Consumerism in healthcare: the rules are changing

February 22, 2013

Joe McWilliams

In a recent Wall Street Journal op-ed article, Paul Keckley, executive director of the Deloitte Center for Health Solutions, wrote: "The rise of consumerism in healthcare is an inexorable trend that calls for strategic and immediate action. For many industry stakeholders, consumerism in healthcare is problematic. Although inevitable, it is disruptive to "standard operating procedure" in some cases, requiring massive overhaul of business models and personnel."

For too long, the traditionally paternalistic view of patients in the healthcare industry, highlighted by a systemic mindset of consumer irrelevance, has resulted in consumers being insulated from the important cost and trade-offs typically made when purchasing most other economic goods and services. Indeed, most industries compete on value. U.S. healthcare does not. The result: higher costs, perverse incentives, poor service, avoidable errors, and a dearth of consumer engagement.

But that is about to change.

The recent re-election of President Barack Obama brings much needed clarity to the healthcare industry and the path forward for reform initiatives. It means that the Patient Protection and Affordable Care Act (PPACA) remains the law of the land. PPACA is important because it provides for a number of carrots and sticks to incentivize various healthcare stakeholders (i.e. physicians, hospitals, insurers, patients, etc.) to act in reform-minded ways. It will promote rapid change and innovation in the healthcare system, which will help patients throughout the U.S.

Healthcare innovators are already redefining healthcare value, and consumers, long passive, will have a new role. Inevitably, conventional organizations will fight as an inertial and increasingly desperate force, hampered by collapsing margins and eroding market share, while industry leaders and new entrants will invent new models with little regard for current constraints. They will also maximize the potential impact of the convergence of multiple markets that will redefine healthcare value and competition.

Why are consumers so important?

1. Consumers are feeling the impact of rising healthcare costs: Historically, employers have paid for the majority of the healthcare provided in the U.S. However, with the decline in the economy (and corporate profits), employers are now changing benefit policies to increase co-pays, deductibles, and other out-of-pocket expenditures, forcing employees to pay a significantly larger portion of the costs of healthcare. As consumers face these higher costs, they are becoming more active and engaged with their healthcare dollars, increasingly demanding cost transparency and new types of benefits.

2. Consumer-facing reforms in the PPACA seek to engage consumers more directly in decisions regarding their care. For example:

a. Creation of healthcare exchanges: It is expected that by 2017 as much as $172 billion of healthcare premiums will be funneled through exchanges.

b. New payment models: PPACA attempts to shift healthcare delivery from a primarily fee-for-service to a fee-for-value model. Accountable Care Organizations, the Hospital Readmission Reduction Program, and bundled payments will incentivize doctors and hospitals to care for patients more holistically, which will involve a number of key consumer-facing initiatives.

c. New metrics around patient / consumer satisfaction: The PPACA includes a number of mandates that require providers and insurers to include these metrics. The use of data around patient engagement will become increasingly important.

The healthcare industry is extremely complex and changing rapidly. Different stakeholder groups -- including payers, providers, patients, regulators, consumers, and the government -- all must be considered integral parts of an interconnected ecosystem of players.

Innovators with disruptive business models who view healthcare as both a business and a calling, powered by the dream of both financial and social rewards, will be the most successful. Consumers will become increasingly empowered by new trends, business models, and technologies, and tremendous opportunity will exist in helping consumers navigate their healthcare, providing technologies and services that help them understand what options are available and how to maximize the quality and minimize the cost of their care.

I am excited to be part of this changing healthcare ecosystem and look forward to contributing to the new innovations and reforms in the coming years!

Joe McWilliams is a healthcare strategy consultant and committed supporter of a smarter, more efficient healthcare system. He currently works in strategy and marketing at Philips Healthcare, where he is focused on the identification and development of new business models for next-generation healthcare applications. Prior to Philips, Joe worked at Scientia Advisors, a healthcare strategy consulting firm in Cambridge, Mass. He has also worked as a consultant at Accenture and in business development and licensing at Partners Healthcare Research Ventures and Licensing, the technology transfer arm of Partners Healthcare responsible for investing in novel technologies from Massachusetts General Hospital.

Originally published Feb 22, 2013 12:00:31 AM.