Hospital Supply Prices May Rise Sharply

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Unless crude oil prices stabilize at substantially lower prices, US hospitals could see further erosion in their operating margins due to large price increases for many products, warns Joe Colonna, CEO of Seattle-based SIH (Strategic Initiatives In Healthcare, LLC), a firm specializing in non-labor hospital expense management.

Unless crude oil prices stabilize at substantially lower prices, US hospitals could see further erosion in their operating margins due to large price increases for many products, warns Joe Colonna, CEO of Seattle-based SIH (Strategic Initiatives In Healthcare, LLC), a firm specializing in non-labor hospital expense management.

According to Colonna, “Many of the products used by hospitals are derived from crude oil, especially the myriad of disposables. We are watching this situation very carefully because it can ripple throughout the supply chain. While temporary fluctuations in crude oil prices are usually absorbed by the manufacturers, if crude oil prices remain near $35. a barrel, I cannot imagine how manufacturers could maintain decent profit margins without increasing prices. The real dilemma for manufacturers is the contracts they have with many group purchasing organizations are based on firm prices for a specific period. Already, we expect to see many prices to increase sharply when current contracts expire and those increases will be attributable to raw material costs incurred prior to the recent upturn in crude oil prices.”

“If crude oil prices remain at or near their current levels, hospitals may want to reconsider their past decisions to convert to disposables for the sake of expense reduction”, Colonna said. Many disposable products are used to ensure quality and reduce the risk of infection. On the other hand, hospitals spend hundreds of millions of dollars on other disposables because cost analyses indicated they were less expensive than reprocessing reusable ones. Those calculations may no longer be valid and may already be contributing to higher expenses for hospitals.

SIH sees the role of supply chain and material managers expanding dramatically in the near future to assist their organizations with the management of all non-labor expenses. Joe Colonna stated, “Hospitals are in the midst of a crisis of cost. Hospital executives are going to have to act decisively to strengthen their expense management processes.”

Strategic Initiatives In Healthcare is a consulting firm devoted exclusively to all aspects of expense control and management for healthcare providers. For more information on expense management in healthcare or to arrange an interview with Mr. Colonna, contact

Matt Gyulay at mgyulay@sihealthcare.com     

1-877-717-7444 or http://www.sihealthcare.com

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