March 21, 2022
Medical supply costs hit new highs amid supply chain disruptions￼
As if rising labor costs weren’t enough of a concern, disruptions in the medical supply chain are adding to the increasingly unsustainable financial profile for health systems. Tracking international trade prices over the last three years, medical supply prices were up a whopping 46 percent at the end of 2021, compared to 2019. The manufacturing of these imports tends to be concentrated in only a few areas (mostly in China and Southeast Asia), and lack of competition makes finding alternative sources difficult. Thirty percent of medical supplies are manufactured abroad—and the number impacted is likely higher, as many supplies “manufactured” in the US still contain foreign components. As a result, supply cost growth has outpaced even labor expense growth for hospitals since July, according to data from Kaufman Hall. During the early days of the pandemic, masks, gloves, and other personal protective equipment were in short supply, driving the initial spike in prices. But we’re now seeing large price increases across a range of medical supplies, as illustrated in the graphic below. Crutches and medical gauze, for example, now cost over ten percent more to import than they did in 2019. While some of the drivers of these cost increases, including worker shortages and shipping delays, may resolve across this year, other drivers, like the reduced stock of raw materials, seem more intractable. In our conversations with health system leaders, they stress that they don’t expect their group purchasing organizations to save the day, and are instead proactively reevaluating suppliers and distribution partners for their most critical supplies.