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Report On Business® Roundup: October Hospital PMI™

November 06, 2020
By Dan Zeiger

Nancy LeMaster, MBA, Chair of the Institute for Supply Management® (ISM®) Hospital Business Survey Committee, is based in the greater St. Louis area, where multiple hospitals are postponing elective surgeries in hopes of ensuring patient capacity what has been labeled a coronavirus (COVID-19) “storm.”

The pandemic continues to have a significant impact on the Hospital ISM® Report On Business®, which reflects “a lot of market volatility driven by COVID-19,” LeMaster said on Friday. The Hospital PMI™ for October was 63 percent, down just 0.3 percentage point from the previous month, indicating solid growth; however, in the hospital subsector, that doesn’t always translate into profits.

“It depends on the type of business,” LeMaster told a conference call of reporters. That typically means elective procedures, which some Business Survey Committee members indicated their facilities were attempting to schedule by the end of the year, when insurance-plan changes for many consumers go into effect. However, with coronavirus cases continuing to set records in the U.S., available hospital space could dwindle fast in many parts of the country.

Also, after a respite in September, concerns about shortages in personal protective equipment (PPE) and other medical supplies have returned, which some respondents indicating they have had to source from the gray market. The Inventory Sentiment Index, which in September was in “too high” territory for the first time in seven months, fell 8 percentage points to 49.5 percent, a “too low” designation. And with recent shortages in plastics and resins, commodities that go into PPE and other supplies, things could get worse before they get better.

“The PPE issue is so intense is because it’s a global (dynamic),” LeMaster said. “Past disasters like hurricanes have been limited (in scope). But (COVID-19) is a global event. Baseline demand for these products has seen a seismic shift, and I don't see that ending soon. A lot of it driven by raw materials: We’ve seen issues with N95 masks and sterile gowns. There have been recalls of gloves. That puts pressure on everybody.

“We’ve not lived through a period in the health-care arena — and maybe not in the manufacturing (sector) — where there has been such a massive global change in demand that has shaken up the markets.”

In the health-care and hospital sectors, LeMaster said, PPE and other supplies are typically purchased from a group of primary distributors, or manufacturers. With manufacturers unable to keep up with demand, a Survey Committee respondent wrote, some facilities are sourcing from the gray market, a third-party distribution network. Gray-market companies often find supplies for facilities, she said, by buying excess inventory from other hospitals, a situation in which there’s typically few worries about product quality.

During the pandemic, “there’s been a substantial risk is that (gray-market) products are counterfeit or substandard,” LeMaster said. “Also, some products got emergency-use approval from the FDA (U.S. Food and Drug Administration), but they were not as good of quality as advertised. Gray market companies are opportunistic (and) high risk in terms of quality. They are on the fringes of health-care supply market.”

In other subindex developments:

  • The Hospital PMI™ is still is its infancy, so it’s too soon to determine which measurements are leading or lagging indicators, or how some indexes correlate with one another. LeMaster said she is watching the Business Activity Index, which (in theory) should be in line with the New Orders Index from the previous month. The September New Orders Index reading was 71.0 percent; the Business Activity Index read 68.0 percent in October. “It’s something to keep an eye on,” she said.
  • The Technology Spend Index was in expansion territory for the third consecutive month, indicating the increased coronavirus cases are not causing hospitals to put the brakes on such projects.
  • While pandemic-related supply shortages have driven recent price increases, pharmaceuticals continue their long-term trend of rising prices. The Prices: Pharmaceuticals Index registered 59 percent in October and have increased for all 31 months in which Hospital PMI™ data has been collected.

In case you missed Monday’s Report On Business® Roundup on the release of the October Manufacturing PMI®, you can read it here. The Roundup on Wednesday’s release of the October Services PMI™ can be read here. For the most up-to-date content on the three indexes in the ISM® Report On Business® family, use #ISMPMI on Twitter.

About the Author

Dan Zeiger

About the Author

Dan Zeiger is Senior Copy Editor/Writer for Inside Supply Management® magazine, covering topics, trends and issues relating to supply chain management.