Besides postage stamps skipping up to 42 cents a pop (a more than 5 percent increase), hospital and other healthcare facilities can expect prices for a number of commodity products to jump starting this month, courtesy of climate-related maladies in the United States affecting production, as well as heightened demand and production issues in the Far East.

Most of the price increases are spiraling out from raw materials manufacturers and funneling down through the supply chain to the end users. And while product manufacturers and distributors stated they have tried to absorb much of these additional costs they apparently can no longer keep footing the bills alone and maintain their revenue targets. And although on paper group purchasing organization contracts should protect healthcare facilities from noticeable price fluctuations, in practice it’s a bit more complicated, particularly due to the manufacturers of resin-based products balking.

What’s affected? Prices for nonprofit regular postage rises 3 percent, while nonprofit enhanced carrier route postage soars more than 12 percent. But more noticeably, healthcare facilities are seeing price hikes for medical gases and fuel, oil and natural gas, which are spilling over into affecting production for plastic and resin-based products, including latex gloves, liners, trash bags and tubing. These increases also are extending their tentacles into the transportation industry for inbound and outbound freight.

Healthcare Purchasing News received reports that vendors briefly began levying "minor" fuel surcharges by load or by truck until they encountered some hospital resistance, fortified by tapering gas prices.

Vendors and GPOs attribute the pricing fluctuations to hurricane damage to Gulf Coast oil refineries, as well as a major plastics factory explosion in Point Comfort, TX, last fall that shuttered the plant. Various media outlets reported that the Formosa Plastics Corp. plant generated between four and 10 percent of North America’s polypropylene, polyethylene and polyvinyl chloride (PVC) raw materials.

Medline Industries Inc. (Mundelein, IL) was notified by its raw materials suppliers of a 40 percent price increase, and was expecting to have to raise its prices by up to 15 percent, forcing at least some of the pressure onto customers, according to company spokeswoman Lori Bolas.

"To date Medline has been able to do a good job at protecting our customer base from this industry-wide problem," said Ron Barth, group president of Medline’s textiles and disposable plastics unit. "However, with recent developments and further dramatic escalation in material costs it is clear that we too must pass on additional price increases and implement a supply allocation program. To the best of our ability we will protect our existing customer base from the effects of this unfortunate situation."

But Tripp Amdur, president of Medline’s gloves division, indicated that passing along these price increases most likely are inevitable, unavoidable and long term.

"Rubber prices have skyrocketed," he told Healthcare Purchasing News, "up more than 40 percent this year as well as rising energy and transportation costs. We had hoped that these were cyclical increases that would correct themselves, but we recognize now that we are experiencing long-term cost increases that we cannot continue to absorb."

Amdur attributed the rubber price increases to China’s growing demand for automobiles, millions of which are being produced for that market, which in turn increases demand for tires astronomically, and natural restraints on supply. "The rubber supply is limited by its very nature," he continued. "It takes six or seven years for a new rubber tree to grow to the point that you can get rubber from it. If China continues its rate of growth, which is expected, demand will continue to be greater than supply."

Medline has been absorbing the bulk of the cost increases by improving manufacturing efficiencies and reducing margins as much as possible, according to Amdur, but the company has reached its limit.

"We’ve worked to improve efficiencies in production which have helped us to mitigate some of the costs but not all of them," he said. "We recognize that our customers work in a very competitive environment with a lot of pressures on costs. Therefore, we will continue to look for ways to keep price increases to a minimum. Unfortunately, we cannot avoid them entirely."

Some examples of Medline’s production changes include new production lines that run at up to twice the speed as old production lines and also use less energy to heat the ovens, along with new advanced formulations that allow the company to use less raw material while maintaining strength and barrier properties, he noted.

Meanwhile, Praxair Distribution Inc. (Danbury, CT), reduced the discounts it offers and increased pricing for industrial, medical and specialty gases cylinder customers by up to 15 percent, depending on the product and supply conditions and customer contract permission.

Furthermore, the company stated that its cost recovery efforts will continue through various charges and surcharges.

"We work continually to hold costs down," said Wayne Yakich, president, in a prepared statement. "However, we are now faced with unprecedented increases in energy, transportation and raw materials."

GPOs have tried to stem the tide, as well, but it’s been a tough battle.

Amerinet Inc. (St. Louis), for example, received a number of price increase notifications from contracted vendors, based primarily on the Gulf Coast hurricane season and diminished petroleum production and refinement, according to CEO Robert "Bud" Bowen. Most of the increases were in the 6 percent to 12 percent range, he noted.

"Of course, any natural, or even man-made, disaster becomes a convenient time to try for a price increase, but normally market pressures and competition quickly bring this in line," he added.

Although price protections woven into contractual language should prevent GPO-contracted vendors from increasing prices during disasters, it’s not fool-proof and can bend with some flexibility.

"Standard contract terms and conditions call for fixed net pricing for the term of the agreement, normally one to three years," Bowen said. "However, most manufacturers with resin-based products routinely take exception to that clause, and we end up negotiating either a "force majeure" clause, or perhaps a capped limit in frequency and amount of potential increases."

Bowen revealed that one vendor told Amerinet it will be adding a nickel to the price of its product lines under all GPO contracts with no exceptions and a willingness to cancel contracts if necessary.

"Variations in supply and resulting fluctuations in raw material costs are not new issues," said Eldon Petersen, group senior vice president at Novation (Irving, TX), in a prepared statement. "Certain raw materials are typically subject to seasonal variation, economic factors and natural disasters. Strategic decisions by producers to limit supply or by farmers to plant different crops can also greatly influence raw material costs.