Hospital Admissions Declining, Supply Survey Finds

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According to a survey of hospital managers by Longbow Research analyst David Bachman, orders for supplies are down, in some cases dramatically, providing further evidence of the decline in hospital admissions. “The volume and price of nearly every supply category we examined was down,” Mr. Bachman said.

Mr. Bachman said that moderating prices offered some relief to hospital operators such as Community Health Systems (CYH), Health Management Associates (HMA), LifePoint (LPNT), Medcath (MDTH), Tenet (THC) and Universal Health Services (UHS).

He added however that the decline in product orders presents challenges for supply companies such as CR Bard (BCR) and Hospira (HSP).

Our Acute Care Hospital Supply Survey results indicate that admissions are down, reflected in volume and price of nearly every supply category we examined. We tracked changes through 4Q08 and into January 2009. The results support our caution for firms operating acute care hospitals and firms supplying those facilities.

Total volumes are stagnant on low census. 43.3% of our contacts reported flat supply volumes YoY, while declines in supply orders grew to 36.7%. This has grown considerably from the 20.0% declines reported in October, largely attributed to lower hospital census.

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Prices increases are moderating. Overall supply costs are higher YoY for only 46.7% of our contacts, compared with 60.0% of our contacts in October. Exactly 40.0% of our contacts reported flat pricing.

Orthopedic implant volumes remain flat. 57.7% of our contacts had no change in volumes for orthopedic implants. Only 19.2% of our contacts reported increases, while declines grew to 23.1%.

Catheter volumes are flat but showing some weakness. 64.3% of our respondents reported no change in catheter volumes from the prior year. Declining volumes rose to 21.4%, up from just 3.6% in October.

Infection control product volumes are also stagnant. 80.8% of our contacts reported no change in the volume of infection control product orders since last year. About 12% reported declines due to lower census.

Implications for operators. Moderating prices in key product categories provides some relief for operators, including CYH, HMA, LPNT, MDTH, THC and UHS. Our view is that 2009 may be a year in which facilities can achieve some gains in supply expense management. Still, our greater concern is the reported lower census, which is causing volume and price declines.

Implications for suppliers. Declining hospital census generally causes reductions in product orders, which is central to our view on suppliers BCR and HSP. A tough year expected for hospitals in 2009 corresponds with projections for modest growth at best for suppliers.

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