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Friday, July 18, 2008

Inflation and Oil Prices Send Costs of Medical Supplies Soaring

The Chicago Tribune reports on the increase in costs of medical supplies as a result of inflation and oil prices.  Bruce Japsen writes,

Medical_suppliesInflation is racing through the economy at a pace not seen in years, touching even the medical gloves used by hospitals, as manufacturers cope with high oil prices.

The cost of living in June shot up at the fastest rate in 17 years, with the Labor Department reporting Wednesday that consumer prices jumped 1.1 percent, a much faster clip than anticipated.

Inflation is corrosive to paychecks, cutting deeply into consumers' earning power, but the phenomenon hurts even more in an economy struggling to maintain growth. Inflation also hurts companies when they can't pass on higher costs because of competitive pressure.

Much of the inflation pressure now is due to oil prices, and its impact is most obvious at the gas pump, though high food prices are also hurting shoppers at the grocery store. While oil prices have dropped steeply the past two days, they remain at historically high levels.
There are myriad ways the impact of high oil prices touches consumers—or is likely to soon—and the medical supplies used by hospitals and sold in drugstores are one example.

Consumers can see the results at retail outlets such as Walgreen Co. stores, where the retailer says a box containing 120 of its store-brand latex gloves has almost doubled in price. A customer who could get two boxes for $9.99 a year ago now pays a sale price of $7.99 for one box. Oil is used in the manufacture of gloves.

Medical manufacturers, distributors and hospitals all are coping with rising prices, and they are making crucial decisions about whether to raise customer prices or hang tough and eat the higher costs to protect relationships or fend off competitors.

From the thousands of gloves used each day to plastic bed pans, blood bags, syringes and tubing used for delivering medications to patients, prices for many everyday medical products are under pressure because they rely on petroleum, industry players say. In some cases, suppliers like Mundelein-based Medline Industries Inc. are seeing costs double or triple for products.

"The price of oil is going to work its way into many, many things in the health-care system," said Todd Swim, a worldwide partner with the Chicago office of Mercer, an employee benefits consulting firm that advises large companies on their workers' health-care issues.

While a single glove can amount to pennies, that cost adds up for a hospital. Medline says it's not uncommon for a 200-bed hospital to use 16,000 gloves a day, or about 6 million a year at a cost of $200,000 a year. A hospital that paid $2.70 two years ago for a box of 100 latex gloves might pay $3.50 to $3.80 today.

Rising costs spreading through the economy led Ben Bernanke, chairman of the Federal Reserve, to offer a new warning Wednesday about the significant risk to the nation's economic outlook. Energy prices are partly to blame, with gasoline prices jumping 35 percent in the last year.

"Upside risks to the inflation outlook have intensified lately," Bernanke told lawmakers in Washington.

In the hospital business, suppliers say they are experiencing price hikes for disposable protective apparel such as gowns and drapes thanks to price hikes in polypropylene. Meanwhile, foam used to make stretchers or beds and oil-based resins used to make syringes and other medical products are triggering price hikes.

As one example, the hundreds of thousands of gowns hospitals may use to protect patients, medical staff and visitors from germs and bodily fluids are made from polypropylene fabrics. Such gowns, which used to cost 50 cents each, have jumped by 40 percent, to 70 cents each, Medline said.

Both Deerfield-based Baxter International Inc. and Lake Forest-based Hospira Inc., which make IV systems and medication bags, have been telling investors and Wall Street analysts that managing the fuel hikes is becoming more difficult.

"So far, strategically we have made the decision to absorb those costs," Baxter Chief Financial Officer Robert Davis told Wall Street analysts at a recent conference. "And pretty soon if we are not passing those through at some point, we'll have to continue to evaluate whether that's doable."

Because hospitals sign long-term contracts with manufacturers and buy in large volumes that allow them to negotiate better deals, the immediate impact for some customers has been somewhat muted, but administrators are looking for alternatives.

In the case of gloves, Loyola University Medical Center in Maywood said housekeeping and food/nutrition staffs have switched from latex gloves "to less expensive vinyl gloves," a hospital spokesman said.

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