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Using a value chain approach for effective decision making
1University of North Texas, USA.
Journal of Healthcare Resource Management
|August 5, 1997
Summary
Healthcare cost management needs a new approach. Evaluating products by price alone is inefficient; a value chain analysis reveals true costs, including process and downstream expenses.
Area of Science:
- Healthcare Management
- Health Economics
- Operations Research
Background:
- Traditional healthcare cost evaluation often relies on product price.
- This method may not accurately reflect the total economic impact on an organization.
- A comprehensive cost assessment is crucial for effective financial stewardship in healthcare.
Purpose of the Study:
- To differentiate between product price and true cost in healthcare.
- To introduce a value chain approach for evaluating healthcare expenditures.
- To analyze the functional, process, and downstream costs associated with healthcare purchases.
Main Methods:
- Examination of a typical healthcare purchase scenario.
- Application of value chain analysis principles.
- Comparison of price-based evaluation versus a functional cost assessment.
Main Results:
- Product price is a limited metric for determining actual healthcare costs.
- Value chain analysis provides a more comprehensive understanding of "process" and "downstream" costs.
- Healthcare organizations may incur significant hidden costs beyond the initial purchase price.
Conclusions:
- Rethinking cost evaluation is essential for effective healthcare financial management.
- Adopting a value chain approach can lead to more efficient resource allocation.
- Understanding the full spectrum of costs optimizes organizational financial health.
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