Markets typically function smoothly when buyers and sellers share equal information about price and value and can equally compete to sell or purchase a product. Yet, the U.S. healthcare system typically hasn’t resembled this idealized marketplace. Comparing prices for drugs and procedures across providers and insurers is difficult, while an employment-based healthcare system means consumers can’t easily move their transaction to a more competitive offer. Doctor-patient relationships typically develop on a referral basis, favoring established pathways for care.
However, there are signs the healthcare market is becoming more transparent and flexible as cost pressures prompt employers, insurers, and consumers to rethink strategies. Consumerism has taken stronger root in healthcare, aided by technology’s market-flattening effects. Patients are now consumers too.
Patient-as-consumer dynamics have put pressure on hospitals and insurers to improve, spurred investment in new healthcare start-ups, and given consumers more information and choice. Management consulting firm Oliver Wyman predicts new entrants will eventually capture a third of the roughly $3 trillion U.S. healthcare market as traditional players shrink by 40% over the next five years. What does this new market look like and what are the implications for cost and care?
At its heart, consumerism in healthcare stems from giving people more information to compare care options, as well as the flexibility and responsibility to choose them.
Private sector firms have made procedure pricing more transparent. For example, Castlight Health maintains a “Costliest Cities” Index comparing the cost of common procedures across major U.S. cities. Rather than relying on referrals, people can now use services like ZocDoc to research, rate, and book doctors. The physician-owned Surgery Center of Oklahoma features clear prices for all its procedures prominently and accessibly, although such transparency from a provider is still rare.
Clearing and accessible pricing can have real effects. In the same forecast, Oliver Wyman pegs procedure costs at 30% of healthcare delivery spending. If prices fell to the current median - as could reasonably be expected in a more competitive market - total savings from procedures could amount to 18% to 27%.
At the same time, more care is available in clinic and retail settings. The number of retail health clinics increased from approximately 200 locations in 2006 to 1,800 last year, according to a study by the Robert Wood Johnson Foundation and Manatt Health. Three-quarters of those clinics were either a CVS Minute Clinic or a Walgreens Healthcare Clinic. Typically seeing 10-30 patients a day, these clinics feature lower cost care for lower-grade illnesses/injuries, immunizations, and preventative care. Compared to traditional primary care physicians or emergency rooms, clinics can be a more convenient and accessible care option.
Consumers appear willing to try new settings. According to a nearly 2,300 person survey conducted by McKinsey this year, 16% of people already receive care from a multidoctor clinic and 55% of the remainder were willing to do so if it cost no more than their current option.
Tom Main, a partner at Oliver Wyman and co-author of "The Patient to Consumer Revolution," believes “transparency and consumer tools are going to come to market in convenient care, in pharmacy, in diagnostics, and into simple procedures initially.” Main thinks retail pharmacy firms can leverage real-time diagnostics to improve care better than traditional PCP incumbents.
Insurance is shifting at the same time. The Affordable Care Act created subsidized exchanges where people could compare and buy health insurance, and reinforced a pre-existing movement toward outcome-based care from a fee-for-service model. Last year, 10 million Americans gained coverage through the law. Supporters also hoped the ACA would check steady increases in healthcare cost. While growth in healthcare spending has slowed in recent years concurrently, the root cause is still unclear.
The new exchanges exhibit some of the same consumerist characteristics as detailed above. Enrollees can shop and compare between healthcare plans, and, because of this, the offerings have been oriented more toward a cost conscious consumer.
Simultaneously, higher drug prices and healthcare costs have led to wider adoption of high-deductible health plans among employers and insurers. These plans require consumers to assume more responsibility in choosing care as they front more of the initial costs of treatment.
While some hope these types of plans can help bring down costs by prompting consumers to shop for cheaper care, a paper published in the National Bureau of Economic Research undermines this hypothesis.
Studying a large company switching its employees to a high deductible plan, researchers found the new plans did result in 13% lower healthcare spending. But, notably, the savings were not from price shopping but rather from an “outright reduction in demand for services.” Further, even those consumers with medical histories indicating their costs would likely exceed the yearly out-of-pocket maximum cut back spending until they hit their deductible. After which, they resumed spending at pre-change levels.
These results throw cold water on the idea an informed and (cost) motivated consumer will always search for the cheapest care. Instead, consumers might react by cutting spending across the board, which could result in higher costs for the consumer and the system later on.
Better diagnostics, better care?
Ideally, healthcare consumers would be able to recognize worthwhile spending, and invest in proper preventative care to help lower overall costs. While the research presented in NBER suggests consumers may not act in this manner, better diagnostics and predictive abilities could help while simultaneously opening the door further for greater retail opportunities.
“We are getting much more robust diagnostic information at point of care, in real time, with the pharmacist and the clinician present,” Main told Healthcare Dive.
Walgreens’ partnership with Theranos, before the blood diagnostics company’s troubles, was aimed toward this end. If large chains like CVS, Walgreens, and Walmart can leverage the high amount of interactions between their clinics and patients to drive better clinical outcomes, they will be highly competitive with healthcare incumbents. Importantly, they also may be able to use their transaction volume to improve care through better monitoring and more frequent interactions.
But, to do this, they will need to ensure consumers’ privacy concerns are addressed. In another survey last year, McKinsey found the vast majority of those polled would only trust PCPs with health monitoring data, compared to insurers, Google, Apple, and their employers.
Main countered, “consumer trust of the retail pharmacies is quite high. I would expect over a three-year frame that we are actually going to see the quality go up dramatically.”
Consumerism in healthcare has already put pressure on traditional market players and has the potential to do so in an even more dramatic fashion over the coming decade. A more transparent healthcare market would reduce inefficiency and rationalize pricing.
But it could also shift burdens onto consumers, more than they may be willing to accept. Unlike other markets, healthcare is generally consumed when the person is already sick, tired, and needs help. Asking consumers to pick the most cost-effective care at the same time may lead to consumers cutting spending on important preventative care.