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Consumerism has reshaped healthcare—just not how it was expected to

When I began my career in healthcare research over a decade ago, the concept of consumerism as a transformative force was in its heyday. High-deductible health plans (HDHPs) were seeing explosive growth. Urgent care centers were cropping up on every corner and retailers such as CVS and Walgreens were entering the clinic space. Patient-facing transparency vendors (Castlight comes to mind) were attracting significant attention and investment. Rumors were swirling that corporate giants Walmart and Amazon might be poised to bring their consumer savvy to the healthcare space. At the time, skeptics pointed to the quirks of the healthcare industry that might hinder the transition to a more market-based model, but their voices were largely drowned out by those predicting sweeping change.

Why the general enthusiasm for the concept? Consumerism was touted as a politically neutral mechanism for solving two problems that were (and are) in many ways at odds with one another:

  1. Frustrations by patients with access to care. Patients wanted more options, were frustrated they weren’t getting them, and were increasingly vocal to their employers and elected officials.

  2. Steep increases in employer health costs in the early 2000s. The rate of cost growth has since slowed for a variety of reasons, mostly related to the state of the broader economy, but in the early 2000s it was not uncommon for employers to see annual cost growth of 10% or more.

As a result, consumer-focused options developed not only because some businesses thought they could make money on consumer dollars, but also because others counted on employers and payers embracing such options as a means of engaging patients in benefits.

In contrast to the energy level then, I would characterize today’s conversation about healthcare consumerism as ‘tame.’ We certainly have discussions about transparency, shopping, and the competitive threat of Walmart and Amazon, but not with nearly the same kind of urgency that we would have 10 years ago. It's likely the then-skeptics of healthcare consumerism feel largely vindicated; there is plenty of fodder for their argument that healthcare, with its immense complexity and life-and-death stakes may be immune to the economic realities that drive so many other industries.

But it seems to me that it's time for a fresh look at consumerism in healthcare. Let's start with dropping the binary frame—the 'will it or won't it' drastically reshape healthcare question—in favor of a more nuanced look at how the phenomenon has been playing out. After all, it may not have reshaped the market altogether, but important changes have happened because of the push toward consumerism—and future developments are likely to follow.

So for today’s discussion, let’s tackle this topic in three parts: First, we’ll revisit the basic building blocks of consumerism—choice, motivation, and knowledge–and assess what progress has been made in each of these areas. Second, we’ll talk consequences, both the intended ones and the more accidental ones that have transpired. Finally, we’ll consider what the future might hold, and what to watch for.

 

Part 1: Revisiting the building blocks of consumer-driven healthcare


Building block #1: Choice.

Any consumer-driven market needs choice. Consumers must have multiple options to select from, and among those options, there must be meaningful differentiation in both price and quality. This is an easy one to evaluate: as any healthcare insider knows, price and quality variation are rampant. The price variation side is well established by academic studies and media coverage: you can find it within individual markets (think of any regional paper you've seen in recent years touting the price differentials between local hospitals), between markets (e.g., covered here and here), and even within individual hospitals (depending on the insurer/plan in question; see examples here and here). Similarly, on the clinical quality side of the equation, there is meaningful variation between facilities and within them, with the extent of variation depending on the complexity of the service. Expanding the definition of quality beyond the purely clinical, consumers continue to find meaningful differences in experience dimensions such as the ease and speed of accessing care. It may be difficult to assess or predict these things in advance (see the 'knowledge' stumbling block, covered below). But, I think it's fair to say that options, i.e., the possibility for choice, existed before the consumerism movement gained traction and remains in the market today. Additional choices have also emerged: arguably the place in healthcare where consumerism has notched the greatest wins so far has been in adding service-model options. We have seen an explosion of new entrants, especially for lower-acuity care: urgent care centers, retail clinics, virtual care platforms, and concierge models, etc.

There are some caveats to this argument, of course. Not only in shortfalls related to consumer knowledge about these choices (again, covered below), but also because choice has certainly declined in some services and markets due to consolidation and other factors. Rural markets, in particular, have experienced hospital closures and service shortages—and have benefitted less than suburban and metropolitan markets from the the influx of new retail/technology-driven types of care delivery options. But, at a very basic level, I think it’s fair to say that most of the population has at least some level of choice when it comes to healthcare delivery services, particularly in more densely populated regions that have attracted new options, and in areas without a dominant provider and/or payer.

2023 verdict: However imperfect, options do exist—and the consumerism movement has substantially increased choice, at least in some clinical areas and in population centers.

Building block #2: Motivation.

If choice is present, the second active ingredient of any consumer-driven market is motivation. Customers must have an incentive to shop around.

Of course, cost-related incentives are certainly not the only ones when the 'consumer good' in question has life-and-death implications for 'consumers'. But let's start there: In the past decade, both employers and health plans have been active here, working to shift more financial responsibility onto patients.

To understand the size and nature of consumer financial exposure, it’s helpful to go a layer deeper. Having combed through the latest data and talked to employers and health plans recently on this topic, here are three observations:

  1. Deductibles continue to grow in both size and prevalence, but the rate of that growth has slowed, especially among $1,000+ HDHPs.

  2. Employers are increasingly skeptical that HDHPs will deliver significant cost savings outside of select services such as imaging, and the share of employers mandating HDHPs by offering these plans as their only plan option is declining.

  3. Increases in copayments and coinsurance are become more common as employers look to shift consumer behavior for higher-dollar figure services that typically exceed even high deductible levels.

Overall, the picture on patient financial exposure is more complicated than a simple 'it continues to grow' —and what I see in these trends is that the industry and its payers are still learning what combination of cost exposure levers it might take (if any) to motivate greater behavior change in healthcare consumption.

2023 Verdict: Motivation for consumers to shop, in the form of high out-of-pocket cost exposure, is prevalent but still evolving; employers are still working to find levers that work on services with costs that exceed normal deductible limits.

Even with this mixed verdict on motivation, I’d say: so far, so good for the first two of the three consumerism conditions. But a key lesson across the past 10 to 15 years has been that even with choice, and even with (some degree of) motivation, encouraging consumer-driven behavior is incredibly difficult without our third active ingredient…knowledge.

Building block #3: Knowledge.

This is the place where the consumer-driven healthcare movement has undoubtedly struggled the most, despite repeated (including some notable recent) attempts to increase transparency. Paradoxically, there is both too much and too little information being shared. Between plans and providers, the system has been flooded with an overwhelming amount of data. Plans alone shared nearly 57 billion prices (not a typo) in the first six months after their new transparency requirements took effect. The sheer quantity of data has made it difficult for even vendors and researchers to access the files and interpret them, much less individual consumers (hmm, could that be intentional?). On the other hand, a lot of data that is crucial to patient shopping has not been required to be disclosed. For example, at this time, information about plan size, benefits design, service utilization, patient demographics, outcomes, and provider location need not be released..

So the information situation is far from perfect for enabling shoppers. But what if the information were better? Here I think it’s important to underscore what’s often been said before: information and knowledge are not the same thing. Pricing information will get better as third parties sift through the data and as transparency regulations continue to evolve. But the average consumer would likely still find it difficult to interpret even a relatively straightforward data point on price because of 1) the immense complexity of health benefits (“what will I actually pay?”) and 2) a lack of clinical/medical expertise to accurately gauge what an appropriate price for a service even is ("would I be trading away something valuable for a lower price?”). The focus of this knowledge press has been all about price, and that alone has been a long and still-incomplete slog. Helping clue consumers into the quality and experience dimensions of healthcare 'goods' is its own mountain that is also a long way from being conquered.

2023 verdict on consumer “knowledge”: Persistently mixed bag; very slow progress.

 

Part 2: Let’s talk consequences.

Looking at the progress (or lack thereof) in the consumerism building blocks does more than merely help explain why consumerism hasn’t had the impact many originally predicted. It also helps spotlight what would need to change for it to take greater hold. This important because it indicates where the change energy needs to go (if you’re an advocate) and what to watch for (if you’re a detractor, a skeptic, or even just a curious observer).

Second, and potentially even more important in the near-term: the above exercise underscores the fact that the consumerism movement has ushered in a significant amount of change: New competitors. Drastic changes to benefit design for millions of people. And a truly massive influx of information that simply wasn’t available 10 years ago.

These changes have had important consequences for the industry. Here are three important ones—one intended,, and two that are a bit more accidental:

An intended consequence: Consumer-focused delivery models have raised the table stakes when it comes to patient access.

Across the past couple of decades, competition from new low-acuity care delivery options (urgent care centers and retail clinics) has improved access in three ways: First, by inserting a new option in the market. Second, by pressuring incumbents to adopt new practices such as online scheduling, same- or next-day visits, and e-visits/online messaging. And third, by freeing up capacity at physician offices by shifting a portion of the visits that would have previously been seen at those sites. Consider this startling survey data from Merritt Hawkins and AMN Healthcare: Even in an era when many observers believe primary care is in shortage, the average wait time in family medicine has decreased 30% since 2017 – this is contrast to all other surveyed specialties where wait times have only increased.

An unintended consequence: Consumer-focused delivery models are creating alternative employment and practice options for physicians.

Organizations such as One Medical, MDVIP, Crossover Health, and ChenMed that tout their more “consumer-centric” nature are as much about creating attractive working environments for physicians as they are about competing for consumer preference. As I covered in a previous post, these organizations highlight physician-friendly features such as smaller panel sizes and the ability to spend more time with patients as differentiators from conventional practice settings. This, in turn, is putting pressure on more traditional physician employers (such as health systems) to evolve their own physician practice and partnership models in order to compete.

A (sort of) unintended consequence: Increased transparency may not have enabled consumers per se, but it is slowly enabling employers to shop more aggressively on behalf of their employees.

Early price transparency platforms were largely consumer-centric. That effort has not faded entirely (Turquoise Health is probably the most prominent vendor currently attempting to translate the newly-available data from the recent transparency legislations into usable patient information). But employers have slowly overtaken patients as the primary “consumers” of pricing information. One of the biggest (and still unfolding) transparency stories in recent years has been the RAND study on hospital pricing, which specifically identifies employers as its target audience: As they put it, “If employers have access to the information on prices needed to be better-informed customers, they can do a better job shopping for health care on behalf of their employees.”

As I noted earlier, the idea that employers might be key players in the consumerism movement isn’t entirely surprising—in fact, you would have found plenty of business in the early 2000s and 2010s that saw employers as potential “buyers” and facilitators of consumer-focused services. And employer cost trend was one of the problems that consumerism was intended to solve. But the idea that employers would be THE key buyer/player was certainly not the original vision.

Recent legislation could further accelerate employer-facing transparency efforts. Around the same time that the hospital price transparency rule took effect, the Consolidated Appropriations Act of 2021 (CAA) was signed into law. Buried in this massive bill was a policy mandating that employers act as fiduciaries of their employees’ health coverage, much in the way they do for pensions and retirement funds. Although these requirements place increased administrative burden on benefits managers, employers have voiced support for the policies and the insight they offer into historically opaque sectors like PBMs and brokers. There’s no guarantee that this law will fundamentally change employer behavior. However, by providing specific, usable information and requiring firms to act on that information, it may motivate more action than the hospital and health plan transparency rules could on their own. We have heard benefits executives citing this new regulatory development as a reason to step up their value-oriented purchasing activity in healthcare.

 

Part 3: What does the future hold?

Even if the conversation has gotten more muted, the push to make healthcare more consumer-centric continues. I’m not going to make a prediction as to if or when consumerism in it’s truest, purest form will come to fruition, but I will say is this: that third building block—knowledge—is a doozy. Closing the knowledge gap among patients is a steep uphill battle that is unlikely to be “won” anytime soon. And it would likely require a lot more than more/better transparency.

But I do think some of the elements of consumerism continue to offer promise for impacting cost growth and prices, particularly via employers as intermediaries, using somewhat less direct means of influencing employee and family behavior. Employers (and to a certain extent, their health plan partners) increasingly are using elements of consumerism, such as price differentials, to nudge consumers to make more cost-effective choices rather than forcing them into unpalatable situations or simply encouraging them to shop. Nudging helps get around the knowledge problem—a problem that may never be solved to any satisfactory extent.

Here are some specific things to watch as consumerism continues to play out, slowly, in the healthcare market:

  • To what extent do “consumer/patient-centric” care delivery players continue to market directly to patients, versus physicians or employers?

  • How will more traditional employers of physicians respond to the more “both consumer and physician-centric” messaging being pushed by emerging care delivery players?

  • How, and how quickly, can employers make use of the new pricing information that has flooded the market. Will slow-moving trends start picking up speed, or new forms--for example, when it comes to narrow networks? Centers of excellence/bundled episodic payments? Navigation services?

  • Will the CAA’s new employer fiduciary requirements—and additional transparency measures, especially for PBMs and brokers—accelerate employer efforts to effective use pricing information for the purposes of steerage and/or network design?

 

Parting thoughts

It's less likely today that you will be pushed into a 2010s-style healthcare consumerism argument, in which you might have to choose between being a fervent believer vs. a detractor/skeptic. That's a good thing, because binary conversations on consumerism in healthcare are not the most useful frame. But keep your eye on this space: Nuanced, sometimes slow-moving healthcare consumerism developments may not have upset the apple cart, but they continue to drive important market changes.

What would you add to this discussion? If you have thoughts, questions about our model, or ideas for a next topic we should tackle, reach out to us at info@unionhealthcareinsight.com.

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