market sees slow shift to synthetic

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CLEARED FOR GENERAL DISTRIBUTION 4/03

INDEX> Powder-Free Preferred 2> Brand Mix Stable 2> Regent’s Biogel Making Waves 2> Purchasing Contracts 3> Quotes 5> Tally 6

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COMPANIES DISCUSSED:

EXECUTIVE SUMMARY Market Sees Slow Shift to SyntheticPhysician preference and purchasing agreements are primary factors when determining surgical glove selection. Many physicians still prefer latex. However, allergic reactions to latex for clinical personnel as well as patients are a high concern for most hospital sources. Most are working toward an eventual conver-sion to synthetic and powder-free products. Regent Medical’s (a subsidiary of SSL International PLC) Biogel glove is solving this dilemma for many institu-tions because it provides surgeons the feel of latex and contains only a light powder coating. Still, Cardinal Health Inc.’s Allegiance Healthcare Corp. is a top surgical glove provider and holds major contracts with hospital buying groups for a number of sources. In addition, hospitals tend to maintain a supply of a variety of gloves specialized for a procedure or particular surgeons’ requests. Although some sources had concerns regarding market stability, few had con-crete estimates about future price increases.

REPORT HIGHLIGHTS INDUSTRY STATUS4Surgical glove pricing is stable and most sources do not expect increases during the next few months. Many hospitals have set contracts through buying groups or manufacturers.

COMPANY PERFORMANCE4Surgical gloves manufactured by Allegiance were the top choice among more than one-third of sources on average, followed by Regent Medical and Ansell Ltd.’s Ansell Healthcare Inc., with Maxxim Medical Inc. a distant fourth. Most sources do not foresee major brand switches by mid-2003.

AREAS TO WATCH4Standardization is a goal in many facilities. Several sources plan to alter pur-chasing patterns — albeit slowly in some cases — to lessen the variety of brands and work toward achieving a predominantly latex-free stock.

SOURCES & BACKGROUND 32 hospital experts comprising 26 materials management directors, purchas-ing directors and buyers of surgical gloves, and 6 operating room (OR) and surgical nurse managers

Averages Straight

Background An estimated 10% to 17% of healthcare workers have latex allergies, according to the American Academy of Allergy, Asthma and Immunology. Allergic reactions can range from a mild rash to life-threatening anaphylaxis. The latex material itself poses the risk, but can be spread by powder on the gloves.

March 3, 2003•www.OTAOTR.com

SURGICAL GLOVESANSL, CAH

0 March 3, 2003•www.OTAOTR.com•

> SURGICAL GLOVES Powder-Free PreferredPowder-free surgical gloves represent approximately two-thirds of all sources’ stock, and little change in preference is expected during the next several months. Use of latex and synthetic gloves was roughly equal, and only a slight shift toward increased use of synthetic gloves was expected by mid-2003.

Most sources are working toward a long-term conversion to synthetic and powder-free products. One-half of sources immediately identifi ed the threat of allergic reactions as their primary infl uence in brand selection. “Only the best interest of the patients and staff would affect preferences,” said one source.

The latex itself can cause reactions, but powder also poses a threat when shak-en from the glove, spreading the risk of airborne transmission and post-surgical sensitivity. “Powder can become a vehicle for latex allergens, which can cause granulomas in open wounds,” one OR manager said. Another OR manager said physicians in some specialties — such as plastic and orthopedic surgery — de-mand powder-free gloves to avoid potential adverse reactions to the powder. Sources agreed the risk of latex sensitivity to staff and patients ultimately would drive hospitals toward a powder-free, synthetic stock. For now, however, the hurdles are price and physician preference.

Brand Mix Stable for NowMost sources purchased a variety of gloves, according to contractual arrange-ment and preference throughout the facility. However, approximately one-fourth of OTR’s sources had a single, predominant brand. Allegiance captured the most market share, representing more than one-third of sources’ total mix of surgi-cal glove stock on average. “We are a full Allegiance hospital. Their gloves were evaluated and the physicians approved,” a source said. Regent was the second most popular, with approximately 20% share, followed by Ansell, with Maxxim a distant fourth. Sources also named a variety of other popular vendors, including Medline Industries Inc. and private-label brands.

Although some sources are evaluating brands or examining purchasing options, only one source indicated a plan to change surgical glove stock by the second quarter of this year, seeking to cut her hospital’s latex stock in half. Her prefer-ence is toward Allegiance, but she is awaiting samples from an additional trial brand. Most sources expect relatively little change in their brand mix during the next few months. “It would take a couple of years for the whole hospital to convert,” said one source. Most sources have multi-year contracts with hospital buying groups and/or glove suppliers — particularly Allegiance — that still will be in place by mid-year.

Regent was described as a rising competitor, frequently praised by buyers and nurses alike for its Biogel glove. Altogether, seven sources were pleased with Regent for the combination of price and surgeon satisfaction components. The Biogel glove was described by sources as a synthetic product that offers more of a latex “feel,” providing a closer bridge between physician preference, safety and cost. “There’s a big contingent of doctors who like Biogel because it feels like latex,” said one OR nursing manager. Several also were considering Regent for future contracts. All sources who were evaluating gloves included Biogel in their trials.

Working toward Synthetic

Regent’s Biogel Praised

“There’s a big contingent of doctors who like Biogel because it feels like latex.”


> SURGICAL GLOVES Contracts Infl uence Purchase DecisionsContractual arrangements strongly infl uence sources’ buying decisions. Many hospitals belong to large buying groups that negotiate contract practices for their member hospitals. However, many hospitals belong to more than one buying group, allowing for more options to maximize cost containment. Because of the large number of surgical glove manufacturers, buyers tend to eliminate complexity by obtaining most of their gloves from one of several top companies. One buyer was looking to standardize surgical gloves and will contract with one of the top suppliers soon. For instance, one source expects a new contract with Regent to decrease cost and stabilize pricing. A purchasing manager at another facility said Regent costs are dropping slightly, enhancing her preference for this manufacturer.

Pricing for all the various types of surgical gloves has been fl at during the past three months, according to all but one of OTR’s buying sources. (That single source, who holds a contract with Allegiance, said its price for latex powder-free gloves had increased 5%.)

Looking forward, more than one-half of sources anticipate no price increases by mid-year, and most of the remaining sources expect only minor decreases or increases. “There may be a clause in our contract with Allegiance for about a 2% increase further down the road,” said one source. Purchasing managers remain alert to marketplace changes. “We are looking to decrease our costs be-cause the market is becoming more competitive,” said one. Three sources said because petroleum products are an ingredient in some surgical gloves, war with Iraq could destabilize the market and affect prices. “Maybe the prices will go up as a result of the oil prices increasing, but that probably won’t be real signifi -cant,” one purchasing manager said.

Other sources cited different political and economic concerns. One said that while the highest quality raw rubber product was imported from Malaysia, that country is being pressured by others — particularly Indonesia — to avoid doing business with the United States. “The only thing I can imagine would change pricing is a dock strike for items shipped from Malaysia,” one said. Another source said Ansell may be facing Food and Drug Administration scrutiny since it began offshore manufacturing.

Surgeon Preference Also Factors InPricing and contracts are major factors in purchasing decisions, but surgeons also have a big say in what gloves are on the shelf. Even in facilities with exclu-sive contracts, sources provide their surgical staffs with brands they request without regard to cost. “Surgeons are very particular and cost is not an objec-tive,” said one source. No purchasing staff would deny a physician request.

However, only a small portion of specialized surgeon requests go outside of contract to higher-priced brands. A few sources who were able to quantify said these specialized requests are less than 10% of their overall surgical glove mix. One buyer said, “If a surgeon just has to have a particular kind of glove, we will order it, but we try to get the surgeons to use the gloves we provide.”

One source said, “[Latex gloves are] the old stand-by.” Several sources said surgeons are very accustomed to latex, and are comfortable with the tactile sensation latex gloves provide. “We tried to use more synthetic surgical gloves because of sensitivities, but many surgeons still want the latex gloves because they can feel more with the natural rubber latex,” said one.

“If a surgeon just has to have a particular kind of glove, we will order it, but we try to get the surgeons to use the gloves we provide.”

Pricing Stable

Latex Gloves Still Popular

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> SURGICAL GLOVES Standardization Goal for SomeMany facilities’ goal is to standardize glove stock. Several sources plan to change purchasing patterns — albeit slowly — to reduce the number of brands and work toward achieving a predominantly latex-free stock. “[Glove] choice is a moving target. We have been trialing gloves and attempting to standardize,” one materials management director said.

One of the reasons change is slow in coming — particularly in transition to the safer synthetic, powder-free products — is that many facilities have no regula-tory mandate to compel such a change. There often is a tense balance between purchasing directors’ priorities and physician demand. “The physicians won’t change because they’re not being forced to change,” said one OR manager.

Sources noted this is a historical confl ict and its resolution depends on a num-ber of variables. “We tried a 100% latex-free initiative a few years ago, but the cost was prohibitive and some doctors do prefer the traditional latex gloves,” one said. Contractual agreements based on cost may affect the latex to syn-thetic and powdered to powder-free ratios, but as these contracts and brand selection generally begin to shift, standardization may be expedited. “We will move more toward power-free gloves — everyone has to — but it may not be this year,” said one.

This report was written and researched by Ruth Miriam Sullivan with additional reporting by Julie Remington for OTA•Off The Record Research.


QUOTES> SURGICAL GLOVES“It’s getting more and more to where you have to use synthetic because of con-cerns about safety.”

“Worry about latex allergies is a growing phenomenon — just growing and growing.”

“I fi ght daily for a change to latex-free, but the doctors won’t change.”

“We want to eliminate the wide number of suppliers and standardize our surgi-cal gloves by using one company primarily.”

“The doctors just love the Biogel product.”

“We contract with Allegiance for about 90% of our surgical gloves.”

“We use a lot of powder-free Biogel gloves.”

“The surgeons prefer the feel of latex.”

“We are trying to move toward using more powder-free gloves.”

“We will gradually move toward using more synthetic gloves, but not this year.”

“Price plays a much bigger role in our decision making now because reimburse-ments from insurance companies are decreasing.”

“Physician preference will not be as important as clinical acceptability, durability and price.”

“We are looking to decrease our costs because the market is becoming more competitive.”

“We just signed a fi ve-year contract with Allegiance.”

“There may be a clause in our contract with Allegiance for about a 2% increase further down the road.”

“We have no powdered surgical gloves in our hospital. We found the allergic reactions resulted more from the powder than latex itself.”

“Almost all of our surgical gloves are latex. Without the powder, it doesn’t cause as many sensitivities for the physicians.”

“We have a contract with Ansell, and we have not seen any price increases. But there have been some shortages of certain gloves.”

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TALLY


> SURGICAL GLOVES1a. What is your hospital’s current breakdown between powdered and powder-free gloves?

POWDERED POWDER-FREE100%: 1 791%–99%: - 181%–90%: 1 371%–80%: 4 561%–70%: 2 251%–60%: 1 141%–50%: 4 431%–40%: 2 126%–30%: 1 221%–25%: 1 316%–20%: 4 16%–10%: 3 11%–5%: 1 -0%: 7 1Average: 33%–38% 62%–67%

1b. How do you expect this breakdown to look by mid-2003?100%: 1 791%–99%: - 181%–90%: 1 371%–80%: 4 561%–70%: 3 151%–60%: 1 241%–50%: 3 331%–40%: 2 226%–30%: 1 221%–25%: 1 316%–20%: 4 16%–10%: 3 11%–5%: 1 -0%: 7 1Average: 34%–39% 61%–66%

2a. What is your hospital’s current breakdown between latex and synthetic gloves?

LATEX SYNTHETIC100%: 1 591%–99%: - 181%–90%: 5 271%–80%: 7 351%–60%: 4 141%–50%: 3 331%–40%: 1 421%–25%: 3 316%–20%: - 411%–15%: - 16%–10%: 2 41%–5%: 1 -0%: 5 1Average: 48%–53% 47%–52%

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TALLY


> SURGICAL GLOVES2b. How do you expect this breakdown to look by mid-2003?

LATEX SYNTHETIC100%: 1 591%–99%: - 181%–90%: 4 371%–80%: 6 161%–70%: - 151%–60%: 4 241%–50%: 5 431%–40%: 1 426%–30%: 1 -21%–25%: 1 316%–20%: - 311%–15%: 1 -6%–10%: 2 41%–5%: 1 -0%: 5 1Average: 46%–51% 49%–54%

3. Have you seen any price changes for surgical gloves during the last three months?Up 5% on latex powder free: 1No change: 25No response: 6** OR directors could not comment on pricing.

4a. What is the approximate percentage breakdown by manufacturer of surgical gloves used/purchased by your institution?

ALLEGIANCE ANSELL MAXXIM REGENT OTHER100%: 2 - - 1 491%–99%: 2 1 - - -81%–90%: 4 1 - 1 -71%–80%: 2 1 1 1 -61%–70%: - - - - -51%–60%: 2 - - 1 141%–50%: - - 1 2 -31%–40%: 1 1 - 1 126%–30%: - 1 - - -21%–25%: 1 - - 1 216%–20%: 1 1 1 1 211%–15%: 2 1 3 2 -6%–10%: 2 - - 2 41%–5%: 1 3 3 6 60%: 10 20 21 11 9No response: 2 2 2 2 3Average: 36%–41% 10%–15% 4%–9% 17%–22% 20%–25%

4b. How, if at all, do you expect these relative market shares to change by mid-2003?Increase: 2 - - 4 -Flat: 23 25 21 20 13Decrease: 2 1 2 - 3Don’t know: 2 1 4 6 9No response: 3 5 5 2 7

market sees slow shift to synthetic

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