The Growing Pains of Industrialization

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Don McDaniel
President and CEO
Sage Growth Partners

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Mike Stephens
Consulting Associate
Sage Growth Partners

The Rise of Consumerism in Healthcare

Sage Growth Partners recently participated in an industry webinar sponsored by Availity, a leader in the healthcare information management and revenue cycle enhancement space, on consumerism and the increasing impact of patient payments on providers. The webinar solidified our belief that what we are witnessing today is the industrialization of the U.S. healthcare industry.

The U.S. healthcare industry is faced with the mammoth task of fixing some of the shortcomings that have plagued it — a lack of consumer sovereignty, an absence of price and cost transparency, and an inadequate standardization process — to name just a few. In particular, the arrested development of consumerism in health care, rising deductibles, and the accelerating cost shift to patients has contributed to a significant number of Americans experiencing financial hardships due to medical debts. According to The Atlantic, “approximately 40% of Americans owe collectors money from a sustained illness.” (Khazan, 2014) Not staggering enough? The Washington Post reports that “roughly half of all overdue debt on credit reports is for medical bills.” (Marte, 2014)

The educated consumer is a key component of industrialization. As the industry continues to shift point-of-care costs to consumers, these healthcare buyers need to be empowered to make prudent healthcare decisions. Almost gone are the days patients could see a provider and give little or no thought to the cost of a visit because any incurred expense would be nominal. With the growing prevalence of high deductible plans, patients must accept more financial responsibility for their health; many are now responsible for thousands of dollars in out-of-pocket deductibles before their insurance benefits kick in. This market shift is not a new revelation to providers. According to Availity, “85% of providers believe that patient financial responsibilities are growing.” (Availity, 2015)

Consumerism in the healthcare business is in its infancy. While providers know this “shift” to consumerism is taking place, they are challenged to help their patients deal with the change. This is a symptom of an industry moving towards industrialization and going through tremendous growing pains.

Achieving transparency in processes and standardizing workflows are works in progress, and in following this progress, we have indications of where the path to change leads. For example, in the market for automobiles, with its history of special jargon, unique sales practices and rapidly changing product portfolios – a seeming recipe for consumer confusion — an ecosystem has evolved where consumers are provided expansive resources for information-gathering: Edmunds.com, Kelley Blue Book, etc. These collections of helpful consumer facts, figures and product descriptions enable them to make informed decisions. These trusted “infomediaries” have allowed consumers to deal with a high information asymmetry quotient and become good consumers in a historically obtuse market.

The goal for the healthcare industry is that the process of industrializing will lead consumers to shop for services in the same way we buy cars and trucks today, i.e., based on a clear set of criteria that can be compared and evaluated — price, quality, value. In particular, price shopping, the hallmark arbiter of competitive markets, will be beneficial because of the huge price discrepancies that currently define the industry. The average charge for a heart attack in Birmingham, Alabama is $71,749. Yet, the average charge for a heart attack in Nashville, Tennessee, which is approximately 200 miles from Birmingham, is $44,061 (Alexander, 2014). There is a difference between price discrimination based on different value components, and price gauging – the latter has been a practice in the health care industry.

So, as we witness transformation in the healthcare industry, consumers will struggle with the new responsibilities placed on them as empowered purchasers of healthcare services. Considering the high number of Americans experiencing healthcare related financial struggles in this time of change, one can’t help but wonder: Is there hope for consumers who want to be more efficient shoppers in the contemporary healthcare marketplace?

Fortunately, there is hope and healthcare providers have a role to play! For example, providers can place even greater focus on collecting patient billing information and explaining to what degree patient insurance will cover a procedure before it is performed. Such simple acts can go a long way towards helping patients make smarter healthcare financial decisions to better manage increased out-of-pocket expenses. Research from NerdWallet reveals that “63% of Americans have received a medical bill that was much more than what they expected.” (Khazan, 2014) We are willing to guess that a portion of those 63% of Americans would have made different healthcare decisions if they had been made aware upfront of their financial outlay. In addition to providers improving the clarity of upfront costs to consumers, healthcare organizations can continue to invest in payment related resources, such as those supported by Availity. Let’s embrace the fact that the industry will be better off with a lot more transparency and visibility to metrics.

Lastly, providers can make more of an effort to better understand their costs, and emphasize affordability and efficiency, while not sacrificing quality. For example, the Cleveland Clinic’s electronic medical records are programmed with a “hard stop” function to decrease unnecessary tests. This function generated $10,000 in monthly savings for laboratory tests and $117,000 in savings in the first month for genetic tests (Cosgrove, 2013).

If providers don’t step in to help patients become better consumers, how many casualties will be counted along the way towards industrialization? Growing pains can be mitigated by patients taking more ownership for their healthcare decisions while providers can make healthcare prices, costs, and outcomes more transparent to the consumer. Whoever coined the phrase, “Change is hard,” appears to have been quite familiar with the U.S. healthcare industry.

Sources

     (2015). The Impact of Consumerism on Provider Revenues. Availity, LLC.
     Alexander, A. (Jun. 6, 2014). That heart attack will cost you: How hospital charges stack up in Birmingham. Birmingham Business Journal. Retrieved from http://www.bizjournals.com/birmingham/news/2014/06/06/that-heart-attack-will-cost-you-how-hospital.html.
     Cosgrove, T. (Sep. 24, 2013). Value-Based Health Care Is Inevitable and That’s Good. Harvard Business Review.
     Khazan, O. (Oct. 8, 2014). Why Americans Are Drowning in Medical Debt. The Atlantic. Retrieved from http://www.theatlantic.com/health/archive/2014/10/why-americans-are-drowning-in-medical-debt/381163/.
     Marte, J. (Dec. 11, 2014). Medical debt is ruining the credit scores of millions of Americans. The Washington Post. Retrieved from http://www.washingtonpost.com/news/get-there/wp/2014/12/11/medical-debt-is-ruining-the-credit-score-of-millions-of-americans/.