Health care needs less risk management and more supply chain management

Self-insured employers are fundamentally in the business of “buying health care”. A 1,000-employee company is going to spend $15 million on health care annually; most of that spending is on the same things each year, like MRIs, joint replacements, and drug infusions. When businesses are regularly spending such a significant amount of money, they have departments and tools dedicated to evaluating purchases. The people in these departments make sure that all the purchased units are competitively priced, efficiently delivered, paid correctly, and of high quality. Health care should not be an exception to this practice. 

Employer-sponsored health care is the only industry where purchasers spend billions per day yet do not judge their performance by how good their purchases were. Instead, a framework from insurance is used to evaluate purchasing. This framework focuses on aggregate metrics built to estimate future costs, rather than more actionable measures on the effectiveness of expenditures. Plan sponsors and their consultants focus on “risk management” when they should instead be focusing on “supply chain management”. 

Supply chain management has the tool set the industry needs to create a better and more efficient healthcare system.