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Is Healthcare a Commodity?

Written by: Jenna Chou, PMP

The healthcare sector is by far one of the most complex industries to work under and to manage it well, with meeting patients’ demands almost always one step behind. This is true, according to Nobel Laureate Kenneth Arrow, who argued that healthcare is extremely complex as it is scientific-based yet personal in nature, and cannot be compared to any other marketable commodity (Kenneth Arrow, “Uncertainty and the Welfare Economics of Medical Care”, 1963). Therefore, it is even more difficult yet absolutely critical to develop a comprehensive standard that translates an organization’s strategic objectives into accurate and reliable set of performance measures, which would provide meaningful results that uncover inefficiencies and prompt the management teams to make the necessary strategic improvements in order to stay competitive. For the healthcare sector, the difficulties in creating performance systems is exaggerated by the multiple stakeholder groups that overlaps in roles and expectations. As well, unlike for-profit corporations, public healthcare organizations are limited by the budget and bounded by stringent policies. With numerous distinct departments and multiple levels of referral networks and specialists, it is foremost important for senior management to set aspirational Vision, Mission, and Purpose statements, and clearly communicate those statements to every single employee in the healthcare institution. For Balanced Scorecard (hereafter refer to as BS) to shine its most intended effect, an organization must first make sure that all stakeholders involved are aligned with the same strategic goals. The BS brings together the complex system such as healthcare into just 4 perspectives that drive the management to generate the most optimal solutions by taking different trade-offs from the 4 perspectives into consideration to ultimately arrive at the best trade-off situation in which aligns with the organizational goals and yields the best future competitive direction for the organization. By taking the 4 perspectives that consists of both internal and external to the organization and consider all of these operational measures together, management is able to view the organization as a whole and able to make better judgement when comes to deciding what trade-off is the most optimal for the organization, as well as allowing the inter-dependent process “wastes” to be uncovered and eliminated.  In addition, BS allows different organizations and business functions to prioritize the 4 perspectives and even add additional ones when it is an important business function that needs to be measured and benchmarked against best practices. BS fit into the business model of NFP organizations because it encompasses customers, innovation and learning, and internal business processes, all of which are usually what NFP values the most.  However, NFP lack the simple elegance of a financial measure – such as profitability or shareholder returns – used by for-profits to assess their performance… as NFPs have goals to offer services at the best of their abilities “intangibly” (Forbes, 1998)[i]. BS makes sure that the overall strategic missions and goals were set before the measurement perspectives are created, so the resulting BS will be aligned with the corporate goals. By adding the quantifiable measures to each of the BS perspectives, NFPs is able to incorporate the financials into the decisions or programs they are implementing, and would prioritize the services they offer more effectively, and would have better judgement when it comes to whether to initiate a new innovative program that one of the employees are so excited about. By establishing a balance between the tangible budgets and the intangible services that they offer, NFPs will not only improve their internal business processes, but will also be able to offer the right programs to the right patient groups while having the budget under control, which has always been a headache for NFPs[ii]. Overall, BS is a flexible tool that can be customized depending on the organization’s needs, and pushes management to consider the different trade-offs, and ultimately implement decisions that that will yield the max value for the organization and its patients.

[i] Robert S. Kaplan. “Strategic Performance Measurement and Management in Nonprofit Organizations”, Spring 20016

[ii] Robert S. Kaplan. “Strategic Performance Measurement and Management in Nonprofit Organizations”, Spring 20016