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Oil, plastics price drop means big hospital savings for savvy negotiators

Supply chain executives who haven’t jumped on the price drop with commodities should start now.

From bed pans and basins to catheters and syringes, hospital supply chain managers know just how important plastic products are to the business. And lucky for them, the drop in petroleum prices is creating much needed cost savings for savvy organizations.From bed pans and basins to catheters and syringes, hospital supply chain managers know just how important plastic products are to the business. And lucky for them, the drop in petroleum prices is creating much needed cost savings for savvy organizations.

Just one word: Plastics. From bed pans and basins to catheters and syringes, hospital supply chain managers know just how important plastic products are to the business. And lucky for them, the drop in petroleum prices is creating much-needed cost savings for savvy organizations.

Last year, for example, the healthcare field saw a decrease in the Chemical Data Index and for resin prices overall, said Brent Petty, chairman at the Association for Healthcare Resource & Materials Management and an executive consultant with Lexmark International. "Most group purchasing organizations and/or hospitals have their contracts tied to this index for injection molding plastic products," he said. They were able to maintain pricing with little or no increase during that timeframe.

Novation, which contracts for medical and surgical products for a slate of healthcare providers, uses plastic resin prices in negotiations with suppliers to secure the lowest price contracts for members, said Brigitte Chorey, director of contract services. For example, a 500-bed hospital contracting for two high-use plastic items -- exam gloves (composed of acrylonitrile/butadiene resins) and disposable flatware (made of polypropylene and polystyrene resins), normally spends between $800 and $400 per bed annually, for a total spend of $600,000.

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"Current index prices for the resins used for foodservice disposable flatware and exam gloves have decreased, leading to an 8 percent price decrease for foodservice disposable flatware and a 5 percent decrease in exam glove prices," she said. As a result, new an updated contract for these items could save the hospital roughly $36,000 a year.

Seizing the opportunity

It may sound more impressive to secure a really great pricing deal on cardiac pacemakers than exam gloves, Chorey said, "but there is a lot of opportunity in the products with pricing predicated on commodity markets," she said. 

When supply chain executives are charged with managing a vast majority of line item products, chances like that can slip through the cracks, depending on how their institutions' supply chain systems are set up, said Anthony Long, principal at Pinnacle Healthcare Consulting. "Certainly there are a number of facilities where decreases in oil prices and modification of market prices impact on plastics-based products don't really register as a blip," he says. "But those who are up to speed and who have more sophisticated systems in place or resources to draw on are reaching out with the drive-down in petroleum prices and ultimately plastics."

Pinnacle sees those facility executives going back to suppliers, negotiating prices down and stockpiling higher inventory of some products – like bandages, catheters, and syringes – while the price is right if they have room to store them. Long says it's not too late to catch up to the opportunity, either. "The bottom line is that oil prices have remained low, and as that price stays down so do the supply prices," he said. He also points out that benefits extend beyond lower product costs to lower product transportation costs, as well, thanks to petroleum market price declines.

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Chorey and Long said supply chain executives who haven't jumped on the price drop with commodities should start now. "If there is a 10 to 15 percent petroleum price reduction, you have to know that to go and request a pricing change," Long says. "If that's not something anyone in the organization can track, that's where an intermediary can become involved."

Following chemical data indices on resins such as polyethylenes, polypropylene and polystyrene can provide knowledge that's useful "for entering into longer-term fixed pricing agreements when commodity markets are soft, as they are now," Chorey said. That information helps supply chain executives when they approach vendors of products like exam gloves to make a case to get the supplies at a decreased price in exchange for a commitment to purchase from that vendor.

And don't forget to plan for the future.

"I would continue to suggest there be a provision in any new agreement that prices of finished products will continue to correspond to drops in the indices," Chorey said. 

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