Premier’s Actions on COVID-19

Credit Suisse https://www.credit-suisse.com recently checked with Premier Inc. (PINC) https://www.premierinc.com to discuss the implications for their business and day-to-day operation amid the CoVID-19 Outbreak. According to Premier management, hospitals are coping with shortages in the supply chain, bit the supply chain is getting strained, so Premier has been helping member hospitals cope with the situation at hand for the last 2-3 weeks.

Premier management has been in constant communication with the regulators and hospital members in regards to the coronavirus outbreak. For instance, if there are product shortages at individual hospitals, Premier is working through the regulatory hurdles to get the products to them. Premier’s management believes that in the next couple of weeks things could worsen before they improve.

In addition, the pharmacy supply chain (Acute, Non-Acute, and Pharmacy), is relatively stable. Based on their survey of pharmaceutical manufacturers, the company believes manufacturers currently have a 4-6 month supply of Active Pharmaceutical Ingredients (API).

Premier is monitoring supply levels very closely and is concerned as to whether there will be a substantial increase in demand for products such as antibiotics. As a result of a tighter supply chain, there has been a surge in client interest for their ProvideGx program.

The ProvideGx program with 2K+ hospital participants, offers a different model where Premier is able to get take-or-pay commitments from members which is used to negotiate better pricing with suppliers.

The ProvideGx program ensures a base supply of products at favorable prices. As part of the negotiation, Premier also insists on other requirements such as access to where the APIs come from, to better ensure quality security of the supply chain, and provide pricing transparency.

Premier has flexibility to negotiate higher administration fees, however the company is unable to negotiate higher administrative fees for existing contracts, but in discussions with new suppliers, management plans to push for higher administration fees to offset pressure in volume.

The company is also keeping an eye on the Strategic National Stockpile (SNS) which is the nation’s largest supply of potentially life-saving pharmaceuticals and medical supplies for use during a public health emergency.

Premier has been providing suggestions to the administration on ways to streamline the SNS to provide easier access which would also help the SNS manage distribution of supplies. Premier is involved in another issue related to supplies which now requires the company to deal with the increase in grey market activity. This activity involves the production of counterfeit products and individuals then try to get access to these products and try to resell the products at inflated prices.

A Premier survey finds that 86% of health systems are concerned about Personal Protective Equipment (PPE) shortages due to COVID-19. Premier has around 1,700 products particularly in Personal Protective Equipment (PPE) on allocation from distributors.

If a facility orders more than their historic spend/allocation, distributors are not willing to supply the order due to their inability to meet the higher-than-normal demand. This presents a problem for facilities such as nursing homes, which are ordering PPE products at a volume significantly higher than in the past.

The argument from nursing homes is that PPE products are not for their residents, but more for their visitors who could be carrying the virus. According to the nursing homes, since these facilities are not a regular purchaser of these products, they are not being allocated the amount requested.

The company notes that some of the $8.3 billion from the emergency fund is earmarked for hospitals. Given the additional diagnostic tests that are necessary, there will be a cost component. In addition, there is a guaranteed purchase with a federal backstop of 500 million masks along with other potential PPE products to add to the SNS over an 18 month period.

Premier also helps health systems expand penetration of their contract such as running more of the health systems’ supply chain spend through the contracts. For instance, by joining high compliance initiatives, health systems are able to put more products into their contracts which enables them to purchase more products and drive higher net administration fee revenue.

Management is proactively taking steps in collaboration with members to drive penetration since members benefit when penetration increases because that drives prices down. The company has managed to increase penetration at a steady clip by working with health systems to participate in high compliance initiatives, by putting new products on contract, and by getting into areas like purchased services.

As for contingency plans for employees, the company put guidelines in place, stopped all non-essential travel with international travel on hold, and employees that work inside hospitals will need to follow hospital guidelines on how to best deal with COVID-19.

For more information or to provide feedback, email Jailendra Singh, Research Analyst at jailendra.singh@credit-suisse.com or call 212-325-8121

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