Report On Business® Roundup: March Hospital PMI®

Short-term fallout from a cybersecurity breach and a much more troubling potential trend regarding patient volumes and demand dominated the Hospital ISM^® Report On Business^® data for March, released on Friday.

As facilities and systems continued mitigation efforts after the February cyberattack on Change Healthcare, the UnitedHealth Group (UHG)-owned subsidiary that led to widespread outages of systems that handle billing and insurance claims, other concerns were raised by the Hospital PMI^® of 52.3 percent that is down 10.2 percentage points in four months.

Hospital @ISM® Report On Business®: New Orders and business activity growth slowed considerably, and the Change Healthcare cybersecurity breach impacted systems of all sizes in March. The PMI® was 52.3%, a 4.3-point decrease. https://t.co/kzzv4kvznz #ISMPMI #economy #healthcare

— Dan Zeiger (@ZeigerDan) April 5, 2024

With the Business Activity and New Orders indexes still in expansion in March but showing significantly slower growth, it could be a signal of a shift in recent years: Peak season for health care is now the fourth quarter, rather than the first quarter or summer months, when children are out of school. Or is it a harbinger of a post-coronavirus pandemic, permanent change in demand?

The coming months could tell, Nancy LeMaster, MBA, Chair of the Institute for Supply Management^® Hospital Business Survey Committee, told a conference call of reporters on Friday. “It’s a concerning trend,” she said. “What we don’t know yet is if lower volumes were what was budgeted by hospitals, or if it was more severe than anticipated.”

She continued, “When you talk to manufacturers of orthopedic devices and cardiac implants, they don’t see the market softening. But we’ll have to wait for the second quarter to see if there is an uptick in volume. That would suggest it’s more cyclical.”

A more immediate concern is the cybersecurity breach, which has created a claims backlog of at least US$14 billion for UHG and led to 24 class action lawsuits against Change Healthcare. “It’s impacted a huge swath of the industry,” LeMaster said.

While the Days Payable Outstanding Index went into contraction in March — the reading of 49.5 percent indicated facilities were paying suppliers more quickly — Business Survey Committee members at breach-impacted systems commented that longer payment terms will be sought to help combat cash-flow issues, even with UHC saying that it has advanced $4.7 billion to providers in need.

“It was a massive breach affecting a wide variety of health-care providers, and it will take quite a bit of time to sort out,” LeMaster said. “Even if providers are advanced money, they still have to go through the claims validation process and determine if that money needs to be paid back. So, this is adding to labor costs, creating more uncertainty with cash flow.”

Another reading that could be affected is the Technology Spend Index, which increased 3 percentage points to 57 percent in March, matching its highest figure since November 2022 (64 percent). The index, which also registered 57 percent in November and January, should remain lofty if facilities invest not only in cybersecurity technology, but also IT, consulting and other services.

The silver lining for facilities in March is that supply chains ran smoothly. The Supplier Deliveries Index remained in weaker expansion territory, indicating slower deliveries, but lead times were manageable.

Hospital #ISMPMI survey respondents: “Back-to-office policy has led to many associates leaving the company.” Also: “Seasonal patient volume increases at our facility, plus a focus on physician recruitment and expansion of services.” https://t.co/SwvTa1Elv5 #economy #healthcare

— Institute for Supply Management (@ism) April 5, 2024

In other subindex news:

• With business activity and new orders growth slowing, the Backlog of Orders Index — which measures patients, not products — offered little reassurance in March, falling into contraction territory.
• On a day the federal jobs report revealed a higher-than-expected 303,000 workers added to payrolls in March, including 72,000 in health care, the Employment Index increased 1.5 percentage points to remain in modest expansion territory.
• Though the Prices: Pharmaceuticals Index dropped 7.5 percentage points to only modest expansion, there was little overall relief, as the Prices and Prices: Supplies indexes were still comfortably above 60 percent.
• The Inventories Index posted an “unchanged” status as facilities continued to right-size their stocks, but the Inventory Sentiment Index remained in strong expansion (or “too high”) territory.

LeMaster said her biggest inventory-related concern is that some facilities are falling back into a pre-pandemic purchasing mindset: “If a nickel can be saved, buy it from China,” she said. “I’m very afraid we’re not learning and institutionalizing the lessons of (COVID-19). But the good news is that the industry is having discussions.”

In case you missed the Report On Business^® Roundup on the release of the March 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 X, formerly known as Twitter.

(Photo credit: Getty Images/Ozankutsal)