NEWS RELEASE

Novation Releases January 2010 Budget Impact Projections Report

Study Helps Health Care Providers Manage Spiraling Costs In Spite of Industry Demands and a Still Ailing Economy

IRVING, TX; February 18, 2010 – As health care systems continue to face increasing industry and economic demands, Novation, the healthcare industry’s leading contracting supply company, today released its January 2010 Budget Impact Projections Report providing insights into price management strategies for the members of VHA Inc., University HealthSystem Consortium (UHC) and Provista, LLC. The report is designed to give health care providers the latest information they need to meet supply-related budgeting processes and more effectively and efficiently manage supply costs.

The report projects that healthcare organizations accessing Novation contracts will see no more than a 1 percent increase in overall product pricing in 2010, significantly less than the expected national market increase of almost 3 percent. Jody Hatcher, president and CEO of Novation, attributes this price advantage to Novation’s aggressive price management strategies.

“As health care providers struggle to balance their budgets in the face of industry and economic pressures, Novation is committed to managing and delivering the best contract prices for members and providing them with the insights and analytics to more effectively manage their supply costs and contracts,” he said. “The Budget Impact Projections Report provides members with valuable information regarding key raw materials that are influencing prices.”

Since late 2008, Novation has used market intelligence, supply chain data and analytics, and unique contracting strategies to drive down health care supply costs. Novation has focused on mitigating price fluctuations through an intense focus on firm pricing. As the only GPO using spend data to manage pricing for all product contracts, it has saved member hospitals more than $179 million in the past 12 months.

Key report findings include:

• Hospital services, including inpatient and outpatient services, encountered inflation rates around 8 percent in the past 12 months, which is 2 percent higher compared to the previous year.
• The cost of gasoline increased 55.2 percent in 2009.
• Intermediate finished goods (less food) increased 3.2 percent during the past 12 months.
• Medical-surgical instruments saw modest increases of 1.1 percent in 2009 and 1.6 percent during 2008.
• Surgical supplies only rose 0.6 percent in 2009 after seeing a 2.2 percent rise in 2008.
• Laboratory instruments and equipment experienced modest price increases in 2008 and 2009.
• Freight trucking cost decreased 1.4 percent in 2009 and deep sea freight transportation dropped dramatically this past year.

Raw materials:

• The current dramatic Centrifuged Latex price increases are linked to supply and demand and oil. Prices have increased 32.5 percent over the last 3 months and increased every month since June 2009.

• Oil prices are the strongest indicator for Plastic Resin prices. Since oil has remained relatively stable over the past nine months, resin prices have also remained mostly level. Resin prices should remain steady until oil prices rise and demand begins improving along with the economy.

• Cotton “A” prices have been steadily rising since early 2009. The price increases are partially due to a slight recovery in U.S. and European demand combined with increasing consumption in India and China. In the long term, expect prices to increase at a slower pace in 2010 and 2011 than in 2009.
• Long-term prices of Steel will primarily depend on an economic recovery, which brought construction and automobile production to a standstill reducing the demand for steel. Automotive production accounts for 15 percent of steel demand, and construction accounts for 40 percent of steel demand. Prices will not rise dramatically until an economic recovery stimulates manufacturing and construction.
• Increasing demand and tight supplies of Aluminum, Copper, and Nickel from low production levels caused recent price increases. Experts believe this trend will continue through 2010 and 2011. The long-term prices will ultimately depend on the strength of the economic recovery.

• Health care is the largest industry segment for the use of uncoated freesheet (Paper), using 50 percent more than the next largest industry segment. Uncoated freesheet pricing has remained relatively flat for the past several months on the spot market. The major mills continue to hold contract prices steady but may be forced to reduce prices if demand continues to decrease in a stagnate economy.

• In 2010, the Consumer Price Index for all Food is projected to increase 2.5 to 3.5 percent. Factors in 2010 that could raise food prices include the weakening U.S. dollar, economic speculation, low production levels and energy cost. In December 2009, overall food prices were up 1.1 percent higher over the past 3 months and flat over the latest 12-month period.

Novation uses all available resources to create pioneering contracting services and approaches to drive down health care supply costs. The Budget Impact Projections Report is one example of the cutting-edge reports Novation provides members to help manage their budgets. The report is published each January and July and features data from a number of resources, including Novation’s extensive database, suppliers, raw materials resources, the U.S. Bureau of Labor Statistics’ Producer Price Index (PPI) and Consumer Price Index (CPI).

Other reports issued by Novation include, the Drug Price Forecast, which offers Novation’s best estimate of the change in the cost of pharmaceuticals likely to be purchased by acute care facilities and the National Economic Impact Report, which surveys economic trends and impact on hospitals.

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About Novation
Founded in 1998, Novation is the leading health care supply contracting company for more than 25,000 members of VHA Inc. and the University HealthSystem Consortium (UHC), two national health care alliances, and 5,500 members of Provista, LLC, representing 28,000 sites. Novation provides alliance members contract and price management and spend management services. Based in Irving, Texas, Novation develops and manages competitive contracts with more than 600 suppliers. VHA, UHC and Provista members used Novation contracts to purchased nearly $37.8 billion in 2009.

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