Hospital purchasing and supply executives are hopeful that the trends from the first two months of the year — COVID-19 cases being steady but manageable, which enables capacity for elective procedures and hiring of permanent staffers — will be lasting.
Such positive dynamics would go a long way in relieving the revenue pain most facilities have felt since the start of the coronavirus pandemic, and they were reflected in the Hospital ISM® Report On Business® for February. However, so was nagging inflation on pharmaceutical, supply and labor costs, which continue to stress profit margins.
Business activity and new orders were steady and employment got a boost, resulting in a Hospital PMI® reading of 53.5 percent, up 1 percentage point compared to January.
“So far, we’ve avoided a big COVID-19 surge, so if the elective treatments continue and the labor situation holds, that could give hospitals a chance to reclaim a positive margin territory,” Nancy LeMaster, MBA, Chair of the Institute for Supply Management® Hospital Business Survey Committee, told a conference call of reporters on Tuesday.
.@ISM’s Nancy LeMaster: “With increased #employment, hospitals were able expand capacity to meet (increased elective procedures) demand. Exceptions … were facilities in parts of the country that experienced severe weather.” https://t.co/o4HeIWrwHs #ISMPMI #economy #healthcare— Institute for Supply Management (@ism) March 7, 2023
After a 2022 that was “the worst financial year for hospitals and health systems,” according to Kaufman Hall, the Chicago-based health-care consultant found conditions slightly more encouraging in January. Its national hospital report found that although operating margins were down compared to December, they were up 26 percent compared to January 2022.
Business Survey Committee respondents commented on strategies like reducing waste and streamlining processes to help bottom lines, Some facilities even had layoffs. And while LeMaster said that hospitals — like other businesses — can’t only cut their way to profitability, such mitigation tactics will be a key part of their operations this year.
“I think they have to,” she said. “The pandemic was such a time of all hands on deck and buying supplies wherever they could find them that there was no focus on minimizing waste or on how procedures or processes could be changed. Now, I think many facilities are able to take a breath and relook at things.”
The three price gauges in the Hospital ISM® Report On Business® — the Prices, Prices: Supplies and Prices: Pharmaceuticals indexes — increased a combined 17 percentage points in February. All three are above 60 percent, with the Prices and Prices: Supplies indexes north of 70 percent. “That’s a very disappointing trend,” LeMaster said.
She continued, “We were hoping that the (recent) decreased prices in the manufacturing sector would work their way to finished products for hospitals, but that hasn’t happened.”
With costs continuing to elevate, increased patient traffic, not cuts, will be the biggest elixir. That said, potential red-tape and head-counts reduction, LeMaster says, are on such nonclinical areas as supply chain operations and finance. Facilities will continue to invest on staffing related to patient care, and from that standpoint, the February data was encouraging.
The Employment Index increased 7.5 percentage points to land comfortably above 50 percent. While that index has zig-zagged between expansion and contraction since the start of 2022, LeMaster said consistent hiring of permanent staffers would reduce reliance on temporary or “traveling” personnel that are expensive, especially in rural areas where it’s more challenging to recruit workers.
“Minimizing clinical temporary staff would be a big (development) because it’s a big drain on the finances of the hospital and sometimes on the morale, since many are paid more than the permanent staff,” LeMaster said. “If that turns into a trend where the temp labor has gone down, that will also help margins.”
Hospital #ISMPMI survey respondent: “Temporary labor costs have escalated during and post #COVID19. Although the market is stabilizing, demand nationwide remains high (and creates) workforce unpredictability for our hospital system.” https://t.co/rChGoZtODy #economy #healthcare— Dan Zeiger (@ZeigerDan) March 7, 2023
In other notable subindex readings, the Inventories Index registered the same below-50 reading as in January, as absent a COVID-19 surge, facilities are more confident of burning down their stocks of personal protective equipment (PPE). Meanwhile, the Inventory Sentiment Index increased to remain above 60 percent, comfortably in “too high” territory.
The biggest reason the composite PMI® increased just 1 percentage point was the Supplier Deliveries Index falling 5.5 percentage points, to below 50 percent. That’s not always a bad thing — for this index, a sub-50 reading means faster deliveries.
However, product shortages and substitutions — particularly those involving resin — continue to plague many facilities, a reason the Touchless Orders Index was in contraction for a fourth consecutive month, at 48.5 percent. “A lot of back orders and substitutions will keep the Touchless Orders number down,” LeMaster said.
In case you missed the Report On Business® Roundup on the release of the February 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.