As if health care prices weren’t high enough, today’s historically high oil prices and rising inflation are having a sizable impact on medical manufacturers, suppliers, distributors and, of course, patients.

Rising energy costs are having major expected and unexpected effects on nearly every sector of the economy. With petroleum and gasoline prices at all-time highs, these costs are particularly painful for those manufacturing and delivering the products upon which patients depend.

Production: Manufacturers, Suppliers and Distributors
The most obvious place in which high energy prices are having an impact on medical manufacturing processes is materials and supplies costs.

“Medical manufacturers, distributors and hospitals are coping with rising prices, and they are making crucial decisions about whether to raise consumer prices or hang tough and eat the higher costs to protect relationships or fend off competitors,” a Chicago Tribune report recently noted. “From the thousands of gloves used each day to plastic bed pans, blood bags, syringes and tubing used for delivering medications to patients, prices for many everyday medical products are under pressure because they rely on petroleum, industry players say,” the Tribune‘s Bruce Japsen wrote.

Between May 2005 and May 2008, the production cost of goods containing plastics and resins rose more than 10 percent, according to the Health Industry Distributors Association (HIDA). Due to price hikes in polypropylene, supplies in the hospital business are experiencing price hikes for disposable protective apparel such as gowns. At the same time, “foam used to make stretchers or beds and oil-based resins used to make syringes” in addition to other medical products are creating price hikes.

Japsen pointed to one medical-supply manufacturer that has seen costs “double or even triple for products.” A 200-bed hospital that uses 16,000 gloves a day, for example, would have paid $2.70 two years ago for a box of 100 latex gloves. Today, that hospital might pay $3.50 to $3.80.

Yet the effect of oil and materials costs doesn’t end after production. Says the HIDA: “Petroleum prices have a dual effect on healthcare products: once in the production of products that are made with petroleum-based raw materials, and again as goods are transported to the healthcare provider.”

Remember that medical devices and other products used domestically are made all over the world. And higher costs of oil have triggered higher costs of transporting these materials and products across the health-care supply chain, including shipping cargo from China and fueling delivery trucks.

While petroleum prices will likely continue to experience volatility, the HIDA recommends health-care distributors, manufacturers and providers “work together to mitigate the range of impacts rising costs will continue to have.”

Collaboration opportunities include:

• Developing new product packaging to reduce costs;

• Analyzing total freight expense for possible efficiency gains;

• Consolidating orders and loading delivery trucks to lower freight costs; and

• Using strategic planning to manage the effects of the rising cost of oil.

With oil prices hitting hospital supply chains so hard, Modern Healthcare magazine recently noted how the group purchasing organization (GPO), which provides supplies in bulk to hospitals, is struck with severe consequences. In some instances, vendors are forcing price increases or threatening to cancel supply contracts.

Consumption: Patients
Consumers, of course, are also facing energy-triggered costs for health care. In 2006, U.S. health care spending increased 6.7 percent to $2.1 trillion, or $7,026 per person. In 2007, total national health expenditures in the U.S. were expected to rise 6.9 percent — two times the rate of inflation, according to the National Coalition on Health Care.

And, in the past 18 months, gasoline prices have increased by more than 80 percent.

In addition to patients more likely moving toward generic drugs rather than pricier brands, one consequence of high gas prices is that more patients are “skipping the drive to the drugstore and opting instead for mail-order medicines,” stated the Wall Street Journal‘s Health Blog. One pharmacy benefit management company said in its Q2 earnings release that mail-order prescription volume increased 12 percent to 26.3 million prescriptions dispensed. Revenue from mail-order products rose some 27 percent to $5.45 billion, “reflecting the amount patients and insurance plans paid for the drugs.”

The scariest effect energy prices are having in terms of health and medicine: more patients are simply going without.

“With gas prices hovering around $4 a gallon, my patients are cutting back on medical care,” recently wrote one M.D. at the Wall Street Journal. “Rising deductibles, stiff drug co-payments and increasing prices for just about everything are forcing some hard choices about health.

“Care that doesn’t strike patients as critical is getting delayed. As the economy squeezes my patients, they are showing up sicker,” Dr. Benjamin Brewer continued.

Some of his patients are taking themselves off critical medications (such as for cholesterol) because they are unable “to bear even a moderate expense to save their insurance companies the cost of major claims.” As gas prices rose, Brewer:

…noticed an uptick in patients canceling appointments and just not showing up over the last few weeks. More people are asking for advice over the phone and trying to avoid an office visit. Many of our patients travel 20 or 30 miles to see us, and I think gas prices are affecting no-show and cancellation rates, particularly with low income patients.

Perhaps the most direct impact of high gas prices on health is in the area of house calls — particularly home health care. The National Association of Area Agencies on Aging recently surveyed its membership and found that half its constituents had cut back on home visits because of gas prices. Moreover, 90 percent expect to cut visits in 2009; more than half already have this year.

“Most home care is funded through Medicaid and Medicare programs using fixed payment rates — some of which are only adjusted annually — based on estimates of the cost of providing care. But those costs — like gasoline — can rise sharply between adjustments [which] makes it difficult for some to raise the fuel reimbursement for employees without busting its own budget,” the Associated Press recently pointed out.

The nation’s 10 most expensive medical conditions in the U.S. cost about $500 billion to treat in 2005, according to the Agency for Healthcare Research and Quality’s Medical Expenditure Panel Survey. That includes visits to doctors’ offices, clinics and emergency departments; hospital stays; home health care; and prescription medications.

Resources

Petroleum Costs: A Dual Effect on the Healthcare Supply Chain
Health Industry Distributors Association, 2008

Inflation, Oil Send costs of Medical Supplies Soaring
by Bruce Japsen
The Chicago Tribune, July 17, 2008

High Gas Prices Drive More People to Mail-Order Drugs
by Sarah Rubenstein
The Wall Street Journal Health Blog, July 24, 2008

Tough Times Prompt Patients to Skip Care
by Benjamin Brewer, M.D.
The Wall Street Journal, July 23, 2008

Fuel’s Surge a Headache for Home Health Providers
by Richard Richtmyer
The Associated Press, July 20, 2008

Seniors Stranded: Escalating Costs Leave Aging Services Programs Struggling
The National Association of Area Agencies on Aging, June 26, 2008

National Health Spending In 2006: A Year Of Change For Prescription Drugs
by Aaron Catlin, Cathy Cowan, Micah Hartman and Stephen Heffler
Health Affairs, 2008