Report On Business® Roundup: February Hospital PMI®
The Hospital ISM® Report On Business® for February revealed steadiness, which has often gone missing in a health-care industry that has experienced great turbulence in the last four years. But a survey of the data and the landscape still reveals red flags.
The Hospital PMI® of 56.6 percent was a 4.9 percentage-point decrease from the January reading, although the Business Activity and New Orders indexes remained above 60 percent and the Employment Index stayed in expansion territory. Much of the PMI®’s change was due to a 12.5-percentage point drop in the Supper Deliveries Index, which remained in “slower” territory but reflected better delivery performance.
Business activity growth slowed, #employment was steady and facilities continued to adjust for “post-#COVID19 inventory levels.” Those details and more in the Hospital @ISM® Report On Business® for February; the PMI® was 56.6%. https://t.co/qpMAkzoDLl #ISMPMI #economy #healthcare
— Institute for Supply Management (@ism) March 7, 2024
“When we looked at the (survey respondents’) comments, the first word that came up was ‘steady,’ ” Nancy LeMaster, MBA, Chair of the Institute for Supply Management® Hospital Business Survey Committee, told a conference call of reporters on Thursday. “They felt business was steady and there weren’t a lot of surprises.”
She continued, “There were respiratory illnesses, but not to the extent that there was a strain on the system or capacity had to be shifted from elective procedures. It appeared to be a very textbook February.”
The month did have at least one surprise that occurred too late in the month to impact the Hospital PMI® data — a February 21 detection of a cyberattack on Change Healthcare, the UnitedHealth Group (UHG)-owned subsidiary that led to widespread outages of systems that handle billing and insurance claims.
The attack is a “reminder of the interconnectedness of the domestic health-care ecosystem and of the urgency of strengthening cybersecurity resiliency,” the U.S. Department of Health and Human Services said in a statement. “Any time we get a delay in the payment system — which can already be kind of pretty extended in the health-care industry — it can be frightening,” LeMaster said.
Another area to watch is inventories, a dynamic reflected in the Hospital PMI® numbers. The Inventories Index contracted for a second straight month as facilities try to right-size their stocks for a post-pandemic world. That’s a work in progress, as the Inventory Sentiment Index decreased but remained comfortably in “too high” territory.
With profit margins remaining a nagging concern for hospitals, reducing inventory costs appears to be low-hanging fruit. However, that’s a tightrope even in the best of times — stockouts in health care are different from those in other businesses, as missing items can impact patient care. LeMaster said larger systems are self-distributing — a trend started but not perfected before COVID-19 rattled supply chains; the process is designed to enable better inventory visibility and risk management.
Meanwhile, domestic production of personal protective equipment (PPE) has stalled as many health-care providers are again sourcing overseas “to save 5 cents,” LeMaster said. She added, “I worry there will be a chasm between leading-edge systems that can self-distribute and those that are under day-to-day (cost) pressures that they’ll take shortcuts, and we could have a repeat of the PPE shortage crisis.”
Hospital #ISMPMI survey respondent: “Our system announced closures of two hospitals and 10 clinics in rural areas due to low patient populations and rising costs. Year-to-date #supplychain costs are slightly above the 2023 baseline.” https://t.co/90Rt4PFQut #economy #healthcare
— Dan Zeiger (@ZeigerDan) March 7, 2024
Perhaps the biggest impact on hospital profit margins is labor costs. While the Employment Index reading stayed above 50 percent and equaled its January figure, respondent comments indicated some facilities and systems were reducing administrative staff. Such reductions are due in part to company mergers, LeMaster said.
Earlier this week, the Services ISM® Report On Business® indicated that companies are considering the use of contract or temporary hires. While Hospital Business Survey Committee respondents reported that facilities face continuing challenges in recruiting and retaining clinical staff, a return to temporary or “traveling” employment is unlikely because it’s more expensive.
“I’m hearing nothing about mass layoffs,” LeMaster said. “But what results after a merger is that (the combined) company doesn’t need more than one CFO or chief supply chain officer. Clinical staff helps you take on more patient volume, which is important in a business with high fixed costs, like health care. So, you don’t want to get rid of people there.
“But for things like billing and collection, even supply chain processes like purchase ordering, facilities are going to do what they can to make that more automated.”
In case you missed the Report On Business® Roundup on the release of the February Manufacturing PMI®, you can read it here. The Roundup on the release of the Services PMI® can be read here. For the most up-to-date content on the three indexes in the ISM® Report On Business® family, use #ISMPMI on X, formerly known as Twitter.
(Photo credit: Getty Images/Hispanolistic)