Economic Outlook | Fall 2015 by Premier, Inc.

STRATEGIC LEADERSHIP FOR FINANCIAL AND CLINICAL HEALTHCARE EXECUTIVES • A TWELVE MONTH OUTLOOK • FALL 2015

LETTER 01

EXECUTIVE LETTER

Hive-minded healthcare Mike Alkire, chief operating officer, Premier, Inc.

FEATURES | INTEGRATED PHARMACY

FACE TIME WITH YOUR IMPACT OF AN NAILESH BHATT NEIGHBORHOOD ORAL ONCOLOGY (HOSPITAL) PROGRAM PHARMACY

PERSPECTIVES 26 Sight & insight

TRENDS 34 Creating competition 37 And, action: Putting big data to work 41 Success Story: InDemand Interpreting

OUTLOOK LEADERSHIP

ECONOMICS 44 A Conversation with Donald Rissmiller 48 An Update on Hospital Performance Metrics 53 Patient Volume Trends 57 Premierâ&#x20AC;&#x2122;s Supply Chain Solutions 58 Inflation Summary 59 Success Story: Halyard

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 Paula Gurz, Tina Harlan, Eric Johnson, Dave Natale, Madison Ott, Acacia Strachan, and Laura Yandell for their contributions to this edition of the Outlook.

THE RISING COST OF PHARMACEUTICALS

MADE IN THE USA

COMMODITIES 62 Minimizing Raw Materials Risk 64 2016 Economic Overview 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

DESIGN AND PRODUCTION Dave Dixon, senior graphics designer, creative services Kimberly Diedrich, graphics designer, creative services Sung Ginader, project manager, creative services EDITORIAL SUPPORT Amanda Forster, vice president, public relations Bryan Alsop, senior manager, corporate communications Morgan Guthrie, manager, press relations Madison Ott, publishing intern

About the cover Unlike bees in a hive, the U.S. healthcare system has long valued individual expertise as long as it retains autonomy – and because of that, we largely have not focused on the strength of combining all of that expertise into a cohesive system of care. But while our industry still highly values – and really hinges on – specialized experts, personalized care and precision medicine, we’re increasingly identifying ways that individual practices can hamper the big picture of population health. Like hive mind, where each bee has to each deliver on its separate tasks by constantly communicating, providers need to synchronize the components of care delivery so that we can all achieve our goal of healthier communities.

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

Hive-minded healthcare

the first place. Like hive mind, where each bee has to deliver on its separate tasks by constantly communicating, providers need to synchronize the components of care delivery so that we can all achieve our goal of healthier communities.

MEMBERS OF THE PREMIER ALLIANCE,

And while greater effort has been placed on coordinating some of the components – such as primary care and other physicians in a patient-centered medical home model – we need to integrate each part of the delivery system to work as one. One area that’s often overlooked is the pharmacy and the services

Collaborative isn’t a term we use often to describe our

pharmacists deliver to patients.

traditional healthcare system. In fact, many of our nation’s physicians were trained to work independently. Health systems

How pharmacy plays a part in population health

long acted like holding companies with each facility operating

The role of the pharmacist is changing, as you’ll see in this

autonomously. Unlike bees in a hive, we have emphasized the

edition. A growing number of health systems and their internal

value of individual expertise as long as it retains autonomy –

pharmacists are recognizing the need to play a different role

and because of that, we largely have not focused on the strength

in the overall delivery of care than they have in the past. In

of combining all of that expertise into a cohesive system of care.

the 2015 Industry Outlook, Paul Lewis, an infectious disease clinical pharmacy specialist at Johnson City Medical Center,

But all of that is changing.

the flagship hospital of Mountain States Health Alliance, emphasized that it’s now everyone’s job within the health

While our industry still highly values – and really hinges

system to contain or remove costs.

on – specialized experts, personalized care and precision medicine, we’re increasingly identifying ways that individual

Phil Williams, administrative director of pharmacy services

practices can hamper the big picture of population health. In

at Edward-Elmhurst Healthcare, reiterates that point. “As

an environment where communication between providers

pharmacists, we’re still evaluated on a number of metrics

can mean the difference between a good outcome and a bad

that we’ve always been measured on, such as personnel

one, a high-cost treatment or high-value treatment, working

management, cost containment and productivity.

together is imperative. “But we’re also looking toward the future where the role of Now, providers must work together with a singular focus of

pharmacists and pharmacies will change dramatically with more

improving population health. That means making care more

direct patient care, more accountability, more responsibility

accessible, delivering high-quality results while ensuring it’s

for managing chronic diseases, and more collaboration with

affordable, and preventing people from becoming patients in

physicians and other providers,” says Williams. OUTLOOK

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EX E C U TI V E LE TTER

Hive-minded healthcare

It’s true. All providers need to be engaged in the goal of

Ensuring pharmacies are connected in the big picture of

improving population health in order to enhance the places we

population health is critical to delivering low-cost, high-quality

currently fall short – like transitions of care and chronic disease

healthcare.

management. As we work to transform the healthcare system, we’re always In fact, specialty pharmacists and pharmacy services can play

looking at other people and industries who have found

a huge role in mitigating bad outcomes from poor medication

innovative ways to do things. In this case, maybe another

adherence. For instance, among patients prescribed oral

species has the right idea.

oncology drugs, adherence rates are reported to be as low as 20 percent, an astoundingly low number. The reasons vary from bad drug interactions and side effects to cost and complexity of treatment, but the impact can be serious. Not only can nonadherence result in bad treatment outcomes – up to 69 percent of medication-related hospital admissions are caused by poor medication adherence – it also adds cost both to the patient who may need to extend treatment and the healthcare system. However, among Commcare Specialty Pharmacy patients, who receive counseling, medication therapy management services, round-the-clock access to clinical pharmacists, and other services, adherence is nearly 97 percent. Retail pharmacies, integrated into a health system, can ensure that patients have easy access to medications before they leave the hospital. That integration also gives the health system access to data on when and which patients fail to initiate or refill treatment, visibility that allows providers to target those patients who may be having trouble with copays or their discharge plans.

– MIKE ALKIRE Chief operating officer

/ Premier, Inc.

Features

Face Time with Nailesh Bhatt, 4 Your neighborhood (hospital) pharmacy, 8 Impact of an oral oncology program in specialty pharmacy, 12 The rising cost of pharmaceuticals, 17 Made in the USA, 20

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FACE TIME WITH

Nailesh Bhatt I

Strategic advisor, investor, and dealmaker in life sciences and healthcare

Nailesh Bhatt is the founder and managing director of Proximare, an advisory firm focused exclusively on developing and implementing growth strategies for healthcare and life sciences clients. It has offices in Princeton, London, and Mumbai. Before founding the company in 2001, Bhatt started BulkDrugs.com and held increasingly responsible positions at Arthur Andersen, SEPPIC, and Sidmak Labs.

What is the current state of the pharmaceutical industry, especially in terms of generic drugs? The generic drug industry is undergoing major structural changes, both in the United States and on a global scale. These changes are driving new challenges and opportunities that all industry stakeholders will have to face. In essence, the U.S. market no longer has constant new entrants, which decreases competition. In the near future, we can expect price increases and supply chain disruption. There are several major changes occurring in the pharmaceutical industry, including consolidation, supply chain disruption, and the rise of specialty pharmaceuticals.

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1. Consolidation

2. Supply chain disruption

Consolidation is happening in a very rapid, meaningful,

Another major change occurring in the pharmaceutical

and powerful manner. And it is happening on all sides:

industry is supply chain disruption, some of which is caused

manufacturers, suppliers, and buyers. Several years ago, there

by increased regulatory scrutiny and the introduction of the

were more than 350 generic drug manufacturers supplying

Generic Drug User Fee Agreement (GDUFA). GDUFA requires

the United States. Now there are less than 200. Although

every pharmaceutical manufacturer to pay a fee each time

manufacturers are entering the market from China, India,

a new product patent is filed, as well as a fee for every one of

Mexico, and other emerging economies, generic companies

its facilities where drugs are made for the U.S. market, which

are consolidating at an even faster pace. The most recent

increases the cost burden for manufacturers.

example is Teva acquiring Actavis generics. Many companies

The increased revenues have allowed the FDA to add

are buying other firms with similar capabilities, resulting in

global resources, inspect more manufacturing facilities, and

less competition. Weâ&#x20AC;&#x2122;re also seeing manufacturers vertically

inevitably find new problems. The problems can result in the

integrating and buying suppliers of their raw materials.

filing of an FDA Form 483, which can lead to plant shutdowns

Consolidation is occurring on the buyer side, too. Previously,

or import alerts. These supply chain disruptions will create

20 or 30 buyers represented approximately 90 percent of

uncertainty, unknown risks, and opportunities for Premier, its

market share in the U.S. Now, four buyers control almost

members, and other hospitals and pharmacies.

90 percent of the U.S. generic drug industry. Even further consolidation can be expected. In this situation, companies

3. Specialty drugs

are not necessarily buying each other out, but rather, forming

Pharmaceutical companies are now focusing on specialty

larger entities that can exert more pressure on other industry

drugs and other products that will generate greater profits and

participants (see Figure 1).

help many previously underserved patient groups. With this in mind, some firms are no longer producing approved drugs that occupy much-needed and expensive manufacturing capacity. This leads to further uncertainty, supply disruptions, and higher prices.

Fig.1

Industry consolidation

ESRX launches Econdisc (Mid-2011)

2011

Walgreens and Alliance Boots partnership announced (June 2012)

AmerisourceBergen contract with Walgreens and Alliance Boots announced (March 2013)

2012

McKesson acquired Celesio (February 2014) McKesson and Rite Aid expanded distribution agreements (February 2014)

2013

CVS Caremark and Cardinal Health generic sourcing entity announced (December 2013)

Fredâ&#x20AC;&#x2122;s joins Cardinal Health (August 2014)

Pharmerica to source from Cardinal instead of AmerisourceBergen (March 2015)

2014

Red Oak Sourcing established (July 2014) Omnicare & McKesson renew (December 2014) McKesson + Celesio operate as an integrated company

2015

CVS acquires Omnicare (May 2015) Cardinal Health acquires Harvard Drug (June 2015) CVS acquires Target Pharmacy & Clinics (June 2015)

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Can you talk about what kind of integration is going on in the pharmaceutical industry? Integration is happening on many levels and is reaching all

Fig.2

Buyer market share Pre-consolidation

aspects of the healthcare industry. On the manufacturing side, integration is occurring across geographies and dosage forms. For example, Mylan acquired Matrix Labs in India, and Pfizer

16%

acquired Hospira, which has large manufacturing capacity in India. Meanwhile, non-U.S. companies are buying U.S.-based

29%

generic firms, such as India-based Lupin’s acquisition of New

11%

Jersey-based Gavis Pharmaceuticals and Novel Labs for $880 million. Additionally, vertical integration is taking place from basic raw materials all the way to finished doses. On the buy side, integration is demonstrated by

several examples.

14%

• There are now only three wholesalers and distributors

that control almost 90 percent of drug distribution:

AmerisourceBergen, Cardinal Health, and McKesson. • Retailers are consolidating (e.g., SuperValu, Albertsons) and merging with PBMs (e.g., CVS/Caremark and CVS acquiring all of Target’s pharmacies and clinics). • Retail chains are buying stake in large wholesalers and

CVS

McKesson

Walmart

Walgreens

Cardinal Health

Rite Aid

Econdisc

AmerisourceBergen

All Others

distributors (e.g., Walgreens and AmerisourceBergen). • Wholesalers are setting up their own generic drug labels (e.g., McKesson’s NorthStarRx and AmerisourceBergen’s BluPoint Labs).

Post-consolidation

As a result, retailers are developing systems to contract with manufacturers of finished doses. Instead of buying generic 14%

drugs, they manufacture, distribute, and sell their generic products themselves in a retail pharmacy. The effect of this

4% 31%

retail and wholesaler consolidation on hospitals and health systems is still unknown (see Figure 2). 14%

14%

23%

CVS

McKesson

Walgreens

Walmart

Econdisc

All Others

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Fig.3

Vertical integration = a reality

PBMs and trailers Wholesalers Finished dose APIs Intermediates

What role do active pharmaceutical ingredient (API) manufacturers play in vertical integration? API manufacturers are extremely important since they represent about 85 percent of the cost of the drug. Also, the

Lines becoming blurry as companies move up and down the value chain •

CROs signing risk and reward-sharing agreements (e.g., Catalent)

•

API manufacturers forward integrating (e.g., Hikal, Granules, Apicore)

•

Wholesalers investing in ANDAs (e.g., NorthstarRx, BluePoint Labs)

•

Retailers acquiring PBMs and investing in wholesalers (e.g., CVS/Caremark, RiteAid + EnvisionRx, Walgreens + AmerisourceBergen)

What does the future hold and what should health systems be doing to get ahead of these changes? Five years from today, I envision a scenario where the U.S.

FDA monitors, inspects, and approves every aspect of API

generic drug industry will be even more consolidated, with

production. Many supply chain disruptions are due entirely to

fewer players controlling higher market share and wielding

APIs.

greater power and influence. For instance, there will be:

When the FDA increased scrutiny and introduced GDUFA fees, some smaller API manufacturers couldn’t afford to comply. Those firms either pulled out of the U.S. market or simply became non-compliant. The issue is further complicated by fewer API manufacturers entering the industry. In addition, some API manufacturers are integrating finished dose development and production capabilities, giving them more

• No more than 15 major generic suppliers, and the rest will rely on those companies to sell products; • Further consolidation and vertical integration among buyers of generic drugs; and • More creative deals, including risk and reward sharing, between buyers and suppliers. There will be newer risk factors and possible supply chain

control over their products. This can mean better margins and

disruptions, as well as opportunities that will require the

lead to consolidation, blurring the lines across the healthcare

attention of CEOs and other healthcare leaders. I believe it’s

value chain (see Figure 3).

impossible for individual health systems to keep track of all the developments on a global scale. Unlike today, CEOs and other leaders outside of pharmacy must get involved to ensure that their health systems are 100 percent compliant, supportive, and collaborative with their GPO agreements. They must also be more open to creative deals. That will enable Premier to deliver more value and identify, mitigate, and manage risks stemming from the newer market dynamics.

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ealthcare organizations

that 20 percent of Medicare patients

are under immense

are re-hospitalized within 30 days

by publicly traded companies like CVS

pressure to deliver better

of discharge. However, healthcare

or Walgreens, have already begun to

value through increased

providers have historically been â&#x20AC;&#x201C;

reach beyond their traditional role as

efficiency while improving quality

and still primarily are â&#x20AC;&#x201C; reimbursed

pill dispensers to meet new healthcare

of care. At the same time, patientsâ&#x20AC;&#x2122;

based on the number of visits or

demands.2 According to the National

needs are evolving, technological

services rather than outcomes. It

Association of Chain Drug Stores,

advances are enabling access and

is for this reason that healthcare is

there is a retail chain pharmacy within

driving delivery system reform,

undergoing significant reform.

approximately 2.36 miles of any U.S.

expectations of service excellence

Providers are now looking for

Retail pharmacies, largely operated

consumer. 3 With innovations like in-

are increasing from all stakeholders,

novel ways to collaborate with one

store clinics, wellness programs, health

and payers are continuing to demand

another and this includes partnering

screenings, and disease management

greater cost control with demonstrable

with pharmacists. Doctors know how

services, many pharmacies are evolving

outcomes. This challenging operating

important it is that their patients

alongside everyone else in healthcare.

environment impacts how leading

follow their medication action plan.

healthcare providers are investing

One example would be unnecessary

strategically positioned themselves

in population health management,

readmissions that can occur due to

to be competitive in the market and

which is centered on achieving

the patient not taking his medication

to meet two of the top goals of reform:

positive outcomes, increased patient

properly. And with new alternative

controlling costs and providing

safety, and decreased costs.

payment models penalizing health

convenient and accessible medical care

systems for specific indicators of

to both insured citizens and the 60

for new ways to make interactions

poor care coordination, it is further

million Americans without healthcare

with patients more meaningful, as well

motivating many health systems

insurance today.4 Yet most of these

as acquire additional data to manage

to integrate retail pharmacies

retail pharmacy providers sit outside

population health. A New England

into their business plans.

of health systems, rather than within.

As a result, health systems are looking

Most retail pharmacies have

Journal of Medicine report revealed

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“But where retail chain pharmacies excel in providing convenient access

Currently, two main channels exist from which patients can fill their

connections they make with patients

health-focused environment, better

and the data that comes from it.

care coordination can mean improved

prescriptions for pharmaceutical

patient outcomes and more complete

products – mail-order pharmacies and

An integrated approach

data on a patient accessible to each

retail “brick-and-mortar” pharmacies,

The rapid growth of retail clinics

member of the care team. For instance,

usually located in neighborhood

presents both challenges and

integrating a retail pharmacy into

drug or grocery stores. Similar to

opportunities for hospitals and

a hospital allows each provider to

other areas of the healthcare market,

health systems. Convenience is a

view and utilize comprehensive data

there has been much consolidation

major factor in a patient’s decision to

on the patient via the electronic

among retail pharmacies in the past

refill a prescription. A recent study

health record (EHR) in real time.

several years. Recently, Express

indicated that since 2000, over one

It would also mean:

Scripts acquired Medco, making it the

million Americans have visited a

• Pharmacists would have full

largest Pharmacy-Benefits Manager

retail pharmacy clinic for medical

access to the patient’s medical

(PBM), and UnitedHealth announced

services instead of their primary care

record and consult with the

plans to acquire Catamaran.

provider. However, research has also

physician and nurse before the

shown that over half of medication

patient leaves the hospital.

There are many factors that have

• Providers working collaboratively

encouraged this surge of consolidation.

adherence errors occur during

The Affordable Care Act has directed

transitions in care,9 often an issue when

can encourage patients to take their

millions of newly insured patients

a patient leaves a hospital or provider’s

medications correctly and catch

to pharmacies and propelled cost

office and fails to fill a prescription

any drug error or potential drug-

containment. Lower Medicare

or begin follow-up treatment.

to-drug interaction prospectively

reimbursements and higher generic

Not only can this have an impact on

before there is harm done.

drug costs have further stimulated

outcomes, but it also causes the flow of

• The amount of “big data” collected

mergers and acquisitions. And, a

patient information between providers

on patients would be significant.

recent study indicated that mail-

to become fragmented. Pharmacists

This allows health systems to

order prescriptions may be declining

should be viewed as clinical partners

analyze and utilize their data in a

in growth, leading PBMs to steer

along with the rest of the healthcare

predictive way that ultimately seeks

team. This visibility across the care

to prevent, not simply treat, disease.

patients towards retail pharmacies.

But where retail chain pharmacies

continuum would help to eliminate

Premier knows retail pharmacies

excel in providing convenient access

unnecessary readmissions and improve

are an important component in

to their services, and often are good

outcomes that are related to poor

the overall integrated approach to

in price, they lack in the breadth of

medication use. In a more population

modern medicine. In fact, Premier

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... they lack in the breadth of connections they make with patients and the data that comes from it.”

has invested in a partnership with

empowered now than ever to take

PharmaPoint to provide complete

control of their health, patients are

point-of-care pharmacy management

more heavily demanding greater quality

to our members. Managing the total

care that is accessible and efficient.

care of a patient before, during, and

This can ultimately be achieved

after an acute-care stay in the hospital

through integrated pharmacies, which

is key to improving the long-term

could be a healthy step forward in the

health of populations. The Premier and

journey to transform healthcare.

PharmaPoint solution offers complete patient care services by increasing touch points with patients across the continuum, providing a convenient pill

Thank you to Madison Ott for her contributions to this article.

dispensary service, and allowing health systems to keep and access patient data for better management. This not only improves patient satisfaction and quality, but it also provides an additional source of revenue for hospitals that is currently an untapped market for many health systems. As innovation and reform drive health systems to expand their role in healthcare, the unique position

REFERENCES

pharmacies have in the market will

1. Gary D. Ahlquist, Minoo Javanmardian, Ashish Kaura, “The Pharmacy Solution,” Strategy-Business.com, February 23, 2010, http:// www.strategy-business.com/article/10103?gko=8ec98. 2. Ibid. 3. Ibid. 4. The Role of Retail Pharmacy in the New Healthcare Environment, http://www.ajmc.com/journals/ajpb/2013/ AJPB_MarApr2013/The-Role-of-the-Retail-Pharmacy-in-the-New-Healthcare-Environment. 5. Retail Pharmacy Trends. http://betterpharmacyhealth.com/wp-content/uploads/2013/06/ McKesson-Retail-Pharmacy-Trends.pdf. 6. Fred’s Swings to Loss Amid Pressure in Pharmacy Business, http://www.wsj.com/articles/freds-swings-to-loss-amid-pressure-in-pharmacy-business-1432817915. 7. Retail Pharmacy Trends, http://betterpharmacyhealth.com/wp-content/uploads/2013/06/ McKesson-Retail-Pharmacy-Trends.pdf. 8. “Doctors Debate Mini-Clinics: Pros and Cons of Retail Clinics,” http://www.familydoctormag.com/doctors-office/ 47-in-store-clinics-debate.html. 9. “Hospitals Look at Retail Pharmacies With Renewed Interest,” Christopher Cheney, Health Leaders Media, February 3, 2014, http://www.healthleadersmedia.com/page-1/HEP-300595/Hospitals-Look-at-Retail-Pharmacies-With-Renewed-Interest.

enable even greater change. In order to optimize care coordination across the whole continuum – and the holistic patient data that affords – healthcare leaders must develop an integrated approach to pharmacy to ensure that data and patient outcomes don’t fall through the gap. With consumers more

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ncology has become one of the most rapidly

Fig.1

Cancer survival rates

growing sectors in

Change, 1990 to 2010

specialty pharmacy. A

100%

18%

recent oncology trend report from the

Institute for Healthcare Informatics

80%

is expected to hit $130 billion by 2020.1 The many advances in oncology have already impacted millions of patients, yet there is still great potential for new therapeutic alternatives

5 year relative survival

(IMS) showed total global spending on oncology reached $100 billion in 2014. It

12% 4%

60%

40%

4% 12%

20%

and other clinical interventions to improve outcomes. Patient adherence to medication, patient survival, and avoidable healthcare costs are

4% 0% 1990

1995

2000

2005

2010

substantial factors that need to be

All sites

Breast

CRC colon

Liver

addressed to further advance oncology

Lung NSC

Ovarian

Pancreatic

Prostate

and improve overall population health.

Long-term oncology care

Source: Surveillance, Epidemiology, and End Results (SEER) Program survival statistics

While cancers have long been considered fatal illnesses, significant

Americans diagnosed with cancer now

advances in treatment have enabled

live at least five years, compared to

Medication adherence challenges with oral oncology therapy

many to be controlled for longer

just over half in 1990 (see Figure 1).

Managing cancer as a chronic condition

periods, even when a cure is not

Enhanced survival rates are largely

requires that patients engage in their

possible. A growing number of

a result of greater availability of

disease management. Medication

cancers are now managed as chronic

innovative drugs and targeted therapies.

adherence is paramount to improving

diseases, with care shifting to long-

For instance, while chemotherapy has

treatment and has been shown to

term maintenance and prevention of

traditionally been administered via

increase survival, lower recurrence

recurrence or progression. In fact, by

intravenous infusion, newer, targeted

and treatment failures, and decrease

2020, the number of estimated cancer

therapies have appeared over the past

consumption of healthcare resources,

survivors living in the U.S. is expected

decade, including both oral and self-

such as physician visits, hospitalizations,

to reach 18.1 million â&#x20AC;&#x201C; up from 13.8

injected oncology agents. While the FDA

and length of stay.4 Up to 69 percent of

million in 2010. The survival rate has

approved 10 cancer drugs in 2014, 574

medication-related hospital admissions

also been rising; about two-thirds of

remain in the development pipeline.

are caused by poor medication adherence

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Fig.2

Top 7 drug names by medication possession ratio (MPR) 100%

95%

90% MPR %

85%

80%

75% Capecitabine

Enzalutamide

Abiraterone

Erlotinib

Pazopanib

Dasatinib

Imatinib

Source: Commcare Specialty Pharmacy data

at an annual cost that exceeds $100

and disease expertise. The pharmacies

costs through its oncology clinical

billion. Overall, medication non-

also help patients find financial

management program, Oncology Assist.

adherence is attributable to $290 billion

assistance when needed. A recent

The program provides patients with:

in avoidable expenses.

article in Specialty Pharmacy Times

5,6

For oral anticancer agents, adherence

• Counseling concerning the

said therapy adherence programs were

importance of compliance,

rates were reported to be as low

“by far the most meaningful service a

administration, and storage of

as 20 percent,7 due to treatment-

specialty pharmacy can offer a patient”.9

oral chemotherapy agents;

related factors that include expensive

According to the National

• Medication therapy management

medications, complexity of regimens,

Comprehensive Cancer Network’s

(MTM) services, including

and undesirable side effects.

Specialty Pharmacy Task Force, the

disease-state education,

main goals of an oncology specialty

side-effect management, and

pharmacy program are to:

comprehensive medication reviews

In a recent study of 300 insured cancer patients, 22 percent did not

fill a prescription because of cost,

• Improve pharmaceutical outcomes;

and 14 percent skipped doses to make

• Ensure appropriate use

the medication last longer.8 When

of medications;

improving overall patient survival

• Maximize drug adherence;

and lowering healthcare expense,

• Avoid unwanted drug

eliminating the most common factors associated with non-adherence is vital. Specialty pharmacies play a key role in cancer management and therapy compliance improvement through

expenditures; and • Enhance patient satisfaction

for possible drug interactions or contraindications; • Financial help (copayment and manufacturer assistance); • Round-the-clock access to clinical pharmacists; • Additional support for

through direct interaction and

patients exhibiting non-

delivery of information.

adherent behaviors; and

Commcare’s Specialty Pharmacy

• Monthly alerts to clinical

effective product distribution, waste

has significantly improved medication

pharmacists whenever a patient’s

reduction, and nurse/pharmacist drug

adherence and decreased associated

medication possession ratio (MPR) falls below 90 percent.

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Fig.3

Interventions administered to Oncology Assist patients: January 2014 - May 2015 140 120 100 80 60 40 20 0 Drug information

Therapy recommendations

Dosage clarifications

Drug-to-drug interactions

Side-effect management

Cost association/avoidance = $194,600 Source: Commcare Specialty Pharmacy data

Patients using Oncology Assist are

medication possession ratio (MPR).

As patients’ medication adherence

also contacted by an oncology clinical

Compliance with drug therapies

improves – typically indicating better

pharmacist prior to starting therapy

significantly improved among patients

outcomes – health systems are rewarded

and once every two weeks for the first

enrolled in Oncology Assist, compared

with lower average costs. Enhanced

two months to assess medication

to both national averages and patients

specialty pharmacy care reduces

adherence and tolerability. Follow-up

outside of the targeted program.

unnecessary spending due to incorrect

calls then continue on a monthly basis

The adherence rate for Commcare’s

dosing and emergency department

throughout the duration of therapy.

oncology patient population was 95.6

visits resulting from negative drug

percent (n= 3,639 patients), while those

interactions or difficult side effects.

Value of oncology management

in the Oncology Assist program have

A review of 3,639 Commcare

an average MPR of 96.8 percent (n=

services provided by oncology clinical

Oncology Assist patients (from

259). Adherence, represented by MPR,

pharmacists at Commcare have

January 2014 through May 2015)

for each of Commcare’s top seven oral

improved adherence as well as patient

assessed overall adherence rates,

oncology products is shown in Figure 2.

outcomes and satisfaction rates.

financial assistance, and cost savings

The high-touch clinical management

Clinical pharmacists documented 278 2. Decrease in healthcare costs

interventions with an associated 98

There are various studies that show

percent patient satisfaction score and

1. Medication adherence

increased adherence to cancer therapies

cost avoidance of $194,600 among 259

The review found that patients enrolled

reduces average healthcare costs. One

patients over 17 months (see Figure 3).

in a specialty pharmacy oncology

such study found that patients enrolled

associated with the program.

program had higher adherence rates,

in a specialty pharmacy oncology

3. Financial assistance

which confirmed Premier’s findings.

program had 13 percent lower average

High costs serve as a barrier to both

Within the Commcare review,

total costs and fewer hospital visits than

medication initiation and long-term

adherence was measured using the

patients outside of these programs.

treatment adherence. Commcare’s

OUTLOOK

QTR 4.15

FEATURES

T F

dedicated oncology financial specialists

The healthcare industry is searching

work with patients to ensure medication

for methods to promote medication

affordability, decrease time for therapy

adherence, improve survival

delivery initiation, investigate/expedite

rates, and reduce costs. Specialty

benefits and approvals, and identify

pharmacy programs have the ability

assistance with out-of-pocket costs.

to help achieve those goals. These

Additionally, patients needing

programs, implemented globally, can

financial help can contact a specialist

improve overall population health

familiar with non-profit foundations

and patient outcomes. With the

and manufacturers that provide

industry’s rapid growth, now is the

drug funding or discounts. A recent

time to capitalize on the momentum

review of Oncology Assist enrollees

begun by providers and pharmacists

revealed that 38 percent needed copay

to revolutionize cancer care and

assistance (typically greater than $50

give hope to millions of patients.

per month). To date, the program has helped 80 percent of those patients lower their copays substantially. 4. Turnaround time Turnaround – the time it takes Commcare to receive an oncology referral, investigate benefits, assist with prior authorizations, and ship medication – is also critical for patient

REFERENCES

satisfaction and medication initiation.

1. IMS Institute for Healthcare Informatics, Developments in Cancer Treatments, Market Dynamics, Patient Access and Value. Global Oncology Trend Report 2015, IMS Health, Inc., http://www.imshealth.com/portal/site/imshealth/menuitem.762a961826aad98f53c753c71ad8c22a/?vgnextoid=79488a64ce90d410VgnVCM1000000e2e2ca2RCRD&vgnextchannel=a64de5fda6370410VgnVCM10000076192ca2RCRD&vgnextfmt=default. 2. American Cancer Society, Cancer Treatment and Survivorship Facts & Figures 2012-2013 ( Atlanta: American Cancer Society 2012). 3. HemOnc Today, Annual Oncology Drugs in the Pipeline, Healio, May 25, 2015, http://www.healio.com/hematology-oncology/ prostate-cancer/news/print/hemonc-today/%7B1ff53db9-a2b5-4833-bbc5-87113be3dc74%7D/2015-oncology-drugs-in-thepipeline. 4. M. T. Puts, H. A. Tu, D. Howell, et al., “Factors Influencing Adherence to Cancer in Older Adults with Cancer: A Systematic Review,” Annals of Oncology, 2013:1-14. 5. IMS Health Inc., Understanding and Improving Adherence for Specialty Products (Plymouth Meeting, PA: IMS HEALTH®, 2010), http://adhereforhealth.org/wp-content/uploads/pdf/Understanding_Improving_Adherence_Specialty_Products_ IMS_Health.pdf. 6. New England Healthcare Institute, “NEHI Research Shows Patient Medication Non-adherence Costs Health Care System $290 Billion Annually,” news release, www.nehi.net/news/press_releases/110/nehi_research_shows_patient_medication_ nonadherence_costs_health_care_system_290_billion (accessed September 13, 2011). 7. K. Ruddy, E. Mayer, A. Partridge, “Patient adherence and persistence with oral anticancer treatment,” CA Cancer J Clin 59(2009):56-66. 8. C. M. Bestvina, L. L. Zullig, C. Rushing, et al., “Patient-oncologist cost communication, financial distress, and medication adherence,” J Oncol Pract 10 (2014):162-7. 9. D. Steiber, “Oncology: An Ever-Growing Presence in Specialty Pharmacy,” Specialty Pharmacy Times, June 2015. 10. R. N. Schwartz,, K. J. Eng, D. A. Frieze, et al., “NCCN Task Force Report: Specialty Pharmacy,” J Natl Compr Canc Netw 8 (2010), suppl. No. 4: S1-S12. 11. S. J. Tschida, S. Aslam, L. S. Lal, T. T. Khan, et al., “Outcomes of a Specialty Pharmacy Program for Oral Oncology Medications,” Am J Pharm Benefits 4, no. 4 (2012): 165-174. 12. Ibid.

Three-quarters of Commcare patients receive their medications within two business days and 92 percent received their medication in threefive business days. Referrals that require prior authorizations and financial assistance remain factors that delay turnaround time.

FEATURES

T E

Paula Gurz Director, pharmacy contracting / Premier, Inc.

Paula Gurz joined Premier as the director of pharmacy contracting, generics in August 2011. In this position Paula is responsible for biosimilars and the management of all negotiation and administrative activities surrounding the generic contracted portfolio. She has 20 years of experience in the generic

rowth in spending on medicines was higher in 2014 than any year since 2001, and exceeded the forecast of overall healthcare spending growth for the first time since 2011.1 Innovative new medicines drove some of the significant increases in spending;

however, at the same time, hospitals were faced with significant price increases in generic drugs and continued high costs of specialty pharmaceuticals. A recent article revealed some cancer drugs cost about $150,000 per patient

pharmaceutical industry, working with

for a one-year supply.2 As prices have skyrocketed, insurers, doctors, and

Sandoz, Dr. Reddyâ&#x20AC;&#x2122;s Laboratories, and Bedford

hospitals have argued that prices should be lower, especially for products that

Laboratories. During this time, she also

offer modest benefits or donâ&#x20AC;&#x2122;t work equally among patients. 3 Drug companies

functioned in various pricing and contracting

have defended these price increases, claiming their prices are a reflection of

or marketing roles, including director of pricing

the high costs of research and development associated with new therapies,

and contracting, director of marketing, and

as well as the value they provide patients and the healthcare system.4

senior director, prescription marketing. Paula has extensive experience developing pricing strategies, negotiating pricing and contracts, marketing product portfolios, launching new products, and selecting product portfolios. Paula completed her undergraduate work at

In recent years, however, rising prices have not just been seen in brand or specialty pharmaceuticals, but also in generic therapies, which have historically been low cost alternatives. As this trend is forecasted to continue, various factors that have contributed to pharmacy price increases, including drug shortages, industry consolidation and regulatory delays, have been evaluated.

Daemen College receiving a BS in Marketing and graduate work at Canisius College in Buffalo, NY, with an MBA in Management.

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FEATURES

T F

Drug shortages due to stricter regulation

Fig.1

Effect of rising prices on generic therapies

During 2012 President Obama signed into law the Food and Drug

Generic name

Dosage form description

Strength

Administration Safety and Innovation

Calcitoninsalmonsynthetic

Vial

200/ML

Act (“FDASIA”, usually pronounced

Glycopyrrolate

Vial

0.2 Mg/ML

“fuh-day-zha”). In addition to

Isoproterenol HCL

Ampul

0.2 Mg/ML

reauthorizing and amending several

Nitroprusside Sodium

Vial

25 Mg/ML

drug and medical device provisions

2013–2015% change in price

1,000–2,800%

Source: Premier, Inc. data

that were scheduled to sunset, FDASIA establishes new user fee statutes for generic drugs and biosimilars. FDASIA also equips the FDA with tools intended

Fig.2

Price impact on topical, ophthalmic, and oral solid products

to expedite the development and review of innovative new medicines

Generic name

that address certain unmet medical needs with new authority concerning drug shortages. Significant changes to

Clobetasol Propionate

Title VII enhance the FDA’s inspection

Ofloxacin

authority and the drug supply chain.5

Phenylephrine HCL

The FDA monitors every facility involved in the production of a drug and issues a notice if any issue is discovered.

Dosage form description

Strength

Amitriptyline HCL

Tablet

100 Mg

Carbamazepine

Tablet

200 Mg

Ointment (G)

0.05%

Drops

0.30%

Ursodiol

Drops

2.5%

Capsule

300 Mg

2014–2015% change in price

600–2,400%

Source: Premier, Inc. data

Recently, the FDA has increased scrutiny regarding quality requirements in foreign and domestic facilities, which has forced manufacturers to invest more in their quality systems.6 As the number of import bans and warning letters have risen, manufacturers are faced with rigid approval processes to even transfer production to another facility.7 Despite the negative impact on patients who need these medications, many drug makers decide not to invest the capital required to correct facility issues and opt out of rigorous approval processes, leading to “market opportunity” – where very few companies that manufacture a particular drug remain in the market.

As manufacturers decide to cease

between pharmaceutical companies,

production, demand overtakes supply,

as Nailesh Bhatt discusses in his

resulting in price increases. Many

interview in this edition. Players across

companies have chosen to instead

the market have been consolidating,

reallocate their resources to another

including large retail pharmacy

product or invest in more profitable

chains merging with pharmaceutical

initiatives. These higher prices further

wholesalers. As drug manufacturers are

increased during 2013 and 2014, in

pressured to reduce prices on various

both percentage and dollar impact.

products, other products with less

Some drugs increased thousand(s) of

competition are climbing in price.

percent, costing health systems tens of millions of dollars (see Figure 1).

The generic drug industry continues to face a myriad of factors impacting product pricing and availability.

Industry consolidation

Traditionally, after a branded drug

Recently, there has been considerable

loses patent protection, various

merger and acquisition activity among

generic manufacturers produce

chain pharmacies, drug wholesalers, and

drugs that have lower and more

FEATURES

T E

competitive pricing.9 In recent years,

have taken advantage of the lack of

pharmaceutical manufacturers have

competition in the marketplace by

been buying other manufacturers, even

raising their prices at an alarming rate.

some of their direct competitors.

Factors such as consolidation within

This means that, in many cases,

the pharmaceutical industry, slow FDA

consolidation limits the number

approval of generic drugs, along with

of manufacturers competing for

others have hurt the U.S. market. But,

market share of a particular type

as insurers, doctors, hospitals, and

of drug. As a result of industry

other major players challenge soaring

consolidation, substantially fewer

drug costs, movement and pressure

generic manufacturers remain in the

towards reasonable pricing is initiated.

market and generic prices begin to soar, significantly impacting products such as topical, ophthalmic and oral solid products (see Figure 2).

Delays with regulatory approval Before a manufacturer can market a generic product, it must have an approved Abbreviated New Drug Approval (ANDA). A recent report revealed that out of 1,059 ANDAs received in 2012, only 516 were approved, contributing to a record backlog of 2,933 pending ANDAs.10 Slower approval is a prominent factor that has led to this backlog. The average time for an ANDA to receive approval from the FDA is now 42 months, up from 29.5 months in 2012.11 As a result of the slow approval process, generic manufacturers have fewer products to launch. Because they generate revenue from new-to-market generic products and product launches, there is added pressure on the “in-line” product portfolio to increase prices to generate additional revenue. Pharmacy costs are rising at the same time that many budgets are being constrained. Some manufacturers

REFERENCES 1. Medicines Use and Spending Shifts, IMS Institute, April 2015. 2. Peter Loftus, “Rising U.S. Drug Prices Are Focus of Research Grant,” Wall Street Journal, July 21, 2015, http://www.wsj.com/ articles/rising-u-s-drug-prices-are-focus-of-research-grant-1437433550. 3. Ibid. 4. Ibid. 5. Hyman, Phelps & McNamara, P.C., detailed summary and analysis of FDASIA, July 2012. 6. C. Lee Ventola, “The Drug Shortage Crisis in the United States,” PMC, November 2011, http://www.ncbi.nlm.nih.gov/pmc/ articles/PMC3278171/. 7. “Why Are Generic Drug Prices Shooting Up?”Forbes, February 2, 2015, http://www.forbes.com/sites/ greatspeculations/2015/02/27/why-are-generic-drug-prices-shooting-up/2/. 8. Ibid. 9. Ibid. 10. “Why Are Some Generics Prices Rising,” Smart Retailing Rx, January 7, 2014, http://smartretailingrx.com/pharmacy-operations/ generics-prices-rising/. 11. Ibid.

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T F

n the 1980s, drug and medical-

an increase in U.S. and near-shore

surgical product manufacturing

production of medical goods has

prevailing preference for outsourcing

began rapidly moving offshore.

been apparent since the recession.

manufacturing, says Phanesh Koneru,

As in other industries, foreign

This move was not consistent with the

PhD and Exela’s founder, president, and

plants provided lower labor costs, and

Exela Pharma Sciences

CEO. “It is certainly more expensive to

in some cases, closer proximity to raw

Offshoring can be a good business

do business in North Carolina than in

materials.1 In 2012, pharmaceutical

strategy if it cuts costs and allows

India. Yet Lenoir had a variety of local

imports were estimated to be twice

companies to focus on their core

resources and talent available to support

as high as a decade earlier, with 80

competencies. It can also have

our company.” Lenoir also had built-

percent of ingredients and 40 percent of

limitations and unintended

in infrastructure for heavy industry,

finished medications produced abroad.2

consequences that undermine a

including a power grid that was an

Now many pharmaceuticals come

corporation’s ability to oversee

additional incentive for the company.

from emerging economies such as

production, ensure quality, and focus

India. As is true of the specialty

on the consumer. Because of this,

positive effect on Lenoir’s local

pharmaceutical sector, foreign markets

Exela, a fast-growing pharmaceutical

economy and unemployment rate,

are often friendlier for drug approvals

company, chose to ignore the offshore

since the area had been hit hard by the

– another enhancement to the benefits

trend and set up shop in Lenoir, NC.

recent recession. As Deborah Murray,

offered by offshore manufacturing.

At the same time, Exela had a

Exela started as a small laboratory

Caldwell Economic Development

For instance, the first U.S. biosimilar

in 2005. Three years later, it evolved

Commission’s executive director,

approval took place this year, 10 years

into a manufacturing facility that

explains, “Prior to the recession,

after initial European approval.

produces innovative generic injectable

Lenoir’s employment landscape was

Still, offshore manufacturing comes

and ophthalmic pharmaceuticals. This

very self-sustaining and minimally

with its own challenges, which may be

was largely driven by the company’s

affected by changes in the national

increasing. The first involves quality

belief that there is a global need to

economy.” But the recession raised local

and safety. Many manufacturers want

bring affordable drugs to the market

unemployment to 17.6 percent in 2010.8

more control over the quality of their

as quickly as possible while improving

products, an issue that often leads

access to lower-income patients.

Exela’s vertically integrated, U.S.-based structure allows all research,

them to produce finished goods in the

Stringent quality control is

development, manufacturing, and

market in which the products will be

mandatory when manufacturing

commercialization to be handled

distributed. Recent studies indicate the

sterile products because of potential

internally. This enables the firm to

economics of “reshoring” may be moving

danger to patients. Exela’s leaders

control quality from concept origination

in favor of U.S. manufacturing.

think the best way to minimize risks

to consumer delivery. It also led to the

For instance, labor costs are

is to have products produced by well-

development of multiple jobs, which

climbing in emerging economies;

trained employees who understand

helped revitalize Caldwell County,

China’s grew 10 percent in 2013.7

the U.S. regulatory system. And they

playing a large part in lowering

believe those workers are more likely

unemployment to approximately 5.9

to be found in the United States.

percent in 2015. Exela also expanded

4,5,6

While the economics of manufacturing depend on the item in question and its components,

its capabilities in 2014 to accommodate

FEATURES

T E

the production of critical drugs

company to meet cost, service, quality,

benchmarking, and talent management

deemed in short supply by the FDA.

and product performance standards.

are upheld at every plant it operates.

Initially, drug shortages were not

Lexington provided a talent pool

Exela’s focus. “As we were conducting

that aligned with Halyard’s values:

Radiopharmaceutical production

business as usual, we kept hearing of

authenticity, boldness, and care

In the spring 2015 Economic

drug shortages and felt the need to help,”

for customers, communities, and

Outlook, Dave Natale, Premier’s

says Phanesh. “We began looking into it

employees. In August 2015, the

director of contract management,

in 2010 and contacted the FDA. By 2013,

Lexington plant celebrated yet another

noted that nuclear medicine, a

we became involved, and by the end of

year of no recorded injuries. This

radiation subspecialty that uses

the year, had a pathway to be approved,

is one more factor that led Halyard

radiopharmaceuticals to trace and

503B. We decided to do this because

to plan a $30-million investment in

assess organ function, had gained

sterile compounding and manufacturing

the area over the next few years. The

increasing favor. He also noted

meant we could make a real difference

funds will be used to modify existing

uncertainty in this market, driven

in managing drug shortages.”

machinery to make medical fabrics

by supply chain difficulties.

Outsourcing remains a controversial topic among U.S. companies.

and to move two converting lines. According to Isenberg, the association

The fragility of the worldwide supply of Molybdenum-99 (Mo-99) was

Exela’s rather unusual choice to

is mutually beneficial. “Halyard

first exposed in 2009, when repairs

manufacture domestically has

Health understands the importance

necessitated the prolonged shutdown of

drastically improved the Lenoir

of being a good community partner

the largest of six nuclear reactors used

economy while simultaneously

and employs an exceptional team in

in its production. This led to a shortage

ensuring company products live up

Lexington to operate our facilities.”

of Technetium-99 (Tc-99), a byproduct

to expected quality standards.

Halyard has created 46 positions (23

of Mo-99 and the most common

permanent and 23 temporary) and

radioisotope in nuclear medicine.

Halyard Health

expects to add another 25 permanent

Halyard Health, a medical technology

jobs in 2016. Halyard also has remained

Tc-99, which in turn led to a reduction

company, also decided to move some

a top contributor to the Lexington

in procedures using the element and a

of its manufacturing within the

area United Way, with significant

decrease in its demand – a slowdown

United States by acquiring a plant

employee donations and matching

that continues today.9 Meanwhile,

in Lexington, NC. This decision was

contributions over the last four years.

manufacturers invested in more nuclear

driven by Halyard’s vision of cost

With plans to expand production

That resulted in the conservation of

reactor space to create backup supply

on the horizon, Halyard continually

sources. The age of the reactors (all

evaluates its manufacturing footprint,

located outside of the United States)

Isenberg, Halyard’s senior vice

based on cost, quality, and service

used in production is also worrisome,

president, supply chain, manufacturing,

considerations. It has facilities in

as is the process for making Mo-99,

and procurement. In the search for

Arizona, Mexico, Honduras, and

since it involves the use of highly

the right facility, Halyard focused on

Thailand, and is confident that its

enriched uranium (HEU)-235.10

finding a location that could be the

expectations for safety, continuous

“best in the world” and enable the

improvement, best-in-class

effectiveness and exceptional service. “Lexington stood out,” says Chris

The combination of declining demand, higher supply chain costs,

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QTR 4.15

FEATURES

T F

and increasing regulatory scrutiny has

In the U.S., a number of startup

so transportation from foreign sources

made it more difficult for manufacturers

companies are competing to become

can mean supplies are already near

to maintain profitability and caused

the first domestic supplier of Mo-99,

expiration when they arrive in the U.S.

some to exit the field. Today there

using manufacturing techniques

are limited options for accessing

that eliminate the need for a nuclear

efficiency and possibly transportation

key radiopharmaceutical products,

reactor. Several have targeted 2016

costs may be offset by the additional

thereby giving manufacturers little

as their go-to-market date, which

expense of making the isotopes

incentive to keep prices in check.

originally coincided with the year

without HEU. Next year is likely

that the only medical isotope nuclear

to be pivotal in determining the

the creation of Mo-99 stem from its role

reactor in North America (Ontario,

long-term supply chain impact.

in the production of weapons of mass

Canada) was scheduled to shut

destruction. Recognition of the need

down permanently. (That date has

pharmaceutical sectors continue to

to limit commercial use of HEU was

since been extended to 2018.)

contribute to the return of domestic

Concerns over the use of HEU-235 in

formalized in 2004, when the National

This can lead to both benefits and

But savings in supply chain

Will the healthcare and

manufacturing and the resulting pride

Nuclear Security Administration

challenges for the supply chain. The

in the slogan, “Made in the USA”?

launched the Global Threat Reduction

U.S.-based supply of radioisotopes

It’s too early to say for sure, but early

Act, aimed at converting all nuclear

needed for nuclear medicine – and the

results look promising. The availability

reactors from a reliance on HEU to a

use of new methods to generate these

of a strong work ethic, innovative

safer low-enriched uranium (LEU).11

isotopes outside of nuclear reactors

entrepreneurs, and a talented,

– should make it easier to maintain

willing workforce may put an end to

Medical Isotope Production Act was

appropriate inventories. In addition,

the decades-old offshoring trend.

signed into law. The act supports the

these radioisotopes have short half-lives,

Nine years later, the American

production of Mo-99 for medical use in the United States to reduce dependency on foreign sources of supply. It also calls for the U.S. to phase out the export of HEU for the production of medical isotopes. As a nominal first step in the transition, CMS is now reimbursing qualified nuclear pharmacies an extra $10 per dose on products sourced from non-HEU generators. Early returns on the industry’s attempts to convert to LEU-derived Mo-99 suggest the costs will exceed those of HEU. As much as five times more LEU than HEU material is necessary to produce equivalent amounts of Mo-99, and nearly five times more waste is produced.12

REFERENCES 1. Duane Marsteller, The Tennessean, “As drug making goes global, oversight found lacking,” USA Today, October 21, 2012, http://www.usatoday.com/story/news/2012/10/21/global-drug-manufacturing-oversight/1646487/. 2. Ibid. 3. Eric Telford, “The FDA’s Slow-Roll on New Generic Drugs,” National Review, October 13, 2014, http://www.nationalreview.com/ article/390152/fdas-slow-roll-new-generic-drugs-erik-telford. 4. Heesun Wee, “Why the ‘Made in China’ model is weakening,” CNBC, August 19, 2014, http://www.cnbc.com/2014/08/19/ why-the-made-in-china-model-is-weakening.html. 5. John Hayward, “Reshoring: Will U.S. Manufacturing Make a Comeback?,” Breitbart, April 13, 2015, http://www.breitbart.com/ big-government/2015/04/13/reshoring-will-u-s-manufacturing-make-a-comeback/. 6. Rana Foroohar and Bill Saporito, “Is the U.S. Manufacturing Renaissance Real?,” Time, March 28, 2013, http://business.time.com/2013/03/28/is-the-u-s-manufacturing-renaissance-real/. 7. Bill Conerly, “Reshoring or Offshoring U.S. Manufacturing Forecast 2015-2016,” Forbes, September 2, 2014, http://www.forbes.com/sites/billconerly/2014/09/02/reshoring-or-offshoring-u-s-manufacturing-forecast-2015-2016/2/. 8. “Lenoir, NC Unemployment Rate Report,” Homefacts, http://www.homefacts.com/unemployment/North-Carolina/ Caldwell-County/Lenoir.html. 9. Nuclear Pharmacy Services, “Suggestions to maintain patient scheduling during the Mo-99 shortage,” Cardinal Health, http://nps.cardinal.com/nps/supplychaininfo/schedule.asp. 10. Charles Piani, Paulo Chirstini, Alexandr Vurim, “Development and Disarmament Roundtable: Highly Enriched Uranium: Less is More,” Bulletin of the Atomic Scientists, 2013, http://thebulletin.org/highly-enriched-uranium-less-more. 11. Triad Isotopes Inc., PowerPoint presentation. 12. Ibid. 13. “Nuclear Power in Canada,” World Nuclear Association, updated June 2015, http://www.world-nuclear.org/info/ Country-Profiles/Countries-A-F/Canada--Nuclear-Power/.

Perspectives

Sight & Insight: Perspectives on trends impacting supply chain, 26

PERS PECTIVES

roviders and health systems

cohesive, coordinated care experience

in the local community to better collect

as a whole need line of sight to

for patients. The process that long

data on patients who use acute care,

the goal that they are working

existed – where physicians prescribed

emergency and outpatient services

toward – that goal being

medication without discussing its costs

(see Figure 1). As a result, electronic

improving population health. Greater

with patients, or possible drug-to-drug

health records (EHRs) will provide

availability and transparency of data,

interactions with the pharmacist –

a more holistic image that allows

coupled with efforts across the health

must evolve along with that goal.

providers to better care for patients.

system to drive better collaboration,

Edward-Elmhurst Healthcare

have provided insights into areas of

(Naperville and Elmhurst, IL) has

emphasizing greater coordination

opportunity. Within supply chain,

recognized the impact of this siloed

between providers, the role of the

tried-and-true methodologies are

process and is evolving to meet new

pharmacist cannot be overlooked.

comingling with new initiatives to drive

demands. According to Phil Williams,

greater cost reduction, while improving

administrative director of pharmacy

evolve to better manage patient care

patient outcomes and experience.

services, at Edward-Elmhurst, “The

and chronic diseases,” says Williams.

cost of therapy is now included in the

“Once patients leave the hospital,

Healthcare consumerism and pharmacy integration

therapeutic decision-making process,

they must remain a high priority. As

preventing patients from walking away

a result, future pharmacists will:

As a result of greater transparency

from a pharmacy empty-handed or

and the existence of new tools,

scheduling follow-up appointments

patients can determine if the price,

to discuss lower cost options.”

services or experience they receive at

Convenient retail clinics have

As the ACA and health systems begin

“Hospital pharmacy is expected to

• Talk to patients in their home setting; • Monitor medication compliance; • Interact with their

a health system are the best and most

appeased patient demands by providing

prescribers on appropriate

applicable to them. Thus, patients

easy, accessible, and affordable

medications and dosages;

are more empowered now than ever

services, some of which include efficient

to take control of their health.

consultations on prescription costs

But as the market becomes more

and basic immunizations. As a result,

competitive, and health systems

more health systems are expected to

increasingly focus on meeting all three

enter the retail space and increase

goals of the Triple Aim, providers

the options available to consumers.

are incentivized more than ever to connect with one another to create a

In the future, many health systems

• Collaborate more with physician offices and patients; • Collaborate more with intermediate care facilities (such as long-term care or rehabilitation facilities); and • Have greater involvement in the non-acute and ambulatory space.”

will partner with retail establishments OUTLOOK

QTR 4.15

PERSPECTIVES

T F

Fig.1

Hospital integration of specialty and retail pharmacies

Strongly agree Agree Somewhat agree Somewhat disagree Disagree

It will be necessary for our organization to own or operate its own specialty pharmacy in the next three years.

Strongly disagree

Our organization will own or operate its own retail pharmacy in the next three years.

Our organization will contract or partner with a retail pharmacy to offer services within our facilities in the next three years.

10%

15%

Source: Premier online survey for Economic Outlook fall 2015 publication

20%

25%

30%

PERS PECTIVES

However, as pharmacists take on more responsibilities, cost reductions must occur to offset associated salary

an external company compared to

shortages and allow supplies to be

employing people to do the same work.

stocked at appropriate times.”

While the practitioner space continues

Prior to this initiative, Boyce

increases. Some suggest implementing

to experience workforce shortages

estimated that Carolinas had 6 months’

a system that reimburses pharmacists

– 18 percent of survey respondents

worth of supplies, in excess of $2.5

for activities they perform, and

report staffing shortages will have

million. Now, more accurate forecasts

legislation is in the works that would

the biggest impact on their ability to

have decreased inventory to $1.2 million.

make this happen under Medicare.

deliver care – supply chain largely

This resulting revenue stream would

isn’t having the same struggle. Only 15

Children’s Hospital NICU (Charlotte,

create potential for pharmacists

percent of survey respondents do not

NC) were managing supplies in patient

to bill and receive compensation

feel able to hire and retain talented

rooms, leading to trouble finding the

for each activity they perform.

members of the supply chain team.

appropriate supplies when needed,

Even for services provided by

supplies expiring or being thrown

Williams also says this new integrated

Previously, nurses at the Levine

pharmacy landscape will allow more

employees, it’s important to keep staff

out, and emergency orders. Now,

pharmacists to assist with transitions

dedicated to the tasks they are trained

the materials management team

of care, outpatient management, and

to do. For instance, letting providers

manages 100 percent of supplies-

disease management programs. A

spend the vast majority of their time

related tasks in the NICU, reducing

recent study has shown that integrating

caring for patients, materials managers

year-over-year spend by 25 percent.

a pharmacist into a hospital to help

controlling supply chain – the absence

counsel, oversee, and talk with patients,

of this can mean inefficient skill mix

improved overall efficiency for the

ultimately reduces overall costs for

and unnecessary labor spending.

nurses who were previously spending

systems and patients, lowers readmission rates, and improves population health.

“Pharmacists will also need to

One such issue can occur with nurses or other practitioners spending time finding supplies. In an effort

In addition, the team significantly

approximately 32 minutes per day on supply chain activities. The materials management team has

more proactively educate physicians,

to streamline administrative tasks

since evolved to manage four emergency

healthcare providers, and C-suite

at Carolinas HealthCare System

departments, and plans to add two more

executives on how pharmacy services can

(Charlotte, NC), the supply chain team

departments in the upcoming year.

play a role in strengthening population

embarked on an initiative to get in

health efforts,” Williams notes.

front of inventory needs,” according

administrative work is removed for

to David Boyce, vice president,

certain professionals, like nurses, and

materials resource management.

reallocated to the materials management

Maintaining a lean supply chain

“As a result of this initiative,

Similar to pharmacy, the rest of the

The initiative focused on deploying

team, who are more economical to

healthcare system is also trying to

the materials management team to find

hire. In addition, the number of stat

focus more on the areas where they

areas where non-materials personnel

orders have been cut in half, further

have embedded expertise. According to

were buying and supplying inventory,

saving time and money,” notes Boyce.

survey respondents, more than half (56

and take that process over, enabling

percent) intend to expand their use of

doctors, nurses, and technicians to

outsourced services (e.g., laundry and

focus on other essential tasks.

linen, freight management) over the

As Boyce says, “Not only does this

“It may sound simple, but it’s really groundbreaking in healthcare.”

Engaging clinicians in supply chain

next three years. Outsourcing typically

mean providers have more time to

Despite the charge for many clinicians to

occurs in areas within the health system

spend on seeing patients, materials

move away from supply-related duties,

where employees do not have expertise,

managers can prevent equipment

clinical and physician preference items

or where it’s more economical to pay

remain an area with significant provider OUTLOOK

QTR 4.15

PERSPECTIVES

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Fig.2

Capital budget this year compared to last

30%

25%

20%

15%

10%

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 fall 2015 publication

input. However, like inefficiency in skill

Economic Outlook survey strive to

dollar spend in that category,” notes

mix can mean added labor costs, lack of

continue over the next three years.

Dr. Rocco Orlando, senior vice

standardization efficiency causes supply

While many supply chain teams

president and chief medical officer.

materials costs to skyrocket as well.

struggle to get physician and clinician

In an effort to eliminate clinical

buy-in to changes in preference items,

council, we found $2.8 million in

variation, Hartford HealthCare

Hartford started by enlisting only

savings, and got consensus to move

(Hartford, CT) created clinical

volunteer members on the councils

toward a single oncology formulary

councils – long-term groups, such as

from departments that already had

for the whole system. In another case,

perioperative councils or emergency

good relations among themselves and

we adjusted our prefilled syringes,

room councils – that meet monthly

with supply chain. They embedded

ultimately increasing costs but

and drive process improvement and

supply chain staff onto the councils

improving overall patient safety.”

standardization among supplies.

for greater cross-collaboration.

These councils look at clinical

As a result of the clinical

“On our pharmacy and therapeutics

In addition to supply standardization efforts, these clinical councils are

and supply chain data to determine

councils, costs were reduced and

expected to decrease time-to-

product categories that could be

outcomes were improved.

market, set annual objectives for

consolidated to move more volume

“We’ve had a number of successful

quality and safety, redesign clinical

to single products or suppliers, a

initiatives so far. For example, we

care, and implement dashboards

process that nearly all respondents

strategically sourced smart-pumps

for performance management.

(96 percent) to the semiannual

saving $3.6 million on $12 million

PERS PECTIVES

Fig.3

Areas of greatest capital investment over the next 12 months

IT & telecommunications Facility renovation Facility construction Imaging equipment Surgical equipment Other clinical equipment Laboratory equipment Therapeutic technology Other 0%

10%

20%

30%

40%

50%

60%

70%

80%

Source: Premier online survey for Economic Outlook fall 2015 publication

The role of collaborative councils

“We have three hospital EHRs and

Investing in the future

like those at Hartford HealthCare will

50 ambulatory EHR systems. Our

New solutions are necessary in today’s

only become more important as health

goal is to have one patient bill by 2017,

environment where executives face

systems grow and acquire more facilities

meaning consistent performance

multiple challenges. According to survey

and the number of internal stakeholders

and supply management, which

respondents, various factors, such as

increase. According to our semiannual

would get us to a single price for

total cost management, implementing

Economic Outlook survey, 63 percent

a surgery,” says Dr. Orlando.

new technologies, and ensuring patient

of respondents believe that the growth

According to Sharon Fried, vice

of affiliated physician practices has

president, supply chain management at

led to supply chain challenges.

Hartford Healthcare, “As health systems

safety, are impacting their supply chains in the next three years, including: • The impact of individualized/

Coordinating functions, such as

identify factors that impede supply

personalized medicine on

supply chain, across many disparate

chain efficiency, they are rewarded

supply costs (81%)

facilities, creates opportunities similar

with improved outcomes, like reduced

to what has been occurring with EHR

costs and improved patient safety.

implementation at health systems across

“Supply chain systems are evolving,

• An increasing annual investment in supply chain (82%) • New technologies requiring

the country. Hartford HealthCare

condensing, and transforming into

a significant supply chain

noted that EHR implementation is

more efficient and powerful forces that

investment (88%)

a driving force behind its efforts to

work to improve overall healthcare.”

reduce clinical and supply variation.

• Pharmaceutical price increases (93%) • Drug shortages (96%) OUTLOOK

QTR 4.15

PERSPECTIVES

T F

Due to demands for new technologies, including EHRs, medical capital and

Fig.4

Role of survey respondents

therapeutic innovations, 64 percent of survey respondents report a higher capital budget this fiscal year compared to last (see Figure 2). A vast majority (84 percent) have increased or flat capital budgets compared to last year. Given the emphasis on technology interoperability (either among disparate EHR systems, or between clinical and financial systems), it’s no surprise that survey respondents are making their

C-suite and president Supply chain or materials management Service line or practice area manager/director Office administrator/manager

Physician/clinician

largest capital investments in IT and telecommunications (74 percent).

Finance and/or accounting

Infrastructure changes – either renovation of existing facilities

Quality improvement

(52 percent) or new construction (40 percent) – are the next largest

Other

areas of investment. ACOs and other alternative delivery models are built

10%

15%

20%

25%

30%

35%

40%

45%

on the notion of creating scale in a marketplace, which plays a role in why continued construction and renovation

non-acute sites. The survey respondents

is expected (see Figure 3). Scale serves

(n=142) encompassed members across

percent of total respondents; another

a number of purposes for healthcare

geographical area and organizational

quarter of respondents are supply chain

providers: it minimizes risk, increases

size and type (see Figure 4).

or materials managers. Slightly more

access and prevents “leakage” of

The survey collected data on

C-suite respondents account for 39

than half (54 percent) came from a multi-

patients outside of the health system;

members’ perspectives about the

hospital system or integrated delivery

and consequently, means better data.

healthcare industry overall, supply

network (IDN), and slightly less than

chain, population health, IT, quality

half (46 percent) came from a rural area.

Methodology

and safety, and financial and economic

In summer 2015, Premier, Inc.,

trends impacting their businesses.

commissioned Integrated Healthcare Strategies to help conduct an online survey of approximately 193 health systems or 10,000 individual healthcare facilities, including both acute and

REFERENCE 1. Reena Patel, Kimberly Butler, Deidra Garrett, Naadede Badger, Diane Cheoun, and Laura Hallman, “The Image of a Pharmacist’s Participation on Hospitalists’ Rounds,” https://www.hospitalmedicine.org/Web/ Practice_Management/Online_Resource_Center/PDFs/Pharmacists_Participation.pdf.

Trends

Creating competition: Emergence of biosimilars in the U.S., 34 And, action: Putting big data to work, 37 Success story: InDemand Interpreting, 41

TRENDS

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Mike Alkire Chief operating officer / Premier, Inc.

t’s rare to see the insurance

the number of products within each

On March 6, the Food and Drug

industry, patient groups,

Administration (FDA) approved the

employers, providers, and

country’s first follow-on biologic drug,

pharmacy organizations

Zarxio, a medication used to prevent

therapeutic category brought to market. 2

And therein lies the rub. Unlike generics, which are exact

all aligned on a single issue. But

infections in cancer patients undergoing

replicas of the branded drugs that came

the high cost of biologic drugs

chemotherapy by increasing white blood

before them, biologics come from living

has led the industry to agree that

cell counts. This comes five years after

organisms, making it impossible to

we need a competitive specialty

the Affordable Care Act (ACA) included

exactly replicate the original.6 This is

pharmaceuticals market.

the Biologics Price Competition and

why these drugs are often referred to

Innovation Act (BPCIA), which created

as biosimilars – while the follow-on

and often unstable molecules made

the means for the FDA to approve

version may produce the same clinical

from living organisms – are first-of-

follow-on biologics when the original

result as the original patented drug,

their-kind treatments for chronic

branded drug patent expires. 3

they are not exact copies. Because of

Innovator biologics – large, complex,

As when generics first hit the market

and acute diseases, such as cancers, HIV, and rheumatoid arthritis.

this, there has been a lot of discussion

in the 1980s, follow-on biologics

and consideration by the provider

increase the number of options available

community and the FDA regarding the

and they target a very small subset of

to patients and typically offer financial

level of interchangeability a biosimilar

the population. To recoup research and

savings. In Europe, where these drugs

has with the original drug, and why

development costs for a small pool of

have been available for more than nine

approvals have been slow to start.

patients, biologic drugs tend to carry

years, follow-on biologics typically

very high price tags (from $30,000 to $1

sell for 30 percent less than the brand

the problem. State legislatures have

million over the course of treatment).

name alternative. Predictions for

long dictated when a generic could be

Just 1-3 percent of the population uses

overall industry savings from newly

used as a substitute for the branded

biologic drugs, yet spending for these

approved follow-on biologics in the

drug.7 The complexity of biologics,

therapies will account for 50 percent of

United States range from $5 billion

though, and the lack of complete

total U.S. drug expenditures by 2018.

to $250 billion between 2014 and

replication by biosimilars, have raised

2024, depending largely on the pace

concerns that substitution laws need

by which the FDA approves them and

to be tightened. As a result, nine states

But biologics are expensive to develop,

Still, there are some signs of relief.

State regulatory bodies exacerbate

OUTLOOK

QTR 4.15

TRENDS

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currently have statutes on the books

competitive biologics market. There

regulating the use of biosimilars

will be a number of policy decisions

in lieu of the originator biologics,

impacting approval, payment, naming,

which could impede the market penetration of these new entrants.

and interchangeability at the state 8

Naming convention is another issue

and federal levels that will have ripple effects across the market. Getting the

that makes biosimilar introductions

policy right is a critical first step in

more complicated. While generic

unleashing the potential of biosimilars.

drugs can all go by the same non-

Our industry is ripe for innovations

proprietary name, biosimilars are

that drive down costs, increase access

not an exact match to each other or

to treatments, and improve the quality

to the originator biologic. That has

of care and outcomes. Biosimilars have

led to much debate about the safety

the ability to do all of these things.

of sharing the same name and also slowed approvals and progress.9 Although it is important for prescribers and the public to understand

This article was originally printed in Becker’s Hospital Review on April 20, 2015. This version was updated for the fall 2015 Economic Outlook.

the unique nature of biologics and biosimilars, it’s time to move forward with approval of biosimiliars in the U.S. market and bring competition and choice to providers and the healthcare industry at large. Many of the biosimilars currently under review, and those that are sure to come, are already sold in other countries. In fact, Zarxio is available in more than 60 countries, with the same 10

international non-proprietary name, carrying with it a clean record of safety and efficacy. We should be able to use this existing clinical evidence as proof of concept for biosimilars here in the U.S. and get the FDA to declare biosimilars as interchangeable with their branded precursors. Not only would this speed approvals, but it would help mitigate the impact of state substitution laws. While all innovation presents challenges, our healthcare industry should be supportive in creating a

REFERENCES 1. Alan M. Lotvin et al., “Specialty Medications: Traditional And Novel Tools Can Address Rising Spending On These Costly Drugs,” Health Affairs 33, no. 10 (October 2014): 1736-1744, http://content.healthaffairs.org/content/33/10/1736.abstract. 2. Triana Kalmanoff, “FDA Approves First Biosimilar Drug for Distribution in the U.S.,” PBS Newshour, March 8, 2015, http://www.pbs.org/newshour/rundown/fda-approves-first-biosimilar-drug-distribution-us/. 3. The Growth of Specialty Pharmacy: Current Trends and Future Opportunities, UnitedHealth Group (UnitedHeath Group Center, Minnetonka, MI, 2014), http://www.unitedhealthgroup.com/~/media/UHG/PDF/2014/ UNH-The-Growth-Of-Specialty-Pharmacy.ashx. 4. Elana Gordon, “FDA Decision Signals New Competition For Some Of The Costliest Drugs,” NPR, March 10, 2015, http://www.npr.org/blogs/health/2015/03/10/388668910/ fda-decision-signals-new-competition-for-some-of-the-costliest-drugs. 5. Andrew W. Mulcahy, Zachary Predmore, and Soeren Mattke, 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. 6. C. Lee Ventola, “Biosimilars Part 1: Proposed Regulatory Criteria for FDA Approval,” P&T 38, no.5 (May 2013), http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3737980/pdf/ptj3805270.pdf . 7. Richard Cauchi, “State Laws and Legislation Related to Biologic Medications and Substitution of Biosimilars,” NCSL Health Program (Denver, CO: NCSL, December 31, 2014), http://www.ncsl.org/research/health/state-laws-and-legislation-related-tobiologic-medications-and-substitution-of-biosimilars.aspx. 8. Ibid. 9. Alexander Gaffney, “FDA Stance on Naming Biosimilars Reportedly Finished, Awaiting Government Approval,” Regulatory Affairs Professional Society, August 2014, http://www.raps.org/Regulatory-Focus/News/2014/08/04/19939/FDA-Stance-onNaming-Biosimilars-Reportedly-Finished-Awaiting-Government-Approval/. 10. Sandoz, “FDA Approves First Biosimilar Zarxio (Filgrastim-SNDZ) from Sandoz,” news release, March 6, 2015, http://www. sandoz.com/media_center/press_releases_news/global_news/2015_03_06_fda_approves_first_biosimilar_zarxio_from_sandoz. shtml.23.

n the age of big data, electronic information is expanding at an incomprehensible rate. Each day, 294 billion emails are sent,

more than one billion Google searches are made, and over 230 million tweets are tweeted.1 The term “big data”

has existed for several years but has only recently become a buzzword in mainstream business analytics. As the big data discussion has grown, so has the amount of data created, driving an urgent need to make better use of obtainable information. A significant contributor to the expansion of data is the “Internet of Everything” or the “Internet of Things”(IoT).2 Trillions of sensors monitor, track, and communicate with each other, populating the IoT with real-time data. 3 The IoT represents a digitally connected network of devices and sensors that collect, aggregate, and transmit information to a source, provider or manufacturer.

OUTLOOK

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TRENDS

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Advances in sharing operational data Pre-October 2011: YOY system SEpCAAD performance

January 2012: High supply and volume MS-DRGs targeted with SMI

October 2011: Supply Mix Index (SMI) introduced

August 2012: Drill down analyses on MS-DRGs 460 & 470

June 2012: Drill down analyses on MS-DRGs 227 & 247

2011

2012

To directionally assess cost-per-case performance, the supply expense per case mix index (CMI) adjusted acute discharge (SEpCAAD) metric was generated per hospital and analyzed at the system level to demonstrate year-over-year (YOY) performance. Premier’s patented Supply Mix Index (SMI) was used to normalize annual supply expense per discharge at the system level. Then top performers shared thoughts on overall cost management strategies.

To identify supply-intense Medicare severity diagnosis related groups (MS-DRGs) with high patient volumes, members used a combination of QualityAdvisor™ and supply chain data. These initial targets demonstrated significant cost performance variances. By evaluating the data, the group identified potential cost drivers and savings opportunities in four MS-DRGs: cardiac defibrillator implants (227), cardiovascular procedures involving drug-eluting stents (247), spinal fusions (460), and major joint replacements (470).

January 2013: Medicare breakeven & resource utilization story shared

October 2012: $3.5m CRM savings story shared

Total cost of care was assessed by resource domains (e.g., supply, pharmacy, laboratory procedures). Six health systems shared their results with the group (more than 25 healthcare executives), initiating dialogue around challenges and successes in implementing cost-reduction programs. In one instance, a health system used this analysis to validate $3.5 million in revascularization medicine savings.

2013 The analyses expanded with trended performance comparisons against aggregate and top-performer benchmarks.

TRENDS

T E

January 2014: Physician cost-per-case variance illustration

October 2013: Performance trends and CMS reimbursement

September 2014: PPI strategy session

June 2014: Waste report learnings and PPI overview

MS-DRG reimbursement data helped in creating directional gaps between cost-percase and reimbursement amounts.6 Members shared examples of how their own analyses generated savings.

2014 Individual data points representing YOY average cost per case were plotted by system, hospital, and MS-DRG to identify patterns and outliers. Performance comparisons illustrated significant cost-percase variation at the physician level, with physician preference items (PPI) proving to be a significant cost driver.

February 2015: Bundled Payment strategy discussion

December 2014: Bundled Payment overview and CMS results

At a group meeting, Todd Koca, president of SYMMEDRx, Premier’s PPI solution, offered suggestions on vendor usage in spine and other opportunities related to PPI. Mark Hiller, vice president, innovative solutions, explained Premier’s Bundled Payment collaborative. Member discussion focused on individual system and hospital efforts related to PPI and bundled payments.

2015 Discussions of bundled payments and data trends were indicative of continued growth in outpatient care. The group then shifted its focus to population health, with a specific

October 2015: Continuum of Care strategy discussion

emphasis on removing costs across the care continuum. This dialogue resumed in fall 2015 with a strategic conversation regarding tracking episodes of care.

Beyond Member-led, data-driven conversations will persist, with the goal of expanding the repository of actionable data and knowledge sharing around costs. The objective is to gain insights into reducing high resource variability and unnecessary expense – leading to sustainable financial and quality performance.

OUTLOOK

QTR 4.15

TRENDS

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that could generate new insights. In

The future use of data

place between two machines and is

an effort to deliver cost reductions

New streams of data are already flowing

followed by an action or decision.

more quickly, these health systems

into the healthcare realm, yet the

For example, the motion sensors in a

used transparent performance

home thermostat can learn our daily

analyses and best practice sharing.

patterns and adjust room temperatures

By integrating additional data across

that allows computer manipulation

based on when we wake up, leave for

all of the participating organizations,

and analysis. The premise behind IoT

work, return home, and go to sleep.

predictive analytics were able to target

is that machines will communicate

FitBit and Apple Watch are two more

avoidable healthcare expenses and

large amounts of information and

smaller-scale IoT devices that track

provide more accurate forecasts.

use the relevant pieces to improve

Typically, this transmission takes

daily progress against goals and

majority of this information cannot be 5

Big data analytics allow the use of

captured, stored, or organized in a way

decision making, whether by users

transmit that data to a performance

data mining and similar techniques

dashboard. Users can share their

for cause-and-effect investigation

The potential for big data in

results and engage with peers in an

and pattern or trend identification.

healthcare is vast, and it involves

online community for encouragement

As a result, common areas of

enhanced patient outcomes, elimination

and support. Smart thermostats

opportunity become clear and decades

of avoidable costs, and creation

and exercise trackers are just two

of stored data are transformed into

of better protocols. Many health

examples of how the virtual world of

usable, searchable, and actionable

systems have already taken steps to

data can affect real-world actions.

information. The resulting increased

combine traditional data with new

transparency can illuminate patterns

and advanced methodologies that

large volumes of information is no small

in resource overuse, physician

support more rapid, robust, and reliable

task. Healthcare executives and hospital

practice, and pricing variation.

insights. Healthcare systems that can

Of course, aggregating and analyzing

connect key data points, trends, and

staff work within an environment that sources, including patient records,

Advances in sharing operational data

physician notes, scanned images,

The preceding timeline illustrates

insurance claims, and data from

the collaborative process these

wearables and other monitoring devices.

members used to increase the

Even as aesthetic graphs and their

usability of their data.

contains information from multiple

or the machines themselves.

decision-making capabilities have a distinct advantage over their peers.

descriptive stories offer insight, the true value lies in the application of data, which drives decisions and potential improvement. In this new age of data science, integration and collaboration have become the new frontier. In 2012, hospitals were faced with reimbursement cuts, declining patient volumes, and an economic recession. As a result, Premier members began collaborating to transform raw information into actionable data

REFERENCES 1. “Quick Facts and Stats on Big Data,” IBM, http://www.ibmbigdatahub.com/gallery/quick-facts-and-stats-big-data. 2. “A Simple Explanation of ‘The Internet of Things’,” Forbes, http://www.forbes.com/sites/jacobmorgan/2014/05/13/ simple-explanation-internet-things-that-anyone-can-understand/. 3. “Quick Facts and Stats on Big Data,” IBM, http://www.ibmbigdatahub.com/gallery/quick-facts-and-stats-big-data. 4. Michael E. Porter and James E. Heppelmann, “How Smart, Connected Products Are Transforming Competition,” Harvard Business Review, November 2014, https://hbr.org/2014/11/how-smart-connected-products-are-transforming-competition. 5. “Identifying opportunities in supply chain cost reduction: an integrated approach,” Economic Outlook, Fall 2012. 6. “Medicare breakeven: the imbalance of cost and reimbursement,” Economic Outlook, Fall 2013.

TRENDS

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SUCCESS STORY

Adding video remote interpreting to address language service needs

OVERVIEW Banner Health is one of the largest nonprofit healthcare systems in the country, with 28 acute-care hospitals and a growing number of health clinics across seven Western states. Hospitals range from 25 beds to medical centers with more than 700 beds, and on an average year, Banner Health uses interpreters for more than 100 languages. As a leading provider of care in the communities it serves, Banner Health is dedicated to fulfilling the mission of making a difference in peopleâ&#x20AC;&#x2122;s lives with excellent patient care.

THE CHALLENGE Banner Health was facing several challenges with its existing language service program. One specific issue it faced was standardizing the program across all of its facilities to ensure that communication between a patient and provider was clear and effective.

OUTLOOK

QTR 4.15

TRENDS

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“Using our own telecommunications network, we know it is secure. At the click of an icon, clinicians have access to an interpreter within seconds.”

Busy healthcare providers would

access to an interpreter in a timely

staff, and physicians. These changes

often use an interpreter who was

and efficient manner. By adding

have also led to a reduced risk of

available – even if that meant a

video remote interpreting ( VRI) to

miscommunication with patients and

family member or another staff

its language service mix, Banner

family and compliance with federal

member who spoke a patient ’s

now has immediate access to

and Joint Commission requirements.

language. In addition to increased

medically trained interpreters. In

The VRI service has enabled

liability for the health system, this

addition to the use of VRI, Banner

substantial benefits for both deaf

created concerns regarding whether

also has bilingual staff, on-site

and limited-English-proficiency

all information was being accurately

interpreters, translation services,

patients, providing effective

communicated to patients.

and over-the-phone interpreters,

access to an interpreter within

all of which provide an effective

seconds over a secure network

to delays in care, misdiagnosis,

balance of language options to best

that is a fraction of the cost of the

or increased complications and

serve patients and providers.

previous on-site interpreters.

In some cases it was even leading

unnecessary readmissions to the

“Since we partnered with

emergency department when a

THE RESULTS

InDemand Interpreting and added

patient did not understand discharge

Today Banner Health has

VRI, we have seen an increase in the

instructions. Health system

interpreters available 24 hours a

number of times an interpreter is

administrators knew they had to

day, seven days a week in 17 spoken

used, which reduces overall risk and

address these quality and safety

languages, including American Sign

improves patient satisfaction,” said

issues along with the increasing

Language. According to Elizabeth

Swan. “ VRI provides many benefits

costs of on-site interpreters.

Swan, risk management consultant

and is economical. Using our own

They decided to make a change.

at Banner Health, the health system

telecommunications network, we

has dramatically increased its use

know it is secure. At the click of

THE SOLUTION

of qualified interpreters using VRI,

an icon, clinicians have access to

To better support its mission, Banner

trained staff interpreters, and over-

an interpreter within seconds.”

Health partnered with InDemand

the-phone interpreters. However,

Interpreting to implement a program

by adjusting the language service

that balanced its language service

mix, the system has been able to

mix. The administrators wanted

drastically decrease expenses and

to ensure that every provider had

improve satisfaction among patients,

THIS ARTICLE IS A PAID ADVERTISEMENT. This article was not written by Premier and is not an endorsement by Premier.

Economics

A conversation with an economist, 44 An update on hospital performance metrics, 48 Patient volume trends, 53 Premierâ&#x20AC;&#x2122;s supply chain solutions, 57 Inflation summary, 58 Success story: Halyard, 59

ECON OMI CS 2 0 1 5

A CONVERSATION

with DONALD RISSMILLER Partner and chief economist, Strategas

Donald Rissmiller is a founding partner of Strategas and has led the firm’s macroeconomic research efforts since 2006. Previously, he was an economist and managing director at International Strategy & Investment (ISI) Group and was also employed at the Federal Reserve Bank of New York. He is past president of the Forecasters Club of New York and

What is your estimate for gross domestic product (GDP) growth in the next 12 months? What sectors will have the greatest impact? We’re looking for real GDP growth in the U.S. to be between 2 and 3.25 percent – we think that’s achievable due to the trends we’re seeing in consumer spending, government hiring, and housing. Consumer spending has been moderate in recent months, following the energy price decline. Because of this, there’s been a question as to whether consumers have been behaving differently in this economy than in the past. I would urge patience. Just because we have a big drop in energy

serves on the board of the Philadelphia-based

prices doesn’t mean we will save on energy costs right away. It takes time to

Global Interdependence Center (GIC).

accumulate a significant amount of savings, which is one reason there’s a lag. We also saw increases in the savings rate. That’s not abnormal either.

Rissmiller is frequently quoted in the financial

Consumers tend to spend more of the income they view as permanent,

press and his research has been recognized by

than that which they perceive as temporary. The more something

Institutional Investor magazine. He has an AB

seems like a one-time boost, the more likely there will be a tendency to

(magna cum laude) in Economics from Harvard.

save it. That will be an important factor for growth in the U.S. We are seeing encouraging signs on housing, with unemployment down to 5.5 percent and some indications of wage growth. We’re not seeing terribly good data on home ownership – there may be more renters than owners – but it does seem like we’re returning to more normal behavior in housing.

ECONOMICS

T E

Some recent trends show jobs and industry moving near or onshore. Are you seeing this, and if so, what factors are impacting the trend (e.g., labor rates, raw material access)? Do you think the trend will continue?

“

What we’ll likely create onshore are a smaller number of jobs that require higher skills than the jobs we originally moved offshore. In terms of production onshore, there seems to be a good case for it in terms of technology, network security, and transportation costs. Some of the manufacturing that left decades ago is intrinsically

Lastly, we’ve had government drag, such as shutdowns and

different today. We’ve become very automated in our processes, which means that although production may be coming back, it may not bring as many jobs with it. This isn’t really new. Our vision of the future has always been that we would move toward automation. What we’re dealing with now is who will be doing those jobs.

Healthcare has been a contributing factor in growth

sequestered spending cuts. Our rule of thumb is that politicians

for some time. The service sector is generally where

respond to polls the way consumers respond to prices. At the

we’re employing people, and healthcare is an important

state and local level, we’re starting to see employment rise. The

part of this. Going forward, we will probably see a small

numbers are well below previous gains, but as budgets improve,

number of people employed in making things (e.g.,

that’s an area where we think additional hiring can take place.

manufacturing) and a large number working in services.

OUTLOOK

QTR 4.15

ECONOMICS

T F

What changes do you expect over the next 12 months in the U.S. unemployment rate? How will unemployment affect the healthcare industry? This is an important question. There aren’t too many choices if we look at how unemployment behaves across the country. The number rarely stays the same. We’re getting close to the natural unemployment rate (between 5 and 5.5 percent). To keep the unemployment rate flat, we would need to allocate people almost perfectly to their jobs. We know that doesn’t quite work, so instead, we would really like to see job openings. Then people will sort themselves into the jobs available. The recent Job Openings and Labor Turnover survey (JOLTs) shows that job openings are rising. Given that data, we expect a corresponding decrease in unemployment. Unless we forecast a recession, which we don’t anticipate, then we would expect continued improvement in hiring.

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 in those forecasts?

Can you describe overall inflation and interest rate projections for the next 12 months and what they may mean for healthcare? One interesting thing over the past six months is positive supply shock because of cheaper energy prices, which are at a 1.7 percent year-over-year rate, slightly below the Fed’s inflation target. We would expect core inflation to stay around there while headline inflation grows. What this means to us is that interest rates should be rising but not by much. An economy with small single-digit inflation, continued rising employment, and some wage increases is fairly normal and healthy and no longer needs emergency policy. As a result, rates will likely begin to tighten this year. There’s good reason to say we don’t need 0 percent interest rates, but there isn’t good reason to say we have an inflation problem. As the central bank normalizes, bond rates should be higher, but not by much. Consequently, borrowing costs will be slightly higher, although we’re not too worried about interest rates skyrocketing. It will remain a good time for borrowing.

The healthcare market has seen a lot of merger and acquisition activity over the past few years. I don’t think rates will make those deals any less desirable in the next 12 months. But in terms of healthcare, I want to distinguish between inflation and spending. There isn’t really evidence of a healthcare inflation problem, but there is continued discovery of new tests and drugs that are driving up spending.

The April 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? The port strike highlighted that we have an efficient economy, but the consequences of just-in-time inventory are that it can cause issues if supplies are interrupted. That’s a tradeoff for efficiency.

ECONOMICS

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“

We’re seeing companies attempting to get out of the day-to-day management of medical and other benefit programs. What used to be defined benefit plans are becoming defined contribution plans. This is one reason aggregate healthcare spending could be changing, because you’re introducing some consumer decisions into the process. This has consequences for the mix of products and services we use as well. More efficient price mechanisms may be better for the economy as a whole but may not be a winning proposition for all parts of healthcare. It seems clear that an aging population will demand more medical services. The question is how we pay for them. There are really only two choices, rationing by price or by quantity. And I’m not sure we’ve decided which type of system we want.

Geopolitical issues in general are not only hard to dismiss but also difficult to use in a forecast. These issues aren’t new – we’ve been talking about Greece for several years, for instance – so a risk premium is likely built into some markets to account for levels of unrest.

How will global growth rates (e.g., China, India) impact commodity prices in the next 12 months? One of the big concerns is that China’s economy is slowing. Its growth rates were eye-popping for some time, and over the last decade, that has resulted in a need to procure commodities, and it has also has driven up prices. Commodities often have a decade-long trend, so the cure for a high commodity price is a high commodity price. The big risk is that the Chinese economy slows dramatically and goes into a recession. I think that’s the risk case, not the expected case. However, we’ve probably entered a decade where commodity prices go more sideways than up. OUTLOOK

QTR 4.15

ECON OMI CS 2 0 1 5

AN UPDATE

ON HOSPITAL PERFORMANCE

METRICS

ospital operating margins

Despite large increases in outpatient

continue to improve, due

volume over the past several years, gross

to total cost management

inpatient revenue as a percentage of

programs and an

gross patient revenue has only seen a

emphasis on providing the right care in

small dent. In 2014, it reached its lowest

the right setting – some of which moves

point for the median – both average and

patients from acute to ambulatory care.

top quartile – but only by a difference of

A Premier analysis of 516 hospitals from

1-3 percentage points (see Figure 3).

2010-2015 shows average operating margins increasing from 1.5 percent

revenue still accounts for slightly

in 2010 to 2.6 percent in 2014 and 4.4

more than half of all patient revenue

percent in Q1 2015 (see Figure 1).

(54.3 percent in 2014 and 55.4 percent

Good news extends throughout much

contributes 44-46 percent of median and

reached 3.1 percent in 2014, with Q1

average gross patient revenue.

2015 numbers at 4.7 percent. Among the

While bad debt expense as a

top quartile, margins increased from 7.2

percentage of net patient revenue

percent in 2010 to 10.6 percent in 2014.

is declining for the median and top trend. In Q1 2015, bad debt reached a

growing operating margins. While

low of 3.4 percent for the top quartile,

primarily flat from 2010-2012, profit

down from 4.6 percent in 2010. It hit 5.7

per acute bed in service has risen since

percent, falling from 6.7 percent, for the

2013, growing 63 percent from 2010 to

median (see Figure 4).

quartile (see Figure 2).

However, fluctuations among the average bad debt ratios have been

The median and average have also

more significant. Bad debt among the

seen significant increases. The median

average was 1 percent higher in 2014

profit per acute bed has grown from

than in 2010, with Q1 2015 reflecting an

$35,534 in 2014 to $41,656 in Q1 2015.

extension of 2014 rates.

While the average has seen lower overall growth, it remains at its highest level since 2010.

quartile, the average has seen a different

bed in service is one explanation for

2015 ($75,784 to $146,352) for the top

ECONOMICS

in Q1 2015). Gross inpatient revenue

of the cohort; median operating margins

A steady increase in profit per acute

Among the top quartile, gross inpatient

ECONOMICS

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Fig.1

Operating margin of acute-care hospitals

12%

10%

8% Source: A database maintained by Premier, Inc.

0% 2010

2011

2012

Top quartile

2013

Median

2014

2015

Average

Note: 2015 numbers are based on Q1 data only.

Fig.2

Profit per acute bed in service

$160,000 $140,000 $120,000 Source: A database maintained by Premier, Inc.

$100,000 $80,000 $60,000 $40,000 $20,000 $0 2010

2011

2012

Top quartile

2013

Median

2014

2015

Average

Note: 2015 numbers are based on Q1 data only.

OUTLOOK

QTR 4.15

ECONOMICS

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Fig.3

Gross inpatient revenue as a percentage of gross patient revenue

70%

65% 60%

55% Source: A database maintained by Premier, Inc.

50%

45% 40%

35% 30% 2010

2011

2012

Top quartile

2013

Median

2014

2015

2014

2015

Average

Note: 2015 numbers are based on Q1 data only.

Fig.4

Bad debt expense as a percentage of net patient revenue

12%

10%

8% Source: A database maintained by Premier, Inc.

0% 2010

2011

2012

Top quartile Note: 2015 numbers are based on Q1 data only.

2013

Median

Average

ECONOMICS

T E

Fig.5

Total operating expense as a percentage of net patient revenue

100%

98%

96%

94%

92%

90% Source: A database maintained by Premier, Inc.

88%

86%

84% 2010

2011

2012

Top quartile

2013

Median

2014

2015

Average

Note: 2015 numbers are based on Q1 data only.

OUTLOOK

QTR 4.15

ECONOMICS

T F

Payer mix played a large role in

Notes

bad debt, as did location. Changes to

The cohort used for this analysis

insurance coverage have influenced bad

included 516 acute-care facilities within

debt in several ways:

Premier’s membership that submitted

• Coverage expansion efforts (e.g.,

data from 2010-2015. The data from 2015

Medicare growth, individual

includes only Q1 (January-March). If

mandate, and coverage inclusion

comparing to previous editions, please

for preexisting conditions) largely

note that the cohort is updated to include

decrease charity care and bad

all facilities with full data within the

debt for hospitals in states that

database for the timeframe evaluated.

expanded these programs. • The popularity of high-deductible insurance plans can increase bad

Bad debt calculations were achieved by deducting bad debt from gross patient revenue to arrive at net patient revenue.

debt in cases where the copayment is too high to be affordable for acute or emergency care. • Health systems in states that expanded Medicaid coverage have seen earlier, more-rapid decreases in charity care than states that chose not to expand.1 Profit per acute bed impacts total operating margin, as does a reduction in total operating expense. Total operating expense as a percentage of net patient revenue decreased for the median, average, and top quartile in 2014 and continued to show signs of dropping in Q1 2015 (see Figure 5). Operating expenses accounted for approximately 89.2 percent of net patient revenue among top quartile hospitals in Q1 2015, down from 92.8 percent in 2010. The median operating expense had remained at or above 98 percent from 2009-2013 but fell to 97 percent in 2014 and was 95.4 percent in Q1 2015. Lastly, average operating expenses, which had the least movement from 2010-2013, shrunk more than 3 percentage points from 2013-Q1 2015.

REFERENCE 1. RevCare Knowledge Center, “Medicaid Expansion Cutting Bad Debt, Charity Care,” RevCare, June 6, 2014, http://www.revcare.com/archives/5067.

ECON OMI CS 2 0 1 5

PATIENT VOLUME

he metrics reported below are based on a sample of 536 healthcare facilities that submitted three years of inpatient and outpatient data to a database maintained by Premier. The sample, which accounts for more than 188 million patient discharges, includes a cross-section of our

membership that is representative 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 CY2013 (January through December) to CY2014.

TRENDS

Fig.1

CY2014 quarterly trends

YOY growth

Q2 2014

Q3 2014

Q4 2014

CY2014

Inpatient discharges

-3.05%

-1.30%

-1.72%

0.72%

-1.35%

Outpatient discharges

0.32%

2.41%

0.35%

0.91%

1.00%

Total discharges

-0.02%

2.04%

0.15%

0.89%

0.77%

Inpatient surgeries

-1.81%

-1.59%

-2.45%

-0.84%

-1.68%

Outpatient surgeries

0.32%

2.41%

0.35%

0.91%

1.00%

Births

1.80%

1.28%

0.40%

-1.34%

0.51%

Medicare discharges

2.48%

3.47%

1.41%

1.50%

2.21%

Medicaid discharges

4.82%

14.97%

16.84%

20.69%

14.29%

Self-pay discharges

-5.78%

-13.46%

-20.22%

-22.07%

-15.52%

Managed care and other payer discharges

-2.96%

-1.69%

-3.93%

-3.49%

-3.02%

Source: A database maintained by Premier, Inc.

Q1 2014

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 CY2014 compared to CY2013.

OUTLOOK

QTR 4.15

ECONOMICS

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CHANGES OF NOTE 1.4%

INPATIENT VOLUME decreased

1.0%

1.7%

0.8% DISCHARGES OVERALL increased

>2%

FY2013

INPATIENT SURGERIES decreased

MEDICARE DISCHARGES increased

>15%

>14%

CY2014

OUTPATIENT VOLUME increased

1.0% OUTPATIENT SURGERIES increased

MEDICAID DISCHARGES increased

SELF-PAY DISCHARGES decreased

TRENDS 54

ECONOMICS

T E

Fig.2

Discharge trends

5% 4% 3%

Source: A database maintained by Premier, Inc.

YOY percent change

0% -1% -2% -3% -4% -5% Q1.2013

Q2.2013

Q3.2013

Q4.2013

Inpatient discharges

Total discharges

Fig.3

Q1.2014

Q2.2014

Q3.2014

Q4.2014

Outpatient discharges

Discharges by payer type

20% 15%

5% Source: A database maintained by Premier, Inc.

YOY percent change

10%

0% -5% -10% -15% -20% Q1.2013

Q2.2013

Q3.2013

Q4.2013

Medicare patients Self-pay discharges

Q1.2014

Q2.2014

Q3.2014

Q4.2014

Medicaid patients Managed care and other discharges

OUTLOOK

QTR 4.15

ECONOMICS

T E

Fig.4

Surgery and emergency department visits

8% 6% 4% YOY percent change

2% Source: A database maintained by Premier, Inc.

0% -2% -4% -6% -8% Q1.2013

Q2.2013

Q3.2013

Q4.2013

Q2.2014

Outpatient surgery visits

Inpatient surgery visits

Fig.5

Q1.2014

Q3.2014

Q4.2014

Emergency room visits

Average length of stay (ALOS)

1.5%

3.65

1.0%

3.60

0.5%

3.55

3.50

-0.5%

3.45

-1.0%

3.40

3.35

-1.5% Q1.2013

Q2.2013

Q3.2013

Q4.2013

YOY percent change Source: A database maintained by Premier, Inc. NOTE: Average length of stay includes only inpatient data; outliers have been excluded.

Q1.2014

Q2.2014

ALOS (days)

Q3.2014

Q4.2014

Days

YOY percent change

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. For more information about the Medical-Surgical Inflationary Calculator, please contact the Premier Solution Center at solutioncenter@premierinc.com.

and identify waste-reduction opportunities. The Supply Mix Index combines clinical and supply cost data from more than 481 hospitals in order to: • Calculate a hospital’s supply mix based on services provided (calculated across systems, within service lines, and at other levels within a system);

SOLUTIONS

Drug Budget Tool A resource for proactive drug expense management This application prepopulates profiles for analysis and evaluation of drug expenditures. It also:

Medical-Surgical Inflationary Calculator A resource for proactively managing medical-surgical supply spend The Medical-Surgical Inflationary Calculator is an easy-to-use application designed to estimate applicable supply spend. The calculator: • Compares Premier’s contractual price protection and supplier price

• Analyzes 93 percent of annual drug purchases; • Examines entire systems and multiple 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.

inflation estimates to produce a

one SpendAdvisor® report and allows users to manually adjust for anticipated spend; • Compensates for off-contract purchases using an optional SpendAdvisor report; • Alerts members to contract categories that will be renegotiated in the current year;

determining weights using four million patient-level records from Premier’s QualityAdvisor™ database; • Demonstrate a more direct correlation to supply expense-perpatient case than the Case Mix Index, focusing on supply cost within a case, rather than incorporating other significant, non-supply expenses; and • Allow cross-hospital comparisons of supply efficiency. Premier’s new methodology can be found in the executive-level reporting application of SupplyFocus®, which is used by acute-care facilities. SupplyFocus is also included with OperationsAdvisor®, Premier’s labor productivity and benchmarking offering.

detailed projection of supply costs; • Prepopulates the spend profile from

• Provide accurate statistics,

Supply Mix Index™ A methodology for calculating supply cost indexes for each Medicare Severity DiagnosisRelated Group (MS-DRG)

To learn more about Premier’s Supply Mix Index, 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.

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 resource use, improve supply efficiency, OUTLOOK

QTR 4.15

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 Development Tool. All others (except Foodservice) – Projections reflect the expected weighted average percent change in contract pricing for the existing contract portfolio as of October 1, 2015.

Service line

Average of inflation estimates

Projected Premier contract inflation estimates

Cardiovascular Services

3% – 5%

3.70%

0.03%

Clinical Laboratory Services

0% – 15%

3.00%

0.99%

Continuum of Care

0% – 5%

1.30%

1.26%

Facilities

0% – 5%

3.90%

1.82%

Foodservice

-21% – 24%

Not applicable

Imaging

0% – 10%

3.80%

0.34%

IT / Telecommunications

0% – 8%

4.30%

3.26%

Materials Management

0% – 8%

3.40%

1.32%

Nursing

0% – 16%

3.50%

1.44%

-12% – 55%

27.50%

9.90%

Purchased Services

0% – 3%

0.00%

Surgical Services

0% – 4%

3.50%

1.10%

Women & Children’s

0% – 2%

4.00%

0.24%

Pharmacy*

*Pharmacy data derived from Premier’s Drug Budget Development Tool Note: Estimated inflationary changes are subject to change.

Range of inflation estimates

ECONOMICS

T E

SUCCESS STORY

For Dignity Health, 250,000 pounds of clean sterilization wrap present a big sustainability opportunity.

very month, hospitals send thousands of pounds of used sterilization wrap, a

material utilized to ensure the sterility of surgical instruments in the OR, to the landfill. This presents a fundamental challenge for one of the nation’s largest healthcare systems, Dignity Health (San Francisco, CA), which maintains a core commitment to sustainability, yet purchases up to 250,000 pounds of sterilization wrap per year. As Sister Mary Ellen Leciejewski, OP (Order of Preachers), Dignity Health’s director of ecology and leader of the system’s sustainability programs, says, “Sustainability touches everything. If we don’t have a healthy environment, we don’t have healthy people.” With that guiding sustainability principle in mind, Sister Mary Ellen and employees at the 39-facility systems began searching for a solution designed to keep this “clean waste” out of landfills and perhaps use it again in a purposeful way.

OUTLOOK

QTR 4.15

ECONOMICS

T F

“Finding a solution that supports our desire to recycle while keeping the materials local is one more piece in the puzzle that is greening the OR.”

In 2014, with full corporate

they go, they go. Dignity Health

and keep out of the landfill. Dignity

support and the infrastructure in

took a stand and said ‘There’s a

Health is planning to expand the

place, Leah Kolicko, SSRM (supply

right way to recycle and a right

program to more of its facilities and

and services resource management)

destination for these materials

work with Halyard Health to put

product line administrator, and

to go to, and it ’s not overseas.’”

the recycled wrap program to use.

Sister Mary Ellen discovered the Blue

“Finding a solution that supports

Renew* wrap recycling program,

our desire to recycle while keeping

developed by Halyard Health,

the materials local is one more

formerly Kimberly-Clark Health

piece in the puzzle that is greening

Care. For hospitals committed

the OR,” noted Sister Mary Ellen.

to wrap recycling, the program,

“This program complements

which has been implemented in

our existing efforts to define

more than 500 hospitals, provides

leadership in environmentally

specialized education and in-

responsible healthcare.”

service training to help facilities

Constant claims, “The Dignity

meet their recycling objectives in

Health program has, by far, the

an efficient yet cost-effective way.

most passionate and committed

In addition to wrap recycling,

leadership who believe in the value

Dignity Health sought a solution

of this initiative, and for that reason,

that would benefit the local

is the best I’ve seen. These folks are

community. By partnering with a

making a difference, not only in their

network of recyclers, the recycled

work environment but in the broader

material was safe enough to be

environment. That benefits all of us.”

used again to make new products for the local community. Dan Constant, the Halyard

The fact that Dignity Health simply has a wrap recycling program is already an accomplishment for

Health Blue Renew* wrap recycling

Sister Mary Ellen. At fiscal year’s

consultant working with Dignity

end in 2015, Dignity Health will

Health, stated, “It ’s very easy to

quantify the percentage of wrap

throw things in a bin and wherever

that the system was able to recycle

THIS ARTICLE IS A PAID ADVERTISEMENT. This article was not written by Premier and is not an endorsement by Premier.

Commodities

Minimizing raw material risk, 62 2016 Economic overview, 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

COMMODITIES

T F

MINIMIZING

RAW MATERIAL RISK

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* Intraoperative neurophysiological monitoring services

•

Surgical instrument and scope repair

•

Cardiac rhythm management devices

•

ENERGY PREMIER CONTRACT IMPACT* Hardware and software resellers

•

Video laryngoscopes

•

Inbound and outbound freight

•

PLASTIC RESINS PREMIER CONTRACT IMPACT* Pain management – local anesthetic

•

Contrast media injectors and disposables

•

Can liners

•

*Refer to contract-specific price protection information in the inflation tables. Price increase risk: Red = High; Yellow = Moderate; Green = Low

COMMODITIES E

Fig.1

T C

This figure illustrates the percent of inflation on medical-surgical supplies attributed to each raw material.

Precious metals, 0.4% Cotton, 1%

Natural and synthetic rubber, 2%

Paper, 4% Electronic components, 5% Base metals, 6%

Organic and inorganic chemicals, 7%

Plastic resins, 15%

Energy, 23%

Labor, 37%

Source: Premier online supplier survey for Economic Outlook fall 2015 publication

OUTLOOK

QTR 4.15

COMMODITIES

T F

2016

ECONOMIC OVERVIEW

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

May 2015 to June 2015 (not seasonally

and services, each containing several item categories (strata).

The CPI-U increased only 0.1

adjusted).5 The 12-month net output of selected industries (unadjusted) is:6

percent from June 2014 to June 2015

• Hospital inpatient care, 1.4 percent;

(not seasonally adjusted). It rose

• Hospital outpatient care,

0.3 percent in June on a seasonally

0.2 percent;

adjusted basis, largely due to a

• Home health and hospice

rise in the indexes for energy (1.7 percent) and food (0.3 percent).

In the first half of 2015, the medical care CPI grew 2.6 percent compared to the end of 2014 and 2.3 percent

care, 1 percent; • Physician care, -0.7 percent; and • Medical laboratory and diagnostic imaging care, -0.2 percent. Economic indicators that are more

since June 2014. On a monthly basis,

specific to the healthcare industry

the two components of medical care

are CMS marketbaskets, which

CPI, commodities and services,

measure how much, more or less,

were flat or slightly declining

it would cost at a later time to buy

compared to May. Overall, the index

the same mix of goods and services.

fell 0.2 percent in June, as hospital

These indicators reflect price inflation

services decreased 1.1 percent. 3

facing medical service providers.

In contrast to the CPI, the PPI

The marketbaskets are constructed

measures price changes from the

from mutually exclusive spending

perspective of the seller and includes

categories that use data collected

the entire output of U.S. producers.

from hospitals’ Medicare cost reports

Since the PPI captures price movement

and corresponding price indexes. The

prior to the retail level, it may

overall hospital price index is the sum

foreshadow subsequent price changes

of each category’s product weight and

for businesses and consumers.4

relevant price index. The price indexes,

The PPI for finished goods, which

or proxies, which are used to calculate

is its most commonly used measure,

the marketbaskets, include data from

declined 2.5 percent from June 2014

the Bureau of Labor Statistics (most

to June 2015. On a monthly basis, PPI

commonly the producer price indexes).

for finished goods grew 1 percent from

COMMODITIES

The marketbasket levels and percentage changes are updated

Fig.1

quarterly, with each new forecast

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 more recent data. However, because

Annual percentage change

historical data.7 CMS projects payment using a marketbasket containing

CPI-U, medical care CPI, and IPPS marketbasket rates 4%

containing an additional quarter of updates for the coming fiscal year

3% 2% 1% 0% -1% 2010

2011

information currently available.8 The total Inpatient Prospective Payment System (IPPS) has set a 2.7 percent hospital marketbasket for FY2016, which is then reduced by productivity, the ACA, and documentation and coding adjustments. For acute-care hospitals that participate in Hospital Inpatient Quality Reporting and have reached meaningful use criteria with electronic health records, IPPS payments are projected to increase 1.1 percent.9

2013

2014

2015

2016

Medical care CPI

Medicare marketbasket â&#x20AC;&#x201C; inpatient hospital

the current marketbasket may variances in the forecast data and

2012

CPI-U

marketbaskets are updated quarterly, be different, depending on the

Chinaâ&#x20AC;&#x2122;s economic troubles have

near record-high production continues

put a strain on demand for many

among non-OECD members. Many

commodities, especially cotton,

countries are reducing production as a

copper, and rubber commodities, which

means to put more pressure on prices,

China has stockpiled. The decrease

but the results will not be immediate.

in GDP growth for China has led to

Not only does this mean prices for

significantly lower demand. Predictions

natural gas, crude oil, and gasoline are

for Chinaâ&#x20AC;&#x2122;s growth in 2016 remain

going to stay low throughout 2015 and

mixed; some economists forecast a

into 2016, it is also an indicator for other

steep decline in demand, while other

markets that rely heavily on gas and

sources say it will be more gradual.12

oil or have significant transportation

Energy prices have been at historic

needs. Many commodities have seen

lows over the past 18 months, as natural

resulting price drops because energy is

gas inventories remain in surplus and

the basis for other commodity markets.

CMS expects this to boost Medicare spending by $120 million in FY2016.10

Commodity overview Frequently used commodities in the healthcare market have had mostly flat or declining prices in 2015. Forecasts show that trend continuing in the short term. The two major factors impacting major commodities are the economic slowdown in China and the energy sector.

OUTLOOK

QTR 4.15

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 water-dispensing products and services

•

Maintenance, repair and operations

•

Copper market update By the end of January 2015, copper prices fell to a multiyear low of less than $5400/ton.1 Copper prices have since recovered slightly, to $6,000/ton, although they remain 40 percent lower than the 2011 high of $10,000.2 While many analysts expected 2015 to bring the first copper surplus in years, production stoppages interfered. Early 2015 was plagued by frigid weather and a West Coast port strike in the U.S. These contributed to a decline in predicted copper supply expansion. 3 Expectations of a stronger dollar, which would make copper more expensive for foreign buyers, led to an increase in sales.4 Despite this temporary relief, stockpiles and a weak demand from China continue to drag down prices.5 China is the world’s largest consumer of copper, accounting for 40 percent of global consumption. The country’s demand, projected to decline due to slow economic growth,6 impacted the copper market, which grew less than 1 percent during early 2015.7

After a five-year decrease in copper prices, modest gains are expected in 2016 and 2017.8 Based on projected increases in copier consumption, production costs are projected to rise by 3.6 percent annually between 2010 and 2030.9

COMMODITIES E

Fig.1

T C

Average monthly copper prices (London Metal Exchange) 400

350

Cents per pound

300

250

200

150

100 2012

2013

2014

Source: U.S. Geological Survey: Copper statistics and information

Fig.2

Projections for 2015-2016

FACTOR

IMPACT ON COPPER PRICES

COMMENTS

Production interruptions

Slow production was due to harsh weather in many copper-producing countries and a port strike in the U.S.

Chinese demand

China’s demand continues to fall as the country’s economy slowed.

OUTLOOK

QTR 4.15

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 prices are experiencing mixed

Cotton market update

projections. The demand for high-grade

Despite a 1.1 percent decline in 2013 and 2014, global cotton consumption is expected to rise by 3.2 percent in 2015.

The El Nino weather pattern could affect fall planting, with normal precipitation and lower temperatures expected.2 If crops are planted in a timely manner, and good weather follows, there could be a continued excess of cotton in the global market. 3 However, recent heavy rains appear to have reduced cotton quality, potentially leaving it unsuitable for textiles. Cotton, like many commodities, is heavily affected by China. The country, which is the world’s largest cotton consumer, is restricting tarifffree imports to cope with stockpiles accumulated in 2011. This could drive 4

growth by encouraging millers to use more of China’s stored cotton elsewhere in Asia. On the other hand, millers may be reluctant to use China’s cotton stockpiles because of questions about quality and condition.5

cotton may lead to a price increase. Conversely, others suggest these stockpiles are expected to remain until 2016, causing average cotton prices to decline in 2015-2016.6 Despite its stockpiles, China’s cotton consumption is projected to grow by eight million tons per year in 2015 and 2016, representing an average rate of 4.2 percent annually. This is due to greater external demand for finished products, in line with improved economies in the United States and Europe.7 While natural cotton’s current price remains low, prices for synthetic cotton have fallen even faster. This reduced market competition means that cotton consumption is expected to slow slightly in 2015 and 2016.8 With cotton production projected to rise in China, India, and other Asian countries, large harvests and existing inventories will contain prices. Those conditions should persist in 2016; the price increase in April 2015 proved short-lived.9

COMMODITIES E

Fig.1

T C

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

0 2010

2011

2012

2013

2014

2015 (through May)

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 2015-2016

FACTOR

IMPACT ON COTTON PRICES

COMMENTS

Large reductions in planting

Continued stagnation in consumption will likely limit prices.

Limited demand

Chinese demand for cotton has slowed due to the country’s economic downturn and its large cotton inventory.

OUTLOOK

QTR 4.15

ENERGY MARKET OVERVIEW

CHANGE IN LAST 12 MONTHS

CHANGE LAST MONTH

Oil (light crude)

COMMODITY

-44.06%

2.37%

Heating oil

-38.49%

-1.83%

Natural gas

-38.30%

-0.67%

Unleaded gas

-34.25%

1.87%

Source: CNNMoney.com. Price change shown is from June 25, 2014 to June 25, 2015 or May 25, 2015 to June 25, 2015.

Global liquid fuels supply and consumption

per barrel in 2015 and $67 per barrel in

conventional methods will encourage

Global petroleum and other liquid fuel

2016, reflecting a projected increase in

the use of new, advanced technologies

consumption grew by 1.3 million barrels

non-OPEC crude oil production. In May,

that complement current processes. If

per day (b/d) in 2015 and is projected

oil prices increased by approximately

domestic oil demand increases without

to remain relatively consistent in

$5 per barrel, the highest monthly

simultaneous adequate supplies,

2016.1 Consumption is largely driven

average so far in 2015. This may indicate

a decline in both export levels and

by non-members of the Organization

that global oil demand is growing.

revenues will likely occur.10

for Economic Co-operation and

Nevertheless, uncertainties remain.

Development (OECD). Despite slower

U.S. tight oil production could slow, and

growth in the second half of 2014 and

there is always the risk of unexpected

early 2015, China remains the central

supply outages in the Middle East and

source of growth.

North Africa.4

The Energy Information

Brent crude oil prices will average $61

Natural gas inventories were 51 percent

Administration (EIA) reports that

higher at the end of May 2015 compared

inventory of global liquids are

to the same time in 2014, and 1 percent

increasing by an average of 2.2 million

higher than the 2010-2014 average.5

b/d as production continues to exceed

Henry Hub natural gas spot prices

demand.2 Output in late 2015 should

averaged $2.78/million British thermal

drop to 1.6 million b/d, with increased

units (MMBtu) in June, a reduction

consumption and slower production

in the May 2015 price by .07/MMBtu.6

outside of the Organization of the

Henry Hub natural gas prices are

Petroleum Exporting Countries (OPEC).

forecasted to average $2.97/MMBtu in

By 2016, inventories should fall to

2015 and $3.31/MMBTu in 2016.7

0.8 million b/d. 3

Gasoline retail prices are expected to average $2.43 per gallon (gal) during the second half of 2015, declining from a high of $2.72/gal in April and May.8 In 2016, U.S. regular gasoline retail prices are projected to decrease to $2.55/gal.9

Overall, declining oil production from

COMMODITIES E

Fig.1

Projections for 2015-2016 FACTOR

Fig.2

IMPACT ON ENERGY PRICES

COMMENTS

Strong crude oil production

Near record-high production, primarily driven by non-OECD countries, will remain through 2016.

Consumption wavering

Growth is largely from non-OECD consumption, though Chinese and Russian demand has faltered due to economic difficulties in both countries.

Natural gas inventories

Inventories were 51 percent higher at the end of May 2015 compared to last year at that time.

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, June 2015 Note: Confidence interval derived from options market information from the 5 trading days ending June 4, 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, June 2015 Note: Crude oil price is composite refiner acquisition cost. Retail prices include state and federal taxes.

OUTLOOK

QTR 4.15

FOOD

MARKET OVERVIEW

Global food prices

Global wheat production is projected

The United States Department of

Factors that contribute to global food

to reach 722 million tons in 2015,

Agriculture’s Economic Research

security include an increase in global

approximately 1 percent lower than

Service (ERS) forecasts 2015 food

population, climate change, increases

the 2014 estimate, due to reduced

price inflation of between 1.75 to 2.75

in animal feed, loss of arable land due

plantings. Regarding coarse grains,

percent. This could be affected by severe

to urbanization, and use of land for

production is projected to decline in

weather, such as the continued drought

biofuel production.

2015 after a high in 2014. Cereal stocks

in California, as well as oil prices. If

are forecasted to dramatically increase,

oil prices remain low, the decrease in

Food and Agriculture Organization

which reflects increasing changes to

transportation costs could trickle down

(FAO), the international Food Price

wheat and maize stocks in China.

to retail prices.10

According to the United Nations’

Index (see Figure 1) averaged 166.8 points in May 2015, down 2.4 points

U.S. food prices

from April 2015. May’s decline can be

Despite the effects of the 2014 drought

attributed to cereals and dairy products,

in the Southwest and California, retail

although meat quotations also fell. On

food price inflation rates approached the

the contrary, oil and sugar markets were

20-year historical average of 0.6 percent

steady. The May average puts the FAO

per year. From April to May 2015, the

Food Price Index at its lowest level since

Consumer Price Index (CPI) for all food

September 2009.

was flat and is 1.6 percent above the May

Recent research has shown that for the second consecutive year, farmers

2014 level. Food-at-home CPI, or supermarket

are avoiding planting corn, the nation’s

prices, decreased 0.1 percent in May

largest crop by volume since 2012, and

but remain 0.6 percent higher than

instead are planting soybeans.4 This

last May. Food-away-from-home CPI,

move is a result of the price of corn

or restaurant purchases, increased 0.2

decreasing by roughly 50 percent. This

percent in May and is up 3.0 percent

movement has analysts predicting a

compared to the previous year.9

steep decline in soybean demand, causing the market to reach all-time lows.5

COMMODITIES E

Fig.1

T C

The Food Price Index The Food Price Index from the United Nationsâ&#x20AC;&#x2122; 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

2015 (through May)

Source: FAO.org

Fig.2

Price change by commodity

Commodity

Corn

Soy Beans

Wheat

Lean Hogs

Live Cattle

Sugar

Coffee

Change last 12 months

-19%

-35%

-15%

-30%

-28%

-21%

Change last month

-0.5%

-4%

-9%

-2%

Source: CNNMoney.com. Price change shown is from June 24, 2014 to June 24, 2015 or May 24, 2015 to June 24, 2015.

OUTLOOK

QTR 4.15

COMMODITIES

T F

Fig.3

Dairy outlook CME 40 LB. BLOCK CHEESE

YEAR-OVER-YEAR DIFFERENCE

GRADE AA BUTTER $/LB.

January 2014

2.2227

1.7756

February 2014

2.1945

1.8047

March 2014

2.3554

1.9145

April 2014

2.2439

1.9357

May 2014

2.0155

2.1713

June 2014

2.0237

2.2630

July 2014

1.9870

2.4624

August 2014

2.1820

2.5913

September 2014

2.3499

2.9740

October 2014

2.1932

2.3184

November 2014

1.9513

1.9968

December 2014

1.5938

1.7633

YEAR-OVER-YEAR DIFFERENCE

January 2015

1.5218

31.5%

1.5714

-11.5%

February 2015

1.5382

-29.9%

1.7293

-4.2%

March 2015

1.5549

-34.0%

1.7166

-10.3%

April 2015

1.5890

-29.2%

1.7937

-7.3%

May 2015

1.6308

-19.1%

1.9309

-11.1%

June 2015

1.7052

-15.7%

1.9065

-15.8%

July 2015

1.6295

-18.0%

1.8662

-24.2%

August 2015

1.6886

-22.6%

1.8143

-30.0%

September 2015

1.7300

-26.4%

1.9100

-35.8%

October 2015

1.7000

-22.5%

1.7586

-24.1%

November 2015

1.6400

-16.0%

1.6924

-15.2%

December 2015

1.5600

-2.1%

1.6027

-9.1%

January 2016

1.5800

3.8%

1.5827

0.7%

February 2016

1.6000

4.0%

1.5772

-8.8%

March 2016

1.6543

6.4%

1.6733

-2.5%

April 2016

1.6502

3.9%

1.6475

-8.1%

May 2016

1.6475

1.0%

1.6199

-16.1%

June 2016

1.6858

-1.1%

1.6493

-13.5%

July 2016

1.6857

3.4%

1.7108

-8.3%

August 2016

1.6917

0.2%

1.6461

-9.3% -14.0%

September 2016

1.7500

1.2%

1.6432

October 2016

1.7682

4.0%

1.6798

-4.5%

November 2016

1.7437

6.3%

1.6800

-0.7%

December 2016

1.7576

12.7%

1.6000

-0.2%

AVERAGES 2.1643

2014

2.1094

2015

1.6240

-23%

1.7744

-18%

2016

1.6846

1.6425

-7%

COMMODITIES

Fig.4