To help its 2,300 not-for-profit hospital members better estimate supply cost inflation during their budget processes, the Premier healthcare alliance has released the March edition of its semiannual Economic Outlook analysis.
According to insights from raw materials experts cited in the analysis, in the next 12 months cotton, plastic and oil – three key materials used in many healthcare products – will experience price increases as the international economy rebounds, the value of the dollar increases and demand exceeds supply.
As a result, annual market inflation rates will increase on average between 1.6 percent and 4.6 percent across categories such as cardiovascular services, facilities, imaging and nursing. Premier's existing contracts, excluding foodservice and pharmacy, are expected to increase by about 1 percent on average in the next year, lower than overall market increases which are predicted to be an average of 3 percent during this time frame.
“While the overall economic picture is improving across the healthcare industry, what is less clear is the impact health reform and reimbursement declines may have on our nation’s not-for-profit hospitals,” said Premier Purchasing Partners president Mike Alkire. “Given the gradual recovery we are seeing, developments in these areas will be of critical importance to their future financial health. Premier’s projected contract inflation estimates remain well below that of the industry. This is due to our overall contracting strategy, including the price protection clauses that are a part of the majority of our contracts, allowing prices to be held firm for the life of these agreements.”
The Economic Outlook projects rates of inflation for the ensuing 12 months. Premier produces a new analysis every six months to ensure projections are reflective of changing market trends. The analysis helps alert Premier alliance hospital members to market forces that could drive price changes in the coming months and years. It compares Premier’s contractual price protection against supplier price inflation estimates to deliver a detailed estimate of projected supply costs.
Premier polled approximately 500 of its contracted suppliers to obtain market inflation estimates. Additional inflation estimates by category include clinical laboratory services, foodservice, IT/telecommunications, pharmacy, support services, surgical services and women and children's.
The analysis includes accurate predictors of price inflation through an Inflation Calculator in Premier's Supply Chain Advisor®. The online calculator allows members to estimate their facility’s total inflation impact by taking into account individual utilization patterns and the price protection offered by Premier's contracts.
Raw materials overview
Cotton market
Cotton prices have rebounded after the steep decline that coincided with the onset of the credit crisis.
According to Cotton Incorporated’s supply chain economist Jon Devine and senior manager of supply chain initiatives Jan O’Regan, much of the rebound in cotton prices can be attributed to a supply deficit in the current 2009/2010 crop year. With corn and soybeans offering farmers more attractive returns for the past several seasons, cotton acreage and production have declined worldwide for the past three crop years. Despite the reduction in production last crop year, the reduction in consumption brought about by the weakness in the global economy kept prices low. Due to large numbers of cotton farmers and low cotton prices last year, governments in China and India made significant purchases to reduce excess supplies and support prices.
As the global economy has strengthened over the past 12 months, demand for cotton re-emerged and it is expected that that the amount of cotton consumed in 2009/2010 will exceed that amount of cotton that was grown by 13.5 million bales (about 12 percent of 2009/2010 world consumption). Making up this production deficit are cotton stocks. Virtually all of the cotton that was accumulated by China and India has since moved out into the market. When stocks are drawn down, prices tend to increase and this is a major reason why cotton prices have rallied in recent months.
