Consumer behavior in healthcare
Imagine for a moment that the government issued a mandate that required consumers to pay a significant portion (75% or higher) of all healthcare costs out-of-pocket.
This is a serious reality for many tourists who arrive in the United States from foreign countries without insurance, but with a reasonable bank account, and a need for care.
When this occurs, a provider must not only explain the options available, but also the cost of each to the patient. Procedures are then chosen based on a balance between cost and a desire for the highest quality outcome.
Among the challenges providers struggle with is how to explain the cost of a procedure in marketing materials or during a consultation visit. This isn't quite as simple as one might think, e.g. determining the cost of a colonoscopy. The total cost to the patient has a real chance of including the removal of polyps and a need for a secondary colonoscopy. The patient visit also includes underlying services beyond the core procedure; and the cost of these additional activities must be accounted for.
This situation warrants the need for procedure pricing that is averaged for high and low costs based upon potential episodes. Packages need to be established with pricing and options clearly communicated to allow for consumer choice. A handful of health systems are now attempting to cater to this market using simple analytics to support pricing models.
In contrast, the decision-making of an insured patient differs tremendously. They either do not worry about the cost of a procedure or they choose the opposite of the lowest cost. And why not? If a patient is fully covered for a colonoscopy with the option of either a $3,000 or an $8,000 procedure, they will likely choose the more expensive option under the assumption that it is superior care.
At the moment I am scheduling my own dental care for 4 crowns to minimize out-of-pocket expenses. My dental insurance plan has a maximum annual coverage limit, thus I make medical decisions based upon what I must pay. It appears that dental insurance is more efficient than health insurance in this way. It encourages consumer behavior, but generally covers maintenance and prevention activities.
Now imagine that competition on price became a leading healthcare issue, created by consumers forced into out-of-pocket buying decisions. Perhaps a price and quality comparison website would appear in the market. Prospective patients would select from a list of procedures and then nearby providers would list their pricing. Some providers would likely advertise to get to the top of the list, while others would simply rise to the top through competition. Patients might even rate or comment on the outcome of a previous procedure using such a tool.
Medicine at times has taken a track opposite to the one governed by Moore’s law in the semiconductor industry. The evolution of new technologies in medicine serves to increase cost. No one that I am familiar with is working on the assumption that we will reduce the cost of colonoscopies by 50% every 5 years.
How do we encourage patients to act as consumers? Consumers are needed to improve quality and minimize costs.
One place to start is to evaluate quality through patient reported outcomes and let the mix between insurers and providers figure out how it drives the market. Perhaps insurers should reward the healthy with financial incentives.
It appears that capitalism has failed, but I don't know why.
I’ve read a handful of research studies that mentioned inactive patients were uncomfortable with consumer-driven insurance spending because it required effort on the patients’ behalf to reap the benefits. This suggests that such a plan would encourage patients to work toward becoming healthy. Could these plans become more cost-effective for employers over time? Will self-insured employers or HMOs--folks who bear the full cost of the risk do some pioneering in this area?
Dan Housman
Managing Director, Analytical Applications
Recombinant Data Corp.
This is a serious reality for many tourists who arrive in the United States from foreign countries without insurance, but with a reasonable bank account, and a need for care.
When this occurs, a provider must not only explain the options available, but also the cost of each to the patient. Procedures are then chosen based on a balance between cost and a desire for the highest quality outcome.
Among the challenges providers struggle with is how to explain the cost of a procedure in marketing materials or during a consultation visit. This isn't quite as simple as one might think, e.g. determining the cost of a colonoscopy. The total cost to the patient has a real chance of including the removal of polyps and a need for a secondary colonoscopy. The patient visit also includes underlying services beyond the core procedure; and the cost of these additional activities must be accounted for.
This situation warrants the need for procedure pricing that is averaged for high and low costs based upon potential episodes. Packages need to be established with pricing and options clearly communicated to allow for consumer choice. A handful of health systems are now attempting to cater to this market using simple analytics to support pricing models.
In contrast, the decision-making of an insured patient differs tremendously. They either do not worry about the cost of a procedure or they choose the opposite of the lowest cost. And why not? If a patient is fully covered for a colonoscopy with the option of either a $3,000 or an $8,000 procedure, they will likely choose the more expensive option under the assumption that it is superior care.
At the moment I am scheduling my own dental care for 4 crowns to minimize out-of-pocket expenses. My dental insurance plan has a maximum annual coverage limit, thus I make medical decisions based upon what I must pay. It appears that dental insurance is more efficient than health insurance in this way. It encourages consumer behavior, but generally covers maintenance and prevention activities.
Now imagine that competition on price became a leading healthcare issue, created by consumers forced into out-of-pocket buying decisions. Perhaps a price and quality comparison website would appear in the market. Prospective patients would select from a list of procedures and then nearby providers would list their pricing. Some providers would likely advertise to get to the top of the list, while others would simply rise to the top through competition. Patients might even rate or comment on the outcome of a previous procedure using such a tool.
Medicine at times has taken a track opposite to the one governed by Moore’s law in the semiconductor industry. The evolution of new technologies in medicine serves to increase cost. No one that I am familiar with is working on the assumption that we will reduce the cost of colonoscopies by 50% every 5 years.
How do we encourage patients to act as consumers? Consumers are needed to improve quality and minimize costs.
One place to start is to evaluate quality through patient reported outcomes and let the mix between insurers and providers figure out how it drives the market. Perhaps insurers should reward the healthy with financial incentives.
It appears that capitalism has failed, but I don't know why.
I’ve read a handful of research studies that mentioned inactive patients were uncomfortable with consumer-driven insurance spending because it required effort on the patients’ behalf to reap the benefits. This suggests that such a plan would encourage patients to work toward becoming healthy. Could these plans become more cost-effective for employers over time? Will self-insured employers or HMOs--folks who bear the full cost of the risk do some pioneering in this area?
Dan Housman
Managing Director, Analytical Applications
Recombinant Data Corp.
Labels: Quality Reporting
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