1. Economic Outlook Fall The future of the healthcare supply chain: Connecting data, knowledge and people
Kayla Sutton
Amy Denny

2. Premier’s Economic Outlook publication
Premier’s semiannual flagship publication
Features in-depth coverage of issues facing health system executives, including:
Resource utilization best practices
Premier’s comprehensive healthcare leadership survey results
Economic and inflationary guidance 1

3. Trends having the greatest impact on organization
Source: Premier healthcare alliance fall 2012 member survey

4. Marketplace trends with highest impact on supply chain
Source: Premier healthcare alliance fall 2012 member survey

5. Factors with greatest impact, by organizational type

6. Cost savings goals have greatest influence on organizations’ supply chain
Source: Premier healthcare alliance fall 2012 member survey

7. Cardiac rhythm management (CRM) whitepaper
Device purchases from multiple vendors
Reliance on line-item versus system pricing
Substantial price difference for devices
Tiered pricing
Little association between volume ordered and pricing of devices

8. Targeting cost opportunity with clinical data
4 Premier member hospitals identified over $17m in savings opportunities in 4 high cost / high volume MS-DRGs

9. Leveraging data to identify blood utilization opportunities
Current national blood supply at its lowest in 15 years
Blood transfusions
Most commonly coded hospital procedure - 15 million/year at annual cost of up to $15 billion
Safety issues - cardiac arrest, infection, longer length of stay
No industry-wide standard for appropriate blood use
Premier waste dashboard identified blood use among categories for highest potential savings

10. Variation in use of blood products

11. Premier blood utilization analysis (April ‘11 – March ‘12)
7.4 million discharges/464 hospitals in Premier database
Benchmark on appropriate utilization with positive outcomes
Results: $165 million/year in savings while maintaining positive patient outcomes
Reduced use by 802,000 units across five blood types
Drove savings through reduced testing, storage, transportation

12. Cost savings by blood product

13. Quarterly patient volume trends
Y/Y Growth
Q1 2011
Q2 2011
Q3 2011
Q4 2011
2011
Inpatient
3.10%
-1.60%
-0.70%
-2.20%
-0.30%
Outpatient
6.20%
3.80%
5.50%
5.30%
5.20%
Total discharges
5.70%
3.00%
4.60%
4.20%
4.40%
Inpatient surgeries
3.40%
-1.50%
-0.60%
-1.90%
-0.10%
Outpatient surgeries
6.60%
4.00%
5.80%
Births
-1.40%
-1.10%
1.40%
-2.50%
-0.90%
Medicare discharges
8.10%
5.00%
4.80%
2.50%
5.10%
Medicaid discharges
10.50%
6.00%
4.50%
0.80%
5.40%
Self-pay discharges
6.30%
1.90%
1.00%
1.50%
2.60%
Managed care and other payor discharges
2.10%
0.70%
7.40%
3.90%

14. Average length of stay

15. Change in capital budgets since last year
Source: Premier healthcare alliance fall 2012 member survey

16. TRJ/CRB index
Current level is 4.4% higher than 2011, 9.0% higher than 2010

17. Commodities index 2012
YTD Change = 0.7%

18. Quantitative easing (QE)

19. QE and commodities prices
“Investors bid up the price of commodities in recent months as expectations rose that the Federal Reserve would soon step in once again to stimulate the wobbly U.S. economy. But the rally has stalled since the package was unveiled in September, raising concerns about whether widespread gains will continue in months ahead, as they did after an earlier Fed initiative in 2010.”
Source: Wall Street Journal 9/30/12

20. Commodities highlights
“China's seemingly insatiable appetite for raw materials was a crucial driver behind the commodities boom of the past decade, propelling enormous price gains for everything from crude oil to cotton. Now, investors have to figure out which commodities are most vulnerable as the world's second-largest economy shifts down a gear.”
Source: Wall Street Journal 10/3/12

21. Factors impacting commodities prices
Impact on Commodities Prices
Weak US Dollar
No new rules on bank speculation in commodities markets
Weakness in Europe leads to rally in the US Dollar
Continued slower growth in China

22. Premier commodities highlights
Commodity
Last Month Change
Last 12 Month Change
What to Watch
Copper 9%
22%
2013 supply expected to outpace demand; growth in China, Chile and Brazil
Oil
-7%
12%
Global economic recovery, OPEC production
Food 1% 0%
USDA predicting food inflation of 3%-4% in 2013
Plastic Resins
-4% 6%
Oil and natural gas prices, global economic recovery
Rubber
Butadiene - -5%
Rubber – 12%
Butadiene %
Rubber %
Auto demand in US, crude oil prices
Steel
-3%
-23%
Auto demand in US, growth in China

23. Price Increases 900 Med/Surg Contracts 225 Allow Escalation
959 firm for term of agreement (75%)
262 firm for at least 12 months (20%)
52 potential increases in 2013
900 Med/Surg Contracts
225 Allow Escalation
76 with Potential
Increase in 2009
11 Inc. to
Date

24. Price Increase Process
All increases, even those allowed by contract, are negotiated.
Increases not allowed in the contract or greater than what is allowed in the contract must be approved by line of business member committee.
Review documentation of supplier cost increases to support the increase (e.g., PO’s, third party indices, etc.). If the company is publically traded, review earnings release data to determine if cost increase claims are supported.
Discuss with supplier:
Are all members on the correct tier?
Is the increase is being passed on to all GPO’s?
Will the increase change Premier’s relative position vs. other GPO’s?
Will the supplier provide any value adds to offset the price increase impact?
Analyze member level impacts – which members are most impacted by the increase?
Price increases are reported to members in the following ways:
Contract amendment and change notice report
The Connector
Any increase > 3% is reported to SAC.

25. Inflation estimates

26. Inflation summary table
Service line
Range of inflation estimates
Average of inflation estimates
Projected Premier contract inflation estimates
Alternate Site Healthcare
0% - 15%
3.83%
0.52%
Cardiovascular Services
0% - 4%
2.21%
0.09%
Clinical Laboratory Services
0% - 6%
3.19%
0.84%
Facilities
4.60%
1.80%
Foodservice
6%-8%
7.00%
4.00%
Imaging
0% - 13%
3.56%
0.76%
IT / Telecommmunications
4.22%
0.14%
Materials Management
4.13%
0.92%
Nursing
0% - 12%
3.53%
1.21%
Pharmacy *
Not Applicable
4.33%
Surgical Services
0% - 10%
2.80%
0.91%
Women & Children's
3.78%
0.17%
*Pharmacy data derived from Premier’s Drug Budget Development Tool
Source: Premier healthcare alliance fall 2012 member survey

27. Understanding the Inflation Tables
Firm Pricing
Based on the contract T&C’s
Indicates whether the contract allows for a price increase during the specified time period
Contractual Price Increase Cap
Specifies if the price increase is capped at a certain percentage
0%: Listed as the cap for contracts that DO NOT allow for a price increase
No Cap: Indicates that a maximum percentage is not specified in the contract language

28. Understanding the Inflation Tables
Index or Raw Material Dependent
Based on the contract T&C’s
Indicates the index or raw material that a price increase is dependent upon
N: For contracts where a price increase is either not allowed or is not tied to a specific index or raw material
In all other instances, the index or material is listed

29. Understanding the Inflation Tables
Supplier Inflation Estimate
Based on supplier provided estimates
No Response: Supplier did not respond to the survey
Not Provided: Supplier responded to the survey but did not provide a response to this question
Inflation Cost Drivers
Based on supplier provided information
Identifies the cost drivers that have the greatest impact on product pricing

30. Questions to Consider
Which contracts in the category offer firm pricing?
If there isn’t firm pricing, do any contracts offer a price increase cap?
Is the potential increase dependent upon an index or raw material?
Are any of the cost drivers expected to increase in the next year?
What inflation, if any, does the supplier anticipate?

31. Med/Surg inflation calculator
Once populated with your spend history, the calculator will deliver customized inflation estimates by line of business.
Contact your Client Services Executive to get a customized calculator for your organization.