While its Manufacturing and Services counterparts indicated contraction in their respective sectors, the Hospital ISM® Report On Business® for December remained steady — the composite index reading of 57 percent was down just 0.5 percentage point from the previous month.
Demand, a key driver in the manufacturing and services sectors, has been sluggish in recent months. However, that is a problem that hospitals and the health-care sector will almost never have, Nancy LeMaster, MBA, Chair of the Institute for Supply Management® Hospital Business Survey Committee, told a conference call of reporters on Monday.
“It’s such a different dynamic than in the other sectors,” LeMaster said. “I always say that people usually don’t want to go to a hospital. It’s not like going to a hotel.”
Still, demand largely powered the Hospital PMI® in December, especially amid a continuing “tripledemic” of COVID-19, flu and respiratory syncytial virus (RSV). The Business Activity and New Orders indexes increased in December, comfortably above 60 percent, and many Business Survey Committee respondents reported a significant boost in patient volumes.
As the space has indicated often, high business activity in the hospital subsector is not always a good thing, especially when it challenges facilities’ capacity to provide care and has them chasing supplies. There were signs of both in December: The Employment Index fell 9.5 percentage points to land in contraction — a “disappointment,” LeMaster said — and several respondents cited supply shortages and challenges in finding substitute products.
Like in the ISM Services report, the Hospital Employment Index has vacillated between expansion and contraction in recent months. The U.S. Bureau of Labor Statistics reported an average of 49,000 new health-care jobs per month in 2022, and while that seems like a strong hiring pace, it’s not nearly enough. And with the nation’s unemployment rate at a 50-year low, there’s limited labor supply.
“Hospital capacity is being limited by staffing, and there’s more demand than capacity,” LeMaster said. “The reality is that the demand for labor is going to surpass the supply (for the foreseeable future), and that is going to continue to limit the ability to treat patients.”
The anecdotal evidence of product-substitution issues was confirmed by the Touchless Orders Index reading of 44.5 percent in December, a decline of 4 percentage points. That index measures automated orders. “Hospitals use distributors for a lot of basic supplies, and they’re usually set up to ship the same thing month over month,” LeMaster said. “If they have to substitute a product through a manual process, that metric would get worse, which is in line with the respondents’ comments.”
In other subindex news, a glimmer of relief on prices might have emerged in December. The Prices and Prices: Supplies indexes both declined, though they remained above 70 percent. A 39.4-percent reading in the ISM Manufacturing Prices Index for December suggests that lower costs for raw materials could soon show up on the price tags for hospital supplies. The Prices: Pharmaceuticals Index was down 7 percentage points, a mild surprise as December is typically when hospitals stock up before pharma companies raise prices in the new year.
“Hospitals are still struggling with (profit) margins and could definitely use prices relief,” LeMaster said.
Hospital #ISMPMI survey respondent: “Prices going up — it’s what the market can bear. A lot of companies without market share will now get share because the hospital could not afford price increases. (Employee) absenteeism is growing.” https://t.co/Sgj1wlcTeH #healthcare #economy— Institute for Supply Management (@ism) January 9, 2023
Elective procedures also aid margins. While many hospitals, especially in the Northeast, are slammed with COVID-19, RSV and flu cases, the Hospital PMI® data and comments do not indicate that cardiac and orthopedic elective care has been curtailed.
Nearly three years into the coronavirus pandemic, hospitalizations have risen but are not close to the levels of a year ago, with cases generally milder and facilities providing care more efficiently. As long as supply chain challenges continue to ease and facilities can provide elective care, the Hospital PMI® should continue to indicate expansion, LeMaster said.
“I don’t see demand slacking anytime soon because of the respiratory (cases),” she said. “If (the economy) gets too stressed, there could be cutbacks on elective procedures because of cost concerns or (patients’) inability to pay because they put off health care. It’s a balancing act, but I don’t see the PMI® contraction in manufacturing or services foreshadowing a big decrease in health-care or hospital activity.”
In case you missed the Report On Business® Roundup on the release of the December Manufacturing PMI®, you can read it here. The Roundup on the release of the Services PMI® can be read here. For the most up-to-date content on the three indexes in the ISM® Report On Business® family, use #ISMPMI on Twitter.