© 2015 kaufman, hall & associates, llc. all rights reserved. consumer strategy in healthcare...
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© 2015 Kaufman, Hall & Associates, LLC. All rights reserved.
Consumer Strategy in Healthcare
Mark Grube, Managing Director | Kaufman, Hall & Associates, LLC
Charleston, South Carolina | July 22, 2015
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Today’s Agenda1. Why are “retail” and “consumer” relevant for healthcare providers?
Understanding the market forces creating the retail imperative for healthcare providers
2. What information do we need to gather to evaluate the risks and opportunities?
Building a baseline retail and consumer fact base
3. Once we’ve developed the fact base, what should we do next?
Developing insight-driven strategies to obtain quick wins and build a long-term sustainable competitive advantage
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Complexity of Healthcare: We Must Understand Consumer Decision Making at Two Important Junctures
Network Decision Service Decisions
Narrow
Open• Which Providers?• Which Services?
• Which Providers?• Which Services?
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Market Forces Creating the Retail Imperative1
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Key Driver of Shift to Retail Environment Is Incentive to Shop
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Forces Driving Increased HDHP Adoption Going Forward
Public exchanges
Private exchanges
Cadillac tax
Large employers shifting to full replacement plans
Continued affordability challenges among small employers
High-Deductible Health Plans Continue to Gain Steam
Source: CDC/NCHS: National Health Interview Study, 12/14 Early Release
19.3%
36.2%33.9%
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Popularity of Bronze and Silver Plans on the Public Exchange Will Further Drive High-Deductible Adoption
National Plan Selection by Metal Level 2014 Initial Enrollment Period1
Bronze
Gold
Platinum
Cat. (2%)2
Notes: (1) Includes additional special enrollment period activity through April 19, 2014. (2) Catastrophic plan. Source: ASPE: Health Insurance Marketplace Enrollment Report. May 1, 2014; HealthPocket, 2015 Obamacare Deductibles Remain High but Don’t Grow Beyond 2014 Levels, 20 Nov, 2014.
Silver
Average Deductible by Metal LevelUnsubsidized Plans, 2015
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Facility above reference price: Patient pays entire portion
above reference price
Survey Data Suggests Significant Potential for Reference Pricing Adoption Among Large Employers
Reference Pricing Adoption Outlook Among Large EmployersAon Hewitt 2014 Survey
Note: Sample includes 1,234 employers (90% have more than 500 employees). “Already Adopted” includes employers with reference pricing “currently in place” at the time of the survey (9%) and those who were adding in 2014 (1%).Source: Aon Hewitt, 2014 Health Care Survey.
May Add in 3-5 Years
Already Adopted
Not Interested
Reference Pricing Sets a “Ceiling” Price for Health Care Services
Illustrative Example
Reference Price
Facility below reference price: Normal benefits apply
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Fallon Health SmartShopper Program Gives Patients Cash Rewards for Choosing Less Expensive Providers
• Health plan in Massachusetts• SmartShopper program gives patients
rebate for choosing low cost providers• Designed to generate price sensitivity
beyond deductible and for free preventive services (e.g., colonoscopy)
• Health plan in Massachusetts• SmartShopper program gives patients
rebate for choosing low cost providers• Designed to generate price sensitivity
beyond deductible and for free preventive services (e.g., colonoscopy)
Service/Procedure Tier 1 Rebate Tier 2 Rebate Tier 3 Rebate
Carpal Tunnel $250 $100 $50
Colonoscopy $150 $75 $50
CT Scan/MRI/PET Scan $150 $75 $50
Lab/Blood Work $25 N/A N/A
Mammogram/Ultrasound $50 $25 N/A
Upper GI Endoscopy $250 $100 $50
Source: Bonacci S, Health care costs: up front and online, WBJournal, 24 Nov, 2014; www.fchp.org/members/benefits-coverage/costs/smartshopper.
Fallon SmartShopper Rebates for Select Outpatient Services
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Information Asymmetry Is Declining, and Health Plans and Employers Are Activating Consumers
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Castlight One of Many Players in an Increasingly Crowded Transparency Market
Source: Screenshot from www.Indiana.edu
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Example: Price Variance Between Example Organization and Freestanding Competitors
Reimbursement Variance Between Example Org. and Avg. Freestanding Rate
-65% +91%-86% -68% -69% -84% -88% -66%
Varia
nce
in n
egoti
ated
rate
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Consumer Activation: Transparency Vendors Are Innovating to Improve Ease of Use and Foster Price Sensitivity
Transparency Vendor Innovation
Behavioral Economics
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Sophisticated Tools Focused on Driving Behavioral Change
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Price Transparency Driving Consumer Activism
Source: United States Securities and Exchange Commission Washington, DC 20549 “Amendment No.1 to Form S-1 Registration Statement Under the Securities Act of 1933”, Castlight, Inc.
Esterline in Brief•Esterline is an aerospace manufacturer in Bellevue, WA•Launched Castlight in Jan 2012•51% of beneficiaries enrolled•Castlight shoppers saved 33% in overall medical spending compared to a 1% increase in medical spending for non-Castlight shoppers
Esterline in Brief•Esterline is an aerospace manufacturer in Bellevue, WA•Launched Castlight in Jan 2012•51% of beneficiaries enrolled•Castlight shoppers saved 33% in overall medical spending compared to a 1% increase in medical spending for non-Castlight shoppers
Reported Savings for EsterlinePercentage Savings for Castlight Shoppers
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Hospitals below reference price
Percentage of Patients Choosing Low-Priced and High-Priced Hospitals Before and After the Implementation of Reference Pricing
Reference Pricing Implementation
Hospitals above reference price
Note: Control group did not show any significant changes in behavior over the same period
CalPERS Successfully Piloted Reference Pricing for Joint Replacement and Has Expanded to Other Procedures
• In 2011, California Public Employees’ Retirement System (CalPERS) implemented a reference pricing program for knee/hip replacements
• Patients were made responsible for incremental inpatient costs above the $30,000 reference price
• Percentage of patients choosing hospitals above reference price fell from 53% to 36% in the two years after implementation
• CalPERS expanded reference pricing to facility payments for outpatient colonoscopies, cataract surgeries, and arthroscopy in 2012
Sources: Robinson, J.C., Brown, T. T.: “Increases In Consumer Cost Sharing Redirect Patient Volumes and Reduce Hospital Prices for Orthopedic Surgery.” Health Affairs, August 2013; Lechner, A.E., et. al.: “The Potential of Reference Pricing to Generate Healthcare Savings: Lessons from a California Pioneer.” Center for Studying Health System Change, Research Brief, No. 30, December 2013.
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Develop Your Organization’s Strategy2
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Build the Relevant Retail Consumer Strategic Assessment
Local market vulnerability and likely pace of change
Local market competitive landscape
Organizational retail consumer readiness
Availability and attractiveness of alternatives for consumers
Changing incentives that could transform basis of competition
Position relative to key competition and competencies
1
2
3
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New Competencies Required: Relevant Retail Principles for Healthcare Providers
Unprepared Organization Consumer-Driven Organization
Diverse complement of services distributed over broad geography
Hospital-centric system with limited physician and ambulatory footprint
Convenient Access
Nuanced pricing strategy driven by consumer and competitive behavior
Limited focus on pricing; driven by historical contracts and bargaining power
Developing health system footprint providing select services
Understanding of relative pricing position and specific areas of IP/OP risk
Hospital focus with very little ambulatory or web presence
Access points include web, mobile, telemedicine, and e-visits
Some non–bricks-and-mortar focus, including website and patient portal
Coordinated and differentiated experience delivered to customers at each “touch point”
Some focus on traditional patient experience such as HCAHPS
Developing strategy regarding service expectations and capabilities required
Differentiated brand position in service area based on “must-have” status
Limited brand recognition and inconsistent branding
Deep understanding of patient segments; strategies in place to address
Limited understanding beyond quantity/type of services provided
High-level knowledge of patient mix based on traditional hospital data
Products/services understood by consumers, tailored to needs/preferences of customers
Services based on legacy hospital offerings and informed by traditional patient base
Competitive Pricing
Multi-Channel Offering
Customer Experience
BrandPreference
Understanding of Customer Base
Product and Service Relevance
Good but undifferentiated brand position; may lack brand consistency
Developing strategies focused on select patient groups
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Building a Sustainable Competitive Advantage
Align prices with consumers’ price sensitivities and willingness to pay
• Scope of services• Physicians• Ambulatory• Virtual
• Customer experience• Relevant services• Branding• Population health
management
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Comprehensive Consumer Understanding and Segmentation Is the Foundation
HYPOTHETICAL EXAMPLE
“ONLY THE BEST WILL DO” Segment:
High quality health care is the #1 priority for this
segment
We examine a hypothetical example of how this consumer segment, defined by the “only the best will do” mindset, makes a decision about where to have surgery
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Understand the Path-to-Purchase Decision Journey for Healthcare in a Provider’s Local Market
HEALTH CONDITION/ NEED STATE/
ATTITUDE
Narrow
Broad
Future DecisionsService Shopping
SELECT “CHANNEL”/PROVIDERCONSUMER
EXPERIENCE(Value Equation)
Benefits
Price
NETWORK DECISION
Plan Shopping
Healthcare providers can build a personal, intimate relationship with their consumers all along the healthcare path to purchase
Condition•Healthy•Chronic, not serious•Chronic & serious•Etc.
Need•Wellness•Routine•Acute•Etc.
Attitude
• “Only the best will do”• “I need a trusted advisor”• “Just make this as simple
and efficient as possible”
The Healthcare Path to Purchase (Hypothetical)
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Access Strategy
• Build/expand walk-in care
• Consider partnerships with retail clinic providers
• Employer partnerships: Worksite clinics and/or discounted walk-in care rates for employees
• Role of virtual: Basic diagnoses, suggested therapies nearly always successful, physical exam not warranted
• Build engagement with convenience-conscious customer
• Could necessitate partnership with third-party infrastructure/tech provider
• Employ NPs and PAs where appropriate to expand access
• Enable online and mobile scheduling
• Pre-empt health plan interventions
Enhance Distribution of Ambulatory Care
Develop Virtual Service Offerings
Set Goal to Provide On-Demand Access
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Addressing Pricing Risk Requires Making Price a Strategic Rather than Functional Discussion
• Listen to what patients are saying• Validate with what patients are doing
Understand Sources of Pressure
Investigate New Approaches to Pricing
and Transparency
Think Like a Conglomerate
• Consider impact of discounting
• Pilot new pricing approaches (e.g., dynamic, bundles/total cost of care)
• Commit to providing consistent transparency
• One pricing strategy likely not enough for diverse provider businesses
• Health systems have categories of services and products
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Retailers Often Use Category Thinking to Organize Their Pricing and Marketing Strategies
Traffic Generators
Signaling
Impulse
Convenience
Items within a particular category often share similar price elasticity, competitive risks and consumer need states.
Illustrative Example
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Consumer Relationship Strategy
• Aggressively address customer experience pain points
• Prioritize integration of internal data sources to create rich patient-level data warehouse
• Collect data from customer interactions
• Design and perform relevant primary research to build baseline understanding of consumers and lay the foundation for the journey to becoming a truly consumer-centric health system
Defensive/ Transitional
Transformational
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Consumer-Driven Care: MultiCare’s OB CareConnect Identifies Patient Segments Through Self-Selection
“With OB CareConnect, you and your doctor will choose which path of care is best for you”
Traditional Care Group Visits Virtual Visits
Source: MultiCare website, http://www.multicare.org/fbc-obcareconnect/
Standard, in-office prenatal visits and
prenatal classes
OB visits after initial appointment alternate between NP-led group visits and standard in-
office visits
Often chosen by first-time mothers
Often chosen by second-time and stay-
at-home mothers
Often chosen by working mothers
Mixes standard OB visits and completely
virtual visits with an NP, along with tools for prenatal care and
learning
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Takeaways for Providing Healthcare in a Retail Environment• Role of individual in healthcare moving from passive “patient” to
active “consumer,” such that key healthcare decisions increasingly must be filtered through a consumer lens
• Healthcare providers have significant “catching up” to do relative to experienced retailers that are increasingly providing healthcare —“informed intuition” will not be enough going forward
• Significant investments and research required to understand consumer behavior related to healthcare purchasing and usage decisions, and in developing smart customer relationship management strategies
• Significant opportunities for shared application between development of a consumer-centric strategy and a population health management strategy
• Becoming an effective, consumer-oriented organization is likely to require several years for most organizations – the time to define your approach to consumer strategy is now
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Questions and Answers
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About the Speaker
Mark Grube, Managing Director, leads Kaufman Hall’s Strategic Advisory practice, which provides a broad array of strategy-related services to regional and national healthcare systems, academic medical centers, community hospitals, and specialty providers nationwide. Mr. Grube has more than 25 years of experience in the healthcare industry, as a consultant and as a planning executive with one of the nation’s largest healthcare systems.
Mr. Grube is a frequent speaker and author on healthcare strategy topics and has published dozens of articles and white papers. He is a three-time winner of the Helen Yerger/L. Vann Seawell Best Article Award from the Healthcare Financial Management Association (HFMA).
Mr. Grube has presented at national meetings of the American College of Healthcare Executives (ACHE), The Governance Institute, The Healthcare Roundtable, HFMA, and the Society for Healthcare Strategy and Market Development (SHSMD). He is a member of ACHE, HFMA, SHSMD, and the Leaders Board for Healthcare Strategy and Public Policy.
Mr. Grube received an M.B.A. from the University of Chicago Graduate School of Business and a B.S. in Economics, magna cum laude, from Bradley University.
Mark E. GrubeManaging DirectorKaufman, Hall & Associates, LLC5202 Old Orchard Road, Suite N700Skokie, Illinois 60077847.441.8780, ext.127 [email protected]
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