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Health care needs less risk management and more supply chain management

The health care system uses risk management models to purchase the necessary goods and services they need to operate. This model is not optimal as it focuses on aggregate metrics to estimate future costs rather than using supply chain management which would be able to allow more effective spending. Supply chain management is able to offer the health care industry the tools and processes it needs to be more effective and efficient.

Health care needs less risk management and more supply chain management

Risk management in the health care industry

Currently, the health care industry uses insurance to create risk management models. This functions to cover unexpected payments to members which means the premiums for health care also have to be high enough to cover the unexpected claims. Risk management models consist of population health, member cost-sharing, as well as aggregate rate increases to name a few. Reporting and management strategies are based on this as these factors are listed under disease categories, categories of average spend, or the tracking of patient risk. Risk management models have been successful for insurance companies to predict costs but not to manage the high cost of purchasing health care.

Because of risk management models, the focus has been placed on assessing the risks and not on managing payments which could be better dealt with through the use of supply chain management models and metods. Risk management models do not factor in the value, like the price and quality, of the goods and services offered by the products within health care. Instead, the value is placed on comparing carrier discounts, aggregate costs, and abstract population health measures. Rather, as an alternative, the value should be placed on the price, efficiency, payment integrity, and quality of the components of health care.

How supply chain management would be a better fit

Supply chain management functions to offer a framework for buying inputs for a business by considering factors like outsourcing, insourcing, procurement, and supplier evaluation. The health care services needed should be considered a part of the supply chain. This will allow for better management, a cut in costs, and lower premiums. Using a supply chain management approach would require the use of a navigation programme, utilisation management policy, incentive programme, or network by the impact on the price and efficiency of health care to make health care services valuable.

Navigation programmes are driven by a triennial community needs assessment established and functions to confront any disparities within healthcare. Utilisation management policies function to reduce the rising rates of healthcare costs and incentive programs, or networks, function to provide rewards to a group of people in return for them taking a desired action.

How supply chain management would be a better fit

Supply chain management focuses on the suppliers, providers, and carriers of health care rather than the population as is the case with risk management. According to David Gaines, the CEO and Founder of Careignition, Inc., it has been proven that focusing on paying less for health care, with the same value as more expensive health care, provided larger savings than wellness programmes and disease-based point solutions used by risk management.

It has also been proven that supply chain management within health care can save more lives than risk management. According to Gartner Research, supply chain management reduced the facility costs of hospitals by using current data to alter payment models. This data offers insight into the current inventory, future demand, and unnecessary purchasing. Supply chain management is able to locate where prices can be cut and can mitigate end-to-end supply chain disruptions. If this is adopted, health care providers will be in a position to offer more resources to patients and therefore save more lives.

A great example of how effective supply chain management can positively impact health care and save lives

Supply chain management was one of the main reasons that the COVID-19 pandemic could be controlled to a certain extent. If vaccines were not created and distributed efficiently, the pandemic could have been even more disruptive and deadly. This was prevented by effective supply chain management processes.

To create the vaccines, health care facilities had to manufacture syringes, needles, technology, and the necessary medication before having them transported to assembly and distribution centers and in turn to the public

New technologies in supply chains can further benefit health care systems

Access to new and advanced technologies in supply chain also present new opportunities to supply chains in health care. These opportunities include:

  • Reducing human error and allowing staff to be more patient-focused.
  • Using current data to track and estimate the need for medications and supplies.
  • Offering immediate access to medical aid for patients.
  • Ensuring the faster distribution of medications and services.


New technologies in supply chains can further benefit health case systems

The bottom line

Although risk management models do offer benefits which are necessary within health care. they may not be the most optimal route to follow. Risk management does not lead to an effective and efficient marketplace in the way that supply chain management models could. To ensure value is offered to patients at reduced premiums, supply chain management should be considered and implemented as a solution and approach.