Promise and problems with supply chain management approaches to health care purchasing

The return of double-digit health care inflation coupled with widespread reports of poor care quality and deadly medical errors have caused private sector employers to reevaluate their health benefits purchasing strategies, with a focus on supply chain management (SCM) approaches. In other industries, this purchasing strategy has proven to be an effective method in simultaneously reducing costs and increasing quality; adoption of this approach in the health care industry has recently begun. The purpose of this paper is to describe the application of SCM methodologies to health care purchasing and to identify its potential strengths and weaknesses in controlling cost and increasing quality and value. While several nationwide efforts are gaining some traction in the marketplace, at this time, no cost reduction and quality improvement program initiative appears to systematically align the entire health care supply chain from providers' inputs to purchasers' payments, raising doubt about the ability of SCM techniques to significantly impact the health care marketplace in the short-run.