
“Seeing others’ best practices helped
management, Allegiance Health. To get started, Bissot and his team
would provide 24/7/365 service
us put a plan in place that we could
with defined service level targets
bring to our executive team. With a
to monitor and ensure process
used the power of collaboration.
cross-functional team – consisting of
reliability,” Bissot continues.
They researched capital equipment
representatives from supply chain,
management best practices through the
nursing, environmental services,
Fig.1
The initiative required a central storage space, designated people to
Factors with the greatest impact on supply chain in the next 12 months
Spring 2015 Cost savings goals of the health system
Fall 2014 Spring 2014 Fall 2013
Reductions in overutilization
Spring 2013 Fall 2012
Commodity prices
Implementing HIT
Drug shortages
Integrating the supply chain across the continuum of care
Medical device prices
Comparative effectiveness/ value analysis
0%
5%
10%
15%
20%
Source: Premier online survey for Economic Outlook spring 2015 publication
24
PERSPECTIVES ©2015 by Premier Inc. All rights reserved.
25%
30%
35%
40%
45%
50%
PERS PECTIVES
T
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deliver and manage the equipment,
technology for equipment ordering
Lastly, we gained support to hire two
and a method for ordering equipment
and tracking,” says Bissot.
equipment coordinators who manage
and tracking its availability and use. “I think most hospitals find
“Our plant operations group helped
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the central equipment room and deliver
us locate and build a suitable space for
the equipment to those who need it.”
space limited, so one of the initial
equipment storage. And it turned out
Bissot and his team knew that
challenges was finding a central
that our TeleTracking patient transport
success required building trust with
space in the hospital. Also, with
system and Premier’s Materials
stakeholders, especially the nurses and
industry-wide financial pressures,
Management Information System
support staff who wanted reassurance
the team had to think creatively
(MMIS), both systems that Allegiance
that they could get the equipment
on how to utilize current software
already had, could fulfill the equipment
they needed when they needed it.
ordering and tracking component.
Fig.2
Changes in capital budgets since previous year
30%
Spring 2015 Fall 2014 Spring 2014 Fall 2013
25%
Spring 2013 Fall 2012 Spring 2012
20%
Fall 2011
15%
10%
5%
0% Increased by 30% or more
Increased by 10% to 29%
Increased by 1% to 9%
No change
Decreased by 1% to 9%
Decreased by 10% to 29%
Decreased by 30% or more
Source: Premier online survey for Economic Outlook spring 2015 publication
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“We set a service level promise to deliver all equipment in 30 minutes or less from time of order. In 2014, we
buy-in to the supply chain process helps mitigate those issues. Supply chain integration with clinical
“Our review team comprises several physicians, four or five nurses, and supply chain leadership from across
achieved that goal on 94 percent of
care, IT, and revenue capture is the
Banner’s facilities,” Allison-Greene
incoming orders,” says Bissot. “There
second most-cited area for supply
explains. “We’re not willing to sacrifice
were also soft efficiencies: we averaged
chain improvement, climbing in the
quality for price, so value analysis
500 equipment orders per month last
spring 2015 survey to 34 percent of
plays a big role in our review. We
year, meaning we are now proactively
respondents, compared with 20 percent
originally expected 30 to 100 new
managing this equipment, rather
in the fall 2012 survey (see Figure 4).
approvals each month across the
In recent years, Premier member
system, but only have about 15.”
than time spent reactively amongst many stakeholders, time potentially
Banner Health (Phoenix, AZ) has
taken away from patient care.”
The initiative was piloted in Banner’s
conducted ongoing supply chain
Arizona region, rolled out to the whole
The new process also helped the
integration processes across all of its
system in four phases, and completed
supply chain team manage equipment
non-acute facilities, starting with the
in December 2014. In the first year,
usage rates. As Bissot says, “Since we
200 physician offices and clinics in
Banner saved $115,000 and reduced the
utilized our MMIS inventory system,
its system. As Banner expanded its
total number of SKUs by 40 percent.
we can track usage by equipment type,
footprint over time by buying non-
time period and department. This
acute facilities, it created a great deal of
physician office and clinic budgets,”
provides us with visibility into how
purchasing variation. Close attention
Allison-Greene says, “Plus, integration
much equipment we really need, and
to physician buy-in and integration
has provided us with a number of
for future purchases, we will know how
helped smooth the way for transition.
other efficiencies. Every site orders
much to buy based on usage statistics.”
“We needed buy-in from Banner’s
its own products through the same
Lastly, central equipment
“That savings is significant for
management team as well as the
central warehouse, and our ordering
management provides a more
physician groups,” recalls Samantha
technology makes recall management
streamlined process for preventative
Allison-Greene, interim supply chain
easier. If a recall is issued, I know
maintenance checks, since equipment
director, Banner Gateway Medical
exactly who ordered it at which facility.
can be found in the main storage
Center and Banner MD Anderson
area, rather than hunting around
Cancer Center (Gilbert, AZ). “Basically,
formulary consistent across acute and
the hospital for specific pieces.
we looked at 18 months of ordering
non-acute facilities as much as possible,
history across Banner and locked
which will further streamline processes
Physician buy-in, integration influence savings
it in as our formulary. Naturally, as
and eliminate unnecessary costs.”
Supply chain executives are using
items that were original to one entity
the best foundation for integration is to
various strategies to improve efficiency
or another didn’t make the cut.”
set up clear processes and goals at the
and reduce costs, but physician
with any integration process, some
Allison-Greene said supplies that
“We’re also working to make the
Allison-Greene says she learned that
outset. “You need to make sure you have a
engagement is the one they cite most
were on that original formulary
definitive line in the sand regarding your
often as instrumental in changing
were placed in Banner’s electronic
starting point,” she says. “For instance,
clinical and physician preference
purchasing system for non-acute
we built our formulary from that
(see Figure 4). Physician preference
facilities. Supplies that weren’t on
18-month ordering cycle and created a
items, such as high-cost implants or
the original list now require approval
process checklist to ensure consistency.”
devices, can inflate supply costs when
from the site budget owner and the
value analysis does not align with
central supply chain services team.
product choice. Getting physician
26
PERSPECTIVES ©2015 by Premier Inc. All rights reserved.
In addition to supply chain integration and physician engagement, spring 2015 survey respondents
PERS PECTIVES
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Fig.3
C
Area of largest capital investment
Spring 2015 Fall 2014 Spring 2014
IT & telecommunications
Fall 2013 Spring 2013 Fall 2012 Spring 2012 Infrastructure (e.g., construction)
Fall 2011
Imaging equipment
Surgical suites/equipment
Other clinical equipment
Laboratory equipment
Other
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Source: Premier online survey for Economic Outlook spring 2015 publication
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Fig.4
Tactics to improve supply chain
Spring 2015
Increased physician-health system engagement
Fall 2014 Spring 2014
Supply chain integration with clinical care, revenue capture and IT across health system
Fall 2013 Spring 2013
Comparative effectiveness/ value analysis
Fall 2012
Focus on waste management
Centralized purchasing Population health management and care coordination Use of new supply chain metrics/processes Location and product identification standardization 0%
10%
20%
30%
40%
50%
60%
Source: Premier online survey for Economic Outlook spring 2015 publication
also cited these other top areas
across acute and alternate sites within
for supply chain improvement:
their health systems; 35 percent
physicians is an important aspect of
• Comparative effectiveness or value
have the capability but have not
supply chain successes (30 percent), as
fully implemented it; and 19 percent
supply chain managers try to reduce
do not yet have the capability.
overuse of products or standardize on
analysis research (31 percent); • Waste management (31 percent); • Centralized purchasing (24 percent);
Again, building relationships with
clinical or physician preference items. Similarly, respondents say reducing
and care coordination across
Unearthing savings through resource dedication
the continuum (16 percent);
Much of the work has already been
is the number three area receiving
• Use of new supply chain metrics
done to standardize commodity
the most resources for supply chain
and processes (11 percent); and
products, although supply chain
improvement (28 percent).
• Population health management
• Location and product identification
remains a key source for reducing
costs for physician preference items
Supply chain improvement strategies
standardization (11 percent).
overall health system costs.
took an original route in 2009 at
Implementation of centralized
Meanwhile, product standardization
Fairview Health Services (Minneapolis,
purchasing, a top-two area of interest
remains one of the top-two areas of
MN) when leaders decided to “green”
noted by 24 percent of respondents,
resource dedication for supply chain
their system as a whole by dovetailing
has been flat since 2013. Almost half
improvement, according to 39 percent
environmental and community health.
(46 percent) of respondents have fully
of respondents, down from a high of
An executive green team implemented
implemented centralized purchasing
47 percent last year (see Figure 5).
28
PERSPECTIVES ©2015 by Premier Inc. All rights reserved.
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Fig.5
C
Areas of resource dedication for supply chain improvement
Spring 2015 Product standardization
Fall 2014 Spring 2014
Building relationships with clinical staff
Fall 2013 Spring 2013
Reducing costs for physician preference products
Fall 2012
IT investments – EHR-specific Reducing costs for commodities products Comparative effectiveness/ value analysis Data standardization
IT investments – non-EHR-specific 0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Source: Premier online survey for Economic Outlook spring 2015 publication
a system-wide program to target
composting facility, which actually
increased sustainability in these areas:
saves money on waste disposal costs.”
• Supply chain and the environmentally preferable purchasing program;
Waters says Styrofoam™, previously
Waters’ colleague, David Dixon, central regional manager, supply chain operations at Fairview, also works
used at Fairview facilities, was another
with the green team on sustainability
• Waste;
big item of concern, since it went
projects that divert waste, including
• Energy;
straight to a landfill. “Our pharmacy
centrally recycling surgical and plastic
• Healthy food systems;
used to ship Styrofoam coolers to
wraps and reprocessing numerous
• Water; and
patients with their medications with
disposable products on site.
• Facility design.
cold chain requirements. We wanted
Fairview, over time, developed several
“Fairview’s University of Minnesota
to stop that usage, so we trialed several
Medical Center has a high population
different initiatives in supply chain
biodegradable coolers and settled
of isolation patients,” Dixon says.
and purchased services, many of them
on a compostable and biodegradable
“We previously used a disposable
designed to remove landfill waste, says
container made from corn starch.”
stethoscope that was thrown out after
Wesli Waters, sustainability program
Thanks to that initiative, Fairview
a single use. We found a different
manager for the health system. “We
Pharmacy Services eliminated some
disposable stethoscope that could
wanted to reduce our waste footprint,”
70,000 Styrofoam coolers annually.
be reprocessed and reused. Though
Waters explains. “For example, we
Despite a bit more expense with
the unit price is higher, we’re able
now collect all of our food scraps on
the new coolers, Waters says the
to reduce total costs and waste.”
site and send them to a commercial
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up Reuse Stores, where employees
Mapping the way forward
some changes to purchased services, one
drop off unused furniture, desk
Whether it’s green projects at Fairview,
that involved moving custom laundry
materials, office supplies, and more
equipment management at Allegiance, or
services from an offsite location.
for other employees who need them.
creative integration and consolidation at
“We use a cooperative in the Twin
The health system saves $1 million in
Banner, healthcare leaders everywhere
Cities area that manages most of our
office supply expense annually, and
are searching for pockets of undiscovered
laundry needs,” Dixon recalls. “But
donates unused items to charity.
savings. With a tip of their hats to the
Fairview’s green team also made
we had washers at both our University
Dixon and his team typically find
tried-and-true ways of the past, they
and Riverside campuses that could
a return on investment within 12 to
stretch their analytics, hitch up their
reduce wait time and transportation.
18 months, even though some of their
backpacks of cost-saving tools, and
Our return time for custom laundry
initiatives, like the Styrofoam coolers,
move forward into the unknown.
went from four days to eight hours.”
may initially cost more money. “Doing
In the same vein, Fairview
the right thing may have upfront costs,”
consolidated courier services to
he says, “but thanks to the successes
two vendors that streamlined daily
we’ve had so far, we’ve gained a lot
pick-ups, eliminating 286,000 miles
of trust from our leadership. A ‘no’
annually and $50,000 in courier costs.
today can be a ‘yes’ tomorrow.”
Fairview also reduced unnecessary internal supply expenses when it set
Fig.6
Role of survey respondents
C-suite and president Supply chain or materials management Service line or practice area manager/director Non-C-suite administrator
Finance and/or accounting
Physician/clinician
Quality improvement
Other 0%
30
PERSPECTIVES ©2015 by Premier Inc. All rights reserved.
5%
10%
15%
20%
25%
30%
35%
40%
Trends
Redefining risk: Radiologyâ&#x20AC;&#x2122;s new cost imperatives, 32 Survival of the cleanest, 36 From fragile to fit: Creating healthier markets for vaccines, 40 Proven processes for improving care quality, 42
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REDEFINING RISK: Radiology’s new cost imperatives
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Dave Natale Director, contract management / Premier, Inc.
S
tarting in the 1970s, radiology
patient exposure to ionizing radiation
gave the issue of CT radiation national
began a steady transition from
at medical facilities nationwide.
prominence by establishing a CT Dose
an analog to a digital medical imaging specialty. Along the
1
Interest was further heightened by
Differential Payment Policy. 2 This
incidents such as one in California,
requires Medicare providers to meet
way, new modalities, such as computed
where more than 300 patients in four
the NEMA XR-29 Smart Dose Standard
tomography and magnetic resonance
hospitals received excessive radiation
for dose optimization on CT exams or
imaging (MRI), were introduced
from CT scans. These incidents
suffer the consequences. Beginning
that have undeniably improved our
prompted a flurry of regulatory
January 1, 2016, freestanding imaging
ability to diagnose and treat disease.
activity at the state level and resulted
centers and hospital outpatient
in laws that mandated patient
providers that accept Medicare
dose monitoring and reporting.
patients and do not meet this standard
Yet the transition has not always been a smooth one. The associated costs have dominated hospital
In 2010, California passed SB
will be subjected to a five percent
capital budgets for decades. More
1237, which required all state
reimbursement penalty for CT scans
recently, the treatments themselves
facilities offering CT scanning to:
performed with non-compliant
have triggered a series of regulatory
• Record the radiation dose
actions designed to ensure meaningful use and limit potential overuse. During the past five years, in the
for every CT exam; • Include dose information in the radiology report;
equipment. In 2017 and beyond, the charge will increase to 15 percent. The Joint Commission has also addressed the need for radiation
aftermath of the 2008 recession and
• Establish dose thresholds; and
management improvements by
the Affordable Care Act’s emphasis
• Notify state authorities if
incorporating new standards for
on cost containment, we’ve seen a gradual change in focus, from
thresholds are exceeded. Shortly thereafter, the Texas
accredited hospitals, critical access facilities, and ambulatory care
concern about imaging cost to worry
Department of State Health Services
centers that provide diagnostic
over radiation dose management.
enacted regulations pertaining
imaging services. These standards,
Although radiology professionals
to fluoroscopy and CT exposure.
which include elements of the
have been preaching radiation safety
Connecticut is also considering
Smart Dose Standard, minimum
for years, the major turning point in
a bill similar to California’s.
competency criteria for radiology
public awareness was likely a 2010 New York Times report on excessive
Most recently, the April 2014 passage of the Protecting Access to Medicare Act
technologists, and annual performance evaluations of imaging equipment
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The Smart Dose Standard includes four major provisions: 1
Digital Imaging and Communications in Medicine (DICOM) Dose Structured Reporting, which provides recording of post-exam dose information in a standardized electronic format;
2
Pediatric and adult reference protocols, which are preloaded on CT systems and serve as a baseline for a variety of clinical tasks;
3
A CT Dose Check, which incorporates dose notifications and alerts to warn operators and physicians when dosage exceeds established thresholds; and
4
Automatic Exposure Control (AEC), which automatically adjusts the amount of radiation based on patient size, shape, and other factors.
by a medical physicist, become
(Mo-99) was first exposed in 2009,
thereby giving manufacturers little
effective in July 2015.
when repairs necessitated the
incentives to keep prices in check.
Despite attempts by some to
prolonged shutdown of the largest
In 2014, we’ve seen three-to-four
decrease capital spending and delay
of six nuclear reactors used in its
digit price increases, as manufacturers
the replacement of imaging equipment,
production. This led to a shortage of
try to “right size” their pricing,
health systems will likely need to
Technetium-99 (Tc-99m), a byproduct
leading practitioners to reduce
upgrade aging CT scanners within
of Mo-99 and the most common
usage or find alternative treatments.
the next year or so if they are to
radioisotope in nuclear medicine.
Unlike most areas of radiology,
comply with these new guidelines. Unfortunately, cost and compliance
As a consequence, nuclear medicine
which have seen prices decline for
providers began conserving Tc-99,
imaging equipment and contrast
aren’t the only issues facing radiology
leading to a reduction in procedures
media, radiopharmaceutical prices
providers. Nuclear medicine, a
using the element and a decrease in its
have driven up the cost of providing
radiation subspecialty that uses
demand – a slowdown that continues
nuclear medicine to a point that some
radiopharmaceuticals to trace and
today. Meanwhile, manufacturers
now question its sustainability.
access organ function, has gained
invested in more nuclear reactor space
increasing favor of late. This is
to create back-up sources of supply.
enriched uranium-235 in the
reflected in the introduction of hybrid
The age of the reactors (all outside
production of Mo-99 stem from its role
scanners that provide both metabolic
of the United States) used in
in the production of weapons of mass
and anatomical information in a
production is also worrisome, as
destruction. Recognition of the need
single exam. The proliferation of these
is the process for creating Mo-99,
to limit commercial use of HEU was
scanners, along with the promise of
one that involves the use of highly
formalized in 2004, when the National
new biologic tracers and breakthroughs
enriched uranium (HEU)-235.
Nuclear Security Administration
in genetic research, guarantee
The combination of declining
Concerns over the use of highly
launched the Global Threat Reduction
that molecular imaging will have a
demand, higher supply chain
Act, aimed at converting all nuclear
prominent place in radiology’s future.
costs, and increasing regulatory
reactors from a reliance on HEU to a
scrutiny has made it more difficult
safer, low-enriched uranium (LEU). 3
Even so, recent events suggest that the future path will not be without its
for manufacturers to maintain
problems, primarily due to uncertainty
profitability and caused some to exit
Medical Isotope Production Act was
driven by changes in the industry.
the field. As a result, today’s market
signed into law. The act supports
The fragility of the worldwide
offers limited options for accessing
the production of Mo-99 for medical
supply chain for Molybdenum-99
key radiopharmaceutical products,
use in the United States to reduce
34
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Nine years later, the American
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dependency on foreign sources of
cost. Nuclear medicine budgets are
supply. It also calls for the U.S. to
expected to increase accordingly.
phase out the export of HEU for the
Given all of this regulatory activity,
production of medical isotopes. As a
healthcare providers have been forced
nominal first step in support of this
to evaluate their internal policies
transition, CMS is now reimbursing
and protocols to determine whether
qualified nuclear pharmacies an
they align with the transitioning
extra $10 per dose on products
imaging landscape. Dollars once used
sourced from non-HEU generators.
to acquire the latest technologies are
Early returns on the industry’s
now reserved to address government-
attempts to convert to LEU-derived
mandated minimum standards
Mo-99 suggest the costs will exceed
and patient safety concerns. The
that of HEU. As much as five times
historical idea of radiology providers
more LEU than HEU material is
as frivolous big spenders is changing,
necessary to produce equivalent
as they are now seen as more
amounts of Mo-99, and nearly five
practical consumer advocates.
C
times more waste is produced. Some 4
reactors (all located in Europe, Africa, and Australia) have already started converting, but production capacity is a long way from meeting global demand. In the U.S., a number of start-up companies are competing to become the first domestic supplier of Mo99, using manufacturing techniques that eliminate the need for a nuclear reactor. Several have targeted 2016 as their go-to-market date, which coincides with the year that the only medical isotope nuclear reactor in North America (Ontario, Canada) is scheduled to shut down permanently. Regardless of the outcome, 2016 promises to usher in a new era for nuclear medicine, with potentially more convenient access to critical supplies, although at an unknown
REFERENCES 1. Walt Bogdanich and Rebecca Ruiz, “F.D.A. to Increase Oversight of Medical Radiation,” New York Times, February 9, 2010, http://www.nytimes.com/2010/02/10/health/policy/10radiation.html?_r=0. 2. Elaine Sanchez Wilson, “The Dose Debate,” Axis Imaging News, Oct. 9, 2014. 3. Triad Isotopes Inc. (PowerPoint presentation). 4. Ibid.
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C LEA NES T Continued evolution in basic hand hygiene and disinfection of high-touch patient environments
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Tracey Worrell Contract manager / Premier, Inc.
A
uthorities agree that
Ebola. It is not a magic bullet, but it is
compliance is often due to issues within
proper hand hygiene
a means of additional defense, which
facilities, operations, and management.
is the most important
is cheap and readily available.” 2
strategy in preventing
According to Pugliese, reasons
Of course, within the healthcare
that are frequently self-reported by
healthcare-associated infections
system, HAIs and readmissions have
staff or observed in studies include:
(HAIs). According to The Centers
never been acceptable patient outcomes.
• Accessibility of supplies
for Disease Control and Prevention
But the government’s increased scrutiny
(products and sinks);
(CDC), “Healthcare providers should
of HAI occurrence, as part of the
practice hand hygiene at key points
Affordable Care Act, has the healthcare
in time to disrupt the transmission of
industry on high alert. Recent goals
microorganisms to patients, including:
set by the Centers for Medicare and
of accountability or just-in-time
before patient contact; after contact
Medicaid Services (CMS) to decrease
coaching, of sanctions for not
with blood, body fluids, or contaminated
HAIs have not been met, and hospitals
complying, of an institutional safety
surfaces (even if gloves are worn);
face penalties that will result in
climate or institutional priority
before invasive procedures; and after
decreased federal reimbursements. 3
stressing hand hygiene by all staff;
removing gloves (wearing gloves is not
Hand hygiene
pathogens in healthcare settings).”
Clinicians and other healthcare
Clinicians agree that inadequate
poor staffing; • Lack of role models for hand hygiene,
• Belief that hand hygiene is not
enough to prevent the transmission of 1
• Too busy/high work load/
personnel know the importance of
necessary if gloves are worn; • Perception that patient needs take priority;
hand hygiene brings negative
hand hygiene to prevent the spread
• Forgetting or being distracted; and
health consequences, and each new
of infection, but the frequency and
• Hand hygiene data not reported
presentation of resistant illness
length of time required for proper
accurately or frequently.
heightens sensitivity to hygiene and
hand hygiene can sometimes be lost
As containment of disease becomes
cleaning policies and procedures.
in busy environments. “Because it
increasingly complex, the basic global
Globally, hand washing is fundamental
is very complex to change behavior
recommendations for hand washing
in the containment of disease.
and get staff to wash their hands in
and surface cleaning are frequently
“Hand washing with soap is one of
all situations requiring hand hygiene
revisited by the Joint Commission
the cheapest, most effective ‘vaccines’
for both patient and worker safety, it
Center for Transforming Healthcare®
against viral diseases, from the
is important to have a multi-modal
and other organizations. Pugliese
seasonal flu to the common cold,”
strategy to promote hand hygiene,”
said newer published materials offer
said Sanjay Wijesekera, UNICEF
said Gina Pugliese, vice president
the latest in guidance for today’s
chief of water, sanitation, and hygiene
of the Premier Safety Institute.®
health practitioners. Also, a major
programs. “Our teams on the ground
Unfortunately, this fundamental
emphasis by the Joint Commission is
in Sierra Leone, Liberia, and Guinea
expectation of healthcare workers
to monitor hand hygiene compliance
are stressing the importance of hand
is continually unfulfilled, and hand
and promote recent media, such as the
washing as part of a raft of measures
hygiene compliance remains poor,
Implementation Guide for the Joint
that are needed to halt the spread of
Pugliese noted, adding that low
Commission Center for Transforming OUTLOOK
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Healthcare’s Hand Hygiene Targeted
good start. In addition, various visual
the word and recommended that
Solutions Tool® or TST. Access and
and audio prompts have been shown to
other patients watch the video.13
use of the TST system is free of charge.
increase compliance – with reminders
4
Automation within the online
“Research has shown that hand
from patients being one of the latest.
hygiene adherence among medical
TST assists healthcare providers
Recent efforts have demonstrated that
professionals is less than optimal,
with planning, implementing, and
patient communication to healthcare
despite long-standing evidence
maintaining hand hygiene initiatives.
workers can result in behavior change.
showing that it helps prevent
The application uses dashboards
Patients have come to recognize
healthcare-associated infections,”
to track where hospitals fall within
their need to be proactive in their
said Dr. John Jernigan of the CDC.
current hand hygiene compliance
caregivers’ hand hygiene practices.
“This video is a tool hospitals can use
requirements. Hospital staff also
Twice as many patients asked their
to empower patients to participate in
have access to benchmark data,
caregivers to wash their hands after
their own care and reduce their risk of
and administrators can enter their
viewing the CDC video “Hand Hygiene
acquiring an infection by reminding
facilities’ baseline information.
Saves Lives,” according to initial results
caregivers to perform hand hygiene.”14
9
Another TST dashboard view
from a research study by the CDC,
Increased hand hygiene vigilance
shows the impact of targeted
Catholic Healthcare Partners (CHP),
takes many forms, from staff-focused
solutions implemented at a facility.
and the Premier healthcare alliance.10
initiatives, to patient inclusion
For sites challenged by low hand
The research, which was conducted
programs, to implementation of
hygiene compliance and limited
in 17 CHP hospitals, tested the
compliance-tracking systems. Hand
resources for assistance with process
effectiveness of a CDC video in
hygiene monitoring systems employ
improvement, the TST system provides
encouraging patients, family members,
various technologies to measure
confidential instructional guidance.
and other visitors to play a role in
soap and hand sanitizer product use,
their own care by helping healthcare
track compliance levels in physical
(WHO) has also designed a toolkit for
professionals remember to clean
areas (such as patient rooms), or even
healthcare environments that includes
their hands before and after touching
analyze hand hygiene compliance at the
research findings, instructional
patients. After watching the video,
individual healthcare worker level.15
5
The World Health Organization
videos, materials for evaluation, and
the majority of patients reported
signage and leaflets for workers.
that it was useful and increased
Surface cleanliness
their knowledge of hand hygiene.11
While hand hygiene focus is very much
6
The WHO package focuses on the organization’s defined “5 Moments
“Preventing HAIs is a high priority
for Hand Hygiene,” which include:
goal at all CHP hospitals, and we believe
contact with objects and surfaces in and
• Before touching a patient;
that patients can partner with us to
near patient rooms makes a clean room
• Before clean/aseptic procedures;
assure safe and high-quality care,”
environment an obvious extension of
• After body fluid exposure risk;
said Carolyn Weiging, RN, BSN, CIC,
hand hygiene. After all, hands are only
• After touching a patient; and
and infection prevention and control
as clean as the surfaces they touch.
• After touching patient surroundings.
manager, St. Rita’s Medical Center
7
Healthcare leaders say that
on the healthcare worker, constant
Rigorous development of surface
(Lima, OH). “This video encourages
cleaners and convenient delivery
improvement in hand washing is greatly
that partnership by making it clear
systems give healthcare workers
dependent upon culture, leadership,
that it is perfectly acceptable to ask
multiple options for thorough, full
and organizational commitment.
caregivers to wash their hands to
room environmental cleaning, as well
reduce their risk of infection.”12
as methods for continual disinfection.
8
Facility changes and upgrades, along with increased education, monitoring, and intervention are important for a
38
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Those who viewed the video were also in favor of spreading
Pathogen “kill times” continue to improve, and sprays and dry wipes
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have given way to pre-moistened wipe
reimbursement, are much greater.
products, saving time and ensuring
Many facilities even make additional
access to support for managing hand
sufficient delivery of disinfectant liquid
investments in advanced room
hygiene and cleaning compliance.
solutions to surfaces and devices.
cleaning equipment to reduce risks.
Ensuring the cleanliness of healthcare
By law, users must follow label
Room environment infection
Healthcare management has ample
workers and patient environments,
instructions on EPA-registered
prevention systems typically include
however, requires dedication to
products. Disinfectant manufacturers
portable devices that are placed in
thorough analysis of work practices,
benefit from gaining EPA approval
empty rooms and activated for a
constant reminders of proper
for shortened contact times in high-
period of time. Systems use either
procedure, and a plan to immediately
traffic, high-touch areas. Some EPA-
ultraviolet germicidal irradiation
address facility issues and improve
registered disinfectants have contact
(UVGI) or hydrogen peroxide vapor
compliance to proper technique.
times of as low as one minute, which
(HPV) to fully disinfect the space.
When financial repercussions of poor
is preferable in busy environments.17
Recent research has found that various
healthcare hygiene and cleaning include
multidrug-resistant organisms were
both the tremendous costs for patient
transmission of healthcare-acquired
decreased among patients after adding
readmissions and loss of government
pathogens (HAPs) to equipment and
ultraviolet environmental disinfection
reimbursement, conscientious efforts
surfaces near the patient, the CDC
(UVD) to the cleaning regimen.23
toward cleanliness can absolutely
16
Since evidence has connected
has created two levels of specific
22
be an important key to survival.
guidelines to implement objective monitoring systems and ensure optimal and consistent cleanliness.18 Equipment and surface checklists are provided by the CDC, but cleaning and cleanliness measurements for certain surfaces are not well-defined.19,10 The Level I and Level II guidelines contain the same basic elements from a cleaning procedure standpoint; however, Level II incorporates the objective monitoring methods (including direct observation of cleaning, periodic swab culture testing, and fluorescent markers) to track and improve cleaning.20 CDC experts recommend Level II implementation from the start, particularly in facilities that have experienced high levels of HAPs, such as Clostridium difficile (C. diff).21 Of course, there are costs for implementing these new programs. But the true cost of treatment and loss of credibility involved in HAI incidents, paired with potential loss of government
REFERENCES 1. Centers for Disease Control and Prevention, “Hand Hygiene in Healthcare Settings,” 2015, http://www.cdc.gov/handhygiene/ Basics.html. 2. UNICEF, “Handwashing one important tool in the Ebola fight – UNICEF,” 2014, http://www.unicef.org/media/media_76267. html. 3. Edward Prewitt, “Roundtable: To Arrest HAIs, Culture Trumps Campaigns,” HealthLeaders Media, 2014, http://www. healthleadersmedia.com/content/LED-306789/Roundtable-To-Arrest-HAIs-Culture-Trumps-Campaigns.html##. 4. Joint Commission Center for Transforming Healthcare, “The Improved TST Hand Hygiene Targeted Solutions Tool,” 2015, http://www.centerfortransforminghealthcare.org/multimedia/new-and-improved-hand-hygiene-tst/. 5. Ibid. 6. World Health Organization, “Clean Care is Safer Care: Tools and resources,” 2015, http://www.who.int/gpsc/5may/tools/en/. 7. World Health Organization, “Hand Hygiene: Why, How & When?,” 2015, http://www.who.int/gpsc/5may/tools/training_ education/en/. 8. Edward Prewitt, “Roundtable: To Arrest HAIs, Culture Trumps Campaigns,” HealthLeaders Media, 2014, http://www. healthleadersmedia.com/content/LED-306789/Roundtable-To-Arrest-HAIs-Culture-Trumps-Campaigns.html##. 9. Premier, Inc., “Hand hygiene for healthcare,” 2015, http://www.premiersafetyinstitute.org/safety-topics-az/hand-hygiene/handhygiene/. 10. Premier, Inc., “CDC Hand Hygiene Saves Lives video found to empower patients to remind caregivers to wash their hands,” December 27, 2013, https://premierconnect.premierinc.com/wps/myportal/mypremier/!ut/p/b0/NYu7DgIhEEW_xWJKwgCGN XbbmFiYWOp2AwxK3AWC6Pf7it095-TKSZ7klOmZLtRTyTS_-VwbL4mb8CV3zn1bqV9BGQLcj6C0O_76Z-7KI4fvFfCv8cCL43 YHHFtPfmZAZG81xyjCoJ1YWxsEcQyCjdVorFIbO8h6G1cvJbmZYA!!/. 11. Ibid. 12. Ibid. 13. Ibid. 14. Ibid. 15. Premier, Inc., “Value Analysis Toolkit: Hand Hygiene Monitoring Systems,” Premier Member Documentation, 2014. 16. Centers for Disease Control and Prevention, “Options for Evaluating Environmental Cleaning,” 2014, http://www.cdc.gov/HAI/ toolkits/Evaluating-Environmental-Cleaning.html. 17. Ibid. 18. Ibid. 19. Ibid. 20. Ibid. 21. Joint Commission on Accreditation of Healthcare Organizations, “This Patient Room Looks Clean. But Is It?” Environment of Care News, 14, no. 7 (July 2011): 8-11. 22. Premier, Inc., “Value Analysis Toolkit: Room Environment Infection Prevention Products,” Premier Member Documentation, 2014. 23. Association for Professionals in Infection Control, “Ultraviolet cleaning reduces hospital superbugs by 20 percent: Study,” 2014, http://www.apic.org/For-Media/News-Releases/Article?id=cb839210-8082-4aa0-8675-1cb140660da2.
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Michael J. Alkire Chief operating officer / Premier, Inc.
from fragile to fit :
CREATING HEALTHIER MARKETS FOR VACCINES
W
hile recent headlines provided frequent updates on the progress
of an effective Ebola vaccine from a number of manufacturers, many question why one does not already exist. Given that the disease first appeared in 1976, scientists have had a seemingly ample amount of time to understand the virus and develop a solution. At least part of the problem is financial. Each new vaccine costs approximately $1.5 billion and has a 13-year development cycle.1 The return on investment can take years to recoup, if it is realized at all. In addition, manufacturers face business risks, since it’s almost impossible to accurately predict when an outbreak will occur or the number of people who will be affected. Moreover, the viruses themselves are difficult to pinpoint. Some mutate as they are transmitted, which can render an entire ©2015 LARRY JOST C/O THEISPOT.COM
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stock of vaccines obsolete. We’ve seen
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this happen with the flu, resulting in
them on contract with our members.
supply chains. Industry participants
manufacturers reformulating vaccines
This can give health systems access to
must do more to ensure the health
to accommodate evolving strains.2
drugs their patients need when they
and stability of these markets.
There is also the unpredictability
need them. At the same time, suppliers
Furthermore, the FDA and other
of supply and demand. If there is
that commit to manufacturing drugs
government organizations have an
little demand for a vaccine in a given
in short supply are rewarded with a
opportunity to provide additional
year, manufacturers may end up
more predictable market share.
support and funding for necessary
with unused inventory – waste that
GPOs and other industry
infectious disease vaccine or drug
directly impacts the bottom line. But if
stakeholders also help by alerting
development and to make the
there’s a particularly strong demand,
hospitals to potential shortages,
regulatory environment easier
shortages can ensue and put drug
allowing them to more proactively
to manage.
companies at risk for potential liability.
manage their inventories.
These financial and legal threats have caused many vaccine makers to leave the market. 3
C
For their part, manufacturers that produce drugs within healthy supply
Supporting the supply chain This type of industry collaboration
chains could leverage their scale to assume more risk in the vaccine
could be used for other market
space. And, as in the example with
A fragile environment
absences or fragile supply chains.
Heritage Pharmaceuticals, Premier
What we’re seeing in the vaccine supply
Some organizations, including
and other industry stakeholders can
chain mirrors some of the issues we
PATH and the Bill & Melinda Gates
help eliminate risks for manufacturers
have experienced with other drugs in
Foundation, support emerging vaccine
trying to enter a fragile supply chain
short supply. When there are shortages,
manufacturers with technology
by securing the market for their
costs for replacements rise, and both
and regulatory guidance. The FDA
products with our health systems.
providers and manufacturers experience
also offers expedited review and
complications with inventory
approvals for high-priority infectious
development and production of
management and safe sourcing.
disease drugs and vaccines.
necessary drugs and vaccines that
A recent Premier, Inc. survey of
But are we doing enough? And if
By collaborating to promote
might otherwise be a hard sell
more expensive generic alternatives
not, who should step up? Disaster
financially, we can help spur
for drugs in shortage among a
and public health preparedness are
innovation that takes these supply
subset of U.S. hospitals showed the
critical if we are to minimize the
chains from fragile to fit.
annualized financial impact averaged
burden of healthcare emergencies
approximately $61 million in 2013.
and rapidly quell outbreaks. Even so,
From a national standpoint, the analysis
these events can stress already fragile
Note: A version of this article was initially published in Becker’s Infection Control & Clinical Quality.
suggests that total additional incurred costs were $209 million last year.4 What can private or public industry do to incentivize and promote the creation of vaccines and other necessary drugs? Premier has been helping smaller or emerging manufacturers, such as Heritage Pharmaceuticals Inc., reach the generic injectable market by putting
REFERENCES 1. Yasmeen Abutale, “Speeding up the fight against Ebola, other diseases,” The Boston Globe, August 22, 2014, http://www.bostonglobe.com/metro/2014/08/21/faster-development-vaccines-and-drugs-targeting-diseases-such-ebolahorizon/yrkrN56VgehrSzCtETPzzH/story.html. 2. Scott Hensley and Bernard Wysocki Jr., “As Industry Profits Elsewhere, U.S. Lacks Vaccines, Antibiotics,” The Wall Street Journal, November 8, 2005, http://online.wsj.com/articles/SB113141787830190837. 3. Martin Friede, interview, “Regional vaccine production: The chicken and egg situation,” Angle Magazine, November 2012, http:// www.nnepharmaplan.com/insights/angle-magazine/injecting-new-hope/articles/the-chicken-and-egg-situation-with-regionalvaccine-production/. 4. Premier, Inc., “Drug shortages continue to pose patient safety risks and challenge providers, according to Premier, Inc. survey,” news release, February 27, 2014, https://www.premierinc.com/drug-shortages-continue-pose-patient-safety-risks-challengeproviders-according-premier-inc-survey/.
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Richard Bankowitz, MD, MBA Chief medical officer / Premier, Inc.
Scott Pope, PharmD Vice president, quality and safety solutions management / Premier, Inc.
T
he performance of hospitals and healthcare systems is
Fig.1
Collaborative methodology
the focus of ever-increasing scrutiny today. There are
currently several separate federal
Advisory Panel External
public reporting programs that often reward or penalize facilities based on
the associated low-performance/noncompliance penalties. As an industry, we are at risk of losing critical focus. The result, says author Patrick Lencioni, is a culture where “if everything
N
IO UT
IMPLEMENT PROGRAMS TO SUSTAIN GAINS
EVALUATE PERFORMANCE RESULTS
1 8
2
RESULTS
7
DEFINE MEASURES
3
HT
list of measures grows every year, as do
ESTABLISH MISSION AND GOALS
SIG
or even conflict with the others. The
EXEC
own set of measures, which may overlap
IN
performance outcomes. Each has its
COLLECT ACTIONABLE DATA
is important, then nothing is.” At Premier, we believe health systems need to focus on measures that matter and that no one is better qualified to determine what matters than providers, patients and family members. We
SHARE BEST PRACTICES AND INNOVATIONS
6
4 5
TRANSPARENTLY SHARE DATA
ANALYZE AND DRIVE CHANGE THROUGH THROUG COLLABORATIVES LLABORATIVES
also think measurement alone is not enough. Change comes through focused action. Because of this, Premier and its members launched a national
I N N O VAT I O N
improvement collaborative several years ago. It is led by representatives of health systems who jointly decide what to measure and how to define top performance. This approach allows change to come from within.
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Premier has led this work involving
Premier’s experience in managing this
• Internal quality improvement
hundreds of U.S. hospitals and
type of collaborative and in holding
and related efforts.
health systems working in concert
hospitals accountable for improving
Quality cycle management is
over more than a dozen years in
outcomes (see Figure 1). Not unlike
rooted in scientifically validated
programs such as the Hospital Quality
revenue cycle management, QCM
methodology, aligned with cross-
Incentive Demonstration (HQID)
in healthcare requires a clearly
functional best practices of revenue
project; our Quality, Efficiency,
determined cadence; targeted, well-
cycle management, and focuses firmly
Safety, and Transparency (QUEST®)
defined metrics; a firm culture of
on the specific elements of performance
collaborative; and the Partnership
accountability; and deep executive
improvement that generate meaningful
for Care Transformation (PACT™)
engagement. QCM not only demands the
quality of care advancements. It is
collaborative. The methodology used
presence of these essential elements,
also a clear path to improving quality
in these collaboratives has delivered
but actively incorporates them into
and reducing costs in healthcare.
measurable improvements.
the culture of an institution.
1
We have known for some time
While in the past, efforts have tended
The need for such methodology could not be more urgent. Recently,
that QUEST hospitals outperform
to focus either on quality improvement
the Department of Health and Human
a matched set of non-participating
or revenue growth, the line is blurring,
Services announced that it plans
facilities in reducing mortality and
and the two areas are increasingly
to tie 30 percent of fee-for-service
lowering costs. Recently, Premier has
intertwined within healthcare. As many
Medicare payments to quality through
documented this “QUEST effect” in
in the quality movement have known for
accountable care organizations or
a peer-reviewed scientific journal.
some time, and as QUEST has recently
other alternative payment models
demonstrated, quality care costs less.
by the end of 2016, and 50 percent
As described in the article, QUEST outcomes rely on
Quality cycle management processes
by the end of 2018. 3 Healthcare
methodology that involves:2
are essential for success in many
systems cannot delay in finding ways
• Commitment of senior leadership,
common scenarios, including:
to provide care that is safe, effective,
• Federal reimbursement programs
efficient and patient-centered.
including the CEO; • Use of standard data analytic resources;
(e.g., value-based purchasing,
Yes, measures matter. But so
hospital-acquired conditions,
does process. No competent health
• Transparency in sharing outcomes;
readmissions reduction
system leader would leave hospital
• Collaborative execution; and
programs, and Medicare
revenue management to chance and
spending per beneficiary);
proceed without a clear means of
• Communication of best practices. In a multivariate analysis that
• Hospital accreditation programs
measurement and accountability. It
controlled for both secular trends in
such as The Joint Commission,
has become increasingly evident that
mortality reduction and for site-specific
Healthcare Facilities Accreditation
the same can be said of managing
factors, QUEST hospitals outperformed
Program, and Det Norske
the healthcare quality cycle.
non-participants by 10 percent. This
Veritas Healthcare, Inc.; and
difference could not be explained by secular trends or favorable selection bias. Rather, it isolated a specific effect unique to the collaborative. The process of quality cycle management (QCM) has evolved from
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REFERENCES 1. E. Kroch, M. Duan, J. Martin, et al., “The effectiveness of a multicenter quality improvement collaborative in reducing inpatient mortality,” J Pat Saf, 2015 (forthcoming). 2. Ibid. 3. U. S. Department of Health and Human Services, “Better, Smarter, Healthier: In historic announcement, HHS sets clear goals and timeline for shifting Medicare reimbursements from volume to value,” news release, January 26, 2015, http://www.hhs.gov/news/ press/2015pres/01/20150126a.html.
Economics
A conversation with an economist, 46 An update on hospital performance metrics, 50 Patient volume trends, 55 Premierâ&#x20AC;&#x2122;s supply chain solutions, 59 Inflation summary, 60
ECON OMI CS 2 0 1 5
A CONVERSATION
with ILIR HYSA Economist, Moody’s Analytics
Ilir Hysa is an economist with Moody’s Analytics, covering U.S. healthcare as well as state and regional economies. He also participates in housing modeling and international forecasting; contributes to the company’s Regional Financial Review publication; and develops blogs and commentaries for the Moody’s Analytics’ Dismal Scientist website. Hysa received
What is your estimate for gross domestic product (GDP) growth in the next 12 months? What sectors will have the greatest impact on growth? The U.S. economy is on a roll now. Real GDP is expanding at a 3 percent pace, which is producing nearly three million jobs per year. All ingredients are in place for growth to further accelerate and reach more than 3.5 percent annually by the end of 2015. In all likelihood, household spending will continue to pick up and be the key driver in powering growth. In the next 12 months, we will see more and better
his PhD in economics from the Graduate
quality jobs, less labor market slack, low debt service burdens, record high stock
Center of the City University of New York.
prices, and rising housing values. All are key ingredients for stronger growth. The plunge in gasoline prices has provided a significant additional push. With stronger wage growth – signs of which we’re seeing – consumer spending will take off. A large portion of such spending is linked to the housing market. Demand will steadily build, despite tight mortgage lending standards. Mortgage rates are back close to record lows and are set to fall further as the Federal Housing Administration plans to cut its insurance premiums. This should provide more incentives for cautious first-time homebuyers to enter the market. Fannie Mae and Freddie Mac have also made some changes that should encourage lenders to extend more mortgage loans.
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ECONOMICS ©2015 by Premier Inc. All rights reserved.
ECONOMICS
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Obviously, there are constraints on growth, the most
C
Meanwhile, monthly Medicaid enrollment is now about 18
notable being the deteriorating trade balance and cutbacks
percent higher on average than in the pre-ACA era, as some
in investment in the previously booming energy industry.
states expanded Medicaid for low-income households, while
The Federal Reserve must also gracefully begin to raise
others were approved waivers to customize the program.
interest rates as the economy closes in on full employment.
The augmented demand via both the exchanges and the
Regardless, these constraints wonâ&#x20AC;&#x2122;t be binding.
Medicaid program will propel healthcare growth by more than 4 percent in 2015, well above the overall growth rate.
What role do you think healthcare will play in overall GDP growth?
implementation of the Affordable Care Act is successful.
Recent reports have shown that U.S. labor rates are not growing as steadily as international labor rates. Will domestic labor costs impact onshoring of jobs? What types of jobs and how significant?
The industry is in the process of absorbing significant
We can confirm that wage growth in the course of this
reform-induced demand, and despite an array of reform-
recovery has been disappointing and has helped keep
related regulations, will benefit immensely from it.
labor costs in check. As per onshoring, manufacturing
The performance of the healthcare industry has become almost synonymous with the extent to which the
The second open enrollment period for health
would be the industry to look into. One would expect that
insurance exchanges has brought more people onboard,
with sluggish growth in U.S. wages, U.S. manufacturing
resulting in broadened coverage and a reduction in
would be the first segment to see growth.
the number of uninsured nationwide. Combining the
Manufacturing is strengthening and employment grew
number of first- and second-year enrollees, there will
7.2 percent in the last five years, though payroll growth
be more than 11 million Americans signed up through
was uneven. Hiring has been strongest in transportation
both federally facilitated and state-based exchanges.
equipment, machinery, fabricated metals, primary metals,
What changes do you expect to see over the next 12 months in the U.S. unemployment rate? How will unemployment impact the healthcare industry? The unemployment rate is falling rapidly, at more than a percentage point per year. If current growth is sustained, the economy will be back to full employment by mid-2016. Lower unemployment and a stronger pace of wage increases bode well for income growth. With more employed Americans and both the individual and employer mandates in effect, the healthcare industry should have less to worry about in terms of health insurance affordability and uncompensated care. The impact of an improving economy will be more significant in states that have not expanded the Medicaid program and where coverage gaps ensue, exacerbating the uncompensated care problem for many hospital emergency departments.
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and beverages and tobacco products. Despite overall sluggish wage growth, these sectors have high hourly earnings. The onshoring hypothesis implies, however, that the growth would be in the subsectors where wages and skills of production workers are lowest, since they are the most directly affected by low-skilled global manufacturing competition. To the contrary, the growing subsectors have wages that are average or better. Meanwhile, the apparel and textile industries, with the lowest wages, have continued to decline. Since strong hiring has taken place mostly in energy-intensive industries, this suggests that lower energy costs –not labor– are the main driver of recent U.S. manufacturing growth. U.S. manufacturers in some parts of the country are reportedly taking advantage of the shale boom and are switching from more expensive sources of energy to cheap natural gas. Further, with evidence that U.S. wage growth is starting to pick up, any onshoring would be primarily driven by relatively lower U.S. energy prices, not more favorable labor costs.
The recent port strike in California and other geopolitical issues have raised some concerns regarding imports and exports. Can you discuss any effects geopolitical issues may have on raw material imports and overall prices?
Can you describe overall inflation and interest rate projections for the next 12 months and what they may mean for healthcare? Inflation will remain low in the first six months, but that
Central Bank’s own quantitative easing program will weigh
should change toward the end of the year and beyond. Inflation
on long-term yields. While lower long-term interest rates, if
dynamics will depend on the timing of the Federal Reserve’s
they do not rise in step with the federal funds rate, will boost
monetary policy stabilization, namely interest rate hikes. After
consumer spending and business investment, smaller financial
six years of near-zero interest rates, the question of when and
institutions that rely primarily on deposits could see profit
how fast the Fed will raise the federal funds rate lends a good
margins squeezed. On the other hand, sudden rate hikes would
deal of uncertainty to the outlook.
add friction to the ongoing recovery and significantly damage
Fed Chair Janet Yellen communicated in January that the Fed’s first rate hike will not come before the institution’s
the already-sluggish housing market. Following the recent unexpected decline in oil prices, some
June policy meeting, although slow wage growth and below-
companies have started curtailing their production, but there
target inflation could delay a final decision until fall. The
is always a lag between the timing of investment decisions
stronger demand for health services will contribute to a faster
and actual production adjustments. With the energy sector’s
rise in personal healthcare consumption expenditures and
partial recovery, the prices of other commodities will, on
related inflation.
average, see a mild increase in the next 12 months. Geopolitical
Uncertainty over the Fed’s next move has clouded the picture for longer-term rates. Despite the end of quantitative easing, the Fed’s $4 trillion balance sheet and the European
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ECONOMICS ©2015 by Premier Inc. All rights reserved.
tensions and resulting supply chain disruptions remain a downside risk, however.
ECONOMICS
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“
Global geopolitical tensions present a downside risk to our forecast of the U.S. economy, but the strike alone should have a negligible impact. Further, the strike is an indication of a tightening labor market, discussed earlier, in which workers have increased bargaining power. The strike disrupted the flow of resources to their intended destinations, and some businesses instead shipped goods by rail, by air, or through other ports. Those alternatives can be costlier and lead to higher prices. In addition, if the strike had persisted, we could have seen higher raw materials’ prices. Inconvenience and increased costs will be priced into imported materials if such extra costs amount to serious headaches for importers.
There have been mixed reports regarding whether healthcare spending is rising or falling. What are your forecasts, both short- and long-term, for healthcare and what are the major factors impacting those forecasts? Healthcare spending on a per-person basis has slowed significantly in recent years due to a sluggish economic
That said, the long-term path of healthcare spending growth remains uncertain and will depend on the success of the ACA’s ongoing work and its cost-curbing provisions. But while the long-term outlook is uncertain, some ACA provisions – especially those related to the Medicare program – are producing encouraging results. The most measurable gains stem from a strict enforcement of
recovery, the ACA’s crackdown on excessive services,
the law, not from changing incentives through more wellness-
and a shift toward higher deductibles. It’s difficult
related education. While long-term gains are less clear at this
to quantify the contribution of each to the decline.
point, healthcare spending growth is already picking up and
However, with the post-recession effects fading,
will continue to grow in the short run as more Americans
ACA-related factors will carry more weight in the future.
make use of the services provided through their health plans.
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ECON OMI CS 2 0 1 5
AN UPDATE
ON HOSPITAL PERFORMANCE
J
anuary through September of
remained approximately one-fourth
2014 proved to be positive for
of that shown by the top quartile. The
operating margins (see Figure
average also saw huge gains, with profit
1), despite recent reports of
per acute bed rising from $25,567 in 2009
shrinking margins across hospitals.
METRICS
1
Premierâ&#x20AC;&#x2122;s analysis of 455 facilities from
for the first nine months of 2014, a 35
2009 to 2014 (2014 data included 310
percent year-over-year increase.
facilities with full data from the cohort)
volume since ACA initiatives
highest within this time frame.
incentivized care moving out of the Volume Trends article), gross inpatient
margins compared to 2013. Among the
revenue as a percentage of total patient
top quartile, operating margins were
revenue remained flat in 2014 (see
nearly 10 percent, while average margins
Figure 3). Across the median, average,
doubled, from approximately 2 percent
and top quartile, inpatient revenue as a
(2009 through 2013) to 4 percent in 2014
percentage of total patient revenue was
(through September 30). The median
at its highest since 2009. This was likely
operating margin was 2.65 percent, up
due to the increase in total covered lives;
from 1.63 percent in 2013.
patients who were previously uninsured
bed in service was one explanation
are now using the healthcare system. As health systems try to reduce
for growing operating margins, along
expenses throughout their
with a myriad of supply chain and
organizations, minimizing unnecessary
other cost-reduction efforts health
supply costs that do not result in better
systems have implemented. Again, the
clinical outcomes becomes increasingly
median, average, and top quartiles all
important. Supply expense per CMI-
had increases in profit per acute bed in
adjusted acute discharge (SEpCAAD)
service in 2014 compared to 2013 (see
for both the average and the median
Figure 2). The top quartile saw a 53
have fallen sharply since 2007 (see
percent increase in profit per bed since
Figure 4). Adjusting for inflation,
2009 (from $68,859 to $105,441).
the average supply expense per CMI-
Similarly, profit per acute bed for the median has increased 100 percent since 2009 (from $12,438 to $24,920) but still
Š2015 by Premier Inc. All rights reserved.
acute/emergency setting (see Patient
facilities all saw an uptick in operating
A steady increase in profit per acute
ECONOMICS
Despite the growth in outpatient
showed operating margins at their Median, average, and top quartile
50
to $32,753 in 2013. It was at $44,349
adjusted acute discharge was $229 lower than the 2006 rate.
ECONOMICS
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Fig.1
C
Operating margin of acute care hospitals
12%
10%
8%
6%
Source: A database maintained by Premier, Inc.
4%
2%
0% 2009
2010
2011
2012
Top quartile
Median
2013
2014
Average
*CY 2014 data is for nine months ending September 30, 2014.
Fig.2
Profit per acute bed in service
$120,000 $100,000 $80,000 $60,000
$20,000 $0 2009
2010
2011
Top quartile
2012
Median
2013
2014
Average
Source: A database maintained by Premier, Inc.
$40,000
*CY 2014 data is for nine months ending September 30, 2014.
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Fig.3
Gross inpatient revenue as a percentage of gross patient revenue
70%
65% 60%
55% 50% Source: A database maintained by Premier, Inc.
45% 40%
35% 30% 2009
2010
2011
2012
Top quartile
Median
2013
2014
Average
*CY 2014 data is for nine months ending September 30, 2014.
Fig.4
Supply expense per CMI-adjusted acute discharge (SEpCAAD)
$1,300
$1,200
$1,100
$900
$800 2007
2008
2009
2006 median Note: Dollars are adjusted to inflation using medical care CPI.
52
ECONOMICS Š2015 by Premier Inc. All rights reserved.
2010
2011
Average
2012
Median
2013
2014 (Q1â&#x20AC;&#x201C;Q2)
Source: A database maintained by Premier, Inc.
$1,000
ECONOMICS
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Fig.5
C
Bad debt expense as a percentage of net patient revenue
12%
10%
8%
6% Source: A database maintained by Premier, Inc.
4%
2%
0% 2009
2010
2011
Top quartile
2012
Median
2013
2014
Average
*CY 2014 data is for nine months ending September 30, 2014.
Fig.6
Total operating expense as a percentage of net patient revenue
100% 98% 96% 94% 92% Source: A database maintained by Premier, Inc.
90% 88% 86% 2009
2010
2011
Top quartile
2012
Median
2013
2014
Average
*CY 2014 data is for nine months ending September 30, 2014.
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SEpCAAD for the median fell from
Operating expense accounted
a high of $1,174 in Q4 2007 to $924
for approximately 90 percent of net
in Q2 2014.
patient revenue among top quartile
While bad debt expense as a
hospitals, down from 91 percent in 2013.
percentage of net patient revenue has
The median operating expense had
remained flat for the median and top
remained at or above 98 percent from
quartile since 2009, the average saw
2009-2013 but dropped to 97 percent in
an increase in 2014. In 2013, bad debt
2014. Lastly, average operating expense
accounted for, on average, 8.7 percent
had the biggest dip in 2014 – from 98
of net patient revenue. For the first
percent of net patient revenue in 2013
nine months of 2014, bad debt was
to 96 percent in 2014.
at 10 percent of net patient revenue (see Figure 5).
Notes
Payer mix played a large role in
The cohort used for this analysis
bad debt, as did location. Changes to
included 455 acute care facilities
insurance coverage have influenced
within Premier’s membership that
bad debt in several ways:
submitted data from 2009-2013. For
• Coverage expansion efforts (e.g.,
2014, 310 facilities submitted full data
Medicaid expansion, individual
for the nine months through September
mandate and coverage inclusion
of that year. If comparing to previous
for preexisting conditions) largely
editions, please note that the cohort
decrease charity care and bad debt.
is updated to include all facilities with
• The popularity of high-deductible insurance plans can increase bad debt
full data within the database for the timeframe evaluated.
in cases where the copayment is too
Bad debt calculations were achieved
high to be affordable in the instance
by deducting bad debt from gross patient
of acute or emergency care.
revenue to arrive at net patient revenue.
• Health systems in states that expanded Medicaid coverage have seen earlier, more rapid decreases in charity care than those that chose not to expand.2 Profit per acute bed impacts total operating margin, as does a reduction in operating expense. Total operating expense as a percentage of net patient revenue decreased for the median, average, and top quartile in 2014,
REFERENCES
compared to the previous six years
1. Beth Kutscher, “Fewer hospitals have positive margins as they face financial squeeze,” Modern Healthcare, June 21, 2014, http://www.modernhealthcare.com/article/20140621/MAGAZINE/306219968. 2. “Medicaid Expansion Cutting Bad Debt, Charity Care,” RevCare, June 6, 2014, http://www.revcare.com/archives/5067.
(see Figure 6).
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ECONOMICS ©2015 by Premier Inc. All rights reserved.
ECON OMI CS 2 0 1 5
PATIENT VOLUME
T
hese metrics are based on a sample of 508 healthcare facilities that submitted three years of inpatient and outpatient data to a database maintained by Premier. The sample represents 181 million patient discharges and reflects a cross section of our membership that includes
variations in geographic area as well as in organizational size and type. This report identifies year-over-year (YOY) percentage changes in volume for
key data elements such as inpatient and outpatient discharges, surgery growth, and payer mix from FY2013 (July 2012 through June 2013) to FY2014 (July 2013 through June 2014).
TRENDS
Fig.1
FY2014 quarterly trends
YOY growth
Q4 2013
Q1 2014
Q2 2014
FY2014
Inpatient
-1.12%
-2.98%
-3.22%
-3.00%
-2.58%
Outpatient
3.71%
1.78%
-1.06%
-0.49%
0.98%
Total discharges
3.22%
1.31%
-1.27%
-0.73%
0.62%
Inpatient surgeries
-1.49%
-1.94%
-2.38%
-3.72%
-2.37%
Outpatient surgeries
4.41%
4.61%
2.38%
4.23%
3.92%
Births
-1.11%
0.18%
1.24%
-1.39%
-0.30%
Medicare discharges
5.88%
4.37%
0.79%
1.15%
3.02%
Medicaid discharges
2.03%
-1.74%
2.84%
10.54%
3.41%
Self-pay discharges
-2.54%
0.31%
-5.64%
-15.17%
-5.68%
3.04%
0.67%
-3.82%
-4.34%
-1.11%
Managed care and other payer discharges
Source: A database maintained by Premier, Inc.
Q3 2013
Notes: Quarterly numbers show the percentage of change from the same quarter in the previous fiscal year. Annual totals represent the percentage of change overall in FY2014 compared to FY2013.
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CHANGES OF NOTE 2.6%
INPATIENT VOLUME
FY2013
1.0%
decreased
0.6%
FY2014
OUTPATIENT VOLUME increased
OUTPATIENT SURGERIES increased in 2014 compared to 2013 by 3.9%
TRENDS
DISCHARGES OVERALL
Discharges in public payer categories (Medicare and Medicaid) were up in 2014
1.7%
56
ECONOMICS ©2015 by Premier Inc. All rights reserved.
SELF-PAY DISCHARGES 2012
2.3%
SELF-PAY DISCHARGES 2013
SELF-PAY 5.7% DISCHARGES 2014
ECONOMICS
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Fig.2
C
Discharge trends
5% 4% 3%
YOY percent change
2% 1% 0% Source: A database maintained by Premier, Inc.
-1% -2% -3% -4% -5% Q3.2012
Q4.2012
Q1.2013
Q2.2013
Inpatient discharges
Total discharges
Fig.3
Q3.2013
Q4.2013
Q1.2014
Q2.2014
Outpatient discharges
Discharges by payer type
20% 15%
5% 0% -5%
Source: A database maintained by Premier, Inc.
YOY percent change
10%
-10% -15% -20% Q3.2012
Q4.2012
Q1.2013
Q2.2013
Medicare patients Self-pay discharges
Q3.2013
Q4.2013
Q1.2014
Q2.2014
Medicaid patients Managed care and other discharges
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ECONOMICS
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E
Fig.4
Surgery and emergency department visits
8% 6% 4% YOY percent change
2% 0% -2% Source: A database maintained by Premier, Inc.
-4% -6% -8% Q3.2012
Q4.2012
Q1.2013
Q2.2013
Q4.2013
Outpatient surgery visits
Inpatient surgery visits
Fig.5
Q3.2013
Q1.2014
Emergency room visits
Average length of stay (ALOS)
3.600
1.0%
3.575
0.8%
3.550
0.6%
3.525
0.4%
3.500
0.2%
3.475
0%
3.450
-0.2%
3.425
-0.4%
3.400
-0.6%
3.375 3.350 Q3.2012
Q4.2012
Q1.2013
Q2.2013
YOY percent change Note: Average length of stay includes only inpatient data; outliers have been excluded.
ECONOMICS Š2015 by Premier Inc. All rights reserved.
Q3.2013
Q4.2013
ALOS (days)
Q1.2014
Q2.2014
Source: A database maintained by Premier, Inc.
1.2%
-0.8%
58
Q2.2014
Days
F
YOY percent change
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ECON OMI CS 2 0 1 5
• Provides aggregate inflation estimates by line of business; and • Analyzes spend by individual facility
PREMIER’S SUPPLY CHAIN
or IDN. The calculator is available to member health systems and can be found on PremierConnect.
A resource for proactive drug expense management This application prepopulates profiles for analysis and evaluates drug expenditures. It also: • Analyzes 93 percent of annual drug purchases; • Examines entire systems and multiple
Medical-Surgical Inflationary Calculator A resource for proactively managing medical-surgical supply spend The Medical-Surgical Inflationary Calculator is an easy-to-use resource designed to estimate applicable supply spend. The calculator:
hospitals in a single SpendAdvisor report; and • Automatically fills in all of the application’s analytic cells. To learn more about the Drug Budget Tool, please contact Jerry Frazier, director of Premier’s Center for Evidence-based Pharmacy Practice, at jerry_frazier@premierinc.com.
• Compares Premier’s contractual price protection and suppliers’ price inflation estimates to deliver a detailed estimate of projected supply costs; • Prepopulates the spend profile from one SpendAdvisor® report and allows users to manually adjust for anticipated spend; • Compensates for off-contract purchases with an optional SpendAdvisor report; • Alerts members to contract categories that will be renegotiated in the current year;
from more than 497 hospitals. It is designed to: • Calculate a hospital’s supply mix index based on the services provided to patients. This can be calculated across systems, within service lines,
Drug Budget Tool
SOLUTIONS
The Supply Mix Index methodology combines clinical and supply cost data
and at other levels within a system. • Be statistically sound. The MSDRG Supply Mix Index determines weights using 4 million patientlevel records from Premier’s QualityAdvisor™ database. • Demonstrate a more direct correlation to supply expense-per-patient case than the Case Mix Index. Premier’s Supply Mix Index focuses on the supply cost within a case, while the Case Mix Index incorporates other significant, non-supply expenses. • Allow cross-hospital comparisons of supply efficiency. Premier’s new methodology will initially be found in the executive-level reporting application of SupplyFocus® used by acute-care facilities.
Supply Mix Index™ A methodology for calculating supply cost indexes for each Medicare Severity DiagnosisRelated Group (MS-DRG) Premier’s newly patented Supply Mix Index calculates supply expense per patient procedure. The index can also compare the cost with other hospitals nationwide to ensure appropriate
SupplyFocus is also included with OperationsAdvisor,® Premier’s labor productivity and benchmarking offering. To learn more about Premier’s Supply Mix Index, please contact Mark Hiller, vice president of innovative solutions, at mark_hiller@premierinc. com or Richard Westbay, director, supply chain research and analytics, at richard_westbay@ premierinc.com.
resource use, improve supply efficiency, and identify waste-reduction opportunities.
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ECON OMI CS 2 0 1 5
INFLATION SUMMARY
Range of supplier inflation estimates: This figure shows the range of supplier-reported inflation estimates for products within each service line. The range does not take into account Premier contract price protection or utilization data.
Average of supplier inflation estimates: This supplier’s estimate of the average percent increase is based on a true average.
Projected Premier contract inflation estimates are calculated as follows: Pharmacy – Projections are derived from the Premier Drug Budget Tool. All others (except Foodservice) – Projections reflect the expected weighted average percent change in contract pricing for the existing contract portfolio as of April 1, 2015.
Service line
Average of inflation estimates
Projected Premier contract inflation estimates
Cardiovascular Services
3% – 5%
3.70%
0.00%
Clinical Laboratory Services
0% – 6%
3.30%
0.75%
Continuum of Care
0% – 2%
1.30%
1.38%
Facilities
0% – 10%
3.70%
0.85%
Foodservice
0% – 10%
0.00%
Not available
Imaging
0% – 10%
3.90%
0.38%
IT /Telecommunications
3% – 9%
4.30%
0.00%
Materials Management
0% – 5%
3.00%
0.99%
Nursing
0% – 13%
3.40%
1.10%
Pharmacy*
Not applicable
Not applicable
7.90%
Purchased Services
0% – 0%
0.00%
0.00%
Surgical Services
0% – 10%
3.50%
0.90%
Women & Children’s
0% – 4%
2.50%
0.04%
*Pharmacy data derived from Premier’s Drug Budget Tool Note: Estimated inflationary changes are subject to change.
60
Range of inflation estimates
ECONOMICS ©2015 by Premier Inc. All rights reserved.
Commodities
Minimizing raw materials risk, 62 2015 market overview: Indicators for pricing, 64 Copper market overview, 66 Cotton market overview, 68 Energy market overview, 70 Food market overview, 72 Plastic resins market overview, 76 Natural and synthetic rubber market overview, 78 Steel market overview, 80 References, 82
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COMMODITIES
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E
MINIMIZING
RAW MATERIALS RISK
A
sample of Premier’s contracted suppliers identified key raw materials that serve as primary drivers of their products’ pricing. Potential category and market impacts are shown for the raw materials featured in this publication.
In order to minimize the risk associated with raw materials’ pricing, healthcare
facilities should: • Review categories that may be impacted by fluctuations in raw material costs; • Use the inflation tables in this publication to locate suppliers with firm pricing in a category impacted by raw materials of interest; • Refer to the contract launch materials in Supply Chain Advisor® to identify a category’s lowest-cost provider; and • Reference the inflation tables to find suppliers that offer utilization review programs.
LABOR PREMIER CONTRACT IMPACT* Hand hygiene monitoring system
•
Surgical instrument and scope repair
•
Clinical engineering
•
ENERGY PREMIER CONTRACT IMPACT* PC hardware and software resellers
•
Video laryngoscopes
•
Third-party freight management
•
PLASTIC RESINS PREMIER CONTRACT IMPACT* Pain management – local anesthetic
•
Contrast media injector disposables
•
Can liners
•
*Refer to contract-specific price protection information in the inflation tables. Price increase risk: Red = High; Yellow = Moderate; Green = Low
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COMMODITIES ©2015 by Premier Inc. All rights reserved.
COMMODITIES E
Fig.1
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This figure illustrates the percent of inflation on medical-surgical supplies attributed to each raw material.
Precious metals, 0.4% Natural and synthetic rubber, 1%
Cotton, 1% Paper, 3%
Base metals, 3% Electronic components, 7%
Plastic resins, 11%
Energy, 32%
Labor, 42%
Source: Premier online supplier survey for Economic Outlook spring 2015 publication
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COMMODITIES
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2015
MARKET OVERVIEW INDICATORS FOR PRICING
CPI, PPI, and CMS marketbaskets Industry stakeholders – including suppliers, healthcare systems, and the Centers for Medicare & Medicaid Services (CMS) – use three key price indicators when examining inflationary pressures in the marketplace. They include the: • Consumer price index (CPI); • Producer price index (PPI); and • CMS marketbaskets. The CPI and PPI measure the average change over time in the prices of fixed goods and services. The CPI is primarily used to compare a household’s cost for a specific basket of finished goods and services with the cost of the same basket during an earlier benchmark period. The weight given to each basket item is fixed. The CPI measures price change from the consumer’s perspective and encompasses goods and services purchased for personal consumption by urban U.S. households. While there are many categories within the CPI, the two most commonly used for healthcare are the CPI for all urban consumers (CPI-U) and the CPI for medical care. Medical care is one of eight major CPI categories, and it has two classifications, commodities
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COMMODITIES ©2015 by Premier Inc. All rights reserved.
and services, with each containing
basis, PPI for finished goods fell
several item categories (strata).
2.1 percent from December 2014 to
1
The CPI-U increased 1.4 percent
January 2015, seasonally adjusted.5
from 2013 to 2014, not seasonally
The 12-month net output of selected
adjusted. The consumer price index
industries (unadjusted) is:6
for all urban consumers (CPI-U)
• Hospitals, -0.1 percent;
declined 0.7 percent in January, on a
• Home health care
seasonally adjusted basis, largely due to a continued decline in the energy index.
services, 1.2 percent; 2
In January 2015, the gasoline index had its largest decrease, following a six-
• Physician offices, 0.1 percent; and • Medical laboratories, 0.0 percent. Economic indicators that are more
month downward spiral, of 18.7 percent.
specific to the healthcare industry
The overall energy index dropped 9.7
are CMS marketbaskets, which
percent because of gasoline prices.
measure how much more or less it
In 2014, the medical care CPI grew
would cost at a later time to buy the
3 percent, up from 2 percent in 2013.
same mix of goods and services. These
On a monthly basis, medical care CPI
indicators reflect price inflation
was flat in January 2015, as medical
facing medical services providers.
services saw a slight increase while medical care commodities decreased.
The marketbaskets are constructed 3
In contrast to the CPI, the PPI
from mutually exclusive spending categories that use data collected
measures price changes from the
from hospitals’ Medicare cost reports
perspective of the seller and includes
and corresponding price indexes. The
the entire output of U.S. producers.
overall hospital price index is the sum
Since the PPI captures price movement
of each category’s product weight and
prior to the retail level, it may
relevant price index. The price indexes,
foreshadow subsequent price changes
or proxies, which are used to calculate
for businesses and consumers.
the marketbaskets, include data from
4
The PPI for finished goods, which is its most commonly used measure, declined 3.1 percent from January 2014 to January 2015. On a monthly
the Bureau of Labor Statistics (most commonly the producer price indexes). The marketbasket levels and percentage changes are updated
COMMODITIES
T
E
quarterly, with each new forecast containing an additional quarter of
Fig.1
historical data.7 CMS projects payment
C
CPI-U, medical care CPI, and IPPS marketbasket rates 6%
updates for the coming fiscal year the latest information available at the time of publication. This is based on the CMS fiscal year, which runs from October to September. Once an update has been determined, it is generally not revised to include
Annual percentage change
using a marketbasket containing 4%
2%
0%
more recent data. However, because marketbaskets are updated quarterly,
-2% 2008
the current marketbasket may
2009
2010
variances in the forecast data and Total Inpatient Prospective Payment System (IPPS) payments are projected to decrease by $756 million in FY2015. Under CMS’ final rule on IPPS, announced August 2014, the operating payment rates for inpatient stays at hospitals that participate in the Hospital Inpatient Quality Reporting (IQR) Program, and are meaningful electronic health record (EHR) users, will be increased by 1.4 percent.
9
In FY2015, those hospitals that do not successfully participate in the IQR program and do not submit the
2012
2013
2014
2015
CPI-U Medical care CPI Medicare marketbasket, inpatient hospital
be different, depending on the information currently available.8
2011
China’s economic slowdown has put a
drops, since energy is a large factor
strain on demand for many commodity
in transportation of goods and is the
markets, especially cotton, copper, and
basis for other commodity markets.
rubber. In 2014, the political tensions in
Weather patterns, as always, play
Russia also affected several markets, and
a role in commodity prices. In 2014,
this may continue into 2015. Further
long-term inclement winter weather,
geopolitical strife or shifting economies
followed by severe drought in much of
could also contribute to commodity
California, elevated the cost of many
price fluctuations for the rest of the year.
commodities, especially food and
Prices for oil, gasoline, plastic
energy. So far in 2015, oil prices have
resins, and related items were down
been at such low levels that winter
significantly for the seventh month
weather across much of the Midwest and
in a row in February 2015. Many
Northeast has not had the same effect.
commodities have seen resulting price
required quality data will be subject to a one-quarter reduction of the market basket update. Any hospital that is not a meaningful EHR user will also be reduced by one-quarter of the market basket update in FY2015.
Commodity overview Major factors impacting most commodity markets this year include: • China’s slowing growth; • Falling oil prices; and • Weather patterns.
REFERENCES 1. U. S. Department of Labor Bureau of Labor Statistics, Measuring Price Change for Medical Care in the CPI, www.bls.gov/cpi/cpifact4.htm. 2. U. S. Department of Labor Bureau of Labor Statistics, “Consumer Price Index Summary,” economic news release, February 26, 2015, http://www.bls.gov/news.release/cpi.nr0.htm. 3. U. S. Department of Labor Bureau of Labor Statistics, “Consumer Price Index – December 2014,” news release, January 16, 2015, http://www.bls.gov/news.release/archives/cpi_01162015.pdf. 4. U. S. Department of Labor Bureau of Labor Statistics, Producer Price Indexes: Program Overview, www.bls.gov/ppi/ppiover. htm#Link6. 5. U. S. Department of Labor Bureau of Labor Statistics, “Producer Price Indexes – January 2015,” news release, February 18, 2015, http://www.bls.gov/news.release/pdf/ppi.pdf. 6. U. S. Department of Labor Bureau of Labor Statistics, “Table 11. Producer price indexes for the net output of selected industries and their products, not seasonally adjusted,” PPI Detailed Report – January 2015, http://www.bls.gov/web/ppi/ppitable11.pdf. 7. Centers for Medicare and Medicaid Services, Medicare Program Rates and Statistics, http://www.cms.gov/ MedicareProgramRatesStats/downloads/mktbskt-pps-hospital-2006.pdf. 8. Ibid. 9. Centers for Medicare and Medicaid Services, “Fiscal Year 2015 Policy and Payment Changes for Inpatient Stays in Acute-Care Hospitals and Long-Term Care Hospitals,” media release fact sheets, August 4, 2014, http://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2014-Fact-sheets-items/2014-08-04.html.
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COPPER MARKET OVERVIEW
PRODUCT CATEGORIES WITH HIGH COPPER CONTENT AND 12-MONTH PRICE OUTLOOK Energy efficiency services
•
HVAC equipment, controls and services
•
Ice machines and dispensers
•
Maintenance, repair and operations
•
Copper market update Copper prices reached a five-year low in January 2015, though they have slightly rebounded since. The International Copper Study Group estimates copper demand will grow by 1.1 percent this year, while production will rise 4.3 percent, resulting in a surplus of 393,000 tons by the end of 2015.1 Copper prices are forecast at $3 per pound in 2015, down from an average $3.11 per pound in 2014.2 Because China is the world’s largest buyer of industrial metals, including copper, variations in the copper market tend to be in sync with fluctuations in the Chinese economy. Demand from China is expected to remain strong, holding copper prices firm in 2015. Concerns over the growth of China’s economy helped drive copper prices down by 7 percent as of mid-2014. 3 From 2005 to 2015, average global copper consumption has grown by 2.5 percent per year, despite the growth in Chinese demand over much of that time.4
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COMMODITIES ©2015 by Premier Inc. All rights reserved.
The outlook for copper has also been affected by production constraints. While global usage increased 14 percent in 2014, production only grew 3 percent.5 Last year’s lower production was largely the result of mine closings and export bans in Australia, Indonesia, and Zambia. Predictions of 7 percent production growth through 2017 are primarily due to increased mining in Central and South America.6
COMMODITIES E
Fig.1
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Average monthly copper prices (London Metal Exchange) 400
350
Cents per pound
300
250
200
150
100 2012
2013
2014 (through Oct)
Source: U.S. Geological Survey: Copper statistics and information
Fig.2
Projections for 2015
FACTOR
IMPACT ON COPPER PRICES
COMMENTS
Production interruptions
Slow production was due to mine closures, operational failures, and export bans in many copper-producing countries.
Chinese demand
China’s demand continues to fall as the country’s economy slows.
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COTTON MARKET OVERVIEW
PRODUCT CATEGORIES WITH HIGH COTTON CONTENT AND 12-MONTH PRICE OUTLOOK Lap sponges or towels and specialty sponges
•
Restraints and fall prevention
•
Reusable textiles and textile services
•
Skin integrity: prevention, healing and support
•
Cotton market update After hitting a 5 ½-year low of 57.30 cents per pound in January, cotton prices increased 13 percent in February 2015.1 Farmers, especially in the U.S. and South America, have reduced planting this season as a result of plunging prices. India, meanwhile, remains the largest producer. Global stockpiles are predicted to reach a record 109.84 million bales at the end of this growing season, according to the USDA.2 China’s stockpile (50 million bales) and slower economic growth have resulted in estimates of demand that are approximately 1 million bales less than China’s imports last year. 3 Limited demand from China will continue to diminish U.S. export potential.
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COMMODITIES ©2015 by Premier Inc. All rights reserved.
There is an upside, though, as lower prices have made cotton more competitive with synthetic fibers.4 In addition, demand for quality cotton, which typically comes from the U.S., Brazil, and Australia, is still high, especially as these countries reduce plantings and harvesting this year.5
COMMODITIES E
Fig.1
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The Cotton “A” Index The Cotton “A” Index is an estimate of the world price of cotton. It is an average of the five lowest quotations for a sample of 19 cottons traded internationally. 250
Cents per pound
200
150
100
50
0 2010
2011
2012
2013
2014
Source: National Cotton Council of America Note: Index values were unavailable from June 23, 2010 through Aug. 1, 2010 and again from June 10, 2011 through Aug. 1, 2011 due to insufficient quotes from merchants.
Fig.2
Projections for 2015
FACTOR
IMPACT ON COTTON PRICES
COMMENTS
Large reductions in planting
Price may return to an average 70 cents per pound from record lows, due to a large reduction in planting in the U.S. and South America.
Limited demand
Chinese demand for cotton has slowed as a result of the country’s economic downturn and its large cotton inventory.
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ENERGY MARKET OVERVIEW
COMMODITY
CHANGE IN LAST 12 MONTHS
CHANGE LAST MONTH
Oil (light crude)
-52.27%
8.90%
Heating oil
-35.30%
22.26%
Natural gas
-46.98%
0.31%
Unleaded gas
-43.29%
22.36%
Source: CNNMoney.com. Price change shown is from February 24, 2014 to February 24, 2015 or January 24, 2015 to February 24, 2015.
Global liquid fuels supply and consumption
percent higher at the end of January
Global petroleum and other liquid fuels
2015 compared to the same time in
consumption grew by 0.9 million barrels
2014, but 1 percent lower than the
per day (bbl/d) in 2014 and is expected
average from 2010-2014. Supply remains
to increase by 1 million bbl/d in 2015 and
adequate to head off current winter
2016.1 Consumption is largely driven
weather patterns, and prices should
by non-members of the Organization
remain low.
for Economic Co-operation and
Natural gas inventories were 24
Henry Hub natural gas spot prices are
Development (OECD), with China still
forecast to average $3.34/million British
the main source of growth – although
thermal units (MMBtu) this winter
2015 consumption is projected to be
compared to $4.53/MMBtu last winter.6
below 2014 levels.
Natural gas consumption growth is due
The Energy Information Administration (EIA) reports that OPEC crude oil production averaged
to increased demand from the industrial and electric power industries.7 Average gasoline retail prices are
9.2 million bbl/d in January, with
expected to average $2.33 per gallon
average monthly production remaining
in 2015, down from the average $3.36
at 9.3 million bbl/d throughout 2015.2
per gallon in 2014. In January 2015, the
Production in 2016 should reach its
average monthly gasoline retail price
near-highest levels. Russia’s economic
was the lowest since April 2009, at
hardship led to lower-than-expected
$2.12/gallon.
consumption in 2014 and is expected to stay flat in 2015 and 2016. 3 Brent crude oil prices will average $58/bbl in 2015 and $75/bbl in 2016, both down significantly from 2014 prices of more than $100/bbl.4 Price declines reflect growth in U.S. production, as well as global supply, and weaker demand.5
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COMMODITIES ©2015 by Premier Inc. All rights reserved.
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Fig.1
C
Projections for 2015 FACTOR
Fig.2
T
IMPACT ON ENERGY PRICES
COMMENTS
Strong crude oil production
Near record-high production, especially driven by non-OECD countries, will be maintained through 2016.
Consumption wavering
Growth is largely from non-OECD consumption, though Chinese/ Russian demand has faltered due to the countriesâ&#x20AC;&#x2122; economic downturns.
Natural gas inventories
Inventories were 24 percent higher at the end of January 2015 compared to last year at that time. Supply remains able to deter sudden cost spikes.
Henry Hub natural gas prices Projections $12
Dollars per million BTU
$10 $8 $6 $4 $2 $0 2014
2015
Historical spot price
2016
STEO forecast price
95% NYMEX futures upper confidence interval
NYMEX futures price
95% NYMEX futures lower confidence interval
Source: U.S. Energy Information Administration, Short-Term Energy Outlook, February 2015 Note: Confidence interval derived from options market information from the 5 trading days ending Feb. 5, 2015. Intervals not calculated for months with sparse trading in near-the-money options contracts.
U.S. gasoline and crude oil prices Projections $5 $4 Dollars per gallon
Fig.3
$3 $2 $1 $0 2011
2012
2013
Retail regular gasoline
2014
Crude oil
2015
2016
Price difference
Source: U.S. Energy Information Administration, Short-Term Energy Outlook, February 2015 Note: Crude oil price is composite refiner acquisition cost. Retail prices include state and federal taxes.
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FOOD
MARKET OVERVIEW
Global food prices
U.S. food prices
According to the United Nations’ Food
Despite the 2014 U.S. weather patterns,
and Agriculture Organization (FAO),
retail food price inflation remained near
the international Food Price Index
the average 2.6 percent for the year. In
(see Figure 1) averaged 182.7 points in
December 2014, the Consumer Price
January 2015, down 1.9 percent from
Index (CPI) for all food was 0.8 percent
December 2014. The FAO Food Price
higher than in December 2013. 3
Index has steadily fallen every month
Food-at-home CPI, or supermarket
since April 2014, with the exception of
prices, increased 2.4 percent in 2014
October. The steepest declines have
and was up 3.7 percent in December,
been in cereals and oils.
compared to the same time in 2013.
1
The FAO announced in November
Food-away-from-home CPI was 3
2014 that global food supplies of corn,
percent higher in December 2014
soybeans, wheat, and other grains were
compared to the previous year.4
expected to reach their highest levels
The United States Department of
ever, although that is unlikely to impact
Agriculture’s Economic Research
high food prices in some international
Service (ERS) forecasts 2015 food price
markets. Weather-related incidents
inflation of between 2 and 3 percent.
largely impacted the supply and price
This could be affected by severe weather,
of food in 2014, as many countries,
such as continued drought in California,
including the U.S., faced droughts and
as well as oil prices. If oil prices remain
severe conditions.
low, the decrease in transportation costs
2
could trickle down to retail prices.5
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COMMODITIES ©2015 by Premier Inc. All rights reserved.
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Fig.1
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The Food Price Index The Food Price Index from the United Nations’ Food and Agriculture Organization (FAO) is an average of five commodity groups: meat, dairy, cereals, oils and fats, and sugar. 220
210
2002–2004 = 100
200
190
180
170
160 2013
2014
Source: FAO.org
Fig.2
Price change by commodity
Commodity
Corn
Soy Beans
Wheat
Lean Hogs
Live Cattle
Sugar
Coffee
Change last 12 months
-16%
-28%
-18%
-32%
7%
18%
-17%
Change last month
-1%
-2%
-3%
-5%
3%
-7%
-10%
Source: CNNMoney.com. Price change shown is from February 24, 2014 to February 24, 2015 or January 24, 2015 to February 24, 2015.
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Fig.3
Food categories and 12-month price outlook
CATEGORY
SUBCATEGORY
Poultry
Whole birds
Poultry
Breasts
Poultry Beef
Q2 2015
PREMIER CONTRACT COVERAGE
IMPACT ON PRICING
3.7%
2015 3.5%
Yes
•
-18.6%
-14.6%
Yes
•
Wings
2.9%
0.4%
Yes
•
Chucks
16.7%
7.6%
Yes
•
Beef
Ribeyes
7.7%
5.2%
Yes
•
Beef
Loins
11.3%
5.9%
Yes
•
Beef
Rounds
17.2%
5.4%
Yes
•
Beef
Thin meats
9.7%
7.4%
Yes
•
Pork
Bellies/bacon
-16.0%
-2.7%
Yes
•
Pork
Trimmings
-25.8%
-15.4%
Yes
•
Pork
Hams
-28.7%
-19.5%
Yes
•
Pork
Loins
-10.6%
-12.6%
Yes
•
Pork
Butts
-16.2%
-17.3%
Yes
•
Pork
Spare ribs
-4.0%
-7.3%
Yes
•
-30.0%
Yes
•
Dairy
Milk & creamers
-25.0%
Dairy
Cheese
-38.0%
-30.0%
Yes
•
Dairy
Butter
-30.0%
-28.0%
Yes
•
Dairy
Shell eggs
-10.0%
0.0%
Yes
•
Dairy
Cultured
-20.0%
-30.0%
Yes
•
-8.0%
-2.0%
Yes
•
4.4%
2.5%
Yes
•
0.5%
1.0%
Yes
•
Oils & shortening Potatoes
Frozen
Chemicals Disposables
Foil
1.0%
2.0%
Yes
•
Disposables
Paper, board
1.0%
5.0%
Yes
•
Paper, recycled
1.0%
5.0%
Yes
•
Disposables
Paper, virgin fiber
1.0%
5.0%
Yes
•
Disposables
Plastic PE
-22.0%
-20.0%
Yes
•
Disposables
Plastic PS
-38.0%
-36.0%
Yes
•
Disposables
Plastic PET
-18.0%
-18.0%
Yes
•
Beverages
Juice & juice bases
0.0%
1.0%
Yes
•
Beverages
Drinks, drink bases/mixes, other
1.0%
1.0%
Yes
•
Beverages
Soda, RTD & fountain syrup
3.0%
3.0%
Yes
•
Beverages
Coffee
5.0%
10.0%
Yes
•
Beverages
Tea
1.0%
1.0%
Yes
•
Disposables
Red = >5%; Yellow = 2.1 – 5%; Green = 0 – 2% Source: United States Department of Agriculture, Economic Research Service
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COMMODITIES ©2015 by Premier Inc. All rights reserved.
COMMODITIES E
CATEGORY
SUBCATEGORY
PREMIER CONTRACT COVERAGE
IMPACT ON PRICING
Beverages
Hot cocoa
2.0%
2.0%
Yes
•
Bakery
Breads & rolls
1.0%
3.0%
Yes
•
Bakery
Desserts
1.0%
3.0%
Yes
•
Bakery / Grocery
Flour
-1.0%
-1.0%
Yes
•
Sugar
1.0%
3.0%
Yes
•
Grocery
Beans, black (dry)
2.0%
5.0%
Yes
•
Grocery
Beans, pinto (dry)
0.0%
2.0%
Yes
•
Grocery
Beans, other (dry)
1.0%
4.0%
Yes
•
Grocery
Rice (dry)
0.0%
0.0%
Yes
•
Produce - Vegetables
Lettuce/salads
3.0%
3.0%
Yes
•
Produce - Vegetables
Potatoes
3.0%
3.0%
Yes
•
Produce - Vegetables
Tomatoes
3.0%
3.0%
Yes
•
Produce - Vegetables
Onions
3.0%
3.0%
Yes
•
Produce - Vegetables
Other
3.0%
3.0%
Yes
•
Citrus
3.0%
3.0%
Yes
•
Produce - Fruits
Melons
3.0%
3.0%
Yes
•
Produce - Fruits
Grapes
3.0%
3.0%
Yes
•
Produce - Fruits
Bananas
3.0%
3.0%
Yes
•
Produce - Fruits
Berries
3.0%
3.0%
Yes
•
Produce - Fruits
Apples
3.0%
3.0%
Yes
•
Produce - Fruits
Avocados
3.0%
3.0%
Yes
•
Produce - Fruits
Other
3.0%
3.0%
Yes
•
Tomatoes
Canned
5.0%
5.0%
Yes
•
Fruits
Canned
9.0%
9.0%
Yes
•
Canned
-10.0%
-10.0%
Yes
•
2.0%
Yes
•
Bakery / Grocery
Produce - Fruits
Apple products (including sauce)
Q2 2015
2015
Fruits
Frozen
2.0%
Vegetables
Canned
8.0%
8.0%
Yes
•
Vegetables
Frozen
0.0%
0.0%
Yes
•
Seafood
Shrimp, value-add
0.5%
0.0%
Yes
•
Seafood
Shrimp, non-value-add
0.0%
1.0%
Yes
•
Seafood
Fish, value-add
1.0%
3.0%
Yes
•
Seafood
Fish, non-value-add
2.0%
5.0%
Yes
•
Seafood
Other, value-add
1.0%
0.0%
Yes
•
Seafood
Other, non-value-add
0.0%
-0.5%
Yes
•
T C
Red = >5%; Yellow = 2.1 – 5%; Green = 0 – 2% Source: United States Department of Agriculture, Economic Research Service
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PLASTIC RESINS MARKET OVERVIEW
PRODUCT CATEGORIES WITH HIGH PLASTIC RESIN CONTENT AND 12-MONTH PRICE OUTLOOK Custom procedure trays/packs, gowns and related products
•
IV therapy products – sets and tubing
•
Contrast media injector disposables
•
Patient bedside products
•
Plastic resins market update Petrochemicals The Platts Global Petrochemical Index (PGPI) is a benchmark of seven widely used petrochemicals derived from crude oil and natural gas. Since these petrochemicals are used to make plastic, rubber, nylon, and other consumer products, the plastic resins market often aligns with petrochemical prices.1 The PGPI for January 2015 showed month-over-month petrochemical prices falling 14 percent, continuing a six-month fall and declining from $1,384 per metric ton in September 2014 to $850 per metric ton in January 2015.
2
Prices are now at their lowest level since 2009. The steep price decreases are largely due to crude oil and naptha prices, which have also been declining at a significant pace. 3 In terms of production, many changes are taking place within the industry. Shortages of traditional components, including ethylene, propylene, butadiene, and benzene, have led producers to seek alternative sources such as coal, gas, and biomass. A recent 4
boom in cheap shale gas in the U.S. has also moved consumers away from the traditional markets. 5
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COMMODITIES ©2015 by Premier Inc. All rights reserved.
Although alternative sites have
million bbl/d throughout 2015.8 2016
been found, the Middle East remains
will bring production up to its near-
the largest exporter of petrochemical
highest levels.
components. Analysts expect growth
Brent crude oil prices will average $58/
to slow in Saudi Arabia, but major
bbl in 2015 and $75/bbl in 2016, both
investments will continue to be made in
down from 2014 prices by more than
Iran, Qatar, the United Arab Emirates,
$100/bbl.9 Price declines reflect growth
and Iraq.6 Iran announced in February
in U.S. production, as well as global
2015 that it will increase petrochemical
supply, and weaker global demand.10
production 300 percent, from 60 million tons to 180 million tons, by the end of
Natural gas prices
the year.7
Natural gas inventories were 24 percent
Although plastic resin prices have
higher at the end of January 2015 than
long been coupled with those of crude
at the same time in 2014, but 1 percent
oil (and still are, to a large extent), many
lower than the average from 2010-2014.
manufacturers of plastic materials
Henry Hub natural gas spot prices are
also use other types of petrochemicals
forecast to average $3.34/million British
to make their products. The base
thermal units (MMBtu) this winter
chemical of polypropylene, propylene,
compared to $4.53/MMBtu last winter.11
is a byproduct when oil is used to make gasoline. Due to reduced gasoline use in the U.S., fewer refineries are going through this process, which has created a propylene shortage and driven prices up.
Crude oil prices The Energy Information Administration (EIA) reports that OPEC crude oil production averaged 9.2 million barrels per day (bbl/d) in January, with average monthly production remaining at 9.3
COMMODITIES E
Fig.1
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Plastic resin prices 350
Index-base year 1982=100
300
250
200
150 2012
2013
2014
Source: Bureau of Labor Statistics – Producer Price Index – Commodity – Plastic Resins and Materials Manufacturing Note: All indexes are subject to revision for four months after publication.
Fig.2
Projections for 2015
FACTOR
IMPACT ON PLASTIC RESIN PRICES
COMMENTS
Crude oil prices
Record-high production and subsequent sustained low prices will result in lower prices for materials produced from crude oil.
Natural gas prices
Lower space heating demand than expected and higher natural gas production are keeping prices low.
Propylene supply
Propylene, used in some plastic products, is a byproduct of the process of deriving gasoline from oil. Due to lower gasoline usage in the U.S., there is a current shortage of propylene.
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NATURAL AND SYNTHETIC
RUBBER MARKET OVERVIEW
PRODUCT CATEGORIES WITH HIGH RUBBER CONTENT AND 12-MONTH PRICE OUTLOOK Exam gloves
•
Surgical gloves
•
Natural and synthetic rubber market update
Synthetic rubber
Natural and synthetic rubbers are used
(NBR), a major component of exam
extensively in the healthcare industry,
gloves, is composed of more than 65
particularly for exam and surgical gloves.
percent butadiene (BD). NBR is the
Natural rubber is derived from latex
fastest-growing product segment in
sap extracted from rubber trees, while
the global market for rubber gloves,
synthetic rubber comes from chemicals
especially in medical and industrial
that result from petroleum refining.1
settings.5 Due to a growing number
Synthetic nitrile butadiene rubber
of disease outbreaks and increasing
Natural rubber
concerns over medical safety, global
Surpluses in natural rubber and
demand for NBR is on the rise.6 Since
subsequent low prices have driven
synthetic rubber is made from a
production down in many of the larger
byproduct of crude oil, prices will benefit
producing countries in Southeast Asia.
from sustained, low crude oil costs.7
Natural rubber prices are now at the
Consumption of synthetic rubber
lowest rate in five years.2 However,
grew 5.6 percent April-May 2014,
current production halts may lead to
compared to natural rubber, which saw
significantly elevated prices in a few
only a 0.5 increase in that time frame.8
years as inventories run low. The historically low natural rubber
According to the International Rubber Study Group, global demand for
prices are also keeping pressure on
all rubber is expected to increase 1.8
synthetic rubber costs, since many
percent in 2015 and 4.1 percent in 2016.9
manufacturers have substituted natural rubber where possible, making demand for synthetic rubber shrink. 3 Rubber use in tire manufacturing, which accounts for more than half of global consumption, is also reportedly low.4
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COMMODITIES ©2015 by Premier Inc. All rights reserved.
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Fig.1
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3-month percent change in rubber and rubber products prices 4.0 3.0
3-month percent change
2.0 1.0 0.0 -1.0 -2.0 -3.0 -4.0 2012
2013
2014
Source: Bureau of Labor Statistics - Producer Price Index - Commodity - Rubber and Rubber Products
Fig.2
Projections for 2015
FACTOR
IMPACT ON RUBBER PRICES
COMMENTS
NBR prices
Demand for synthetic rubber continues to grow. However, manufacturers are taking advantage of historically low natural rubber prices, and in some cases, substituting natural rubber. This will contain synthetic rubber prices.
Natural rubber surplus
Natural rubber prices are at all-time lows due to continued sluggish demand. As a result, producers are beginning to leave the market and turn to other crops.
Crude oil prices
The two monomers used for synthetic nitrile gloves (butadiene and acrylonitrile) are derived from oil. Sustained low crude oil prices will keep rubber costs down.
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STEEL
MARKET OVERVIEW
PRODUCT CATEGORIES WITH HIGH STEEL CONTENT AND 12-MONTH PRICE OUTLOOK Surgical instruments
•
Spinal implants and related products
•
Orthopedic total joint implants
•
Steel market update Domestic steel imports have risen 35 percent to a record-high 4 million tons, largely due to construction and auto industry demands as the U.S. economy picks back up postrecession. However, with many auto 1
manufacturers moving from steel to aluminum products, consumption is unlikely to stay this high.2 There is also a heavy use of steel in oil drilling equipment. With the significantly lower prices of oil in the second half of 2014, there is lower domestic demand for steel as oil drillers slow their pace. 3 Chinese supply has largely outpaced demand, leading to a surplus and lower prices.4 China typically accounts for half of all international consumption, but the country’s lowest rate of growth in more than a decade is making an impact.5 Global crude steel production fell 2.9 percent in January 2015, compared to 2014.6
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COMMODITIES ©2015 by Premier Inc. All rights reserved.
Analysts at Deutsche Bank have adjusted the EBITDA earnings of the industry overall, decreasing it 11 percent across the board after the release of fourth quarter earnings. However, the bank is standing behind its “buy” ratings on three of the toprated steel companies. That comes from Deutsche Bank’s belief that there will be a supply-side response, contraction of import arbitrage, a seasonal rise in demand, and increased protectionism within the coming year.7
COMMODITIES E
Fig.1
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Iron and steel prices 260
Index-base year 1982=100
250
240
230
220
210
200 2012
2013
2014
Source: Bureau of Labor Statistics – Producer Price Index – Commodity – Iron and Steel
Fig.2
Projections for 2015
FACTOR
IMPACT ON STEEL PRICES
COMMENTS
Global production slowing
Crude steel production decreased 2.9 percent from January 2014 to January 2015. Current demand is lower than production, making potential price increases unlikely in the short term.
Slowing Chinese economy
Chinese supply has largely outpaced demand, leading to a surplus and lower prices.
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REFERENCES Copper 1. Biman Mukherji, “Copper Tells Two Stories on Global Economy,” Wall Street Journal, February 23, 2015, http:// www.wsj.com/articles/copper-tells-two-stories-on-globaleconomy-1424724382. 2. Robert Kozak, “Southern Copper CEO Sees Chinese Copper Demand Helping Prices,” Wall Street Journal, December 3, 2014, http://www.wsj.com/articles/southerncopper-ceo-sees-chinese-copper-demand-helping-prices1417640775?KEYWORDS=copper. 3. The Associated Press, “Report on China’s Economy Lifts Copper Prices,” ABC News, June 2, 2014, http://abcnews. go.com/Business/wireStory/report-chinas-economy-liftscopper-prices-23962726. 4. “Market not paying enough attention to copper supply situation: Citi,” Platts, February 24, 2015, http://www.platts. com/latest-news/metals/london/market-not-payingenough-attention-to-copper-21036089. 5. Rob Pasche and Kara Dailey, “ICSG Copper Market Outlook Sees Supply/Demand Reversal in 2015,” DailyFX November 6, 2014, http://www.dailyfx.com/forex/market_ alert/2014/11/07/ICSG-Copper-Market-Outlook-SeesSupplyDemand-Reversal-in-2015.html. 6. Ibid.
Cotton 1. Christian Berthelsen, “Cotton Prices Waver on Road to Recovery,” Wall Street Journal, February 22, 2015, http:// deltafarmpress.com/cottonhttp://www.wsj.com/articles/ cotton-prices-waver-on-road-to-recovery-1424633579. 2. Ibid. 3. Forrest Laws, “China’s Cotton Pricing Structure Leading to More Polyester Use,” Delta Farm Press, February 24, 2015, http://deltafarmpress.com/cotton/china-s-cotton-pricingstructure-leading-more-polyester-use. 4. Swansy Afonso, “Plunging Cotton Prices Spurring Farmers to Reduce Planting,” Bloomburg, November 26, 2014, http:// www.bloomberg.com/news/articles/2014-11-25/plungingcotton-prices-seen-spurring-farmers-to-reduce-planting. 5. Elton Robinson, “Demand for High Quality Propping Up Cotton Prices,” Delta Farm Press, September 17, 2014, http://deltafarmpress.com/cotton/demand-high-qualitypropping-cotton-prices.
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COMMODITIES ©2015 by Premier Inc. All rights reserved.
Energy 1. U.S. Energy Information Administration, Short-Term Energy Outlook, February 10, 2015, http://www.eia.gov/ forecasts/steo/report/global_oil.cfm. 2. Ibid., http://www.eia.gov/forecasts/steo/index.cfm. 3. Ibid., http://www.eia.gov/forecasts/steo/report/global_oil. cfm. 4. Ibid., http://www.eia.gov/forecasts/steo/index.cfm. 5. Ibid., http://www.eia.gov/forecasts/steo/index.cfm. 6. Ibid., http://www.eia.gov/forecasts/steo/index.cfm. 7. Ibid., http://www.eia.gov/forecasts/steo/report/natgas.cfm.
Food 1. Food and Agriculture Organization of the United Nations, World Food Situation: Food Price Index, May 2, 2015, http:// www.fao.org/worldfoodsituation/foodpricesindex/en/. 2. Codi Kozacek, “World Food Supplies Recover From Drought and Reach 15-Year High,” Circle of Blue, November 27, 2014, http://www.circleofblue.org/waternews/2014/ world/world-food-supplies-recover-droughts-reach-15year-high/. 3. Economic Research Service, Food Price Outlook, 2015, United States Department of Agriculture, December 2014, http://www.ers.usda.gov/data-products/food-priceoutlook/summary-findings.aspx#foodCPI. 4. Ibid. 5. Ibid.
Plastic Resins 1. “Global Petrochemical Prices Continued Slow Slide, Down 1% in April,” Platts McGraw Hill Financial, May 16, 2014, http://www.platts.com/news-feature/2014/ petrochemicals/pgpi/index. 2. “Global Petrochemical Prices in January Lowest Since Mid-2009,” Platts McGraw Hill Financial, 2015, http://www. platts.com/news-feature/2015/petrochemicals/pgpi/index. 3. Ibid. 4. Natasha Alperowicz, “APIC 2014: The Changing Face of the Petrochemical Industry,” IHS Chemical Week, May 22, 2014, http://www.chemweek.com/lab/APIC-2014-The-changingface-of-the-petrochemical-industry_61076.html. 5. Ibid. 6. Ibid. 7. “Iran to enhance petrochemical production by 1.3m tons,” Customs Today Report, February 9, 2015, http:// customstoday.com.pk/iran-to-enhance-petrochemicalproduction-by-1-3m-tons-2/. 8. U. S. Energy Information Administration, Short-Term Energy Outlook, February 10, 2015, http://www.eia.gov/ forecasts/steo/index.cfm. 9. Ibid. 10. Ibid. 11. Ibid.
Rubber 1. Story of Rubber, International Rubber Study Group, May 2014, http://www.rubberstudy.com/storyofrubber.aspx. 2. Miles Moore, “Natural rubber prices down, production drops too,” RubberNews.com, October 7, 2014, http://www. rubbernews.com/article/20141007/NEWS/310069984/ natural-rubber-prices-down-production-drops-too. 3. Ibid. 4. Rahul Oberoi, “Rubber prices to fall further on poor demand from tyre sector and falling overseas market,” Business Today, September 10, 2014, http://businesstoday.intoday.in/ story/rubber-prices-natural-rubber-rubber-board-of-indiakerala/1/210161.html. 5. Transparency Market Research, “Nitrile Butadiene Rubber Market Growing at a CAGR of 5.9% from 2013 to 2019,” DigitalJournal.com, June 5, 2014, http://www.digitaljournal. com/pr/1966405. 6. Ibid. 7. George Joseph, “Fall in crude prices could make synthetic rubber more attractive,” Business Standard, October 13, 2014, http://www.business-standard.com/article/markets/ fall-in-crude-price-favours-rise-in-synthetic-rubberconsumption-114101300527_1.html. 8. Ibid. 9. “Latest World Rubber Industry Outlook Now Available from IRSG,” International Rubber Study Group, January 6, 2015, http://www.rubberstudy.com/news-article. aspx?id=5081&b=default.aspx.
Steel 1. “U.S. Steel (X) Down to Strong Sell on Oil Price Woes,” Zacks Equity Research, February 16, 2015, http://www. zacks.com/stock/news/164495/us-steel-x-down-to-strongsell-on-oil-price-woes. 2. Ibid. 3. Tom Knox, “Worthington Industries warning of ‘significantly’ lower profit as steel prices plummet,” Columbus Business First, February 24, 2015, http:// www.bizjournals.com/columbus/news/2015/02/24/ worthington-industries-warning-of-significantly.html. 4. “U.S. Steel (X) Down to Strong Sell on Oil Price Woes,” Zacks Equity Research, February 16, 2015, http://www. zacks.com/stock/news/164495/us-steel-x-down-to-strongsell-on-oil-price-woes. 5. Ibid. 6. “World crude steel production down by 2.9% for January 2015,” Steel Times International, February 20, 2015, http:// www.steeltimesint.com/news/view/world-crude-steelproduction-down-by-2.9-for-january-2015. 7. Wayne Duggan, “Despite the Plunge in Steel Prices, Deutsche Bank Remains Bullish On These Steel Stocks,” Finance, February 7, 2015, http://finance.yahoo.com/news/ despite-plunge-steel-prices-deutsche-155756965.html.
FOR FURTHER INFORMATION To learn more about this publication, please visit premierinc.com/economicoutlook, or email economicoutlook@premierinc.com.
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