Supply Chain Management Seen as Crucial in Reducing Health Care Costs

With health care costs rising and changes made under the Affordable Care Act taking effect, not-for-profit hospitals find themselves pressed to adopt business tactics to remain financially viable and fulfill their societal missions.

“The Affordable Care Act brings with it a reduction in reimbursement,” Brent Johnson, president and CEO of Intalere, told students in Executive MBA classes for Healthcare and Strategic Leadership at the Haslam College of Business on May 12.

“Our health care system is changing,” Johnson added. “There will be increased access as baby boomers age, more clinical integration and a pay-for-performance relationship. Everyone is going to have to get by with a little less.”

These changing circumstances can be addressed by implementing professional supply chain operations, according to Johnson, whose company, Intalere, is owned by Intermountain Healthcare of Salt Lake City.

Johnson formerly oversaw 22 hospitals and more than 185 physician clinics as vice president of supply chain and support services for Intermountain Healthcare. The bulk of his work there was in standardizing the equipment and supplies used system-wide, a daunting task given the complexity of the equipment and the number of decision-makers involved.

“Not-for-profit should not mean not-as-efficient, but sometimes it does,” Johnson said. “Personal preference drives many product decisions in health care, and a lack of standardization leads to higher expenses.”

Kurt Streepy, senior vice president of pharmacy at Select Medical and an Executive MBA for Healthcare Leadership student at Haslam, said his company re-evaluated its supply chain operations about five years ago.

“We’ve taken a deeper look into that process, so this was validating,” Streepy said. “I agree supply chain will play an increasingly important role in the health care industry.”

Peter “Doc” Claussen, a radiologist who now works in the railroad industry and is an Executive MBA for Strategic Leadership student at Haslam, said Johnson’s stance on health care standardization makes sense.

“It’s intriguing to see how much costs in the health care system are driven by personal preferences,” Claussen said. “In every other industry we derive efficiencies by finding best practices and performing them. That model is probably going to have to work with health care, too.”