Benefits Expense is a Top 3 Line Item; Smart Manufacturers Manage the Healthcare Supply Chain

As a manufacturer, you likely have a procurement strategy for your raw material, overseen by a sourcing or supply chain manager who ensures efficient and effective use of that material, with the goal of increasing or at a minimum maintaining your profit margins.

For example, one DCW Group client manufactures tank heads, with someone in their purchasing department charged with procuring the exact amount of steel needed to meet production requirements at the best possible price. Then, they have another business unit created specifically to re-sell defective tank heads that they repurpose as fire pits. Repurposing defective tank heads in order to monetize unused products, that’s the kind of efficiency that successful manufacturers like yourself expect and implement with every element of the business — except your benefits expense.

P&L Expertise
Needed Deferring management of your benefits expense to a non-P&L manager is a glaring oversight in the pursuit of a profitable business model. According to independent actuary, Milliman, 80 percent of healthcare costs are controllable, yet the vast majority of manufacturers don’t apply the principles of supply chain management to their benefits expense.

You have employees within your company who fully understand supply chain management and its role in creating a profitable business model, but likely not in HR. This is not surprising, since HR does not have P&L responsibilities. The operational performance of the benefits plan is a critical role, rightly led by HR experts. But, the strategy behind financing it needs to be set by someone with P&L expertise.

You can’t fix a supply chain problem with an insurance solution. If insurance was the source of this problem, we could fix it with insurance. You've tried to do that at your manufacturing company for 20, 30, 40 years. We're here to tell you that the insurance is not the problem and it's not the solution.

Healthcare Verticals
When we ask manufacturers what they’re doing to manage their benefits expense by controlling the 80 percent of their variable health plan costs that are coming from four key areas in the healthcare supply chain — Inpatient (31%), Professional Services (29%), Outpatient (19%), and Pharmacy (17%) — they do not have an answer.

To save the most money and ensure a profitable business model while disrupting the least amount of people, DCW Group advises manufacturers to address the four verticals in this order:

1. Pharmacy, where assessing prescription drug rebates can save tens of thousands of dollars;
2. Inpatient, where a small number of plan participants create a huge percentage of costs;
3. Outpatient, where the type of facility an employee visits significantly impacts the price;
4. and Professional Services, where direct primary care can benefit a large number of plan participants.