economic outlook: spring 2013

outlookeconomic

S P R I N G

• 2 0 1 3 •

A TWE LV E

M O N T H

OUT LO O K

>>> PROVIDING STRATEGIC LEADERSHIP TO FINANCIAL AND CLINICAL HEALTHCARE EXECUTIVES

BEY NDTHE HOSPITALWALLS

FACE TIME WITHDR. DAVID CUTLER

RE-INVENTING THEAMERICAN HOSPITALPayment reformand the impacton the continuumof care

CONNECTING CARE ACROSSTHE CONTINUUM:The crucial role of IT

04 EXECUTIVE LETTERTHE RIDETOCONNECTEDCAREMike Alkire, chief operating officer, Premier healthcare alliance

22 PERSPECTIVESTHE IMPERATIVE FOR CONNECTIVITY:Working toward accountable care .....................................................……22

32 TRENDS IN COST AND UTILIZATIONCLINICAL INNOVATION IN PERCUTANEOUS CORONARY INTERVENTION........................................................…..32PCI INTHEOUTPATIENT SETTING: Spotlight on Premiermember data............................................................…..36THE COSTOFNON-ADHERENCE: A look at Commcare pharmacy.....…...................................................................38RESOURCEUTILIZATIONBEST PRACTICES: Diagnostic imaging................................................................................42

48 ECONOMICSACONVERSATIONWITH -SarahWatt, economic analyst,Wells Fargo Securities...........................................48BEHINDTHENUMBERS: Economic and supply chain trends impacting ourmembers................................52AN UPDATE ON HOSPITAL PERFORMANCEMETRICS.................................................................................................59PREMIER’S PATIENT VOLUME TRENDS...............................................................................................................................62Premier’s guide to economic indicators……………..........................………........................………...........................................66Premier’s supply chain solutions……………....................................……...………........................………......................................68Premier’s inflation summary………..………………………….................…....….………........................………...........................….....69

70 COMMODITIES OVERVIEW2013 COMMODITIES OUTLOOK: Looking at the global economy....………........................……….............................70Minimizing rawmaterials risk.......................................................……...…....………........................………...............................72Coppermarket overview……..……………...........................................…...…….………........................……….................................74Cottonmarket overview……………………………....................................……......………........................………...............................76Energymarket overview……………………………………………..................…….....………........................………...............................78Foodmarket overview……………………………………………………………..............………........................………............................... 82Plastic resinsmarket overview…………………………………………….......…......………........................………............................... 84Rubbermarket overview………....................……………………….....................….………........................……….............................. 86Steelmarket overview..………...………….....….....................................…….......………........................………................................ 88

letter

OUTLOOK • SPRING 2013 | 3

Design and productionChristopher Cardelli, director, creative servicesSung Ginader, senior graphics designer, creative servicesBryanVerrone, project manager, creative servicesArkon Stewart, designer, StewartMarr Creative

Editorial supportAmanda Forster, senior director, public relationsAlvenWeil, director, public relationsBryan Alsop, senior manager, corporate communications

Managing directorKayla Sutton

Executive sponsorsMike Alkire, chief operating officerDurral Gilbert, president, supply chain servicesAmy Denny, vice president, contract management

A special thanks to Eric Johnson, RichWestbay, JeffWillink, Tina Harlan, Laura Yandelland Ed Drouillard for their contributions to this edition of the Economic Outlook.

OUTLOOK LEADERSHIP EDITORIAL STAFF

RE-INVENTINGTHEAMERICANHOSPITALPayment reformandthe impactonthecontinuumofcare

FACETIMEWITHDR. DAVID CUTLER

CONNECTING CAREACROSSTHECONTINUUMThecrucial roleof IT

SUPPLYCHAINTECHNOLOGYFORSMALLERFACILITIESCasestudiesineProcurement

THEMOVETOWARDPOPULATIONHEALTHMANAGEMENT:O&AWITHJOSEPHDAMORE

06 11 15 18 20

features06 BEYOND THE HOSPITALWALLS

About the publication

The Economic Outlook is Premier’s flagship publication that highlights emerging economic and industry trends impacting ourmembership and shaping the healthcare landscape. As an important thought leadership resource, the publication providesstrategic insight to financial, clinical and supply chain healthcare executives across the country.

A key aspect of the long-term strategy for theOutlook is to collaboratewith internal and external subject matter experts tobuild consensus from diverse points of view. The publication harnesses the expertise of our network of healthcare leadershipto illuminate best practices and strategies needed to drive performance improvement.We strive to provide ourmembersand healthcare organizationswith valuable, timely information and business intelligence derived from the industry’smostprogressive participants.

This edition of theOutlook is focused on connecting care across the continuum. In the shift away from fee-for-service andtoward accountable care and population healthmanagement, there is a need to redesign theway healthcare is delivered toprovide greater connectivity between health systems, providers and patients. The content in this edition is intended to helpour readership better understand the implications of healthcare reform and provide insights into existing and evolvingopportunities for healthcare stakeholders to improve connectivity and patient care in a newly-shapedmarketplace.

Wewelcome your comments and questions. For additional information, please email [email protected].

premierinc.com/economicoutlook

©2013 By Premier Inc. All rights reserved.

About the cover

The cover design demonstrates the period of great opportunity and innovation that the U.S. healthcare system is entering.Recent discussions surrounding healthcare have been primarily negative, focusing on the costs that need cutting and thechanges that need to bemade. Inmoving beyond the hospital walls to amore integrated continuumof care, there is an openfield of potential for healthcare stakeholders to reinvent and improve theway that patients receive care.

04 EXECUTIVE LETTERTHE RIDETOCONNECTEDCAREMike Alkire, chief operating officer, Premier healthcare alliance

22 PERSPECTIVESTHE IMPERATIVE FOR CONNECTIVITY:Working toward accountable care .....................................................……22

32 TRENDS IN COST AND UTILIZATIONCLINICAL INNOVATION IN PERCUTANEOUS CORONARY INTERVENTION........................................................…..32PCI INTHEOUTPATIENT SETTING: Spotlight on Premiermember data............................................................…..36THE COSTOFNON-ADHERENCE: A look at Commcare pharmacy.....…...................................................................38ABSTRACT: Resource utilization best practices in diagnostic imaging...................................................................42

44 ECONOMICSACONVERSATIONWITH SarahWatt, economic analyst,Wells Fargo Securities ............................................44BEHINDTHENUMBERS: Economic and supply chain trends impacting ourmembers................................48AN UPDATE ON HOSPITAL PERFORMANCEMETRICS.................................................................................................55PREMIER’S PATIENT VOLUME TRENDS...............................................................................................................................58Premier’s guide to economic indicators……………..........................………........................………...........................................62Premier’s supply chain solutions……………....................................……...………........................………......................................64Premier’s inflation summary………..………………………….................…....….………........................………...........................….....65

66 COMMODITIES OVERVIEW2013 COMMODITIES OUTLOOK: Looking at the global economy....………........................……….............................66Minimizing rawmaterials risk.......................................................……...…....………........................………...............................68Coppermarket overview……..……………...........................................…...…….………........................……….................................70Cottonmarket overview……………………………....................................……......………........................………...............................72Energymarket overview……………………………………………..................…….....………........................………...............................74Foodmarket overview……………………………………………………………..............………........................………............................... 78Plastic resinsmarket overview…………………………………………….......…......………........................………............................... 80Rubbermarket overview………....................……………………….....................….………........................……….............................. 82Steelmarket overview..………...………….....….....................................…….......………........................………................................ 84

letter


Design and productionChristopher Cardelli, director, creative servicesSung Ginader, senior graphics designer, creative servicesBryanVerrone, project manager, creative servicesArkon Stewart, designer, StewartMarr Creative

Editorial supportAmanda Forster, senior director, public relationsAlvenWeil, director, public relationsBryan Alsop, senior manager, corporate communications

Managing directorKayla Sutton

Executive sponsorsMike Alkire, chief operating officerDurral Gilbert, president, supply chain servicesAmy Denny, vice president, contract management

A special thanks to Eric Johnson, RichWestbay, JeffWillink, Tina Harlan, Laura Yandelland Ed Drouillard for their contributions to this edition of the Economic Outlook.

OUTLOOK LEADERSHIP EDITORIAL STAFF

RE-INVENTINGTHEAMERICANHOSPITALPayment reformandthe impactonthecontinuumofcare

FACETIMEWITHDR. DAVID CUTLER

CONNECTINGCAREACROSSTHECONTINUUMThecrucial roleof IT

SUPPLYCHAINTECHNOLOGYFORSMALLERFACILITIESCasestudiesineProcurement

THEMOVETOWARDPOPULATIONHEALTHMANAGEMENT:O&AWITHJOSEPHDAMORE

06 11 15 18 20

features06 BEYOND THE HOSPITAL WALLS

in Premier’s PfPHospital Engagement

Network (HEN). For example:

• Since recently hospitalized patients

are often temporarily or permanently

impaired, participating providers have

adopted “teach back”strategies. They ask

patients or caregivers to demonstrate

their understanding of post-discharge

instructions by explaining them in

their ownwords.

• With approximately two-thirds of

preventable readmissions caused by

medication-related adverse events,

PremierHENmembers have begun

conducting comprehensivemedication

reviewsprior to discharge. This ensures

patients understand their drugs,why they

aremedically necessary, how to take them

andpotential side effects.

All of these efforts are paying off. QUEST

hospitals have savedmore than 90,000

lives and $9.1 billion in 4½years. And in

just ninemonths, PremierHENhospitals

haveavoidedmore than51,000preventable

readmissions, and approximately

$870million in unnecessary costs.

Life-care providers

Whether it’s amotorcycle/lifestyle

manufacturer or a healthcare/life-care

provider, a person-centric approach that

connects to different parts of someone’s

life creates a brand loyalty that can only

improve customer satisfaction.More

importantly, it lends itself to significant

costs savings and abetter quality of life.

As healthcare becomesmore andmore

complex, therewill alwaysbeopportunities

tobetter connect careacross thecontinuum,

even formost integrateddeliverynetworks.

Andthat’sbecausewhencare is trulypatient-

centric, it focusesonsomuchmore than

what’sprovidedwithin the fourwallsofa

care setting. Instead, it extendswell into the

communityandintopeople’shomesandlives.

Sincerely,

Mike AlkireChief operating officerPremier healthcare alliance


Members of the Premier healthcare alliance,

The thrill of receiving the 2009Malcolm

BaldrigeNational QualityAward left

HeartlandHealth, a St. Joseph,MO,

integratedhealthcare system,wondering:

What now?

“If Harley is a lifestyle company,we

wonderedwhywe couldn’t be a life-care

company,”saidHeartland President and

CEOMark Laney,MD. “That’swhenwe

shifted focus to our patient experience.”

What emerged is a new, patient-centered

healthcaremodel,Mosaic Life Care,which

views aperson’s health in terms of life’s

components – health, lifestyle, career,

finances, creativity, relationships and

spirituality – and takes a holistic, less-

expensive approach to helping people

become thehealthiest they canbe.

Newly builtMosaic Life Care clinicswere

created toprovide anatural, calming effect.

Patients are greeted at the doorwith an

iPadwith readingmaterials and games

already downloaded based onpersonal

preferences. A fountain gurgles quietly in

the background. “People actuallyWANT to

comehere,”Dr. Laney said.

Not long ago, a gentlemanvisitedMosaic

complaining that hewasn’t feelingwell.

He said hiswife of 35 years had recently

passed away. She always did the cooking,

and since her death, his diet had suffered.

His newlyunemployed sonmovedback in,

and their relationshipwas strained. Anon-

clinical caregiver, called a Life Coach, took

theman to the grocery store, taught him

howtochoosehealthymeals andsuggested

topics for conversationwithhis son.

“Instead of givinghimananti-depressant,”

Dr. Laney explained, “we treated the root

cause of his problems, his diet andhis

relationshipwithhis son.”Both theman

andhis son continue their relationships

with the caregivers atMosaic.

Connecting care

Care providers can’t simply

bemanufacturers of

healthcare or sick care.

Whether it’s a 43-year-old

accountant draped in

leather andproudly

riding aHarley, or a

widower unsure of his

present and scared for

his future, providers need

to link the care people

receive to the lives they lead.

Healthcare reformhas placed an added

emphasis on connecting care. In fact,

according to results fromour semiannual

EconomicOutlook survey, the number of

respondents citing clinical coordination of

care as a top driver of healthcare costs

jumped23percent fromayear ago.

Among respondents:

• 97percent consider connecting care

across the continuum important for

quality improvement initiatives to be

effective; and

• 61percent say their health systemshave

the capabilities to do so, and 80percent of

those feel they’re doing it effectively.

Albuquerque,NM-based Presbyterian

Healthcare Services is driving coordinated

care through itsHospital atHomeprogram

andhas seen a 19percent reduction in

costs for participating patients. Its success

is attributed to shorter stays and fewer lab

anddiagnostic tests, particularly for

patientswith congestive heart failure,

pneumonia andurinary tract infections.

Patient satisfaction scores have also

increased significantly,with patients

receivingmultiple daily visits from

caregivers, someofwhich lastmore than

anhour. According to the program’s lead

physician,MelanieVanAmsterdam,

“Patientswhohave been in the hospital

multiple times realize it is not always the

healthiest place for them, and they are

thrilled to be at home instead.”

Patient empowerment

Patient-centric programsultimately

empower patients and their familieswith

knowledge about their care, something

that is essential to quality and efficiency.

A recentHealth Affairs study1 suggests

that themedical expenses of highly

engagedpatientswere up to 21 percent

lower on average, highlighting the

important role that patients play in

determining outcomes.

Patient empowerment and education are

central to performance improvement

programs such as Premier’s QUEST®

collaborative, aswell as the Center for

Medicare&Medicaid Innovation’s

Partnership for Patients (PfP) initiative.

QUESTtopperformerSSMSt.Mary’sHospital

(Centralia, IL) usesnursehealth coaches to

identifywhat’s important topatients so

that together they canset goals that

encourageappropriate lifestyle changes.

Patients and families nationwide are also

being engaged byhospitals participating

4 | EXECUTIVE LETTER©2013 by Premier Inc. All rights reserved.

ExecutiveletterThe ride to connected care

IfHarleyisalifestylecompany,

wewonderedwhywecouldn’tbealife-carecompany,”

saidHeartlandPresidentandCEOMarkLaney,MD.

That’swhenweshiftedfocustoourpatientexperience.”

“

“

Asa first step,Heartland’s leadership teamstudied innovative companies, andHarley-Davidsonwas one that stoodout. Its success camenot frombuildingmotorcycles but fromcreatinglifestyles.AsoneHarleyexecutiveput it, “Whatwesell is theabilityfor a 43-year-old accountant todress in black leather, ride throughsmall towns andhave people be afraid.”

Reference 1. “Patient involvement lowers health costs, study says”,MedlinePlus, http://www.nlm.nih.gov/medlineplus/news/fullstory_133729.html

6 | BEYOND THE HOSPITAL WALLS©2013 by Premier Inc. All rights reserved.

B E Y O N D T H EH O S P I T A L W A L L S

ECONOMIC OUT LOOK

Dan Mendelson is CEOofAvalereHealth,a strategic advisory company providingproduct and data solutions that helphealthcare organizations improve theiroperational effectiveness. Prior tofoundingAvalere in 2000, he directed thehealthcare portfolio at theWhiteHouseOffice ofManagement andBudget (OMB).He is on the Board of CoventryHealthcare,is Adjunct Professor atDukeUniversity’sFuqua School of Business, speaks frequentlyon provider strategy, and can be followed@dnmendelson.

Mary Coppage is amanagerwithAvalereHealth, where she provides strategicsupport toAvalere clients, includinghospitals andhealth systems, on paymentand delivery reform, care transitions, andhealth information technology policy.Before joiningAvalere, she held operations,compliance, andmember advocacy roles atPresbyterianHealth Plan inNewMexico.

Erik Johnson is a senior vice presidentwithAvalereHealth. Using rigorous analyticsand practical experience, he providesstrategic guidance to hospital andhealthsystem clients onhealthcare technology,operations, and financial issues. Beforecoming toAvalere, hewas amanagingdirectorwithManattHealth Solutions andtheAdvisory Board Company.

While leaders inWashingtonfretoverdeficit reduction,Medicarereform,andthefutureofObamacare,aquietre-inventionoftheAmericanhospital isproceeding.Paymentreformaimstorewardvalueovervolumebyholdingprovidersexplicitlyaccountableforoutcomeswhilecreatingclearincentivesforcostcontainment.Emergingpaymentmodelsaretakingtheinitialstepsbyfocusingonspecific,high-profilemetrics towhichpaymentwillbetied, includingtherateofunnecessaryreadmissions.Hospitalsthatdon’t figureouthowtocareforpatientsacrossthecontinuumofcarewillberenderedobsolete.

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HOSPITALAMERICANAMERICANAMERICAN

Payment reform and the impact on the continuum of care�

RE-INVENTING THE


Emergingpaymentmodels are taking the initial steps by focusingon specific, high-profilemetrics towhichpaymentwill be tied,including the rate of unnecessary readmissions.


An estimated 20 percent ofMedicare beneficiarieswith a hospital stay in any

given year are readmittedwithin amonth of discharge,1 and in 2008, preventable

readmissions cost an estimated $25 billion.2 Just as important, 10 percent

of beneficiaries account for 58 percent ofMedicare spending.3

>

Our current fee-for-service payment systemoftenworks

against true improvements in cost reduction andquality

improvement. It implicitly encourages excess volumewhile

discouraging coordination of care across sequential sites.

The Centers forMedicare&Medicaid Services (CMS) has been

incrementallymodifying payment systems for years to

encourage provider accountability throughvarious programs

anddemonstrations.More recently, private payors have also

followed suit and started tomove their ownquality incentives

to the provider level. TheAffordable CareAct accelerated this

process by enhancingCMS’authority and experimental reach.

Newpaymentsystemsare forcingafocusoncarecoordination

Payment penalties for hospitals demonstrating above-average

rates of readmissionswere introduced into theMedicare

program lastOctober in an attempt to addressmajor gaps in

quality. An estimated 20percent ofMedicare beneficiarieswith

ahospital stay inanygivenyearare readmittedwithinamonth

ofdischarge,1 and in 2008, preventable readmissions cost an

estimated $25 billion.2 Just as important, 10 percent of

beneficiaries account for 58 percent ofMedicare spending.3

The penalties are small in terms of their dollar impact, but they

representa fundamental shift inahospital’s scopeofaccountability

by factoring in post-discharge activities that hospitals can’t

necessarily control or have traditionally not paid for. The goal is

to foster coordination amonghospitals andpost-acute and

long-termcare providers to prevent such readmissions.

Presentpaymentsystemsdonotalwayscreate incentives for

healthcare systemsto think thisway.Quality-relatedchallenges–

suchas the lackof standardizeddischargeplanningprocesses, poor

follow-up, failure to reconcilemedications, insufficientormissing

data transferpost-discharge, andproblemswithpatient/family

engagement–canalsocomplicateeffectivecare transitions.

CMS is tackling the care coordination problem fromanumber of

angles. Itsmost comprehensive attempt to date is through two

accountable care organization (ACO) programs, theMedicare

Shared Savings Programand themore sophisticated PioneerACO

model runby the Center forMedicare&Medicaid Innovation.

Both programs are based on the concept of shared savings,with

Pioneeroffering theoptionofpartial capitation in later years of the

program.CMS is alsodeveloping theBundledPayments forCare

Improvement Initiative,which includes care episodes that span

acuteandpost-acute care settings.ACOsandbundling represent

the futureof caredelivery, yetmuch remains tobe learned, and, as


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a result, themodels continue tobevoluntaryunderMedicare.

CMS’ implementation of theHospital InpatientValued-Based

Purchasing Program (VBP) reinforces the longitudinal nature of

the new focus hospitalsmust develop. TheVBPprogramwill

include anewspending-per-beneficiarymeasure that is another

exampleofhowhospitals arebeingheld responsible for apatient’s

full episode of care. Thismeasure compares expenditures for a

Medicare beneficiary based on Part A and Part B spending from

three days before to 30 days after the inpatient stay.

ACOs, bundling, readmission penalties, and the spending-per-

beneficiarymeasure all have something in common.All extend

provider responsibility for patient care beyond a single inpatient

stay andwell beyond a facility’s fourwalls.

Hospitalsneed toprepare to takeonhealth-systemrisk

Tomeet standards associatedwith these and other programs,

providerswill be forced to leave their silos and collaboratewith

a range of other providers across the care continuum. Success

depends on identifying the right providerswithwhich to

collaborate. Payment reformwill inevitably drive providers to seek

greater visibility into bothupstreamanddownstreampatient

flow in order to identify preferred partners in the care continuum.

Under current public andprivate programs, hospitals bearmost

of the burden for reducing readmissions and addressing

inefficient care, and there are no signs that payorswill let up.

In fact, themetrics againstwhich payments are assessedwill

only becomemore stringent over time. As a result, hospitals

must take the lead in identifying opportunities that support

alignment of their newbusiness imperatives for improving

quality of care, riskmanagement, and financial performance.

Hospitals have anumber of options to identify andbettermanage

their patients across the care continuum. Perhaps twoof themost

important approaches are identifying at-risk populations and the

collaborations that can bestmitigate risks.

In addition to finding appropriate collaborators along the care

continuum, hospitalsmust understand the local populations

they serve and their health needs. Specifically, hospitals should

analyze patientswith select diseases andbenchmark utilization

relative to other facilities in their localmarket area and region,

aswell as to thenational average. Including socioeconomic

indicators, such as homelessness, financial status, family/

caregiver support, drug dependence, or other community

variables,would elevate such techniques tomore precisely stratify

patient readmission risk.


Hospitals, aswell, should utilize risk-

assessment tools at admission and

discharge to identify specific patientsmost

likely to be readmittedwithin 30 days.

Knowingwheredischargesgo iskey to improvingcarecoordination

Discharges to home

For the 64 percent of patientswhogo

homeafter ahospitalization,4 partnerships

among those in the community referral

network—consisting of primary care

physicians and specialists, pharmacies,

retail or outpatient clinics, and other com-

munity-based organizations—contribute

to keeping patients “safe and sound.”Yet,

these partnerships are not always fully

leveraged. In fact, only 44 percent of

Medicare beneficiaries discharged to home

have a primary care visitwithin two

weeks of discharge,5 and 60percent of

frail elderly patients fail to follow their

full prescribedmedication therapy after

leaving the hospital.6

The Center forMedicare&Medicaid

Innovation is supportingnewpost-

discharge collaborations through the

Community-BasedCare Transitions

Program. Suchprograms canprovide

important lessons aboutwhichhome

discharge services and collaborations are

most effective in reducing readmissions.

Discharges to post-acute care (PAC) or

long-term care (LTC)

Knowing PACprovider-level readmission

rates is critical to a hospital’s discharge

strategy. Over 20 percent of patients are

discharged from thehospital to a PAC/LTC

facility, yet that patient population returns

to the hospital at higher rates than those

discharged to home,most likely due to the

more-complexnature of the patient

population. Understanding the PAC/LTC

facilities in a hospital’s service area by

examining discharges and readmissions

will allowhospitals to identify themost

clinically appropriate and cost-effective

PAC settings.

For example, an analysis usingAvalere’s

Vantage Care Positioning SystemTM, found

that onehospital in Indiana

discharged patients to 112 different skilled

nursing facilities (SNFs) for post-acute care

in 2010.Not surprisingly, SNF readmission

rateswere 22 percent. For this hospital, less

concernwith finding any empty PACbed

andmore focus on a strategic discharge

approach and care-transition partnerships

holds the potential to improve patient

readmission rates and lower spending.

Operators of PAC facilities are beginning

to recognize their new role in helping

hospitals bettermanage patient care. In

the past, the twohad little incentive to

work together. Nowpayment reform is

spurringamutuallybeneficial collaboration.

Somehospitals engagewith PACpartners

by sending practitioners to the PAC facility

to facilitate communication and

collaboration among PAC staff and

hospitalists, casemanagers, andphysicians.

Further,many SNFs andhomehealth

agencies run care transitions programs

to ease the burden onhospital case

management resources.

These newcollaborations, alongwith a

better understanding of data and amore

robustapproach topatient risk stratification,

canhelp shift an otherwise catch-all

discharge process to one that is strategic,

targeted, and efficient.

Discharges to assisted living facilities (ALFs)

ALFs have emerged as additional potential

downstreamcollaborators for hospitals.

Not traditionally considered care providers,

manyALFshavesteadilybuilt theirown

care-givingcapabilitiesover the last few

years. Inparticular, given thevulnerabilities

that their residents exhibit, ALFs represent

significant potential for reducingunneces-

sary readmissions and emergency room

visits.With focus areas surrounding fall

prevention andmemory care, ALFs have

targeted the health needs of their own

residents andmade significant clinical

investments to address them.Hospitals,

in turn, have begun to address these

populations and residencies creatively,

with investments of their ownexpertise

andpersonnel to augmentALF efforts.

Managingcare transitionscreateshospitalvalue

The re-invention ofAmericanhospitals

underway today is, in part, about how to

effectivelymanage care transitions across

the care continuum. Inmeeting this

challenge, hospitals have the opportunity

to thrive in anypayment reformenviron-

ment –whether value-based purchasing,

shared savings, bundled payment, or

global payment. Understanding patient

populations and the capabilities of

providers beyond ahospital’s fourwalls

will ultimately be a key factor in defining

the value ofAmericanhospitals in the

context of integrated care.

References1. Jencks S, et al. "Rehospitalizations Among Pa-tients in the Medicare Fee-for-service Program," NEngl J Med 2009; 360: 1418-28.2. “Preventing Hospital Readmissions: A $25 BillionOpportunity,”National Priorities Partnership, 2010.3. Jacobson, G., et al. “Medicare Spending and Use ofMedical Services for Beneficiaries in NursingHomes and Other Long Term Care Facilities: A Po-tential for Achieving Medicare Savings and Improv-ing the Quality of Care,”The Henry J. Kaiser FamilyFoundation, October 2010.4. Analysis from Avalere’s Vantage Care PositioningSystem.5. Goodman, DC, Fisher ES, Chang C. “After Hospital-ization: A Dartmouth Atlas Report on Post-AcuteCare for Medicare Beneficiaries,”Dartmouth Atlaswebsite, 2011.6. Wright, R.M., et al. “Effect of Central NervousSystem Medication Use on Decline in Cognition inCommunity-dwelling Older Adults: Findings fromthe Health, Aging and Body Composition Study,”J Am Geriatr Soc 2011. 57: 243-250.

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FACETIMEwith DR. DAVID CUTLER, Harvard University

David Cutler, PhD, is theOtto EcksteinProfessor of Applied Economics atHarvardUniversity. Cutler served onthe Council of EconomicAdvisers andtheNational Economic Council duringthe Clinton administration andhasadvised the presidential campaigns ofBill Bradley, JohnKerry andBarackObama.Hewas also senior healthcareadvisor for theObamapresidentialcampaign. Currently, Cutler is aresearch associate at theNationalBureau of EconomicResearch,amemberof the Institute ofMedicine, and a Fellowof the Employee Benefit ResearchInstitute. Cutler is the author of YourMoney or Your Life: StrongMedicinefor America’s Healthcare System.

The InstituteofMedicine(IOM)recentlysuggestedthat 30 percent of

healthcare spending is related towaste or inefficiencies.1 Whatdo you think are the areaswiththe biggest opportunities forremovingwaste, and how canhealthcare providers go aboutdoing so?

David Cutler:Anumber of reports have

said this, so I’d say it’s a consensus

estimate. I thinkwaste falls into a few

different categories,with the first being

care that’s not delivered appropriately.

This includes overuse (surgery that is not

needed); underuse for chronic disease

(patientswhodon’t takemedication as

prescribed andhave an acute event);

and genuinemistakes (infections or

operating on thewrongbodypart). If

totalwaste is 30 percent of healthcare

spending, then care that’s not delivered

properly is probably about half of that.

Another big problem is very high admin-

istrative costs.2 A third issue is excessive

pricing, aswhenpeople use a $3,000

]1


scan that is available nearby for $1,000.

And then there’s fraud and abuse.

To addresswaste, I think providers should

think about the efficiencywithwhich they

operate. Theway they cando that is by

asking themselves how they canprovide

the right care for the right patient. That

will eliminate guesswork aswell as the

issue of doing toomuchor too little.

In addition towaste, youmentionunderuseof careas amainproblemour

healthcare systemfaces. Approxi-mately 10percent of patientsdonot fill their initial oral oncolyticprescription,3 andestimates statesomewherebetween20and30percent of chronic diseasepatientsdonot stickwith their treatmentplans.4 In response to this, somepharmacybenefitmanagement(PBM)programsaredevelopingvalue-basedbenefits (co-payreduction for compliant patients)to incent compliancewithmedicationprotocols.What doyou thinkabout theseprograms?Are thereotherways to tackle“underuseof care?”

David Cutler: I think underuse of care is a

significant issue, and one of itsmajor

components is underuse of prescriptions.

AMerck study5 identified several reasons

whypeople don’t take theirmedications

appropriately. Some can’t afford them.

Somedon’t understandwhat their

physicians prescribed. Somebelieve all

medications are evil and that they’re being

ripped off. And then there are the people

who just forget.

Knowing that people don’t take their

medications still doesn’t provide an easy

solution for theproblem.Byaskingpatients

aseriesofquestions, youcandetermine

where theirweaknessesareandthen finda

means toaddress specific issues.

Value-based benefits are really designed

for the situationswhere price is a big deal.

If you’re taking a drug that’s clearly appro-

priate foryou, thenwe (thePBM)willwaive

the copay. It’s a very good start and a great

mediator for patientswith an affordability

problem. But it’s not the total cure.

Otherways tomanage adherence are

increasing engagementwith the patient –

having someone followupwith themor

havingmore in-depth discussions in the

office. Databases providing prescription

refill information, like Commcare uses, can

identify patientswhoneed additional help

and alert the clinicians or staff as needed.

People are inherently bad at doing things

that they know theyneed to do, especially

when those things are complex. Provider

organizationsneedtoofferintensiveassistance

tohelpsomepatientsremainadherent.

Ashealthcaremovestowardvalue-basedpurchasing/pay-for-

performance,what roledoesorwill technologyplay in improvingquality outcomesand reducingwaste in thehealthcare system?

David Cutler: I think technologywill play a

big, big role, andwe should distinguish the

multiple types of technology. Diagnostic

and therapeutic technologies, like new

imaging,will tell you exactlywhoyou

should treat andhow.

Organizational technology is entirely

different.MarcusWelby, from the 1970s

television program,was a physicianwho

was a “bring-the-bag-to-your-home”kind

of doctor. There are very fewprocedures in

healthcare today thatMarcusWelby

would recognize. But hewould totally

understand the system inwhich it

operates – primary care doctorswho refer

to specialists, specialistswhohave

]3

]2

arm’s-length relationshipswithhospitals,

and so forth. The system looksmuch the

way it did in the 1950s, and there are few

things thatwe're glad still operate the

sameas they did in the 1950s.

By taking advantage of technologies and

organizational changes that healthcare has

been extremely slow to adopt,we’ll be able

to improve quality and reducewaste.

You’ve longbeenapropo-nentof improvedquality astheemphasis ofhealthcare

reform, asopposed to reducedcost. Canyouexplainbrieflywhythat is andwhat you think theimpact of theAffordableCareActwill beon the continuumof care?

David Cutler: It’s essential thatwedon’t

definewhatwe’re doing strictly as

lowering cost, but rather as improving the

value of care. Some things have price tags

that are too high, andwe’re unwilling to

pay for them.Other things areworth the

cost, butwehave tomake sure they’re

right for the patient.

Quality is output for dollar input. Howdo

we increase return on investment in the

healthcare system? I hope theACAwill

pushus toward that. It’s telling providers

and insurers that if they find away to

providemore value,we’ll find away to pay

for it.We’ll transformhealthcare from

do-more/earn-more to a do-better/

earn-more system.Myhope is that the

ACAwill lead to that.

Goback toMarcusWelby.Hewasaprimary

care doctor. Hehad a set of things he took

care of, andhe sent patients to specialists if

they didn’t fit in his skill set. But patients

don’t careabout that. Theyhaveaproblem,

and they don’t carewho takes care of it or

how they do it; they justwant to feel

better.Who can look across the continuum

ofwhat’s needed for a patient andprovide

the appropriate care?

Whenyou frame it thatway, you can see

how the systemcan improve. Peoplewant

to feel like someone’smanaging their

problems.Wehope theACAwill positively

affect that change. ACOs and other

programs are setting up integrated care

models, and the organization that can

provide the best integrated carewillwork

more and get paidmore. TheACA isn’t just

a series of programs. It is a philosophy that

says people need someone to take care of

their issues.

TheCDCestimates thatnearly one in twoadults intheU.S. livewitha chronic

disease, accounting formore than75percent ofhealthcare costs.6

Howdoyou thinkhealthcarereformswill impact those133millionAmericans?

David Cutler:What healthcare reformwill

domostmaterially is provide coverage. It’s

very hard to get carewithout coverage. In

addition, the reformswill incentivize

providers to think of the patient as awhole

person and ask themselveswhat they

need to do to care for that person.

Only some3percent of doctors can be

emailed right now.At Kaiser, doctors aren’t

paid for emailing, but they are paid to take

care of their patients. Kaiser invested $4

billion in a consumer-oriented technology

system. It’saverygoodwayforpatientswith

chronicdiseases toreceive integratedcare.

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We’ll transform healthcarefrom do-more/earn-more

to a do-betterearn-more system.

]5

]4

TheACOmodel isencouraging integrationacross the continuumof

care.What does integration looklike to youandhow important is itfor different typesof careproviders(e.g., hospitals, physicians,long-termcare centers) tohave integrated systems?

David Cutler: I think integrationwill

take several forms. Itmaybe a single

organization employing doctors in the

samephysical settingwhowork as a team

because a single doctor can’tmanage all

patients all the time. Then there’smore

virtual integration,where youhave big

physician organizations linked to a

hospital system. They’re not necessarily

down thehall, but they’reworking very

closely to share patient information.

Given thenature of patients’problems,

we’ll by necessity have someof both

types of integration.

It’s important that the information is there,

and that incentives and ethics are right.

The providers are all doingwhat is best for

the patient, and themoney justworks out.

But themoney isn’t driving them tomake

different decisions.

Howwell do you thinkorganizationsaredoing inintegratingor sharing the

data fromtheir EHR investments?

David Cutler: I think they probably have

aways togo. It’snot thebuyingof thecom-

puter systemthat’s the issue; it’s theuseof

that systemthatmatters.Anyorganization

thathas lookedat its internaldatawill

realize that there isa largevariation inhow

physiciansprescribecare.While theEHR

systemallowsyoutorecordthosevariations,

youstill have to take thenext stepand

decidewhichdoctor isdoing the right thing.

Youneed to get the physicians to set up a

process so that the right thing gets done in

each type of case. That’s a different thing

than just gathering the information.My

sense is that organizations have taken the

first step in having the technology, but

theyhaven’tmade enoughprogress in

really using the data.

Doyouhaveany responseto the fiscal cliff cutsandwhat thatwillmean

for providers?

David Cutler:On the onehand, the cuts

are just ugly.Whenwedon’t knowwhat to

do,we cut payments, andno onewakes up

thenextmorning and says, “Boy, I’mglad

wedid that.”Anotherway to look at it is as

an opportunity. I recently served on a

panelwith theCEOofabigphysiciangroup

inmyarea, andhis sentimentwas that the

medical community hadbeenput into

receivership.Theyweren’tdoingthejobthey

should’vedone for thecommunity in terms

ofmaking people healthy andproviding

better value. Themore the provider

community demonstrates that it can

deliver savings, the less pressure therewill

be for cuts. It’s really an opportunity for the

provider community to do better.

The pace of spending is unsustainable

fiscally, and it’s important to change the

industryfromtheinsideout. It’dbeonething

ifwewerespendingalotandeverypenny

wasworth it. Butwith 30percent of care

beingwasteful,weneed to provide proof

thatwhatwe’re doing is right.

Closing sentiments?

David Cutler:As far as the eye can see, our

nation’s fiscal picture is in trouble. I think

thenext five years are going to be really

crucial here. The focus onhealthcare is not

going to relent, regardless of the fiscal cliff

or anyparticular deal this year. I don’t see

us cruising along for the next five years –

weneed tomake it better, or itwill get

muchworse.Wehave a very challenging

couple of years comingup, but it’s

something thatdoesn’thave tobenegative.

It could be a very positive change.

References1. “How the U.S. Health-care System Wastes $750Billion Annually,”http://resources.iom.edu/wid-gets/vsrt/healthcare-waste.html.2. The Atlantic,http://www.theatlantic.com/health/archive/2012/09/how-the-us-health-care-system-wastes-750-bil-lion-annually/262106/.3. “One-tenth of cancer patients fail to fill initial oraloncolytic prescription,”Specialtypharmajournal.com, http://www.special-typharmajournal.com/index.php?view=article&catid=344%3Aoncology&id=2664%3Aone-tenth-of-can-cer-patients-fail-to-fill-initial-oral-oncolytic-prescrip-tion&format=pdf&option=com_content&Itemid=556.4. “2011SpecialtyPharmaceuticals: Facts, FiguresandTrends,”Center forHealthcareSupplyChainResearch.5. “Tackling a different kind of health problem,”Merck, http://www.merck.com/about/featured-stories/adherence.html.6. “Chronicdiseasepreventionandhealthpromotion,”CDC, http://www.cdc.gov/chronicdisease/resources/publications/aag/chronic.htm.


]6

]7

]8

]9

Themore the provider communitydemonstrates that it can deliver savings,the less pressure therewill be for cuts.

It’s really an opportunity for the providercommunity to do better.

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Atatimeofunprecedentedchange, if there’sonethingthat industry leaders

across theU.S.healthcare systemagreeon, it's thatnowis the timewhen

innovationisneeded.Trueinnovationwillbenecessarytoeffectivelyleverage

information technology inorder to

connect careacross thecontinuum,

holistically improvecaredelivery for

patients, andenhance thehealthof

entire communities.

CAREACROSS THE CONTINUUM:

CONN

EC

T ING

THE CRUCIAL ROLE OFIT

MarkHagland is editor-in-chief ofHealthcare Informaticsmagazine.He has spent nearly 25 years as ahealthcare journalist and editor.He haswritten two books aboutquality in healthcare, aswell asthousands ofmagazine articlesin the field. He has alsowonnumerous national and regionaljournalismawards.

Fortunately, pioneering patient care

organizations are showing theway, just

as the need for innovation is exception-

ally urgent, given the pressures on

providers from federal healthcare

reformmandates and other purchaser

demands. Consider the following:

InNewOrleans, leaders at the

Louisiana PublicHealth Institute

have been collaborating, through the

Crescent City BeaconCommunity they

established,with primary care physi-

cians across themetro area, in order to

move forward in a community-wide,

patient-centeredmedical homemodel.

Inwestern Colorado, leaders at

the ColoradoBeaconConsortium,

a regional consortium that includes an

independent physician association (IPA),

a community hospital, a health plan,

and ahealth information exchange,

have partneredwith a business

intelligence and analytics software

vendor to help physicians across the

region leverage their electronic health

record and clinical decision support

capabilities to bettermanage the health

of their patient populations.

In Beaumont, Texas, the leaders

of Southeast TexasMedical

Associates, amid-sized,multi-specialty

medical group, have transformed the

hospital discharge summary into a

care-managementmap. Thismap, cou-

pledwith performance dashboards that

give all physicians in the group an

up-to-date viewof their patient panels,

is facilitating caremanagement that

improves patient outcomes and reduces

hospital readmissions.

At the Bon Secours

Richmond (VA)Health

System, clinical leaders have been

leveraging the electronic health records

of the system’s primary caremedical

group, alongwith caremanagement

software, to proactively classify patients

by clinical risk level and identify those

at greatest clinical risk orwhoare non-

compliantwith physician instructions

andmedications.

In theDenver area, leaders at the

Colorado Foundation forMedical

Care, the state’s quality improvement

organization (QIO), have beenworking

with providers in themetro area to

improve transitions in care and reduce

readmissions. One of the key learnings:

there is a strongneed formechanisms

that informprimary care physicians in

real timeof thedischargeof theirpatients.

All of these examples andmore have

a common thread: there is a need to

eliminate thesilosof information that

continue to keeppractitioners from

effectivelyworking together.Without

that, itwill be difficult or nearly

impossible to create a truly connected

continuumof care.

Matchingavailabletoolswithpressingneeds:A fit?Oneof the underlying challenges is that

the tools available to bridge gaps in the

continuumof care don’t necessarily

match the actual functional needs

pressing in onhealthcare providers. It’s a

bit akin to trying to paint awall-sized

frescowith twoor three Crayola crayons.

Yet the needs are so vast, and the time

pressures so intense, that the idea that

healthcare IT developers could create

entirely newclasses of technologies in

thewhite heat of this time of change

seemspatently absurd.

So let’s look at the toolswehave at hand.

They fall into a fewdifferent categories.

The first group includes electronic

health/medical records (EMRs/EHRs),

clinician documentation, clinical

decision support, continuity of care

documents, andassociated technologies,

such as natural language processing,

speechrecognition, electronicprescribing,

and so on. All of these technologies are

connected to creating, storing, andusing

clinical information.

Thentherearethetechnologiesassociated

with sharing clinical information,

primarily the various flavors of health

information exchange.

Thenext category includes business

intelligence, data analytics, and all the

other types of technologies and

applications designed to help clinicians,

administrators, andhealthcare

organizations better understand and

use data and information.

And of course, there are technologies

such as datawarehouses, datamarts,

picture archiving and communications

system (PACS) solutions, and others,

designed to store data and information.

Finally, there is a separate group of

technologies, this time on thehardware

side,which includes all themobile

devices clinicians and other healthcare

providersmight use, such as

smartphones and tablets, but also

medical devices that automatically

streamvital signs and similar current

patient data into EHRs and other clinical

information systems.


What is particularly challenging is the

overlay of available technology types, as

mentioned above, across the balkanized

reality of healthcare organizations,with

cliniciansworking in organizations

ranging fromsolo-practitioner settings

to the largestmedical groups andmassive

integrated health systemswith dozens of

hospitals and thousands of physicians

under the same corporate umbrella.

What’smore, the various points along the

care continuum, fromurgentmedical care

to inpatient hospital care to rehabilitative

care to long-termcare andbeyond, are

themselves operationally, functionally, and

organizationallyfragmented,underdifferent

ownershipandgovernance,not tomention

using disparate information systems.

So the “IT challenge” is really a farmore

fundamental healthcare systemchallenge,

involvingmatching existing and gradually

evolving tools and technologies to a

patchwork quilt of care sites andproviders,

in a healthcare system that is fragmented

in everywaypossible – by organization

type, professional category, reimburse-

mentmodel, organizational structure, and

of course, presence of technology.

RacingintothefutureWith thepublic andprivate purchasers and

payors of healthcare demanding lower

costs andgreater transparencyandac-

countability fromproviders, rapid advances

in leveraging IT to achieve all those goals

will be essential to the future of healthcare.

Fortunately,with

pioneering organizations

leading theway–often in

partnershipwith innovative

vendor companies–solutions to

this fundamental problemare emerg-

ing every day, acrossmanydimensions.

Ten years fromnow, I believewewill look

back on this current period as a time of

great innovation and exploration, one

thatwill have seen the active birthing of

the new,more effective healthcare in

America.Most of all, this newhealthcare

will be all about leveraging technology,

including information technology, to

continuously improve care. There’s simply

no turning backnow.


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So the “IT challenge”is really a far

more fundamental healthcare system

challenge, involvingmatching existing

and gradually evolving tools and technologies to a

patchwork quilt of care sites and providers, in a

healthcare system that is fragmented in everyway

possible – by organization type, professional category,

reimbursementmodel, organizational structure, and

of course, presence of technology.


It can be challenging for non-acute and smaller acute-care

providers to realize the samebenefits fromsupply chain

efficiencies as their larger peers. Premier’s eProcurement

programcombines proprietary toolswith third-party

technology to deliver cost-effective, high-performance

supply chain technology to smaller facilities. The result is

enhanced pricemanagement, operational efficiency, and

supply-related revenue capture and reporting.

Two senior living facilities, in cooperationwith Premier and

their Premier-affiliatedGPO sponsors, implemented the

eProcurement program in September 2011. The following

results are from their 14-monthparticipation in the

program. Both facilities experienced improvements in

operational efficiency and supply-related revenue capture,

aswell as decreasedmedical-surgical supply expenses.

Premier’s eProcurement technology allows supply chain

managers to purchase fromanyvendor (note that this study

did not include food andpharmacy items). It also provides

increasedvisibility intoPremier’scontractportfolioandenables

cost reduction through increased contract utilization.

To identify supply savings, prices for itemspurchased prior

to program initiationwere compared to prices paid for

identical items over the 14months. Results include items

thatmatched onvendor, vendor catalog reorder number,

andunit ofmeasure.

[ O V E R V I E W ]

Casestudies ineProcurement

Supplychaintechnology

forsmallerfacilities

A30-bedskillednursing facility, Facility1experiencedpricedecreaseson32percent

ofmatched items.Annual supplyexpensesavings totaled$6,583, a3.27percent

reductionontotal supplyexpense. Facility1alsodocumentedsavingsof$10,800on

chargeable supply items. Increasedoperational

efficiencycontributedanother$21,200 insavings,

drivenby improvements in inventoryprocessing

andemployeeproductivity.

A75-bedskillednursing facility, Facility2experienced

pricedecreaseson29percentofmatched items.

Annualizedsupplyexpensedecreases totaled$11,923,

a4.89percent reductionontotal supplyexpense. The

facility’s increasedcontractparticipationhadadirect,

positive influenceonsupplyexpense.

Facility2alsodocumented improvementsofmore

than$25,000 tosupply-relatedpatient revenueand

realized$16,480insavingsfromreductions inelectronic

data interchange (EDI) costsandemployee time

associatedwithsupplycharge reportingandresearch.


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The Premier eProcurement programenables

smaller healthcare facilities to drive

operational improvements and cost savings

through:

• Electronic purchasing fromanyvendor,

• Supply-related capture of patient revenue,

• Overallmanagement of perpetual

inventory locations, and

• The efficientmatching of invoices to

purchase documentation.

Implementing comprehensive supply chain

management technology improved

purchasing processes, streamlined inventory

management, and automated patient-

charge capture. These operational changes

resulted in documented annual savings of

$38,583 and $53,403, respectively, for these

twomember institutions. Continued

improvements in operational efficiency and

contract purchasingwill yield greater

benefits in the future for these locations.

Formore information about the Premier

eProcurement programplease contact us at

[email protected].

Brian Townsend, director, eProcurement

program, and Richard Schall, vice president,

continuumof care, Premier healthcare

alliance, contributed to this article.

[ S U M M A R Y ]

Facility1

Facility2

20 | SUPPLY CHAIN FUTUREPROPRIETARY AND CONFIDENTIAL. ©2013 by Premier Inc. All rights reserved.

QA&>>> The move toward population health management:O&A with Joseph Damore


last year. There has been similar legislation

introduced in Tennessee and a recommenda-

tion in Alabama to reform Medicaid in that

direction. In Arizona, Banner Health is part-

nering with Blue Cross of Arizona to form an

ACO venture for their Medicaid population.

2.What do health systems need to be

thinking about strategically, in terms of

integrating across the continuum of care?

Joseph Damore:More and more organiza-

tions are trying to create vehicles that

integrate care both electronically and in ac-

tual physical delivery across the continuum.

We’re seeing organizations improve care by:

• Developing clinically integrated physician-

hospital organizations that work

collaboratively and share savings with

independent physicians;

• Implementing integrated, evidence-based

care plans so that patient treatment protocols

are the same, whether in a hospital, skilled

nursing facility or other location; and

• Increasing EHR connectivity across the

continuum.

3.What is the role of prevention and

patient engagement in having a successful

population health initiative?

Joseph Damore:Patient engagement is of

the utmost importance in terms of working

Joseph F. Damore, FACHE, vice president, Premier Performance Partners, Premier healthcare alliance,is responsible for assisting physician groups, not-for-profit hospitals and health systems in developing integrated health systems and implementing accountable care organizations, including responsibility for Premier’s Partnership for Care Transformation collaborative. Prior to joining Premier, Damore served as CEO of Mission Health System in Asheville, NC and Sparrow Health System in Lansing, MI.

1.What’s going on in population health? Have you seen any acceleration in activity

since the election or the Supreme Court decision? What are some specific examples of

work being done by health systems to integrate population health in their practices?

Joseph Damore:We’re seeing acceleration in the journey to population health around the

country. The Supreme Court decision and the results of the November election have

pushed this concept more in the forefront, and that’s a good thing for healthcare, because

it’s really a critical piece in bending the cost curve.

The other factor influencing the trend toward population health is some early results that

show that it’s working. For decades, Medicare expenditures have far outpaced inflation

rates, but for the first time in more than 40 years, the growth in Medicare per capita

expenditures approximated the inflation rate in 2012. Also, several studies have shown

that accountable care is beginning to have an impact on slowing healthcare costs.

For example, Dignity Health, and Blue Shield of California conducted a study of the

California Public Employees’ Retirement System (CalPERS) that indicates a fairly significant

slowdown in the pace of healthcare expenditures. In the first year, the average cost per

CalPERS member outside the program increased 10 percent, while the cost per person in

the program decreased 1.6 percent.

There’s also been increased interest, as noted by the number of new Medicare Shared

Savings Program (MSSP) participants. In January 2013, 106 providers joined MSSP, which

brings total participants to 252. We’re seeing a similar growth rate on the private side.

Organizations are applying accountable care principles to population health management

in all facets of payor relations. For example, several states are moving ahead with Medicaid

reform that mimics the federal accountable care model. Oregon was one of the first to do that


with physicians and in changes to

employee health plans or commercial

arrangements. We’re seeing employee

premiums tied to health metrics, such as

body mass index. Lower-cost premiums are

offered to employees who meet healthy

criteria or to those whose metrics are better

than the previous year.

There’s also the use of a waiver for generic

pharmaceutical copays for employees who

participate in chronic disease management

or coaching programs in collaboration with

their primary care doctors. A patient with

asthma signs up for an asthma manage-

ment program, and the health plan waives

the copay for generic drugs to treat the

condition. These programs are creating

economic incentives that encourage

employees to improve their own health.

Similar efforts to engage patients and their

families in their care are part of Medicare’s

Partnership for Patients (PFP) program.

Hospitals collaborating with Premier on

PFP have substantially improved their

adherence to evidence-based readmission

best practices.

As an example, PFP participants ensure

medical information and treatment plans

are understood by patients and their

caregivers prior to discharge. At discharge,

patients receive clearly worded instructions

regarding what to do if their conditions

change and when changes should be con-

sidered emergencies. And post-discharge,

providers follow up with patients to ensure

that they know where to go for care.

4.Are there particular capabilities that

a health system needs to effectively

manage population care?

Joseph Damore:Premier has a set of core

capabilities that we suggest for health systems.

The first is a robust primary care foundation

that provides team-based, patient-centered

medical home care. We really believe that

this provides more cost-effective and higher

quality care. On average, cost of healthcare

per capita declines 7-8 percent with a robust

medical home approach.

The second core capability is in care man-

agement. This is especially true for high-risk

patients who suffer from multiple chronic

diseases. We’ve seen several systems emu-

lating AtlantiCare’s “special care center,”

which is a team-based approach that pro-

vides high-risk, chronic disease patients

with access to licensed social workers, nurse

practitioners and physicians. AltantiCare

has about four years of data that indicate

the program has reduced costs, enhanced

patient and staff satisfaction, and improved

quality and health status.

Additionally, care management is impor-

tant in treating diseases tied to the big six

chronic diseases – asthma, diabetes, conges-

tive heart failure, COPD, hypertension, and

chronic depression. Organizations that de-

velop those programs have seen a reduction

in hospitalizations and readmissions, as

well as generally healthier patients. Care

management is also important in manag-

ing care transitions. Case managers help

guide a patient from one setting to another,

such as from the primary care doctor’s office

to hospital or home.

The third core capability is information.

Health systems must be able to analyze

claim data so that they can identify

high-risk patients and intervene in their

care. Premier, in partnership with Verisk

Health, has created a new application called

PopulationAdvisor™, which allows us to

offer that type of support to our members.

Finally, we believe that it’s very important

to have a good payor partner that is willing

to share claim data on a real-time basis.

That’s really the only way to have the

information necessary to determine which

patients are high-risk and need to be on

advanced protocols.

5.What are some barriers or challenges

to health systems in moving toward

population health management?

Joseph Damore: I think the major challenge

is changing the culture of your organization.

The first step in that direction is creating a

vision and realizing what you want to

accomplish. That process isn’t going to

happen overnight. It’s a journey that takes

years. The most advanced population health

organizations have been doing it for decades.

Then you have to build all of those core capa-

bilities to successfully move forward with

the vision, and that can bring with it some

resource barriers in building the care man-

agement program and related IT investment.

Alignment is an important part of culture

transformation. We’re talking about chang-

ing how healthcare is delivered, so having

physician leaders is an important part of

gaining alignment within your organization.

6.Can you describe some of the work that’s

being done in Premier’s Partnership for Care

Transformation (PACT™) collaborative?

Joseph Damore:The PACT collaborative

helps our members meet the challenge of

improving the health status and care

experience for their patient populations.

We help organizations analyze their current

situations by identifying gaps in the core

components, and we help them develop

an action plan to move forward. We also

provide education for health system

leadership about the concepts and what

we’re learning across the country from

the early adopters. Then we assist in

filling the gaps, for instance with data

analytics or implementation of a care

management program.

Our newest PACT endeavor provides data

analytics and benchmarking to our mem-

bers. Starting in 2013, MSSP members will

receive quarterly information on at least 15

key metrics related to utilization, quality

and cost. That will enable them to see how

well they’re doing compared with other

organizations. PACT participants have the

benefit of learning best practices from early

adopters, which makes them able to learn

and implement changes more rapidly.

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22 | PERSPECTIVES©2013 by Premier Inc. All rights reserved.

The imperative for connectivity:

WORKINGTOWARDACCOUNTABLE CARE

P E R S P E C T I V E S

E C O N O M I C OUT LOOK


Introduction

Due to rising healthcare costs, growingpatient populations, and healthcarereform, there is an ongoing imperativeto transform theway that patients receivecare. Rather than the traditional acutecare-focused structure, health systemsare going beyond the hospital walls,breaking down silos, and buildingconnectivity to improve quality,reduce costs, and address the largerneeds of their patient populations.

This article features survey data andinterviewswithmember executivesdetailing how their health systems arebuilding connectivity and integratingcare across the continuum.

The supply chain as anasset

A major underpinning of accountable care

and efforts to provide population-based

healthcare is theneed forbroadcollaboration.

In our fall 2012 Economic Outlook,

member executives discussed physician

involvement in supply-chain decision

making as a means to bend the cost curve,

a sentiment that has often been echoed.

According to 29 percent of survey

respondents, lack of willingness on the

part of physicians and other providers is

the greatest barrier to clinical integration

for their organization (see Figure 1). That

is followed distantly by difficulty in

implementing cross-continuum electronic

health records (EHRs) for 21 percent and a

need for greater incentives (16 percent).

“Manyof thebarriers to clinical integration

that we’re seeing are a matter of getting

out of our comfort zones,” says Tim Kirby,

executivevicepresidentofsystemalignment

and integration, Methodist Health System

(Dallas, TX). “Physicians have traditionally

beentrained tobe independent.We’renow

asking our physicians and clinicians to

work as a team to manage patient health.”

St. Joseph, MO-based Heartland Health is

also focusing on enhancing physician

engagement. “We paired physicians with

other leaders in the organization, so that

physicians are at the table for all major

organizational decisions. It has really

helped us gain physician alignment,” says

Mark Laney, MD and president and CEO.

“In addition to adopting advanced

technology products and moving toward

more of a population-health, accountable-

care payment model, dyad leadership is

part of an ongoing process of helping our

physicians, andoursystemasawhole,be

moresuccessful.”

Willingness from physicians to try new

supplies is an indicator of successful

collaboration among practitioners and

supply chainmanagement tomeet system-

wide goals. Many member health systems

are undertaking larger-scale projects to

reduce costs by targeting physicianprefer-

ence items (PPIs), including participation in

various PPI-focused Premier collaboratives.

Figure 1 Barriers to achieving clinical integration

� Top barrier � Second biggest barrier

Lack ofwillingness on

part of physiciansand providers

Need for greaterincentives toencourageparticipation

Difficulties inimplementation ofcross-continuumelectronic health

Lack of budgetto createintegration

among providers

Lack of system-wide education onthe benefits of

clinical integration

Lack of providersto collaboratewith (e.g., rural

markets)

Other0.0%5.0%

10.0%15.0%20.0%25.0%

30.0%

Source: Premier online survey for Economic Outlook Spring 2013 publication


Providers’willingness to evaluate cost-

reductionoptionsappearstobeincreasing:

the percent of survey respondents who

would “definitely” try a non-branded PPI

increased 24 percent over the past three

surveys to 26 percent in spring 2013 (see

Figure 2).

Methodist’sKirbyparticipatedinPremier’s

cardiac rhythm management (CRM) col-

laborative, a group of 65 health systems

and hospitals that shared supply expense

data to identify opportunities in resource

optimization. In addition, he took part in

another collaborative to reduce PPI costs

in spinal care. Since then, Kirby’s team

developed a “hold the gain”committee

that meets monthly to ensure they are

maintaining or improving costs in

those areas.

“We also have a value analysis committee

of clinical and materials managers that

evaluate PPI changes and selection,”Kirby

said. “If clinicians want to make any

change that has a cost impact of $50,000

or greater, they have to go before this

committee to get approval.

“Through our ACO, we’re focusing on

improving PPI outcomes while lowering

costs, andwe’re sharing those savingswith

ourphysicians. We’re also participating in

Premier’s Partnership for theAdvancement

of Comparative Effectiveness Research

(PACER), a collaborative of large, integrated

delivery networks that evaluates clinical

and resource utilization datatooptimize

carepathsandstandardize the supply.

We’re working to reduce costs by

consolidatingcontractstoachievebetter

purchasing dynamics.”

According to Dr. Laney from Heartland

Health, “To survive and thrive in this

environment, you really need to optimize

each and every opportunity. Each dollar is

important.We’ve lookedatallofourexternal

contracts, all consulting dollars, even

down to what paper cups we use.”

Many health systems’supply chains are

reducing costs by streamlining purchasing

across all facilities through a centralized

channel. Survey respondents report that

35 percent have centralized purchasing for

all of their owned, leased, or managed and

affiliate facilities (see Figure 3).

Focusing on the supply chain and gaining

physician buy-in are important steps in

cost reduction and standardization.

Clinical integration isn’t just about work-

ing with doctors, though, says Methodist’s

Kirby. “Today, it’s about integrating across

the entire continuum of care. It’s not just

clinical but also social, because managing

thehealthofthepopulationissoessential.”

“Through our ACO,we’re focusing onimproving PPIoutcomes whilelowering costs,and we’re sharingthose savings withour physicians.”

TimKirby,executive vice president of system alignment

and integration, Methodist Health System


Figure 2 Willingness to trial non-branded physician preference items

� Fall 2011

� Spring 2012

� Fall 2012

� Spring 2013

Definitelywould

Probablywould

Might ormight not

Probablywould not

Definitelywould not

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

49.0%

19.6%

21.7%

19.2%

26.0%

27.6% 21.7%

24.2% 19.4%

3.6%

3.6%

2.8%

2.4%

0.2%

0.7%

0.0%

0.7%

52.3%

53.7%

51.5%


Figure 3 Does your health systemhave centralized purchasing across the continuumof care?

� Yes, all OLM facilitiesand affiliates purchasingis done through onecentralized channel

� Yes, all OLM facilitiespurchasing isdonethroughone centralized channel

� No, alternate sitesmanage their ownpurchasing


25.8%

34.8%

39.4%

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Figure 4 Incentives encouraging clinical integration


0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0%

73.7%Outcomes-based measurement for physicians

Bonuses contingent on achievement of quality

Penalties for readmissions and infections

Bundled payments

Common ownership of facilities

Capitated payments

Antitrust waivers

Other

68.3%

32.7%

29.8%

21.6%

18.0%

13.2%

0.5%

Incentives, progress toward integration

According to Michelle Darnell, vice presi-

dent of systems improvement, SSM St.

Mary’s Good Samaritan Inc. (Mt. Vernon/

Centralia, IL), “Similar to many providers,

the underpinning of our move toward

greater clinical integration is our mission.

We want to make sure we’re taking care of

ourpatients inthebest,mostcomprehensive

way possible. That’s really the altruistic

aspect of our incentive for clinical integra-

tion. It’s primarily mission-driven to

improve care, but cost-avoidance is also a

factor. Really, everyone’s trying to do the

best they can for patients in the most

economical way.”

In Premier’s member survey, 74 percent

of respondents cite outcomes-based meas-

urements and 68 percent cite bonuses for

achieving quality outcomes as top incen-

tives to clinical integration (see Figure 4).

“The overall need to improve the care of

the communities we serve is always our

mainincentiveto improvingcaredelivery,”

says Kirby, “but we also see the writing on

the wall and know payment will be based

on what we accomplish and not just on

what we do.”

Similarly, one-third of survey respondents

cite readmissions and infection penalties

as incentives to createbetter integration.

The majority of survey respondents (77

percent) believe their health systems are

effective at providing care across the con-

tinuum (see Figure 5).

Eric Bieber, MD and chief medical officer at

University Hospitals (UH) in Cleveland, OH

corroborates the need to look beyond

acute care. “Healthcare providers have not

been trained in patient-centered care

environments; instead, we have lived in

an acute, episodic environment and have

been incentivized accordingly. We need to

break down that mindset by driving out

care variation, redundancy, and waste to

best treat the patients we serve. ACOs help

to bring into the crosshairs this need for an

absolute focus on integrated care.”

Clinical integration is a work in progress.

Health systems are striving to implement

advanced technology and build new

collaborations and partnerships to create

a more patient-focused health system.

“I’veneverheardapatientsay, ‘Mycarewas

too good’or ‘My surgery went too well.’

That’s because care simply can’t be too

good. And that’s what makes healthcare

today so exciting,”UH’s Bieber says. “It has

been and will be a work in progress for a

long time. People can’t work too closely

together; the continuum of care can’t be

too connected. And as healthcare becomes

more and more complex, there will always

be opportunities to enhance clinical inte-

gration, even for the delivery networks

that are highly integrated.”

Ferdinand Velasco, MD and chief health

informationofficeratTexasHealthResources,

Premier’s 2013 Richard A. Norling Excel-

lence Award winner, agrees that a more

integrated health system will ultimately

benefit all patients. “A more integrated

healthsystemmeansthatthecaredelivery


Figure 5 Howeffective do you believe your health system is in providing care across the continuum?


60.0%

50.0%

40.0%

30.0%

20.0%

10.0%

0.0%

18.8%

58.6%

15.2%

6.1%1.4%

Veryeffective

Somewhateffective

Neither effectivenor

ineffective

Somewhateffective

Veryineffective

Figure 6How important is shared access to patient information between facilities for qualityimprovement initiatives to be effective?


60.0%

70.0%

80.0%

50.0%

40.0%

30.0%

20.0%

10.0%

0.0%

76.9%

20.2%

2.5% 0.2% 0.2%

Veryimportant

Somewhatimportant

Neither importantnor unimportant

Somewhatunimportant

Veryunimportant

organization will be more intelligent in

understanding the needs of patients. We’ll

be able to better understand the factors

that lead to poor health, why patients get

readmitted to the hospital, and more. It

helps us be more proactive in our outreach

to the community, so that we can provide

better care at a lower cost.”

One moving target for clinical integration

is developing the technology and relation-

ships to connect care among facilities and

among the community. Almost all of the

survey respondents (97 percent) believe

shared access to patient information

among facilities is essential to successful

quality improvementinitiatives (seeFigure6).

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� Yes

� No

� Unsure


31.7%

7.5%

60.8%

Figure 7Does your health systemhave capabilities to share dataacross facilities in the continuumof care (e.g., amonghospitals and long-term care facilities)?


Dr. Bieber reiterates the imperative health

systems face. “Everyone needs to work to

better connect the dots. And we need to

think about extended-care facilities that

we don’t even own or operate – how do

we get to appropriate data transfer and

accountability among them?”

Data sharing andHIT

“If you don’t have the data, or if it isn’t

timely, then your response is not timely,

and you’ll end up duplicating services and

efforts. And even when providers are on

the same EHR, there can be a lack of con-

sistency in inputting and sharing data

among doctors and providers. All of this

compromises the validity and value of

the data,” says Methodist Health’s Kirby.

EHRs, in addition to other advanced data-

sharing technologies, create the means for

health systems to monitor and manage

their patient populations. Of our spring

respondents, 61 percent currently have the

capabilities to share data across facilities

in their continuum of care (see Figure 7).

TexasHealth’sDr.Velascobelievesadvanced

technology has been an integral part of his

system’sachievements, includingrecognition

by Hospitals & Health Networks as a 2012

Most Wired Innovator and by U.S. News

and World Report for being among the

“most connected”systems in the U.S.

“In terms of our intent to move toward

clinical integration, Texas Health has a

mission to improve the health of the peo-

ple in the community we serve. Shifting

our focus from acute care to population-

health management has helped us under-

stand and use technology to achieve

clinical integration,”says Dr. Velasco.

“We’ve been very aggressive and progres-

sive in implementing a health information

exchange (HIE) within our organization.

Even before the HITECH ACT (legislation to

expand adoption of health information

technology), we were involved with many

regional programs. One of the things that

we’ve found is that if a facilitydoesn’thave

a good EHR, it really can’t move forward.”

Dr. Bieber from UH agrees that health

information technology (HIT) leads clinical

integration. “Information is king, but it has

to be usable in a way that impacts clinical

function. HIT infrastructure is really the

glue thatholds clinical integration together.”

Having the technology in place allows for

further advancements in understanding a

patient population.

“We need to know everything we can

about a patient’s care – what has gone on

before and what’s coming up,”Dr. Bieber

continues. “Otherwise, we have variation

and redundancies that may degrade care

quality and efficiency. The closer we can

get to real-time information and get it in

the hands of providers, the more likely the

right things will be done and we won’t

miss opportunities.”

Diverse technologies are imperative in

achieving true clinical integration. “Having

a strong EHR program is foundational.

Stage 1 of meaningful use – though it’s

certainly not perfect – does set a floor from

which we can build the full infrastructure

needed to connect care across the contin-

uum,” says Texas Health’s Dr. Velasco. The

systemachievedHIMSSStage7, thehighest

level of EHRadoption, at itsnewesthospital

a few months ago and anticipates that all

of its facilities will reach that designation

by the end of the year.

Though the discussion surrounding

healthcare technology has largely been

about meeting meaningful use criteria,

the technology necessary to thrive in this

landscape goes far beyond EHRs.

Heartland Health has piloted and imple-

mented several technologies to advance

patient care. “We have a robust patient call

center that’s run by nurses who can direct

patients to the right type of care,” said

Heartland’s Dr. Laney. “We’re advancing

our use of telemedicine, especially with

our rural and critical-access hospitals

(CAH), where we’re experimenting with

robots that we can place with an emer-

gency patient. We’re also really gearing up

with electronic visits.”

Innovation in collaboration

In addition to new technologies, health

systems are engaging in programs with

outside facilities, as well as advancing

partnerships and collaborations within

their communities, and on a broader land-

scape, ones that meet the challenges of

population-health management.

Keith Suedmeyer, director of social

services, SSM St. Mary’s Good Samaritan,

spoke of two of his organization’s non-

traditional partnerships. “We’ve been

having monthly meetings for a few years

now with mental health professionals

and other stakeholder providers in the

community, including the public health

department, to identify gaps in care. It’s

also a great opportunity to network and

better understand what services are being

offered, and where.”

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“Courageousleadershipisneededtoovercometheinertia.Youneedleadershiponallsidesoftheorganizationwhoknowthathealthcareneedstochange.EHRsarefoundationalforthattransitionfromacutecaretopopulationhealth.Tome,that’s thelogicbehindinteroperability.”FerdinandVelasco, MD, CHIO,

TexasHealth Resources


SSM St. Mary’s is also working with the

variousnursinghomes in its community to

reduce readmissionsbygiving thenursing

homes access to hospital data, such as

radiology and other reports, and stream-

lining community-wide end-of-life care.

“The hospital usually has an end-of-life

discussionwithpatients and their families,

and then the nursing home will have a

separate conversation with them. This can

lead to confusion over next steps, and pa-

tients can receive conflicting information.

We’ve started having just one conversa-

tion that includes hospital and nursing

home staff,” says Suedmeyer. “The various

nursing homes compete for patients, but

the benefits of collaboration far outweigh

the risk of sharing information.”

Traditional competitors Methodist Health

System and Texas Health Resources are

also engaging in a non-traditional

collaboration to better meet the needs of

their Dallas-Fort Worth community.

“Post-acute care in Dallas-Fort Worth costs

$2,000 more per Medicare enrollee per

year than the national average,” says

Methodist’s Kirby. “Through community

groups, we’re facilitating discussions on

how to standardize post-acute care quality

metrics so that all the local providers use

thesamemetrics to trackandreportpatient

data. We’re serving the same populations

– why duplicate our efforts? The key to

being successful in improving patient care

and lowering costs is finding a way to be

closer and more aligned with other

providers in the area.”

According to Heartland Health’s Dr. Laney,

“There are approximately six CAHs in our

area–we representavery largegeographic

area – and about four or five years ago we

started working on patient records

through our Lewis and Clark Information

Exchange (LACIE). It’s been invaluable for

us, from both a safety and cost standpoint,

toknowifpatientshavehadrecentCTscans

orwhatmedications they’reallergic to.

Figure 8 Time until joining or creating ACO (C-Suite respondents only)

25.0%

20.0%

15.0%

10.0%

5.0%

0.0%

21.0%

14.5%

20.3%

14.5%

10.9%

18.8%

1.4%

Wealready havean ACO in place

By the endof 2013

By the endof 2014

By the endof 2015

After 2015 My health systemwill not be joiningor creating anACO in the

foreseeable future



Earlier this year we shifted management

of LACIE from Heartland to an open, inde-

pendent collaborative of Kansas City-area

healthcare providers. It’s a ‘cooperative

competition’model, where data will pass

more easily, and systems will compete

based on service rather than data silos.

This will improve care, lower costs, and

improve patient satisfaction.”

The current healthcare landscape necessi-

tates adaptation. “We’re living in unique

and interesting times where complex

health systems are looking more broadly

at synergies, so organizations that

wouldn’t normally work together are

doing just that,” says UH’s Dr. Bieber. “And

as legislation continues, we’re going to

have to be even more creative with these

partnerships. Some of them would never

have happened five or 10 years ago. But

today they make much more sense and

are beneficial for care providers, and more

importantly, the patients we serve.”

Imperative for connectivity

Health systems are building technology

infrastructure, leveraging their supply

chains, and improving alignment within

their organizations, as well as with other

stakeholders and their communities, to

meet the demands of a quickly changing

healthcare landscape. More than half of

C-suite survey respondents (56 percent) re-

port that their organizations will belong to

an ACO of some kind by the end of 2014;

21 percent of respondents are already part

of one. Fewer than 20 percent of C-suite

respondents do not anticipate their organ-

ization will create or join an ACO in the

foreseeable future (see Figure 8).

Health systems are evolving to better

meet the needs of their patients and their

communities as a whole. Dr. Laney from

Heartland Health offers a great example of

this through the system’s Mosaic Life Care.

“We looked internally at how we might

improve ourselves for the future, and

Mosaic’s what we came up with. It’s a

more comprehensive, experience-based

relationship with patients. It’s a health-

based model that encompasses the holistic

needs of our patients and works toward

optimal health and wellness.”

After winning the 2009 Malcolm Baldrige

National Quality Award, Dr. Laney and his

team were deciding what to do next.

“Healthcare reform was being discussed,

healthcare costs were going through the

roof, and we thought we could dramati-

cally change the way we do healthcare.

We realized we could develop a more ‘daily

patient approach,’based on our being a

trusted friend and advisor to our patients.

If we’re going to be an ACO, and they’re

going to be responsible, accountable pa-

tients, then we need a real, personal rela-

tionship with them. And if we can do that

in western Missouri, then that could be a

model others could use across the country.

“It’s a holistic, less expensive approach,

meetingpeoplewhere theyareandhelping

them improve,”continued Dr. Laney, “We

now have five clinics, and you won’t find

waiting rooms at any of them. Instead,

there’s a chef preparing healthy snacks,

and we give patients a customized iPad

with reading materials or games that are

basedon theirpreferences. It’s likewalking

intoacoffee shoporbookstore,notanurgent

care facility – people want to come here.”

Heartland’s Mosaic Life Care program is an

example of the major transformation

going on in healthcare, and a response to

the call to action of healthcare reform.

Health systems are engaging all of their

leaders – from technology, supply chain,

practitioners, C-suite, and more – to create

new models that elevate care delivery to

provide more streamlined, coordinated

and high quality care to their patient

populations.

StudyMethodology

During winter 2013, Premier, in

collaboration with Customer Care

Measurement and Consulting LLC,

commissioned an online survey of

approximately 9,000 healthcare leaders

across our membership, representing

both acute and non-acute healthcare

markets. The survey respondents (n=535)

are representative of a cross-section of

our membership across geographic area

and organizational size and type.

The majority of respondents fall within

three title categories: C-suite (29 percent),

service line or practice area manager (26

percent), and supply chain or materials

managers (20 percent). Nearly one-third

of respondents are part of multi-hospital

systems or IDNs, and respondent

organizations are equally representative

of urban and rural areas.

Premier healthcare alliance thanks these

people for their contributions to this article:

Eric Bieber, MDand chiefmedical officer,

UniversityHospitals

Michelle Darnell, vice president of systems

improvement, SSMSt.Mary’s Good

Samaritan Inc.

Tim Kirby, executive vice president of

systemalignment and integration,

MethodistHealth System

Mark Laney, MDandpresident andCEO,

HeartlandHealth

Keith Suedmeyer, director of social services,

SSMSt.Mary’s Good Samaritan Inc.

Ferdinand Velasco, MDand chief health

information officer, TexasHealth Resources

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“We’re living in uniqueand interesting timeswhere complex healthsystems are lookingmorebroadlyat synergies,so organizations thatwouldn’t normally worktogether are doingjust that”Eric Bieber, MDand chiefmedical officer at

UniversityHospitals (UH) in Cleveland, OH

32 | TRENDS IN COST AND UTILIZATION©2013 by Premier Inc. All rights reserved.

CLINICAL INNOVATION INPERCUTANEOUS coronaryintervention

T R E N D S I N C O S TA N D U T I L I Z A T I O NE CO N O M I C OUT LOOK

Introduced in 1977, percutaneous coronary intervention (PCI),

more commonly knownas angioplasty, is a procedure oftenused

to treat heart attacks andprevent symptomsof coronary artery

disease.3 While thenumber of PCIprocedureshasdeclined in

thepast fewyears, approximately 600,000 cases are performed

annually in theU.S.4

SteveMarso,MD, a physician at St. Luke’sHospitalMid-America

Heart&Vascular Institute andprofessor ofmedicine at the

University ofMissouri-Kansas City (MO), and JohnHouse,

manager, interventional cardiology and imaging research, St.

Luke’sHospitalMid-AmericaHeart&Vascular Institute, Kansas

City, discuss clinical innovation in PCI in theQ&Abelow.

With cardiac disease ranking as the leading cause of death in theUnited States,1 it comesas no surprise that cardiovascular centers remain amajor contributor to the profitmargins ofmost health systems,accountingforupto40percentofahospital’s total revenue.2

OUTLOOK • SPRING 2013 |33

Using acute care data fromadatabase

maintainedbythePremierhealthcare

alliance,Dr.Marsoandhis teamconducted

researchcomparingcostandqualityindicators

oftransradial (TRI)andtransfemoral (TFI)

approachesforpercutaneouscoronary

interventionintheinpatientsetting.Their

analysisshowsthatatransradialapproach

canbemorecosteffective,providebetter

patientoutcomesinspecificPCIprocedures,

andmakeasame-daydischargemore

appropriatethanthetraditionaltransfemoral

method.Their findingswerepresentedinthe

AmericanHeart Journal inNovember2012.5

EO:Howhave coronary intervention

methodschangedinthepastfiveyears?

Steve Marso and John House: That’s

definitely amoving target. The greatest

change in the last fewyears has been in

the vascular access approach, shifting

toward transradial versus transfemoral

interventions. The rate of change is high in

Europe,with transradial interventions in

about 50-70 percent of cases. There’s been

much slower acceptance in theU.S. In

2010-2011, the frequency of transradial

interventionherewas about 7 percent

and is currently 10-11 percent.

Development in the stentmarket has been

an interesting one towatch.We’re now in

the third generation of drug-eluting stents

(DES),which are safer andmarkedly less

expensivethanthefirstandsecondgenerations.

Additionally, there has been remarkable

innovation in advanced techniques in the

last several years. For example, there are

more procedures being performed to open

chronic total occlusions (CTOs). CTOs are

identified in approximately 10 percent of

diagnostic coronary angiograms. As these

techniques to improve CTObecomemore

widely accepted,we could see growth

in thenumber of PCI procedures being

performed in theU.S.

Of course, the other significant advance

in the field is in treating structural heart

disease. Percutaneous valve replacement

hasbeenapprovedforuseandis increasingly

common in aortic valve replacement

procedures done by interventional

cardiologists.

EO:YoumentionthatEuropehasseena

muchfasteruptakeoftransradial inter-

vention.Canyouexplainwhythatis?

Steve Marso and John House: It really

comes down to physicianpreference. In

Europe, pioneers in the interventional

cardiology field have implemented the

transradial approach in their practices and

disseminated that knowledge. It’s clear

that physician leaders have influenced the

field in an effectiveway. The transradial in-

tervention data demonstrates efficacy and

now,with emerging cost considerations,

there is another impetus to adopt TRI. In

Europe, there’s also a genuineneed

to discharge patients on the sameday, and

transradial interventions really facilitate

that by lowering bleeding risk, increasing

patient comfort, andproviding early am-

bulation. Physicians aremuchmore com-

fortable sending patients home the same

day, because of these lower risks.

TheU.S. is a littlemore varied in its teach-

ing approach, and there’s a steep learning

curve.Muchof the trial data comes from

Europe, so there’s a need formore cardiolo-

gists to implement the transradial ap-

proach in theU.S.,whichwill spur further

adoption. Sufficient evidence exists for

physicians in theU.S. to bemotivated to

change theway they treat at least someof

their PCI patients.

EO: In practice today,what factors lead

physicians to choose transradial inter-

ventionsvs. transfemoral interventions?

Steve Marso and John House: Physician

preference is responsible for the slower

SteveMarso,MD,

physician at St. Luke’s

Hospital Mid-America

Heart &Vascular Institute

and professor of medicine

at the University of

Missouri-Kansas City, MO

JohnHouse,manager,

interventional cardiology

and imaging research, St.

Luke’s Hospital

Mid-America Heart &

Vascular Institute,

Kansas City, MO


growth of transradial intervention in the

U.S., as doctors feelmore comfortable and

havemoreexperiencewiththetransfemoral

procedure. The benefits of transradial

intervention includehigher patient

satisfaction, increased comfort, and early

ambulation. Although comfort and

satisfaction are difficult tomeasure,

patients really valuemore rapid recovery

times and shorter hospital stays.

EO: Canyoudiscuss the shift from the

inpatient to outpatient setting for PCI

over the last fewyears?

Steve Marso and John House: The shift to

outpatient care certainly hasn’t been

without controversy. The greatest driver

has been the Centers forMedicare&

Medicaid Services (CMS) RecoveryAudit

Contractor (RAC) auditswhere itwas

expected that PCI, for the vastmajority

of patients,would be categorized as an

outpatient procedure. Reimbursement is

substantially less for outpatient care,

compared to inpatient, so in order to

compete financially, hospitals need to

adjust to PCI outpatient care by reducing

the length of stay.

Until now,health systemshavebeencoding

PCI cases as outpatientwhile providing

roughly the same care aswhen itwas

coded as an inpatient procedure. Going

forward, health systemsneed tomodify

their staffing and other operations to

transition PCI to a same-day discharge,

so that they can recoup the dollars lost

due to the shift in reimbursement.

EO:What are thekeydrivers and

considerations inmovingPCI to an

outpatient setting?

Steve Marso and John House: Themajor

consideration inmoving patients froman

inpatient to an outpatient setting is safety.

While both TRI and TFI are suitable for the

outpatient setting, transradial vascular

access offers a number of advantages.

These include patient safety, given that

transradial access is associatedwith a

lower access-site bleeding complication

rate, and early ambulation. One of the

inherent challenges of choosing an

outpatient PCI-care pathway is accurately

assessing patients’procedural risk for

important complications. Patients at very

lowor low risk for post-procedure compli-

cations are truly the cohort of individuals

we should be targeting for same-day

discharge. In our institution,we employ

anumber of risk-predictionmodels to

assess the suitability of inpatient-versus-

outpatient status for our PCI patients.

Approximately 75 percent of our patients

are not high-risk. If a patient is at lowor

moderate risk of bleeding, and youuse

treatments associatedwith low risk, then

youputmore patients in the position to

be same-day discharged. Since transradial

interventions lower the risk of bleeding, it

makes the decision to same-day discharge

easier for physicians, and the ability to

same-day discharge iswhat saves costs

whenyou’re shifting PCI to the outpatient

setting. Of course, it has to be balanced

with providing the best quality care and

the lowest risks.

EO:What is theoverall outlook forPCI?

Steve Marso: I am truly optimistic about

the future of interventional cardiology.

PCI is amature procedurewith proven

efficacy for a variety of clinical scenarios.

Important advances continue in the field

related to device technology and advanced

techniques.Wemust strive to improve the

PCI operational efficiency to retain its

profitability forhealth systemswhile

continuing to ensurewemaintain or

improve patient safety.

References

1. CDC, Faststats,

http://www.cdc.gov/nchs/fastats/lcod.htm.

2. Becker’sHospital Review,October 10, 2012,

http://www.beckershospitalreview.com/hospital-

key-specialties/the-state-of-hospital-service-lines-

current-challenges-future-directions.html.

3. “Angioplasty’s golden eramaybe fading,”USA

Today,March 27, 2008. http://usatoday30.usato-

day.com/news/health/2008-03-26-angioplasty-de-

cline_N.htm.

4. Ibid.

5. Safley, DM,Amin, AP,House, JA, Baklanov, D,

Mills, R, Giersiefen,H, Bremer, A, andMarso, SP.

“Comparison of costs between transradial and

transfemoral percutaneous coronary intervention:

A cohort analysis from the Premier research data-

base,” AmericanHeart Journal,

http://dx.doi.org/10.1016/j.ahj.2012.10.004.


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Going forward, health systems need to

modify their staffing andother operations to transition

PCI to a same-day discharge so they can

recoup the dollars lost.”– Steve Marso, M.D., physician at St. Luke's Hospital Mid-America Heart & Vascular Instituteand professor of medicine at the University of Missouri-Kansas City

“


>

Opportunity for PCI savings:SPOTLIGHT ON PREMIER DATA

Figure 1 Percent of PCI procedures coded as inpatient or outpatient

Source: A databasemaintained by the Premier healthcare allianceNote: From2009-2012, database containedbetween195,000-230,000 inpatient PCI casesperyearandbetween65,000-84,000outpatient PCI casesperyear.

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

2009 2010 2011 2012

Inpatient Outpatient

Historically, PCIhasbeenperformed

asan inpatientprocedure, butdue to

innovations in cardiovascular inter-

ventions, aswell as improvements

indeterminingapatient’s risk level

prior to intervention, theCenters for

Medicare&MedicaidServices (CMS)

designationof PCIwas changed to

outpatient for themajorityof

patients. Since reimbursement is

significantly less for outpatient care

compared to inpatient care, the

re-codingof aprocedurebyCMS is

an impetus forhospitals to review,

whenclinically appropriate, the level

of careprovided for PCIpatients, so

that thehospital canoperateas

efficientlyaspossible.

Oneof the inherent challengesof

choosinganoutpatient PCI-care

pathway is accuratelyassessinga

patient’s procedural risk for

significant complications. Research

showspatients at a lowormoderate

risk forpost-procedurecomplications

suchasbleeding canbe targeted for

same-daydischarge, allowing for

cost savingsby shifting resources,

suchas staffingandother

operations, to theoutpatient level.1

Becauseeachsituation isdifferent,

providers should reviewtheir own

practices andprotocols to identify

potential opportunitieswhile

maintaining carequality.

Data from351Premiermember

health systems from2009-2012

showan increase inPCI cases coded

asoutpatient,meaning that

hospitalswereable toprovide

outpatient-level care for these

patients (inparticular, same-day

discharge) (Figure1).Outpatient

PCI cases currently represent30

percentof all PCI caseswithin

hospitals in the cohort, up from

23percent in2009.

Among the cohort of 351hospitals,

the total cost associatedwithPCI

was$3.5 - $4billionannually,with

approximately $3billionperyear

codedas inpatient. Theunadjusted

mean totalhospital cost forpatients

undergoingPCI (2009-2012)was

approximately $14,000per case

when theprocedurewas coded

as inpatient, compared tounder

$10,000whencodedasoutpatient

(Figure2).


Anoutside analysis of 1.5million patients

undergoing PCI procedures published in

the June 2010 edition of the Journal of the

AmericanMedical Association (JAMA),

suggests 75 percent ormore of the

patients in the studyhad a lowor

moderate risk of bleeding complications,

and could be safelymanagedwith

outpatient-level resources.2

Below is anestimationof the savings to the

cohortof351hospitals if75percentofallPCI

cases at lowormoderate risk of bleeding

were appropriatelymanagedwith

outpatient-levelresources,andcodedassuch.

Bymaintaining the samenumber of total

cases, the JAMAstudy implies that an

average of 130,000 PCI cases per year

would be potentially eligible for use of

outpatient-level resources and same-day

discharge in this cohort. In our dataset,

we observed that approximately 59

percent of PCI inpatient costwas variable

compared to approximately 55 percent for

outpatient. For cases requiring inpatient-

level resources, added and thus variable

cost included labor, additional use of

supplies and other overhead associated

with length-of-stay.

By shifting eligible, lower-risk patients to

less resource-intensive outpatient care,

there is a potential opportunity to impact

$1.58billion incostover fouryears (Figure3).

References

1.Marso SP, AminAP,House JA, et al. “Association

BetweenUse of BleedingAvoidance Strategies and

Risk of Periprocedural BleedingAmong Patients

Undergoing Percutaneous Coronary Intervention,”

JAMA, doi:10.1001/jama.2010.708.

2. Ibid.

Figure 2 Average PCI cost per case, inpatient and outpatient

Source: A databasemaintained by the Premier healthcare allianceNote: Cost per case is shown in constant dollars.

2010 2011 20122009

$13,983

$9,730

$14,194

$9,800

$14,060

$9,381

$14,248

$9,339

$-

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

� Inpatient � Outpatient

Source: A databasemaintained by the Premier healthcare allianceNote: Database did not break downPCI by transradial or transfemoral intervention. Facilitiesmaynot be able to transition 75percent of PCIcases to outpatient setting, depending onpopulation, risk of bleeding, or other factors.

Figure 3 Potential savings associatedwith treating additional PCI patientswith outpatient-level resources

2009-2012Actual Potential

# of cases Cost # of cases CostInpatient 791,082 $6,586,164,182 272,539 $2,269,469,226Outpatient 299,073 $1,573,699,082 817,616 $4,308,570,885 Cost savingsTOTALS 1,090,155 $8,159,863,264 1,090,155 $6,578,040,111 $1,581,823,153

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The cost of non-adherence:

ALOOKATCOMMCAREPHARMACY

Anestimated one-third to one-half ofall patients in theU.S. donot take theirmedication as it is prescribed.1 Non-adherencehas been shown to result in$100 billion eachyear in excesshospitalizations alone,2 ignoringoutpatient, rehabilitative, orpharmaceutical costs. It can lead toworse outcomes, higher healthcarecosts, andhigher utilization, especiallyfor patientswith chronic diseases.3

>


Adherenceratesdeclinethelongerapatient

must take a prescription and are consis-

tently lower for chronic-disease patients,

compared to those receiving acute care.

Approximately 75 percent of current

healthcare spending is now directed to-

ward chronic-disease care, making poor or

non-adherence a significant impediment

to improved health outcomes.4

Especially in the move toward accountable

care and population health management,

finding ways to reduce non-adherence to

medication and treatment protocols will

be fundamental in helping health systems

meet healthcare reform measures. In fact,

a focus on adherence improvement could

play a vital role in achieving many of the

main objectives of healthcare reform,

including improving care coordination,

reducing readmissions, and moving

toward outcomes-based payments.

Commcare, a Premier-owned specialty

pharmacy, has found a means to signifi-

cantly increase medication adherence

by enrolling patients in robust disease/

patient management programs. While the

programs provide additional patient touch

points and counseling, Commcare’s initia-

tives revolve heavily around:

•Disease state progression and lab value

monitoring,

•Patient understanding of injection and

administration methods,

•Proactive management of adverse

reactions and side effects,

•Amplified patient/pharmacist/doctor

communication and follow-up, and

•Dedicated disease management service

representatives and clinical personnel

on-call 24/7.

Hepatitis C case study

An estimated 3.2 million people in the

United States have hepatitis C, though

most of them do not know they are in-

fected and are not receiving treatment.5

The infection is associated with significant

morbidity and mortality with traditional

therapies; sustained virological response is

achieved in less than 50 percent of cases.6

It is also a heavy economic burden, as new

oral therapies comeatahighcost.However,

triple therapy, which includes one of two

new oral drugs, is thought to improve out-

comes in hepatitis C patients.7

Commcare has 203 patients who

received treatment for hepatitis C in

2012. Approximately 16 percent are on

dual therapy, while the remaining 84

percent receive triple therapy (Figure 1).

A patient’s regimen is based on multiple

factors, including viral genotype, prior

failed therapies, co-infection, and other

hepatic activity.

Medication costs vary, depending on the

therapy that a hepatitis C patient receives.

The traditional regimen of Ribavarin and

Pegylated Interferon, categorized as dual

therapy, costs slightly more than $3,000

Figure 1 Distribution of patients by therapy type

Source: Commcare claims database

Dual Therapy16%

Triple Therapy84%

Triple TherapyVictrelis56%

Triple TherapyIncivek28%

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per month, while triple therapy can

range up to more than $21,000 per month

(Figure 2).

As published in the American Journal of

Managed Care in December 2012, the

general population’s rate of adherence on

hepatitis C therapy is 64.6 percent.8 In a

sample of 203 patients, 131 would be ad-

herent to their drug therapy, based on the

national average. At Commcare, however,

the adherence rate is over 91 percent; 185

of their 203 hepatitis C patients have been

100 percent compliant since the start of

therapy. In this cohort, 54 additional

patients would be adherent to their

hepatitis C therapy, compared to the

national average.

Unlike many other treatment regimens,

where patients continue where they left

off if aprescription is skipped,hepatitis C

is unique. If patients miss a refill in their

six-month regimen, they must restart

treatment from the beginning.

A patient who misses month five must

start back at month one and incur five

extra monthly prescription payments.

Non-adherence ismost commonfollowing

the first month of drug therapy when

patients become more aware of the high

cost of treatment. Therefore, the lowest

Non-adherence ismost common

following the firstmonth of drug therapywhen

patients becomemoreaware of the highcost of treatment.

Source: Commcare claims database

Figure 2 Costs for hepatitis C drug therapy

Therapy types Cost

Dual therapy $3,185

Triple therapy (Victrelis) $8,165

Triple therapy (Incivek) $21,581


cost for non-adherence would be if all 54

patients stopped taking their medication

at month two, then restarted at month

one and did not miss another month of

therapy. This would result in at least one

month of drug therapy wasted.

Figure 3 shows the costs associated with

one month of missed medication for 54

patients.

Programs that reduce medication non-

adherence, especially for chronic diseases

with high-cost drug therapies, are

particularly important in minimizing

unnecessary medical expense and waste

in thehealthcare system.Asdemonstrated

in Figure 3, $798,570 is the actual savings

through Commcare’s patient disease

management efforts – approximately

$15,000 per patient.

Astoundingly, this scenario is the most

conservative estimate of savings through

adherence. In reality, many of these

patients would be non-adherent for more

than one month or become non-adherent

later in the treatment regimen (and need

to retake several additional months of

therapy instead of one). It also ignores

inpatient hospital and outpatient costs

incurred due to non-adherence.

There are an estimated 32,960 people

currently being treated for hepatitis C

in the U.S.9 Considering the national

adherence average among hepatitis C

patients, 8,752 of the 32,960 would be

adherent. Expandedover thispopulation,

Commcare’s adherence rates, as compared

to the national average, would result in a

minimum savings of $130 million.

References

1. Cutler, DM and Everett, W. “Thinking outside the

pill box,”New England Journal of Medicine,

http://www.nejm.org/doi/full/10.1056/NEJMp1002305.

2. Ibid.

3. “In chronic disease, nationwide data show poor

adherence by patients to medication and by

physicians to guidelines,”Managed Care Magazine,

http://www.managedcaremag.com/archives/0802

/0802.peer_evidence.html.

4. Cutler, DM and Everett, W. “Thinking outside the

pill box,”New England Journal of Medicine,

http://www.nejm.org/doi/full/10.1056/NEJMp100

2305.

5. “Hepatitis C FAQs,”Centers for Disease Control

and Prevention,

http://www.cdc.gov/hepatitis/c/cfaq.htm#cFAQ21 .

6. “Economic Burden and Current Managed Care

Challenges Associated with Hepatitis C,”American

Journal of Managed Care,

http://www.ajmc.com/publications/supplement/2

012/ACE007_12dec_HepC/ACE007_12dec_Mathis_

S350to9.

7. Ibid.

8. “Economic Burden and Current Managed Care

Challenges Associated with Hepatitis C,”American

Journal of Managed Care,

http://www.ajmc.com/publications/supplement/2

012/ACE007_12dec_HepC/ACE007_12dec_Mathis_

S350to9.

9. “HCV admissions rise while HIV ones fall,”Med-

pagetoday.com,

http://www.medpagetoday.com/MeetingCover-

age/IDWeek/35475.

Figure 3 Cost associatedwith onemonth ofmissed therapy for 54 hepatitis C patients

Therapy types # of patients Cost per patient Total savings

16%ondual therapy 9 $3,185 $28,665

56%on triple therapy - Incivek 30 $21,581 $647,430

28%on triple therapy -Victrelis 15 $8,165 $122,475

Total cost for onemonth ofmissed drug therapy (n=54) $798,570

Figure 4Cost associatedwith onemonth ofmissed therapy for allhepatitis C patients currently receiving treatment

Therapy types # of patients Cost per patient Total savings

16%ondual therapy 1400 $3,185 $4,459,952

56%on triple therapy – Incivek 4904 $21,581 $105,833,224

28%on triple therapy -Victrelis 2448 $8,165 $19,987,920

Total cost for onemonthmissed drug therapy (n=8,752) $130,281,096

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AbstractThe following abstract, developed by the Premier

healthcare alliance, provides an overview of a study

analyzing trends in cost and utilization. The full article

is available to Premier health system members.


Resourceutilizationbestpractices:

DIAGNOSTICIMAGINGDiagnostic imaginghasexperiencedan85percent increase involumeover thepastdecade,1 particularly in

theuseofadvanced imagingprocedures. Therehasbeensomedebate in thehealthcare communityas to

whether suchsteepgrowth is justified.Major concerns stemfromthesafety implicationsof increasedpatient

radiationexposure.

Concernsabout thegrowth in imagingutilizationalsocomefromfindings that cite largegeographic

variations inuseacross theU.S.,withutilizationapproximately50percenthigher incertainareas,2 and

questionable clinical guidelines forvariousdiagnosticprocedures. Theseconcernsunderscore theneed for

morecomparative-effectiveness researchandclearlyworded, evidence-basedguidelines.

Todeterminepotential opportunities for improvementandcost savings, thePremierhealthcarealliance

examined imagingutilizationamongmemberhospitals. Theanalysis identifiedhospitalswith thehighest

average imaginguseandcomparedusage toabenchmarkgroup for likepatients.Ourbenchmarkgroupwas

comprisedof facilitieswithaverage imagingcostsper case in the lowest25percentofallhospitals in the

sampleand lower-than-expected inpatientmortality rates, aswell as lower-than-expectedaverage lengthof

stay. Thestudyresultsareavailable toPremierhealthsystemmembers.

Workingcollaborativelywithpractitionersand identifyingphysicianchampions is critical to successful

imagingmanagement. If opportunities forutilization improvementexist, collaborative resourceutilization

groupscan implementevidence-based imagingprotocols, provideeducationandclinicaldecisionsupport

tools to informpractitionersofprotocols in real time,monitorutilizationonanongoingbasis, andmeasure

impactof improvementefforts.

1. Parker, Laurence, Levin, DC, Frangos, A, and Vijay Rao. “Geographic Variation in the Utilization of Noninvasive Diagnostic Im-aging,” American Journal of Roentgenology (2010): 1034-1039. doi: 10.2214/AJR.09.3528.2. Ibid.


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SarahWatt is an economic analyst with

Wells Fargo Securities. Based in Charlotte,

NC, she covers theU.S.macro economy,

including the labormarket,manufacturing

sector and inflation trends. She regularly

writes indicator reports, produces special

commentary and contributes to the

company’sWeekly Economic&Financial

Commentary.

What is your estimate forGDP growth in the next12months?

The economy should growaround1.6

percent in 2013. This is notably lower than

the 2.2-percent pacewe expect to see once

wegetGDPdata for the fourth quarter.

Real GDP growth appears to have slowed

to a 1 percent rate during the final quarter

of 2012, as businesses spending paused

during the fiscal cliff negotiations.We

expect thisweaknesswill carry through

to the first part of the year,withweak

consumer spending early ondue to the

expiration of the payroll tax holiday and

increased tax rates onhigher income

earners. However, growth should pick

up as the year progresses,withGDP

increasing to a 2.4-percent pace by the

fourth quarter of 2013.

What impactwill health-carehaveonGDPgrowth?What other sectorswillhave the greatest impact

on growth in the next 12months?

Alotofthestrengthinhealthcarecanbeseen

in thesector’s employmentgrowth,andthat

E C O N O M I C SECONOMIC OUT LOOK

82 | ECONOMIC INSIGHTSPROPRIETARY AND CONFIDENTIAL. ©2011 by Premier Inc. All rights reserved.

44 | ECONOMICS©2013 by Premier Inc. All rights reserved.

1

2

Aconversationwith

SarahWatteconomic analyst,

Wells Fargo Securities


continues tooutpace theoverallmarket. The

Decemberpayroll datashowsthat the

healthcare industryaddednearly340,000

newjobs in2012,up fromaround300,000

in2011.Wesawthestrongestgrowth in

outpatient care,which rose6.1percent,

andhomehealthcare,whichcontinues to

increaseata ratehigher thanotherareasof

the industry. Forexample, employment

withinhospitalshas increasedonlyslightly

less than2percentover thepastyear.

Another area thatwillmove theneedle on

GDP is housing. Construction spending for

residential investmentwill increase 17

percent in 2013.We’re expecting housing

starts (the number of privately ownednew

houses onwhich constructionhas been

started) to increasemore than 25percent,

andwe’ll likely see increased resale activity

as prices rebound andmore traditional

buyers comeback into themarket. This

recovery in housingwill have a large ripple

effect throughout the broader economy,

especially on the retail sector and other

service industries linked to housing.

Onearea thatwillhaveanegative impacton

GDPisgovernmentspending,duetodelayed

spendingcuts in thedebt ceiling

negotiations.Mostof thisdragwill come

fromthe federalgovernment;we’veactually

seenstateand localgovernmentspending

stabilize. Later in2013,we’ll see local and

stategovernmentspendingactuallygive

abitofaboost toGDP,but thatwill be

outweighedbythe federal spendingcuts.

What dowe see going onwith the global economyin the next 12months?What effect will the

global economyhave on theU.S. in the next12months?

We think the global economy is going to

strengthen somewhat, but overall growth

will still beweak byhistoric standards. The

global economywill probably growabout

2.8 percent, compared to ahistoric average

of 3.6 percent. This is a slight improvement

overwhatwe saw in 2012, but it’s still

below trend.

China seems to have avoided ahard

landing. Export growthhas stabilized, the

pace of industrial production is pickingup,

and inflationhas comedown to about 2

percent fromapproximately 4 percent one

year ago. That’s allowed the authorities to

loosenmonetary policy a bit,whichhas

improved lending. It looks like theeconomy

will be a bit stronger this year,withGDP

increasing about 8 percent. However, the

return to double-digit GDP growthwill

remain elusive over the next fewyears as

China shifts froman investment-led

economy tomore balanced growth that

includes greater domestic consumption.

Another areawe’ll bewatching closely this

year isEurope.Thecontinent isstill struggling

with theeffects of the sovereigndebt crisis,

andit isnowinarecessionthatwillprobably

continue throughtheearlypartof thisyear.

Growth for2013asawholewill likelyeven

out toapproximately0.2percent.Overall,

weexpectverysluggishgrowth inEurope

thatwillweighoneconomicactivity in the

U.S. and theglobal economymore broadly.

3

Trade is themost direct link between the

global economyand theU.S. Since the

global economywill be growing at a faster

rate than theU.S. in 2013, theU.S. should

see net exports add toGDP.Historically

weak global growth, however,will keep

inflation tameas youwon’t see outsized

demand for commodities.

What changes do youexpect to see over thenext 12months in theU.S.unemployment rate?

Weexpect the employment rate to stay

essentially flat over the next 12months.

WeakGDPgrowthwon’t create the

demandneeded to bring down theunem-

ployment rate in ameaningfulway.When

looking at unemployment, the labor force

participation rate is really thewild card.

Typically in a recession, the labor force

participation rate declines asworkers get

discouraged or go back to school, only to

increase againwhen the economy starts

to recover and job prospects improve.We

really haven’t seen that yet in this cycle.

Someof that is due to demographic trends,

such as the babyboomers reaching retire-

mentage, butwe’re also seeingadecline in

“primeageworkers,”peoplebetweenthe

agesof25and54. It’s reallyanyone’sguess

as tohowmanyof thosepeople comeback

into theworkforceas theeconomystrength-

ens.We sawboth the unemployment rate

and the labor participation rate decline 0.7

percentage points fromDecember 2011 to

December 2012, indicating that there is a

direct link between the two.

Can you describe overallinflation projections forthe next 12months in theU.S. economyandwhat

thismaymean for healthcare?

Overall, the trend for inflation over the

next year is going to be tame.We’re

looking at top-line inflation to rise

approximately 1.8 percent, and core

inflation,which excludes themore volatile

components of food and energy, to also

increase 1.8 percent. Inflation is at a

comfortable point formonetary policy

and the economymore broadly.

The reasonwe’re still having such tame

inflation right now isweak domestic

demand– as evidenced by our expectation

for a year of sub-2 percentGDPgrowth.

Even thoughunemployment has come

down, it’s still elevated abovewhat

economists consider the natural rate of

unemployment,which is between5.5 and

6percent. Because there is such ahigh

degree of labormarket slack, there is still

not thatmuchpressure onprices. Also,

global demand isweak,whichwill help to

keepprice growth lowhere in theU.S.

Therewill be someareas of upward

pressure. For instance,we’re still seeing

somepressure on foodprices from the

drought this summer. Also, alongwith the

housing recovery,we’re seeing increases in

rental prices. Homeownership is still very

affordable, butwe are seeing rental rates

in themulti-family and apartment

markets increasing, and that heavily

impacts the rate of inflation, since shelter

costs account for 30 percent of CPI.

Medical inflationhas followed adifferent

trend.Historically,medical care inflation

has outpaced broader inflation, and that

should continue asmedical care ismuch

less price-sensitive than other goods. The

agingpopulationwill only increasedemand

formedical care, andwith increased

demandyou get increased price pressures.

However,we should see the trend in

cost increases stabilize this year, as a lot

of healthcare companies are closely

managing their expenses ahead of

changes surrounding reimbursement rates

and coverage rules due to theAffordable

CareAct. This should help keepmedical

costs from really soaring in 2013.

4

5


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What are yourexpectations forcommodity prices in thenext 12months?

It’s likelywe’ll see onlymoderate growth in

commodityprices since theglobal economy

still isn’t firing on all cylinders. Thiswill

keep demandon commodities from rising

too rapidly, as there is stillweakness in

Europeandsubstandardgrowthhereand

inChina.Of coursewith commodities,

prices arealwaysprone toevent risks like

wesawwith thedrought thispast summer.

Wecould seepricepressurespopupdue to

unforeseenevents.

Oil prices are notoriously difficult to fore-

cast, but they’ll gradually rise this year as

theU.S. and global economies improve.

That assumesnomajor geopolitical issues

arise thatwould increase risk for oil prices.

What is the impact of theAffordable Care Act (ACA)on thehealthcare industryin the next 12months?

The election confirmed that theACAwas

going tomove forward, so really, 2014will

be the big year for theAffordable CareAct.

Because there are somanynew regula-

tions that need to be implemented, 2013

will be about preparing for those changes.

Therewill be a lot of pressure on insurance

providers to look at costs, givennew rules

regarding coverage and reimbursement.

What is the expectedimpact of ACA initiatives(e.g., ACOs) on hospitalprofitability in the next12months?

Profitability isgoingtoremaincompressed

ashospitalsprepare for thenewregulations.

Dependingonwhathappenswiththedebt

dealandhowreimbursementstomedicalcare

providersarestructured,there’sagoodchance

thatprofitswillbesqueezed.However,hospi-

talshavemadeaconcertedeffort tocontrol

costs,whichwill softentheblow.Thegood

news is thatutilization ratesare stabilizing.

Growthmaystillbe limitedasoutpatient

caregainsmomentumandemployer-

sponsoredhealthplansmovetocost-sharing

programsthat increase transparencyabout

whatprocedures reallycost.Thatcould lead

toadecrease inelectiveprocedures.

7

6 8

ECONOMIC AND SUPPLY CHAIN TRENDSIMPACTING OUR MEMBERS

NUMBERSBEHIND THE


Premier distributed an online survey to

approximately 9,000member health

system leaders nationwide to solicit their

perspectives on thehealthcare supply

chain – in particular, the impact of

economic and industry trends. The

survey (n=535) provided awealth of

data on the key objectives of the Premier

healthcare alliance.

Forecast growth inoutpatientadmissions

With the shift toward populationhealth

management and accountable care, health

systems are focusing on integrating the

care continuum, including outpatient,

rehabilitative, andhome care. Improving

the continuity of carewill help health

systems reach readmission goals as part

of theAffordable CareAct.

As a result of a greater focus onnon-acute

care and changes inMedicare inpatient

and outpatient designations,1 69 percent

of respondents anticipate an increase

in outpatient admissions in 2013,

compared to the prior year. At the same

time, 53 percent expect an outpatient

increase of up to 5 percent, and 16percent

anticipate an admissions increase of

more than 5percent. Only 7 percent of

respondents forecast a decrease in

outpatients (see Figure 1).

Three-quarters of respondents expect their

inpatient admissions to remain static or

increase in 2013, a finding that is similar to

fall 2012 predictions.

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100.0%

80.0%

60.0%

40.0%

20.0%

Decrease bymore than 5%

0.0%

Source: Premier online survey for EconomicOutlook Spring 2013 publication

Figure 1 Inpatient and outpatient admissions forecasts

3.1% 1.3%

Decrease byup to 5%

20.6% 6.0%

Increase byup to 5%

26.6%

Increase bymore than 5%

8.3% 15.8%

� Inpatient � Outpatient

52.7%

No change

41.4%24.2%



Figure 3 Top two drivers of healthcare costs

Drivers of healthcare costs Spring 2013 Fall 2012 Spring 2012

Healthcare legislation andmandates 48% 45% 51%

Overutilization of products and services 29% 33% 23%

Labor costs 23% 19% 21%

Misalignment of quality andpayment incentives 22% 20% 17%

Lack of clinical coordination of care 22% 20% 17%

Patient demand for healthcare services 19% 22% 17%

Health information technology 15% n/a n/a

Pharmaceuticals 12% 14% 18%

Newclinical technology/equipment 6% 8% 11%

Medical devices 5% 5% 9%


Drivers of healthcare costsFigure 2

� Healthcare legislation andmandates

� Overutilization of products and services

� Labor costs

� Lack of clinical coordination of care

� Misalignment of quality and payment incentives

� Health information technology

� Patient demand for healthcare services

� Pharmaceuticals

� Medical devices

� New clinical technology/equipment

33%

12%

13%

11%

8%

7%

6%

5%3%

2%

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Regulation andoverutilization remainbiggest

drivers of healthcare costs

Legislation is the largest driver of respondents’

healthcare costs. One-third cite healthcare

legislation as the top driver (see Figure 2), and

nearly half report that it is one of the top two (see

Figure 3). In the face of reimbursement cuts and

other financial impacts of healthcare reform,

hospital executives are engaging in various

initiatives to improve quality of carewhile

reducing systemcosts andwaste. (See related

“Perspectives”article in this issue.)

In the samevein, and similar to responses in fall

and spring 2012, 13 percent of respondents cite

overutilizationofproductsandservicesas thesec-

ondbiggest costdriver, followedby laborexpenses.

Themajor shifts in responses for this question

since last year include (see Figure 3):

• Fewer respondents believe pharmaceuticals are

amainhealthcare cost driver than in the 2012

surveys;

• Labor costswere ranked as one of the top three

cost drivers in both spring 2012 and2013 but not

in fall 2012; and

•More respondents believemisalignment of

quality andpayment incentives is amain cost

driver than in 2012.

Capital budgets and investments

Capital budgets are increasing for 40 percent of

2013 survey respondents (see Figure 4). The

percentage of respondentswith increasing or

stable capital budgets is relatively unchanged

from this time last year (65 percent in spring

2012, compared to 63 percent in spring 2013).

25.0%

30.0%

20.0%

15.0%

10.0%

5.0%

0.0%

� Fall 2011 � Spring 2012 � Fall 2012 � Spring 2013

Increased by30%ormore


Figure 4 Change in capital budgets

Increased10% to 29%

Increased1% to 9%

No change Decreased1% to 9%

Decreased10% to 29%

Decreased by30%ormore


Capital investment areas remained flat

over the past 18months,with 43 percent

of budgets dedicated to IT and telecommu-

nications –most notably in the area of

electronic health records (EHRs) and other

integrated technologies (see Figure 5). In

moving towardmeaningful use criteria,

health systems are investing in IT first,

followedby infrastructure.

Supply chain to target cost-savings goals

and cost-reduction opportunities

Tomeet the demands of the current

healthcare environment, 27 percent of

respondents’organizations are dedicating

resources to EHR-specific IT investments

for supply chain improvement (see

Figure 6).

Product standardization is considered by

37percent of respondents to be among the

top twoareas of resource dedication for

supply chain improvement,while building

relationshipswith physicians and

clinicians is a key area of concern for

27 percent of respondents.

An organization’s cost-savings goals

appear to be a growing factor, as 35


Figure 6 Areas of resource dedication for supply chain improvement

Area of resource dedication Ranked first Ranked second Spring 2013 Fall 2012

Product standardization 18.0% 18.8% 36.8% 32.7%

IT investment – EHR-specific 26.6% 8.9% 35.5% 31.4%

Building relationshipswith physicians 10.3% 16.6% 26.9% 27.3%

Reducing costs for physician preference items 12.1% 12.6% 24.7% 27.2%

Value analysis 8.8% 13.5% 22.3% 27.2%

Reducing costs for commodity products 6.8% 8.9% 15.7% 12.4%

Data standardization 5.1% 8.2% 13.3% 11.6%

IT investment –non-EHR-specific 5.7% 4.4% 10.1% 12.0%

Integrating supply chain and revenue cycle systems 4.0% 5.3% 9.3% 11.6%

Automation 2.6% 2.7% 5.3% 6.6%

TOPTWOAREAS

Figure 5 Area of capital investment spend


Laboratory equipment

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Other

Other clinical equipment

Surgical suites/equipment

Imaging equipment

Infrastructure

IT and telecommunications

� Spring 2013 � Fall 2012 � Spring 2012 � Fall 2011


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percent of respondents list it as having the

greatest impact on their supply chains,

compared to 28 percent in fall 2012 (see

Figure 7). Extending the supply chain

across the continuumof care – for

instance, through centralized purchasing –

has the greatest impact for 15 percent of

respondents’ supply chains.

The supply chain serves an important role

in building efficiencies and reducing costs

for improved quality and integrated care.

Nearly half of respondents (49 percent)

believe that physician andhealth system

engagement surrounding evidence-based

decisionmaking is the greatest healthcare

trend impacting their supply chains,

followed closely by a similar trend toward

improvedutilizationmanagement

(see Figure 8).



Figure 8 Healthcare landscape trends with greatest impact on organization

Healthcare landscape trends Spring 2013 Fall 2012

Increased physician-health systemengagement 48.7% 53.9%

Focus onutilizationmanagement 44.2% 37.8%

Involvement in value analysis process 28.3% 30.3%

Movement for supply chain integration across health system 22.6% 19.5%

Populationhealthmanagement and coordination across continuumof care 18.6% 14.8%

Consideration of newsupply chainmetrics to reflect impact to care process 17.4% 13.4%

Consideration of supply chain contribution to patient-centeredhealthcare 8.9% 14.5%

Location andproduct identification standardization 6.8% 9.2%

TOPTWOAREAS

Figure 7 Factors with the greatest impact on supply chain

Comparative effectiveness data

0% 5% 10% 15% 20% 25% 30% 35% 40%

Other

Commodity prices

Healthcare information technology

Medical device prices

Drug shortages

Value analysis process

Integrating the supply chain acrossthe continuum of care

Cost savings goals of the health system

� Fall 2012 � Spring 2013


About the survey

Inwinter 2012-2013, Premier, in collabora-

tionwithCustomerCareMeasurementand

Consulting LLC, commissionedanonline

survey of nearly 9,000healthcare leaders

across ourmembership, representing both

acute andnon-acute care. The survey re-

spondents (n=535) included a cross-section

ofmembers across geographical area and

organizational size and type. The survey

collected data onmembers’perspectives

on thehealthcare supply chain,with a

particular focus on related financial and

economic industry trends.

Approximately 85 percent of respondents

represented acute care providers. Nearly

one-third of respondents (30 percent)were

C-suite; 26 percentwere service-line or

practice-areamanagers/directors; and 20

percentwere supply chain ormaterials’

managers. Urban and rural areaswere

equally represented. An overviewof the

respondent profile is below.

Reference1. “RACTarget: Inpatient vs. OutpatientDesignation,”RACMonitor, http://www.racmoni-tor.com/news/3-feature-aritcles/137-rac-target-in-patient-vs-outpatient-designation.

C-Suite Service line orpractice areamanager/director

Supply chainormaterialsmanagement

Officeadministrator/manager

Clinician Finance and/or accounting

Qualityimprovement

Physician Other

Figure 9 Organizational role of survey respondents

29.3%

26.2%

20.3%

8.4%

5.4%

2.9%

2.1%

0.4%

5%

Multi-hospitalsystem/IDN

Largehospital

(500 + beds)

Midsizedhospital

(between 200&500 beds)

Smallhospital(less than200 beds)

Criticalaccesshospital

Academicmedicalcenter

Multi-specialtygrouppractice

Surgerycenter

Senior-livingfacility

Figure 10 Respondents by organization type

30%

14%

27%

17%

17%

8% 8% 7% 7%

Single-specialtygrouppractice

2%

Physician-ownedspecialtyhospital

1%

Other

4%


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Operatingmargins for acute-care hospitals

have improved since 2007 and2008,when

they stood at less than 1percent.Median

operatingmargin increased 300percent

from2007 to 2011 but decreased 31

percent in the first three quarters of 2012,

compared to 2011.

Hospitals inthefirstquartile (top25percent)

have seen significant improvement in

operatingmargin, rising from5.8 percent

in 2008 to 8.6 percent in 2011.However,

they sawa significant decrease in

operatingmargin, to 7.1 percent, in the

first three quarters of 2012. Though the

gapbetween themedian and the first

quartile expanded from2008 to 2011

(reaching 6.5 percent in 2011), the first-

quartilemargins appear to have beenhit

harder in 2012, bringing the gapbetween

the two to 5.7 percent last year.

AN UPDATE ON

hospitalperformance

metrics

AN UPDATE ON

hospitalperformance

metrics

Figure 1 Operating margin of acute care hospitals, 2008-2012 (Q3)

9.0%

8.0%

7.0%

6.0%

5.0%

4.0%

3.0%

2.0%

1.0%

0.0%

� Average � Median � 1st quartile

2008 2009 2010 2011 2012

Source: A database maintained by the Premier healthcare alliance


Profit per acute beds in service has

returned to 2009-2010 levels for the first

quartile, after seeing anearly $30,000

increase in 2011 compared to 2010.

Similarly, themedian sawa17percent

decrease in profit per acute bed in the

first three quarters of 2012, compared to

2010-2011 levels. Regardless, the first

quartile still largely outperformsboth the

median and the average.

Premier’smember survey showed that

35 percent ofmember health systems

expect an increase in inpatient admis-

sions in 2013, compared to 2012,while

68 percent of respondents expect an in-

crease in outpatient admissions (see

“Behind theNumbers”article in this

edition). The decline in inpatient revenue

persists as a percent of overall patient

revenue, decreasing from60percent in

2008 to 54 percent in 2012. Asmore care

shifts to the outpatient setting,wewill

continue to see declines in inpatient

revenue as a percent of gross patient

revenue. Declines of approximately 5

percent have been seen in themedian

and first-quartile groups since 2007,

though themedian inpatient revenue

has remained static as a percent of gross

patient revenue since 2010.

$200,000

$180,000

$160,000

$140,000

$120,000

$100,000

$80,000

$60,000

$40,000

$20,000

$0


2008


Figure 2 Profit and loss per acute beds in service, 2008-2012 (Q3)

2009 2010 2011 2012

Figure 3 Inpatient gross patient revenue as a percent of gross patient revenue, 2008-2012 (Q3)

51.0%

52.0%

53.0%

54.0%

55.0%

56.0%

57.0%

58.0%

59.0%

60.0%

61.0%


2008 2009 2010 2011 2012



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Baddebt expense has grown in 2012 for

the average,while decreasing slightly for

themedian andmore significantly, for the

first quartile. Following the first three

quarters of 2012, the first quartile’s bad

debt sits at its lowest point in five years.

Total operating expense for themedian

and average remained relatively constant

in the first three quarters of 2012,

compared to 2011 and2010 levels. Though

the first quartile saw the greatest increase

in total operating expense as a percent of

net patient revenue (NPR) in 2012, a 10

percent gap remains between the first

quartile andboth themedian and average.

Note: Data shown for 2012 does not

includeQ4. Someadjustmentsmaybe

made inQ4 thatwill alter the overall

yearly numbers. Updatednumbers

will be in the fall 2013 edition of the

EconomicOutlook.

RichWestbay, programmanager,

SupplyFocus®, Premier healthcare alliance,

contributed to this article.

Figure 4 Bad debt expense as a percent of net patient revenue, 2008-2012 (Q3)

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%


2008 2009 2010 2011 2012


Figure 5 Total operating expense as a percent of net patient revenue, 2008-2012 (Q3)

80.0%

82.0%

84.0%

86.0%

88.0%

90.0%

92.0%

94.0%

96.0%

98.0%

100.0%


2008 2009 2010 2011 2012



Thesemetrics are based on a sample of 332healthcare facilities that have submitted three

years of inpatient and outpatient data to a databasemaintained by the Premier healthcare

alliance. In order to include data from2012, yearly data is shown in fiscal years (July to

June) rather than calendar years.

The sample is representative of a cross-section of ourmembership that includes variation in

geographic area and organizational size and type. This report identifies year-over-year (YOY)

percentage changes in historical volumes for key data elements, such as inpatient and

outpatient increases, surgery growth, andpayormix from July to June 2011 (FY2011) to the

sameperiod in 2012 (FY2012).

Figure 1 FY2012 quarterly trends

Source: A databasemaintained by the Premier healthcare alliance

Notes: Quarterly numbers show thepercent change from the samequarter in the previousfiscal year. Annual totals represent the percent change overall in FY2012 compared to FY2011.

Y/YGrowth Q3 2011 Q4 2011 Q1 2012 Q2 2012 FY2012

Inpatient

Outpatient

Total discharges

Inpatient surgeries

Outpatient surgeries

Births

Medicare discharges

Medicaid discharges

Self-pay discharges

Managed care and otherpayor discharges

1.93%

2.94%

2.40%

2.54%

0.54%

1.36%

4.27%

0.07%

0.25%

2.68%

3.45%

2.50%

1.86%

3.86%

1.57%

2.88%

3.57%

0.05%

0.51%

1.71%

1.40%

3.63%

3.07%

1.45%

1.35%

1.09%

5.86%

0.29%

1.17%

2.79%

2.29%

3.25%

2.62%

3.21%

0.88%

2.79%

4.17%

0.17%

0.81%

3.47%

0.61%

2.39%

2.06%

1.63%

0.96%

1.19%

3.51%

0.09%

1.82%

2.76%

PREMIER’SPATIENTVOLUMETRENDS


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• Inpatient volumes decreased 1.9 percent in FY2012 compared to FY2011.

• Outpatient volumes for FY2012 increased 2.9 percent compared to FY2011.

• Inpatient surgeries decreased 2.5 percent fromFY2011.

• Outpatient surgery volumes decreased 0.5 percent in FY2012 compared to FY2011,whichwas upa slight 0.3 percent YOY fromFY2010.

• Payormix:Medicare andmanaged care volumes increased in FY2012.Medicare volumewas up4.3 percent for FY2012, compared to FY2011;managed care and other payor volume sawa2.7 percent increase over FY2011. Medicaid dischargeswere nearly flat, at 0.1 percent higher thanFY2011,while self-pay discharges decreased 0.3 percent over FY2011.

OF NOTE:


Discharge trends

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

� Total discharges � Inpatient discharges � Outpatient discharges

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q22010 2010 2011 2011 2011 2011 2012 2012

Y/Ypercentchange

Discharges by payor type

� Medicare discharges � Medicaid discharges � Self-pay discharges � Managed care and other payor discharges

Y/Ypercentchange



-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q22010 2010 2011 2011 2011 2011 2012 2012


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Y/Ypercentchange

Surgery and emergency department visits

� Inpatient surgeries � Outpatient surgeries � ED visits

Y/Ypercentchange

Average length of stay

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

� Y/Y percent change � Average length of stay (days)

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q22010 2010 2011 2011 2011 2011 2012 2012

3.56

3.54

3.52

3.72

3.50

3.48

3.46

3.44

3.42

3.40

3.38

Note: Average length of stay includes only inpatient data; outliers have been excluded.Source: A databasemaintained by the Premier healthcare alliance


-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q22010 2010 2011 2011 2011 2011 2012 2012


Whatprice indexes areimportant in thehealthcareindustry?

Industry stakeholders – including suppliers,

healthcare systems, and theCenters for

Medicare&Medicaid Services (CMS) – use

three key price indicatorswhen examining

inflationary pressures in themarketplace:

•The consumer price index (CPI),

•The producer price index (PPI), and

•TheCMSmarketbaskets.

CPI and PPImeasure the average change

over time in the prices of fixed goods and

services. The CPI is primarily used to

compare ahousehold’s cost for a specific

basket of finished goods and serviceswith

the cost of the samebasket during an

earlier benchmark period. Theweight

given to each basket item is fixed.

ThePPIusesa similarbenchmarkapproach,

but itmeasures price changes reported by

establishments at thewholesale, rather

than the retail, level.While both indexes

measure inflation, they differ in the goods

and services eligible for inclusion.1

Economic indicators that aremore specific

to the healthcare industry are CMS

marketbaskets,whichmeasure howmuch

more or less itwould cost at a later time to

buy the samemix of goods and services

purchased during a base period. These

indicators reflect price inflation facing

medical services providers.

Each index is summarizedhere and is

accompanied by recent relevant data that

provide additional budgeting resources.

Consumer price index

TheCPImeasures price change from the

consumer’s perspective and includes goods

and services purchased for personal

consumption byurbanU.S. households.

While there aremany categorieswithin

the CPI, the twomost commonly used for

healthcare are the CPI for all urban

consumers (CPI-U) and the CPI formedical

care.Medical care is one of eightmajor CPI

categories, and it has two classifications,

commodities and services,with each

containing several itemcategories (strata).2

The CPI-Uwasunchanged before seasonal

adjustment fromNovember 2012 to

December 2012,while the all-items’ index

increased 1.7 percent before seasonal

adjustment for the 12months from

December 2011 toDecember 2012.

Medical care CPI sawanoverall unadjusted

3.2 percent increase fromDecember 2011

toDecember 2012, but therewasno

change fromNovember 2012 toDecember

2012. The categories ofmedical care

commodities andmedical care services

increased 1.7 percent and 3.7 percent,

respectively, inDecember 2012 compared

to 2011.3

Producer price index

In contrast to CPI, the PPImeasures price

change from the perspective of the seller

and includes the entiremarket output of

U.S. producers. Since PPI captures price

movement prior to the retail level, itmay

foreshadowsubsequent price changes for

business and consumers.4

The PPI for finished goods,which is the

most commonly usedmeasure of PPI, rose

1.3 percent, on anunadjusted basis, for the

12months that endedDecember 2012.5

The 12-month change fromDecember

2011 toDecember 2012 for the net output

of selected industries is:

•Pharmaceutical andmedicine

manufacturing, 5.1 percent;

•Medical equipment and supplies

manufacturing, 1.2 percent; and

•Surgical andmedical instrument

manufacturing, 0.2 percent.6

Additional information is available from

theBureau of Labor Statistics at

www.bls.gov/CPI andwww.bls.gov/PPI.

CMSmarketbaskets

TheCMSmarketbaskets update payments

Premier’sguidetoeconomic indicatorsPrice indexes: CPI, PPI andCMSmarketbaskets

and cost limits inmultiple CMSpayment

systems,while individualmarketbaskets

provide amore accuratemeasure of their

own inflation indexes. The:

•Prospective Payment System (PPS) hospital

marketbasket updates inpatient hospitals’

operating andoutpatient PPSpayments as

well as cost limits for children’s hospitals,

cancer hospitals, and religious, non-

medical healthcare institutions.

•Skilled nursing facilitymarketbasket up-

dates payments to skilled nursing facilities.

•Homehealth agencymarketbasket

updates homehealth PPS payments.

•PPShospital capitalmarketbasket updates

inpatient hospitals’capital PPSpayments.

•RPLmarketbasket updates inpatient-

rehabilitation, psychiatric, and long-term

care PPS payments.

•Medicare economic index is usedwith the

sustainable-growth rate to update the

physician fee schedule.7

Themarketbaskets are constructed from

mutually exclusive spending categories,

whichuse data collected fromhospitals’

Medicare cost reports and corresponding

price indexes. The overall hospital price

index is the sumof each category’s product

weight and relevant price index. The price

indexes, or proxies,which are used to

calculate themarketbasket, include data

from theBureau of Labor Statistics (most

commonly the producer price indexes).

Themarketbasket levels andpercentage

changes are updated quarterly,with each

new forecast containing an additional

quarter of historical data.8 CMSprojects

payment updates for the coming fiscal

year using amarketbasket containing the

latest available data at the time the final

regulation is published. This is based on

the CMS fiscal year running fromOctober

to September. Once this update has been

determined, it is generally not revised to

includemore recentdata.However, because

marketbasket data is updated quarterly,

the currentmarketbasketmaybe different,

depending on the variances in the forecast

data anddata currently available.9

Themarketbasket of interest tomost hos-

pitals is the Inpatient Prospective Payment

System (IPPS),which should closely ap-

proximate ahospital’s projected change in

Medicare revenue. In FY2012, CMSrevised

its estimatedmarketbasketupdate forhos-

pitals that report qualitydata to3percent.

OnAugust1, 2012, CMSreleased its final

rule for FY2013, stating that inpatientpay-

ments in theaggregatewill increase2.3

percent to reflect amarketbasketupdate

of 2.6percent.10 Thekey cost category in

the index is compensationexpense,which

includes laborandbenefits and isweighted

at 60 percent. The index also includes

major purchasing categories, such as food,

pharmaceuticals, blood, and equipment.

Additional information is available fromthe

Centers forMedicare&Medicaid Services at

www.cms.gov/MedicareProgram-

RatesStats/05_MarketBasketResearch.asp.

References1. “PPI programspotlight,”Bureau of Labor Sta-tistics,www.bls.gov/ppi/ppivcpi.pdf.2. “Measuring price change formedical care inthe CPI,”Bureau of Labor Statistics,www.bls.gov/cpi/cpifact4.htm.3. “Consumer Price Index –December 2012,”Bu-reau of Labor Statistics,http:/bls.gov/cpi/cpid1212.pdf.4. “Producer Price Indexes: programoverview,”Bureau of Labor Statistics,www.bls.gov/ppi/ppi-over.htm#Link6.5. “Producer Price Index –December 2012,”Bu-reau of Labor Statistics,http://www.bls.gov/news.release/pdf/ppi.pdf.6. “Producer Prices Indexes output of selected in-dustries and their products,”Bureau of LaborStatistics,http://www.bls.gov/web/ppi/ppitable05.pdf.7. “Medicare program rates and statistics,”Cen-ters forMedicare andMedicaid Services,www.cms.gov/MedicareProgramRatesStats/05_MarketBasketResearch.asp.8. Centers forMedicare andMedicaid Services,http://www.cms.gov/MedicareProgramRatesStats/downloads/mktbskt-pps-hospital-2006.pdf.9. Ibid.10. “FY2013 IPPS Final Rule includes 2.3 percenthospitalpaymentupdate,”AssociationofAmericanMedicalColleges,https://www.aamc.org/advocacy/washhigh/highlights2012/300648/fy2013ippsfinalruleincludes2.3percenthospital-paymentupdate.html.

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CPI-U, Medical care CPI, and IPPS marketbasket rates (2005-2012)

5.0%

Annualpercentchange

4.0%

3.0%

2.0%

1.0%

0.0%

-1.0%

� CPI-U Medical care CPI �Medicare marketbasket - inpatient hospital

2005 2006 2007 2008 2009 2010 2011 2012 2013

��

� ��

��

��

�

�

�

�

�

�

��

Note: Rates are current as of February 2013.

Premier’s Medical-SurgicalInflationary Calculator

A resource for proactivelymanagingmedical-surgical supply spend

TheMedical-Surgical Inflationary Calculator

is a quick and easy-to-use resource designed

to helpmembers estimate Premiermedical-

surgical supply spend. The calculator:

> Compares Premier’s contractual price

protection and suppliers’price inflation

estimates to deliver a detailed estimate of

projected supply costs;

> Prepopulates the spendprofile fromone

SpendAdvisor® report and enables users to

manually adjust for anticipated spend;

> Compensates for off-contract spendwith

an optional SpendAdvisor report;

> Alertsmembers to contract categories that

will be renegotiated in the current year;

> Provides aggregate inflation estimates by

line of business; and

> Analyzes spendby individual facilityor IDN.

The calculator can be found through Pre-

mier’s Supply ChainAdvisor® site. Formore

information about theMedical-Surgical Infla-

tionary Calculator, please contact the Premier

SolutionCenter at solutioncenter@premier-

inc.com.

Premier’s Drug Budget Tool

A resource for proactive drugexpensemanagement

TheDrugBudget Tool prepopulates profiles

for analysis and enables users to evaluate

their drug purchases. The tool:

> Analyzes 92 percent of annual drug

purchases;

> Examines entire systems andmultiple

hospitals in a single SpendAdvisor report;

and

> Automatically fills in all of the application’s

analytic cells.

To learnmore about theDrugBudget Tool,

pleasecontact JerryFrazier, directorofPremier’s

Center for Evidence-based Pharmacy Practice,

at [email protected].

Premier’s Supply Mix Index™

Amethodology for calculatingsupply cost indexes for eachMedicare Severity - Diagnosis-Related Group (MS-DRG).

The SupplyMix Indexmethodology,which

combines clinical and supply cost data from

more than370hospitals, is designed to:

> Enable the calculation of a hospital’s Supply

Mix Index based on theuniquemix of

services provided to patients. The Supply

Mix Index can also be calculated across

systems,within service lines, and at other

levelswithin a system.

> Be statistically sound. TheMS-DRGSupply

Mix Indexweights are calculated using

more than 4.4million patient-level records

fromPremier’s QualityAdvisor™database.

> Demonstrate amore direct correlation to

supply expense-per-patient case thandoes

the CaseMix Index. Premier’s SupplyMix

Index focuses on the supply costwithin a

case,while theCaseMix Index incorporates

other significant, non-supply-related

expenses.

> Allow for cross-hospital comparisons of

supply efficiency and intensity.

Premier’s newmethodologywill initially be

used in the executive-level reporting

application of SupplyFocus®used by acute

care facilities. SupplyFocus is also included

withOperationsAdvisor®, Premier’s labor

productivity andbenchmarking product.

To learnmore about Premier’s SupplyMix

Index, please contactMarkHiller, vice

president of innovative solutions, at

[email protected], or Richard

Westbay, programmanager, SupplyFocus, at

[email protected].

Premier supply chain solutions



Alternate Site Healthcare

Cardiovascular Services

Clinical Laboratory Services

Facilities

Foodservice

Imaging

IT / Telecommunications

MaterialsManagement

Nursing

Pharmacy *

Surgical Services

Women and Children's

Not applicable

*Pharmacy data derived fromPremier's Drug Budget Development ToolEstimated inflationary changes are subject to change.

Range of supplier inflation estimates:

This figure shows the range of supplier-

reported inflation estimates for products

within a service line. The range does not

take into account Premier contract price

protection or utilization data.

Average of supplier inflation estimates:

The supplier’s estimate of the average

percent increase is based on a true

average.

Projected Premier contract inflation

estimates are calculated as follows:

Pharmacy–Projectionsarederived from

thePremierDrugBudgetDevelopmentTool.

All others (except Foodservice) –

Projections reflect the expectedweighted

average percent change in contract pricing

for the existing contract portfolio as of

February 1, 2013.

0.57%

0.02%

1.01%

1.74%

3.50%

1.16%

0.07%

1.27%

0.97%

3.94%

1.14%

0.28%

3.09%

2.05%

2.48%

4.01%

3.80%

2.84%

4.36%

4.21%

4.56%

Not applicable

3.55%

0.52%

5.0%

5.0%

7.0%

15.0%

9.0%

15.0%

5.0%

15.0%

15.0%

12.%

8.0%

0% -

0% -

0% -

0% -

3.0% -

0% -

0% -

0% -

0% -

0% -

0% -

Inflationsummary

Service line Range of inflationestimates

Average of inflationestimates

Projected Premiercontract inflationestimates

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SECONOMIC

OUTLOOK

The InternationalMonetary Fund (IMF)projected a slight increase in globalgrowth, froman estimated 3.2 percent in2012 to 3.5 percent this year.1 Emergingmarketswill play a critical role,with China,India, andBrazil expected to contribute 50percent of global economic growth in2013,compared to approximately 25 percentprior to the financial crisis.2 TheU.S.,though itwill return to near-record levelsin 2013,will contribute only 10 percent toglobal growth this year. The Eurozone isunlikely to contribute at all.3

Global economic uncertaintywill likelyrestrain increases in commodity prices in2013. The sovereign debt crisis and otherEurozoneweaknesses, alongwithsubstandard growth in theU.S. andChina,will keep prices from rising too rapidly.4

Economists predict theU.S. gross domesticproduct (GDP)will increase by about 2percent in 2013, though the fourth quarterof 2012 sawanunexpected 0.1 percentannualized contraction, primarily due to acontinueddecline ingovernmentspendingandtheeffectsofHurricaneSandy.5Becauseof this, the Federal Reserve extended thethird round of quantitative easing – anapproximate $85 billion permonthbond-buying program– to keep interest rateslowand encourage consumer spending.6

As consumer spending grows, demand forcommodities typically increases aswell,resulting in higher commodity prices.

As an example, copper ended themonth ofJanuarywith anear four-monthhigh duetostrongerU.S. economicdata.U.S. jobgainsin the latter half of 2012 and entering 2013have drivenupdemand for copper andother goods. Copper typically sees anincrease in demandas unemploymentdecreases, since employed consumers tendto spendmore on goods containing copper,such as cell phones and laptops.7

U.S. gasolineandcrudeoil prices areexpected to flatten in2013and2014, asgrowth in consumption is offset byincreasingglobal supply. Plastic resinpricesoftenalignwithpetrochemical prices, sincetheyarederived fromcrudeoil andnaturalgas. Becauseof this, flatteninggasandoilprices should result in flat ordecreasedplastic resincosts. Thoughsynthetic rubbersarealsoderivedfromoil, competitionfor rawmaterials fromthegrowingautomotivemanufacturing industry coulddriveupnatural and synthetic rubberprices.8

Cottonprices continued to decline at theend of 2012. China began selling from itsreserves in January,which could lead todrastically lower cotton demand. As cottonprices drop,many farmers have switchedto other,more lucrative crops. A potentialdecrease in the cottonharvest could drivecottonprices back up, as could sustainedstockpiling fromChina.9

Aquick lookat the last five years

Commodity prices have decreased a slight0.6 percent since January 2012,whileremaining 3.2 percent above 2009prices.However, prices are 5.9 percent lower thantheywere in July 2008,when the ThomsonReuters/Jefferies CRB Indexhit its currentfive-year high of 473.

References1. “Recovery shows a soft spot,”Wall Street Journal,http://online.wsj.com/article/SB10001424127887324156204578273611039517142.html?mod=WSJ_economy_LeftTopHighlights.2. “Global EconomyWatch – January 2013,”Price-waterhouseCoopers,www.pwc.com/.../publica-tions/assets/global_economy_watch_jan_2013.pdf.3. Ibid.4. SarahWatt,Wells Fargo Securities interviewwithauthor, January 7, 2013.5. “GDPunexpectedly shrinks, decline seen tempo-rary,” Reuters.com, http://www.reuters.com/arti-cle/2013/01/30/us-usa-economy-idUSBRE90T07520130130.6. “Recovery shows a soft spot,”Wall Street Journal,http://online.wsj.com/article/SB10001424127887324156204578273611039517142.html?mod=WSJ_economy_LeftTopHighlights.7. “Copper endsnear four-monthhigh on strongerU.S. economic data,”Wall Street Journal, http://on-line.wsj.com/article/BT-CO-20130201-711190.html?mod=rss_Commodities.8. “Global Auto Report”, ScotiabankGroup,http://www.gbm.scotiabank.com/English/bns_econ/bns_auto.pdf.9. “Cottonpushes higher on tepid Chinese sales,”Wall Street Journal,http://online.wsj.com/article/SB10001424127887323968304578246104227741308.html?_no-cache=1359751152120&user=welcome&mg=id-ws.j.


Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13

2008

2009

2010

2011

2012

2013

Thompson Reuters/Jefferies CRB Index

500450400350300250200150100500

Source: Jefferies.comNote: The index is composed of 19 commodities: aluminum, cocoa, coffee, copper, corn, cotton, crude oil, gold, heating oil, lean hogs, livecattle, natural gas, nickel, orange juice, silver, soybeans, sugar, unleaded gas, andwheat.

*Refer to contract-specific price protection information in the inflation tables.


Other 4%

Precious Metals 0.2%

Natural andSynthetic Rubber 1%

Cotton 2%

Paper 2%

Electronic Components 3%

Organic & Inorganic Chemicals 3%

Base Metals 4%

Plastic Resins 12%

Labor 33%

Energy 36%Energy36.0%

Labor33.0%

Plastic Resins12.0%

Other4.0%

A sample of Premier’s contracted suppliers

identified key rawmaterials that serve as

primary cost drivers of their products’

pricing. Potential category andmarket

impacts are shown for the rawmaterials

featured inthispublication.

Inorder tominimizetheriskassociated

withrawmaterials’pricing, healthcare

facilities should:

• Review categories thatmay be impacted

by fluctuations in rawmaterial costs;

• Use the inflation tables in thispublication

to locate supplierswith firmpricing in a

category impacted by rawmaterials of

interest;

• Refer to the contract launchmaterials in

Supply ChainAdvisor® to identify a

category’s lowest-cost provider; and

• Reference the inflation tables to find

suppliers that offer utilization-review

programs.

Minimizingrawmaterials risk

Price increase risk

High

Moderate

Low

Plastic resins Premier contract impact*Contrast media disposable injectorsIV therapy products - sets and tubingSafety phlebotomyCan liners

Energy Premier contract impact*Third-party freight managmentVascular compression therapyRoom turnover productsPatient beds, mattresses andtherapeutic surfaces - rental

Labor Premier contract impact*PC hardware and software resellersDocument management solutionsPatient lifts and lateral transfer devicesRadio-frequency identification asset trackingand management solutions

Precious Metals 0.2%

Electronic Components 3.0%

Base Metals 4.0%

Organic and InorganicChemicals 3.0%

Paper 2.0%

Natural andSynthetic Rubber 1.0%

Cotton 2.0%


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COPPERMARKETOVERVIEW

Coppermarketupdate

The secondhalf of 2012 saw the

price of copper increase 4.30 percent,

from$3.49/pound in late June, to

$3.64/pound onDecember 31.

During this six-monthperiod, the

price of copper ranged froma lowof

$3.29 to a high of $3.84.

The InternationalCopperStudyGroup

estimates that 2013will producea

global surplus of refined copper,

breakinga three-year trend. The

expectation is fueledby increased

output fromnewandexistingmines.

Actual resultswill be influencedby

economic factors that includeaworld

economic slowdownor expansion;

EuropeanUnionsovereigndebt issues;

political transitions in theMiddle

East andNorthAfrica; and lower

productiondue to laborunrest, utility

shortages, and capital deficits.1

Additional drivers for downward

pressure on copper prices include an

expectation that theU.S. Federal

Reservemayhalt asset andbond

purchases as early as this year;

continuing geopolitical uncertainty

and risk; declining growth rates in

theworld’smajor economies; high

debt levels; and long-term,

unresolved fiscal and economic

policy issues in theU.S. and Europe.

These factors combine to drive eco-

nomic, credit, and currency concerns

andpressure globalmarketswith

short-termvolatility in commodity,

currency, equity, and bondmarkets.2

Catalysts for continuedupward

pressure on copper prices include

recently reported positive economic

data from theU.S. andChina that

support globalmarkets and

commodityprices. Inaddition, global

central bankers continue to reiterate

theirwillingness toprovideadditional

monetary stimulus for themajor

global economies and currencies.

These factors positively affect copper

and other commodities.3

Although industry analysts are

forecasting a copper supply surplus

thatwould lead to a decrease in

prices, the global economy is in a

period characterized by loose fiscal

policy and anunprecedented

amount ofmonetary stimulus.4

Over the next twoyears, price

fluctuationsmaybe subject to forces

greater than supply anddemand,

and the price of copper, among

other commodities,maybecome

irrationally overpriced if there are

unintended consequences fromthe

world’s fiscalpolicydecisions.

References1. "HCCECopperOutlookDate: January 14,2013,"Honeywell Cable,www.honeywellca-ble.com/Pages/default.aspx.2. Ibid.3. Ibid.4. “Recovery shows a soft spot,”Wall StreetJournal,http://online.wsj.com/article/SB10001424127887324156204578273611039517142.html?mod=WSJ_economy_LeftTopHighlights5. "2012-10-ICSG_Forecast_Press_Release"International Copper StudyGroup,http://www.icsg.org/index.php/press-re-leases/viewcategory/113-forecast-press-re-lease.

Oct 09 Jan 10 Jan 11 Jan 12

2009

2010

2011

2012

Jan 13

2013

AverageMonthly Copper Prices (LondonMetal Exchange)

500

450

400

350

300

250

200

150

100

Source: U.S. Geological Survey: Copper Statistics and Information

cents/pound


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COPPERMARKETOVERVIEW

Product categorieswith high copper content and 12-month price outlook

Construction services

Energy efficiency services

HVAC equipment, controls and services

Icemachines and dispensers

Maintenance, repair and operations

Medical gas pipeline equipment, services and accessories

Price increase risk: � High � Moderate � Low

��

Factor

Globalmonetary stimulus

Macroeconomic factors

Refined copper

production/U.S. surplus

Impact oncopper prices Comments

Loose fiscal policy and unprecedented amounts of

monetary stimulus in theworld’s largest economies

could place upward pressure on the price of copper.

Progress, or lack thereof, in the global economywill either

bolster or hinder copper usage and production, leading to

potential upward and downward pressure on prices.

The first global surplusof refined copper in three yearswill

placedownwardpressureonprices.5

Projections for 2013


COTTONMARKETOVERVIEW

Cottonmarket update

Cottonprices return tomore

traditional levels

As expected, cottonprices continued

to decline in 2012 due to strengthen-

ing of theU.S. dollar. Therewas a

54percent cost decrease from2011,

with an average 2012 cost of $0.89

per pound.Novembermarked the

lowest price of the year, closing at

$0.81 per pound, a price not seen

since February 2010.

> China,which is believed to have

almost half of theworld's supply

of cotton in itswarehouses as of

mid-2012, began selling reserves

to domesticmills in January 2013,

amid fear from traders that the

auctionswould crush demand for

imported cotton.1

> Themarket also expects further

cuts toU.S. cotton acreage,which

was already forecast to fall 16

percent in the 2012-2013

marketing year that began in

August. Better prices for soybeans

and competing crops could push

farmers to shift their plantings. In

addition, poor growing conditions,

such as another drought, could

further curb the harvest.2

> Cornhas recently becomea key

challenger for cotton acreage,

especially in theUnited States,

where ethanol fuel programshave

allowed corn to commanda

highermarket price than cotton.3

> Weakvaluesmaypersuade

farmers to switch to other crops,

which could potentially erode

recordworld inventories and

provide price support.4

> Rising consumer demandand

decreased planting acreage could

drive cottonprices higher.

References1. “Cotton PushesHigher on Tepid ChineseSales,”WSJ.com, http://online.wsj.com/arti-cle/SB10001424127887323968304578246104227741308.html.2. Ibid.3. “Global Cotton Executives Explore FactorsAffecting Industry,”Cotton.org,http://www.cotton.org/news/releases/2012/summla.cfm.4. “Cottonprices to continue their decline,says ICAI,”Agrimoney.com,http://www.agrimoney.com/news/cotton-prices-to-continue-their-decline-says-icac--5052.html.

The Cotton “A” index is an estimate of theworld price of cotton. It is an average of the five

lowest quotations for a sample of 19 cottons traded internationally.

Jan 10 Jan 11 Jan 12 Jan 13

2010

2011

2012

2013

Cotton “A”Index

250

200

150

100

50

0

Source: Cotton.org and Bloomberg.comNote: Index valueswere unavailable from June 23, 2010, throughAugust 1, 2010, and again from June 10, 2011, throughAugust 1, 2011,due to insufficient quotes frommerchants.

cents/pound

COTTONMARKETOVERVIEW


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Product categorieswith high cotton contentand 12-month price outlook

Bandages, dressings and gauze

Lap sponges, or towels and specialty sponges

Restraints and fall prevention

Reusable textiles and textile services

Advancedwound care

��

Price increase risk: � High � Moderate � Low

Factor

Decreased cotton crops/

Weather conditions

China stockpiling

Consumer demand

Impact oncotton prices Comments

Global cotton production is forecast to be down from2012, asmore prof-

itable competing crops crowdout cotton.*

The potential remains for unexpected changes in China’s cotton import

demand that could destabilizeworld commoditymarkets.*

Consumer demandwill be tied to the strength of the global economic

recovery. Cotton prices are nowat levels competitivewith those of other

fibers. Cotton demandwill eventually increase.

* Source: USDA


ENERGYMARKETOVERVIEW

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TheU.S. Energy InformationAdministration (EIA)expects that theBrent

crudeoil spotprice,whichaveraged$112perbarrel in2012,will fall toan

averageof$105perbarrel in2013and$99perbarrel in2014.Theprojected

discountofWestTexas Intermediate (WTI) crudeoil toBrent,whichaver-

aged$18perbarrel in2012, falls toanaverageof$16perbarrel in2013and

$8perbarrel in2014,asplannednewpipelinecapacity lowers thecostof

movingmid-continentcrudeoil to theGulfCoast refiningcenters.

TotalU.S. liquid fuels consumption fell fromanaverageof20.8millionbbl/d

in2005 to18.6millionbbl/d in2012. TheEIAexpects total consumption to

rise slowlyover thenext twoyears toanaverageof18.8millionbbl/d in

2014. Thiswill bedrivenby increases indistillate and liquefiedpetroleum

gas consumption,with flat gasolineand jet fuel consumption.

Natural gasworking inventories, reaching record-high levels in early

November, ended2012at anestimated3.5 trillion cubic feet (Tcf), slightly

above the same time in2011. TheEIAexpects that theHenryHubnatural

gas spotprice,whichaveraged$4permillionBritish thermalunits

(MMBtu) in2011and$2.75permillionMMBtu in2012,will average$3.74

perMMBtu in2013and$3.90perMMBtu in2014.

International crude oilmarket

The EIA expects oilmarkets to loosen

in2013and2014, as increasingglobal

supplymore than offsets higher

global consumption. Projectedworld

supplywill increase by 1million

bbl/d in 2013 and1.7million bbl/d

in 2014,withmost of the growth

comingfromoutsidetheOrganization

of thePetroleumExportingCountries

(OPEC). NorthAmericawill account

formuch of this growth. Projected

world liquid fuels consumptionwill

increase by an annual average of 0.9

million barrels per day (bbl/d) in

2013 and1.3million bbl/d in 2014.

Countries outside theOrganization

for Economic Cooperation and

Development (OECD) are expected

to drive this growth.

World liquid fuels consumption

grewby an estimated 0.9million

bbl/d in 2012 to reach 89.2million

bbl/d. The EIA expects this growth to

remain constant over the next year

before pickingup again in 2014,

thanks to amoderate recovery in

global economy. Consumptionwill

reach 90.1million bbl/d in 2013

and91.5million bbl/d in 2014.

Non-OECDAsia is the leading

regional contributor to the

expected growth.

Reference1. U.S. Energy InformationAdministration,http://www.eia.gov.

Source: U.S. Energy InformationAdministration

[ OIL ]

[ GASOLINE ]

[ ]NATURALGAS



U.S. Gasoline and CrudeOil Prices

4.50

4.00

3.50

3.00

2.50

2.00

1.50

1.00

.50

0

Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15

Crude OilRetail Regular GasolinePrice Difference Forecast

dollarspergallon

2009

2010

2011

2012

2013

2014

2015

Source: U.S. Energy InformationAdministration, Short-TermEnergyOutlook, January 2013Note: Crude oil price is average refiner acquisition cost. Retail prices include state and federal taxes.

Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jan 15Jul 14

2012

2013

2014

2015

West Texas Intermediate (WTI) CrudeOil Price

260240220200180160140120100806040200

Source: U.S. Energy InformationAdministration, Short-TermEnergyOutlook, January 2013Note: Confidence interval derived fromoptionsmarket information for the five trading days ending January 3, 2013.

Intervals not calculated formonthswith sparse trading in "near-the-money" options contracts.

dollarsperbarrel

Historical spot priceSTEO price forecastNYMEX futures price95% NYMEX futures upper confidence interval95% NYMEX futures lower confidence interval


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Factor

Consumption growth

Political and production eventsthat could impact oil prices

OPEC production

Impact onoil prices Comments

World liquid fuels consumption grewby an estimated 0.9million bbl/d in2012 to reach 89.2million bbl/d. The EIA expects this growth to remainconstant over the next year before picking up again in 2014, thanks to amoderate recovery in the global economy. Consumptionwill reach 90.1million bbl/d in 2013 and 91.5million bbl/d in 2014. Non-OECDAsia is theleading regional contributor to expected growth.

Although supply growth in theUnited States and Russia during 2012outpaced the forecast at the beginning of the year, overall non-OPECliquid fuels’production fell below the year-ago expectations. The EIAforecasts non-OPECproduction to increase by 1.4million bbl/d in 2013and 1.3million bbl/d in 2014. Assumptions about themitigation of someexisting political impediments to production and the rapid evolution of theNorth American oil industry pose considerable risks to the forecast. NorthAmerica accounts for about two-thirds of the projected growth innon-OPEC supply over the next two years, based on increased productionfromU.S. tight-oil formations andCanadian oil sands.

Unplanned production outages in non-OPEC countries declined to 0.8million bbl/d inDecember 2012. This is the lowest level since January2012, although still above the historical baseline that prevailed during thefourth quarter of 2011. Syria and the Sudans are currently themostsignificant sources of disruption to non-OPECproduction. The EIA does notassume that a Syrian resolutionwill occur during the forecast period.Sudan and South Sudanmust overcomepolitical and technical obstaclesbefore significant flows from the latter can be restarted. The EIA projectsthat Sudan and South Sudan togetherwill produce 0.2million bbl/d in2013 and 0.4million bbl/d in 2014.

The EIA expectsOPECmembers to produce at least 30million bbl/d ofcrude oil over the next two years to accommodate the projected increaseinworld oil consumption and counterbalance supply disruptions. However,OPEC crude supplywill decrease by 0.6million bbl/d in 2013 and stay flatthrough 2014.Most of the 2013 decrease comes fromSaudi Arabia’sresponse to non-OPEC growth and increasing production from someOPECmembers such as Iraq, Nigeria, andAngola.


Source: U.S. Energy InformationAdministration

FOODMARKETOVERVIEW


Foodmarketupdate

TheU.S. drought

The severedrought in theU.S. in thesummerof2012will continue to im-pact foodprices in2013.MorganStanleyestimates that thedroughtreducedGDPby0.5percent in2012and that estimate couldgrow inearly2013 if thedroughtpersists.1 Lastyear, 80percentof the countryexpe-rienceddrought conditions. The latestestimate is that61percentof thecountry isstillexperiencingadrought.Poorweatherhas led to increasedprices for corn,wheat, and soybeanssince2012.Becausecornisafeedstockfor cattle andhogs, rising cornpricescanalso lead to increasedmeat costs.

TheUSDA recently released a specialreport on the 2012U.S. drought,2

summarizing themajor impacts onfoodprices and consumers:> The largest impactswill likely befelt forbeef, pork, poultry, anddairy(especially fluidmilk) products.The full effects of the increase incorn prices for packaged and

processed foods (cereal, corn flour,etc.)will likely take 10-12monthsto affect retail food prices.

> The drought has the potential toincrease retail prices for beef, pork,poultry, and dairy productsthroughout2013.Droughtconditionsled to herd culling in response tohigher expected feed costs, andthis liquidation led to temporarilyreduced prices for beef andpork inAugust and September. However,theOctoberCPIreport indicatedthatthe liquidation’s impact hasended,withprices forbeefandporkexpected to increase through2013.

> Commodity prices are just one ofmany factors affecting retail foodprices.Historically, if the farmpriceof corn increases50percent, thenretail foodprices, asmeasuredbytheBureauof LaborStatistics (BLS)in theConsumerPrice Index (CPI),increaseby0.5 to1percent.Commoditiesmakeup less than15percentof theaveragevalueofretail foodpurchases, soeven ifallcommoditypricesdoubled, retailfoodpriceswould increasebynomore than15percent.

U.S. foodprices

TheUSDAprojects food priceswillincrease 3 - 4 percent in 2013, fol-lowing inflation of 0.5 percent in2012. The greatest increases are ex-pected in the categories of dairy andfresh vegetables.3 Projected in-creases of 3.5 - 4.5 percent in dairyprices are attributable to the risingcost of feed. TheUSDAnotes thatdairy prices have already started torise as high-cost products are enter-ing the production supply chain.Fresh vegetable priceswere quitelow in 2012, due to an increase inproduction resulting from favorablegrowing conditions.

References1. Koba,Mark. “Drought Still PlaguesUS:Food Prices ‘GoingUp.’ ” 1/11/13, CNBC,http://www.cnbc.com/id/100372886/Drought_Still_Plagues_US_Food_Prices_039Going_Up039.2. “U.S. Drought 2012: Farmand Food Im-pacts,” USDA, http://www.ers.usda.gov/top-ics/in-the-news/us-drought-2012-farm-and-food-impacts.aspx#consumers.3. “Food PriceOutlook 2013,”USDA,http://www.ers.usda.gov/data-products/food-price-outlook/summary-findings.aspx.

FAO Food Price Index

260

240

220

200

180

160

140

120

100

2002-2004=100

Jan 10 Jan 11 Jan 12 Jan 13

2010

2011

2012

2013

Source: FAO.org

The foodprice index from the Food andAgricultureOrganization (FAO) of theUnitedNationsis an average of six commodity groups:meat, dairy, cereals, oils, fats, and sugar.

Change last Change lastCommodity 12months month

Corn 15% 7%Soybeans 20% 5%Wheat 17% 2%Leanhogs 0% 2%Live cattle -4% 3%Sugar -21% -4%Coffee -1% -31%

Source: CNNMoney.com. Price change shown isfrom2/1/12 to 2/1/13 or 1/1/13 to 2/1/13.

Category SubcategoryInflation forecasts

Q2 2013 2013Impact on

contract pricing

Food Categories and 12-Month Price Outlook

Source: U.S. Foods Commodities Department

6.8%7.6%

-12.6%6.3%7.8%17.9%9.4%6.0%2.8%2.3%5.0%8.5%4.3%5.0%4.0%4.9%4.0%3.0%5.0%4.0%5.0%5.0%5.0%4.0%4.0%9.0%-5.0%-10.0%-10.0%10.0%2.5%2.0%7.5%2.5%-5.0%4.0%15.0%0.0%3.0%2.0%5.0%10.0%0.0%-2.5%

3.0-5.0%5.0%2.0%0.0%

-10.0%0.0%-5.0%

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Poultry Whole BirdsPoultry BreastsPoultry WingsBeef RibeyesPork Bellies/BaconPork TrimmingsPork HamsPork LoinsPork ButtsPork Spare RibsDairy Milk and CreamersDairy CheeseDairy ButterDairy Shell EggsDairy CulturedOils and ShorteningPotatoes FrozenBeverages Juice and Juice BasesBeverages Drinks, Drink Bases/Mixes, OtherBeverages Soda, RTD and Fountain SyrupBeverages CoffeeBeverages TeaBeverages Hot CocoaBakery Breads and RollsBakery DessertsGrocery Rice (Dry)Produce Vegetables - Lettuce/SaladsProduce Vegetables - PotatoesProduce Vegetables - TomatoesProduce Vegetables - OnionsProduce Vegetables - OtherProduce Fruits - CitrusProduce Fruits - MelonsProduce Fruits - GrapesProduce Fruits - BananasProduce Fruits - BerriesProduce Fruits - ApplesProduce Fruits - AvocadosProduce Fruits - OtherTomatoes CannedFruits CannedApple Products Canned (including sauce)Fruits FrozenVegetables CannedVegetables FrozenSeafood Shrimp, Value-AddSeafood Shrimp, Non-Value-AddSeafood Fish, Value-AddSeafood Fish, Non-Value-AddSeafood Other, Value-AddSeafood Other, Non-Value-Add

FOODMARKETOVERVIEW


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6.9%8.5%

-20.6%13.1%26.3%21.5%14.2%-0.2%2.3%1.3%8.0%18.5%20.0%5.0%6.0%3.2%4.0%2.0%2.0%4.0%3.0%3.0%2.0%4.0%2.5%10.0%0.0%-5.0%-5.0%5.0%3.0%2.0%7.5%2.5%-5.0%3.0%15.0%0.0%2.0%3.0%10.0%15.0%-2.0%-1.5%

3.0-5.0%3.0%2.0%0.0%

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PLASTICRESINSMARKETOVERVIEW


Plastic resinsmarketupdate

The Platts Global Petrochemical

Index (PGPI) is a benchmark of seven

widely used petrochemicals derived

fromcrude oil andnatural gas. Since

these petrochemicals are used to

make plastic, rubber, nylon, and

other consumer products, the plastic

resinsmarket often alignswith

petrochemical prices. According to

the PGPI, prices on the global

petrochemicalsmarket finished

2012higher than the prior year.

On a year-over-year basis, the price

climbedby 16percent compared to

December 2011.1

InNovember 2012, petrochemical

prices seemed tomove in stepwith

global crudeoil prices anddominated

demand factors during themonth.

Crude oil prices dropped 2percent

from theOctober average. The

petrochemicals ethylene and

polypropylene fell 7 percent and 2

percent, respectively, fromOctober to

November. Bothareused in textiles,

packaging, reusable containers, and

other items. The price of benzene,

used in various plastics, nylons, and

other textiles, climbedby 5percent,

offsetting the losses in ethylene and

polypropylene. The continuing lack

ofbenzenegloballywill keepupward

pressure onprices.2

The global economyand the shift

fromcrude oil to natural gaswill

continue to have an impact on the

plastic resinsmarket. Other factors

are geopolitical issues,weather

patterns, exchange rates, and

political instability.

Crude oil prices

On the expectation of actions tostimulate economic growth in theU.S., Europe, andChina, crude oilproduction in theU.S. experiencedthe largest yearly increase to datein 2012. And for the secondconsecutive year, average crude oilpriceswere at historically highlevels. Disruptions in oil productionin South Sudan, Yemen, Syria, andtheNorth Seahave put upwardpressure onprices. Due to newpipeline capacity, theU.S. EnergyInformationAdministration (EIA)expects crude oil prices to drop to$105per barrel in 2013, down fromanaverage $112 in 2012.3

Price increase risk:� High � Moderate � Low

Product categorieswith high plastic resincontent and 12-month price outlook

Custom procedure trays/packs, gowns and related products �

Can liners �

IV therapy products - sets and tubing �

Contrast media disposable injectors �

Patient bedside products �

Jan 09 Jan 10 Jan 11 Jan 12 Jan 13

2009

2010

2011

2012

2013

Plastic Resin Prices

300290280270260250240230220210200

Source: Bureau of Labor Statistics – Producer Price Index – Commodity – Plastic Resins andMaterials

Index-BaseYear1982=100


PLASTICRESINSMARKETOVERVIEW

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Factor

Newpipeline capacity

Normalweather patterns

Impact onplastic resin prices Comments

Crude oil prices are expected to drop.

Natural gas prices are expected to rise gradually,

remaining generally low.


Natural gas prices

Warmer earlywintermonths in late

2012 contributed to themonth-over-

monthdecline in natural gas prices.

Forecasts closer to normal for 2013

and2014 are expected to drive a

gradual increase, althoughprices

will remain relatively low. The EIA

reported an average price for natural

gas in 2012was $2.75 perMMBtu. It

is predicted to rise to $3.74 per

MMBtu in 2013 and to $3.90 per

MMBtu in 2014.4

References1. “Plastics Prices, U.S. Production finish2012 onhighnote,”Plastics Today,http://www.plasticstoday.com/articles/plastics-prices-us-production-finish-2012-high-note-011720132.2. “Petrochemical prices slid 2 percent in

November onweakeneddemand,”Platts.com, http://www.platts.com/news-feature/2012/pgpi/index.3. Johnson, Julianne. “EIA Sees Lower CrudeOil andGasoline Prices in 2013,”Agweb.com,January 8, 2013. Accessed January 25, 2013.http://www.agweb.com/article/eia_sees_lower_crude_oil_and_gasoline_prices_in_2013/.4. “Short-TermEnergyOutlook,”U.S. EnergyInformationAdministration.http://www.eia.gov/forecasts/steo/re-port/natgas.cfm.

NATURALANDSYNTHETICRUBBERMARKETOVERVIEW


Natural andsyntheticrubbermarketupdate

Natural and synthetic rubbers areused extensively in the healthcareindustry for examand surgicalgloves. Natural rubber is derivedfrom latex sap extracted fromarubber tree,while synthetic rubberis synthesized fromchemicals thatresult frompetroleum refining.1

Several important trends areexpected to impact natural andsynthetic rubber pricing in 2013:

> Automotive sector:Almost 60percent of global rubber is used bytheworld’s tiremanufacturingindustry,with the remainderserving other sectors, such astransportation, construction,healthcare, andmining.2 ScotiabankGroupforecaststhatglobalautomotivesaleswill climb tomorethan64.7

millionunits in2013,marking a 10percent increase over 2011. This isstrengthenedbystrongemploymentgrowth in developingnations andlowglobal interest rates andmonetary expansion.3 In its GlobalAuto Report, released inDecember2012, ScotiabankGroup citessignificant growth in China, Brazil,Russia, Japan, and theUnited States.The report says China is “the keydriver of global car sales, accountingfor nearly 60 percent of the increaseinworld volumes over the pastdecade.”This growthwill continue,asmore than 20million peoplerelocate to China’s urban areas eachyear.Onekeygrowthdriver in theU.S.isvehiclereplacement,whichwill sendU.S.salestothehighestlevelssince2007.4

> Nitrile rubber prices underdownwardpressure: Syntheticnitrile butadiene rubber (NBR), amajor component of examgloves,

is composed ofmorethan 65percent but-adiene (BD). BDpricesreached record highs in2011andhavenowfallen55percent since theirpeak. BD, historicallythe key contributor to

highNBRprices, isnowexperiencinglowdemanddue tomacroeconomicconditions. ICIS, theworld's largestpetrochemicalmarket informationprovider, reports that BDproducersare not increasing costs to keyusersdue to the poor global economy. 5

NBRproducers in China, Japan, andSouthKoreahave loweredproductionoutput, and according to ICIS, “NBRprices are expected to remainunderdownwardpressure, given theweakdemand,oversupply,andexpectationsof a downtrend in feedstock prices.” 6

Despite the current conditions,future demandmaypushpriceshigher. GlobalNBRdemand,estimated at $1.7 billion in 2010, isexpected to reach $2.7 billion in2018, growing at a compoundedannual rate of 5.9 percent.7

> Natural rubber latexprices falling:Thailand, Indonesia, andMalaysiaare theworld’s topnatural rubber-producing countries. Naturalrubber prices have fallen by 47percent since they peaked inFebruary 2011. Sheela Thomas,chairman, Rubber Board, says:“The trend ismainly a result of thegrowing concerns aboutworldeconomy, particularly in the light

Product categorieswith high rubbercontent and 12-month price outlook


Examgloves �

Surgical gloves �

Price change percentages since January 2011

95%

45%

-5%

-55%

Pricechangepercentage

Jan 11 Jan 12 Jan 13

2011

2012

2013

Natural Rubber China, SIR-20Crude OilButadiene

Source: Propurchaser.com


NATURALANDSYNTHETICRUBBERMARKETOVERVIEW

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Factor

Automotive sector

Nitrile butadiene rubber (NBR) prices

Natural rubber latexprices falling

Currency exchange rates

Crude oil prices

Impact onrubber prices Comments

Healthcareproductsusingnatural and synthetic rubber competewith the

growingglobal automotive industry for rawmaterial supplies.

The recent downturn inpriceswill continue in thenear futuredue to lowdemand.

Natural rubberpriceshave fallenby47percent since February2011becauseof

lowerdemand, synthetic substitutes, andaweakglobal economy.

TheU.S. dollar remainsweakagainst theChinese yuanandMalaysian ringgit.

The twomonomersused for synthetic nitrile gloves (butadieneandacrylonitrile)

arederived fromoil.Oil price forecasts areuncertaindue to conflicting reports of

oversupply and improvedglobal economicgrowth.


References1 . “Story of Rubber,” International Rubber StudyGroup (IRSG), http://www.rubberstudy.com/storyofrubber.aspx.2. Ibid.3. “Global Auto Report,”ScotiabankGroup, http://www.gbm.scotiabank.com/English/bns_econ/bns_auto.pdf.4. Ibid.5. “Butadiene –C4s: Prices,markets and analysis,” ICIS.com, http://www.icis.com/chemicals/butadiene-c4s/#?tab=tbc-tab2&_suid=135715627915209686950283076703.6. “Acrylonitrile butadiene rubber-Nitrile rubber,” ICIS.com, http://www.icis.com/chemicals/acrylonitrile-butadiene-rubber-nitrile-rubber/#?tab=tbc-tab2&_suid=135715674020107083162888339344.7. “NewReport: GlobalNitrile Butadiene Rubber (NBR) IndustryAnalyzed by TransparencyMarket Research,”Prweb.com, http://www.prweb.com/re-leases/2012/12/prweb10174306.htm.8. “Concerns over global economybehind fall in rubber prices,”Globalrubbermarkets.com, http://globalrubbermarkets.com/4640/sheela-thomas-con-cerns-over-global-economy-behind-fall-in-rubber-prices.html.9. “Global rubber consumptionnext yearwill reach 27.6million tons,”Globalrubbermarkets.com, http://globalrubbermarkets.com/2027/global-rub-ber-consumption-next-year-will-reach-27-6-million-tons.html.10. “Global natural rubber business outlook promising,”Globalrubbermarkets.com, http://globalrubbermarkets.com/4877/global-natural-rubber-busi-ness-outlook-promising.html.11. “NewReport: GlobalNitrile Butadiene Rubber (NBR) IndustryAnalyzed by TransparencyMarket Research,”Prweb.com, http://www.prweb.com/re-leases/2012/12/prweb10174306.htm.

of the debt crises in the Eurozone.There is a fall in import demandfromChina andpiling up ofinventory in theQingdao FreeTradeZone.”It isdifficult to forecastfuture prices because of volatilefactors, suchas theglobal economy,crude oil prices, currency exchangefluctuations, andweather events.8

> Global demand for rubber:According to the InternationalRubber StudyGroup, global rubberconsumption(naturalandsynthetic)is forecast to reach 26.6milliontons in 2012,with amoderate 3.1

percent growth signaling lowerdemand for vehicles and tires.Close to 4 percent growth isexpected in 2013,with a demandof 27.6million tons.9 The averageworld total rubber consumptiongrowth ratewas 3.7 percent from1961-2007 and2.3 percent from2008-2012. After the recent stifledmarket, rubber demand isexpected to recover in 2013-2014due to pent-up demand from2008through2012. Improvingworldeconomic growth rateswill alsosupport increased demand forrubber.10 A recentmarket report,

published by TransparencyMarketResearch, says rubber formedicalproducts is one of the fastest-growing segments, primarilybecause of the need for nitrilegloves used in disease outbreaksand occupational health safety.11

> Currency exchange rates: TheU.S.dollar remainsweak against theChineseyuanandMalaysianringgit.Asa result, healthcareproducts suchasexamandsurgical glovesmanufactured inAsiaaremorecostly in theUnitedStates.

STEELMARKETOVERVIEW


Steelmarketupdate

>World crude steel production for2012was 1,548million tons, 1.2

percent higher than in 2011.North

America andAsia showed

increased production (2.5 percent

and 2.6 percent, respectively),

while the EUand SouthAmerica

haddecreased production

(-4.7 percent and -3.0 percent).1

>TheU.S. produced 88.6milliontons of crude steel in 2012, an

increase of 2.5 percent compared

to 2011.2

>Asia produced 1,012.7million tonsof crude steel in 2012, an increase

of 2.6 percent over 2011. The

region’s share ofworld steel

production increased to 65.4

percent in 2012 from64.5

percent in 2011.3

>China’s crude steel production for2012was 716.5million tons, an

increase of 3.1 percent over 2011.4

> In the EuropeanUnion, Germany’sproduction decreased 3.7 percent

to 42.7million tons in 2012.

Production decreased 5.2 percent

(to 7.2million tons) in Italy and

12.1 percent in Spain (to 13.6

million tons).5

>Theworld's largest steelmaker byvolume, ArcelorMittal, announced

the permanent closure of parts of

its factory in Liège, Belgiumdue to

poor demand. Among the closings

are six production lines thatmake

finished steel products for the auto

industry.6 The company said there

was “insufficient demand to

support therunningoftheseflexible

facilities andno improvement is

seen over themedium term.”7

> Steel demand is projected to slowsignificantly in 2013 because of

weaker economic growth in China

and the Eurozone sovereign

debt crisis.8

>TheWorld Steel Association (WSA)announced a decreased forecast

for steel consumption growth (to

2.1 percent) for 2012, down froma

projected 3.6 percent increase

(announcedinApril2012).9 In2011,

globalsteeldemandrose6.2percent.

>TheWSAdecreased its projectionof Chinese steel use in 2012 to 640

million tons, an increase of just 2.5

percent over the previous year –

significantly lower than the 6.4

percent growth in steel use from

2010 to 2011.10

>TheWSAexpects global demandto accelerate to 3.2 percent in

2013.11 This is down froman

earlier forecast of 4.5 percent.12

> Steel prices are expected tohave decreased 4.1 percent for

the year 2012.13

Product categorieswith high steel content and 12-month price outlook


Surgical instruments �

Standard and safety hypodermics �

Spinal implants and related products �

Orthopedic total joint implants �

Steam sterilizers �


STEELMARKETOVERVIEW

Factor

Demand fromChina

Demand from EuropeanUnion

Impact onsteel prices Comments

Chinese demand for steel will increase due to contracting

economic growth.

EuropeanUnion demand for steel will decrease due to the sovereign

debt crisis.

References1. “World Crude Steel Production Increases by 1.2 percent in 2012,”World Steel Association, 22 Jan. 2013, http://worldsteel.org/media-cen-tre/press-releases/2012/12-2012-crude-steel.html.2. Ibid.3. Ibid.4. Ibid.5. Ibid.6. “ArcelorMittal to Close Parts of BelgiumPlant,”NYTimes.com, http://www.nytimes.com/2013/01/25/business/global/arcelormittal-to-close-parts-of-belgium-plant.html.7. Ibid.8. “Steel demand to lower over next 2 years,”Financial Times,http://www.ft.com/intl/cms/s/0/155d1ef4-1365-11e2-9cc7-00144feabdc0.html#axzz2JIplMFKp.9. Ibid.10. “World Steel AssociationCuts Forecast,”Financial Times, http://www.ft.com/cms/s/0/b7419748-9063-11e1-8adc-00144feab49a.html#axzz21pqQAD8M.11. Ibid.12. Ibid.13. “Producer Price Indexnews release,”Bureau of Labor Statistics, http://www.bls.gov/ro3/ppimetals.htm.


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About theAbout the publication

The Economic Outlook is Premier’s flagship publication that highlights emerging economic and industry trends impacting ourmembership and shaping the healthcare landscape. As an important thought leadership resource, the publication providesstrategic insight to financial, clinical and supply chain healthcare executives across the country.

A key aspect of the long-term strategy for the Outlook is to collaborate with internal and external subject matter experts tobuild consensus from diverse points of view. The publication harnesses the expertise of our network of healthcare leadershipto illuminate best practices and strategies needed to drive performance improvement. We strive to provide our membersand healthcare organizations with valuable, timely information and business intelligence derived from the industry’s mostprogressive participants.

This edition of the Outlook is focused on connecting care across the continuum. In the shift away from fee-for-service andtoward accountable care and population health management, there is a need to redesign the way healthcare is delivered toprovide greater connectivity between health systems, providers and patients. The content in this edition is intended to helpour readership better understand the implications of healthcare reform and provide insights into existing and evolvingopportunities for healthcare stakeholders to improve connectivity and patient care in a newly-shaped marketplace.

We welcome your comments and questions. For additional information, please email [email protected].

premierinc.com/economicoutlook

© 2013 By Premier Inc. All rights reserved.

About the cover

The cover design demonstrates the period of great opportunity and innovation that the U.S. healthcare system is entering.Recent discussions surrounding healthcare have been primarily negative, focusing on the costs that need cutting and thechanges that need to be made. In moving beyond the hospital walls to a more integrated continuum of care, there is an openfield of potential for healthcare stakeholders to reinvent and improve the way that patients receive care.

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FOR FURTHER INFORMATIONTo learn more about this publication, pleasevisit premierinc.com/economicoutlook oremail [email protected].

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economic outlook: spring 2013

Documents

rubbermarket overview

steelmarket overview

plastic resinsmarket

supply chain trends

economic analyst

behindthe economic

economic indicators

supply chain solutions