Rising consumerism: Winning the hearts and minds of health care consumers Deloitte Review Issue 16

Matching a buyer with a seller. On Angie’s List it’s simple: Consumers search, select, and schedule the services that fit their needs.

Could it ever be that easy in health care?

The cost of health care is high and rising. For the past 10 years, health care costs have exceeded US economic growth by an average 2.5 percent annually. The anticipated average annual growth rate of health care costs is 5.7 percent per year through 2023, well above gross domestic product (GDP), average wages, and productivity gains.¹ Improving economic conditions, the impact of the ACA’s insurance coverage expansions, and an aging population are expected to drive health care expenditure growth.² Average annual growth of out-of-pocket health care expenditure is projected to rise to 5.5 percent by 2023 from 3.2 percent in 2013.³

The health care system in the United States is edging toward a recalibration. Existing business models are being challenged to find and deliver new sources of value and to develop innovative approaches to make health care less complicated, and to improve outcomes:

• Health care is moving toward value, not volume, as a central organizing principle. That impacts how patients are cared for, how physicians and hospitals are paid, and how life sciences companies approach the market.
• Those paying the bills—employers, government, health plans, and increasingly, individuals—are looking for better value and better outcomes.
• Entrepreneurs, retail organizations, and communications and technology companies see opportunity in the large and growing health care market. Taking advantage of developing trends, they are slipping across the industry’s increasingly permeable boundaries.

Of essence to the health care industry is how to step up to a consumer-centric system. An active and engaged consumer is implicit at the core of the health industry of the future—a value-oriented market-like system.

Being an engaged consumer is not for all; some seek care in traditional ways and are content to be guided by their physician. But upcoming generations may well be expected to approach health care just as they do other services and to seek to curate their own experience. Then, winning the hearts and minds of consumers will be critical. As consumers begin to shoulder more of the financial burden of their health care, industry players must weigh up innovations and actions they can take to build lifelong connections with consumers. The intersection between rising consumerism and a growing retail-orientation in the health care industry presents challenges to existing players.

Driving this engagement stands as a challenge and an opportunity for providers, health plans, life sciences companies, employers, and government as well as other companies thinking about entering this market.

This article explores three shifts that health industry players should respond to, and which can set the scene for greater consumer involvement.

Rising consumerism

Shift one: Market dynamics turn to the consumer

A shift is underway as more financial risk in paying for health care migrates from payers to individuals (with providers sharing the risk when individuals cannot pay) and from groups to individuals. For the consumer, this means an increasing obligation to pay a greater share through rising premiums, deductibles, copays, and coinsurance. The levers of this transition are new market structures including public and private health insurance marketplaces and the growing use by employers of vehicles such as high deductible health plans and greater cost sharing to manage medical cost trends.

The unique health care consumerism challenge

Consumerism in health care differs from other industries. A common perspective is that health care is too complicated for consumers to engage with knowledgeably and appropriately. Four features of health care might drive such differences:

1. Information asymmetry between the medical professional and the patient
2. Uncertainty
3. The dichotomy between consumer and payer
4. Difficulties teasing out both demand and need

Health care is a complex field:

• Consumers rely on experts to advise them. In many cases, the advice is from the same experts who are being paid for the service.
• Demand is irregular and unpredictable and may occur under highly stressful and emotional conditions.
• Price doesn’t function as a signal as most health care expenses are paid for by third parties.
• Health insurance can distort the true cost and access to services. The disconnect between payment and service may encourage consumers to choose more, rather than less, regardless of price.
• Quality tends to be defined with professionals in mind. In lieu of understanding clinical quality, consumers may substitute cost, convenience, and customer experience for quality. Consumers may well equate quality with cost, assuming a direct relationship between the two.

Even though the primary intent of these structures has been to reduce overall health care spending growth, one consequence is that individuals must now more actively navigate the system to get the best value for their health care spending. The tension in this shift is that some consumers find themselves in unfamiliar territory, unaccustomed and ill-equipped to manage the risk. Others recognize the change and don’t like it—preferring employers and government taking the decisions.

By bearing a more significant share of health care costs, consumers are being drawn into the health care system’s shift toward value. Health care expenses absorb a considerable portion of the household income—second only to housing expenses in an average household.⁴ The policy assumption (or hope) is that as consumers pick up more of their health care costs they will increasingly seek low-cost alternatives and better value.⁵

Public and private health insurance marketplaces are introducing millions of consumers to a retail-like health insurance system and accelerating the shift in the market to relying on consumers to shop for coverage. Not only do these marketplaces offer new purchasing channels, they embody a shift in orientation toward a business-to-consumer model. With these new channels come new responsibilities. Consumers must become comparison shoppers using online tools to compare and select health plan products as they assume more control over their health care spending.

But many consumers aren’t ready for this shift.

To date it appears that the consumer experience in the public marketplaces has been mixed. Health literacy has been an issue—many consumers new to health insurance have needed assistance with fundamentals, including help with basic insurance terms and concepts such as “deductible” and understanding what to expect from insurance.⁶

Public health insurance marketplaces

Around eight million Americans enrolled during the first open enrollment period of public health insurance exchanges in 2013–2014, a number expected to increase to 25 million in 2017 and subsequent years.⁷ Around three-fourths of enrollees will receive financial support to purchase insurance.⁸

Many in the public marketplaces have been drawn to packages with lower premiums, which feature large deductibles even though benefit packages with lower cost sharing are available. In the first enrollment period, 65 percent of enrollees in the new health insurance marketplaces selected a Silver Plan, meaning they will need to meet around 30 percent of expenses out of pocket through various means including coinsurance, deductibles, and copays.⁹

Private health insurance marketplaces

Relatively new competitive online platforms, private health insurance marketplaces provide options for active as well as retired employees. Several large companies, including Walgreens, IBM, and Time Warner, have announced major shifts in benefits strategies, stepping away from company-administered benefits plans to providing subsidies to move workers or retirees to defined contribution models through private health insurance exchanges.

Similar to public marketplaces, private ones offer choice, flexibility, and a retail-like environment for employees to purchase health insurance. At least 20 private exchange platforms have been identified.¹⁰ Employers have a budding interest in using private marketplaces: Deloitte Center for Health Solutions' 2013 survey of 500 employers found that well over half would consider using a private exchange for their employees.

How likely is your company to use a private health insurance exchange as a channel for providing health insurance for your employees?

Beyond marketplaces, consumers are struggling with rising financial demands. In Deloitte Services LP’s 2013 survey of health care consumers, nearly half of the respondents reported increased out-of-pocket health care spending in the previous year. Anxious about the affordability of health care, a third of the surveyed consumers say they seek cheaper alternatives including home remedies, and they self-ration by delaying or skipping care. Furthermore, Deloitte* has tracked preparedness to meet future health care costs over the past five years and it is clear that many consumers have little confidence in the future—in 2013 almost all (98 percent) of those who considered themselves “under-insured” felt ill-equipped to handle future health care costs and were increasingly concerned about their financial security. Even among those who felt “well-insured,” over half held such concerns (53 percent).¹¹

Central to this shift…

The indications above suggest that individuals are bearing more of the burden of paying for health care but they don’t feel prepared or well-equipped to deal with the responsibilities that this brings. The health care industry has much left to do to deliver on the promise of the benefits of rising consumerism in a number of key ways.

Health care organizations will need to re-orient themselves around greater transparency—of costs, quality, processes, and services. A key task will be to more effectively communicate the value of products and services in a manner that supports consumers to compare cost and quality information to enable them to make confident decisions about health care. Tools such as Hospital Compare and “Why Not The Best” are already available, and while the use of performance dashboards is currently low, consumers say they are interested in online information about prices and quality.¹²

Adopting a more retail mindset and approach—with a focus on offering greater convenience, service, and support—will be important for many health care organizations. A number of examples of this shift are already happening—and in many cases coming from new players. More traditional health care organizations need to invest to keep up. Big-box retailers like Wal-Mart and retail drug chains see opportunity in consumer-driven health care and are disrupting the existing system by offering care centers with longer opening hours, a low fee, access to basic diagnostic tests, and greater convenience. With a retailer’s ability to systematize, standardize, and drive down costs, these companies clearly have an eye on the future. Moving beyond its traditional core business of weight loss, Weightwatchers is creating a business-to-business market by expanding into health solutions that target health plans and employer wellness and diabetes and obesity management programs. And, health care organizations such as Geisinger Health Systems, Danville, PA, and Virginia Mason Hospital in Seattle are taking a leaf out of the retail industry’s playbook, using retail tactics such as warranties for some surgical procedures.

Shift two: On the demand side, what people want is changing

At the same time that consumers are being asked to take on more of the health care cost burden, they are also being inundated with new choices and options. Consumer expectations of better services and better experiences as they interact with the health care system are rising.

Already, more discretionary choices of services, products, devices, and providers are available. Consumers are willing to try new options such as clinics in retail stores, convenient care centers, telehealth, and mHealth. Individuals can go outside of the traditional system, for example, directly purchasing personal genome sequencing from companies such as Gene by Gene and 23andMe. Social media and patient online communities such as PatientsLikeMe are weaving strong networks of personal support and industry influence through crowdsourcing vehicles like the Open Research Exchange and Data for Good.

The service experience is increasingly important for consumers, and many seek meaningful involvement in medical evidence and decision-making.¹³ Extensive research by Hibbard and others finds evidence for improved outcomes as individuals gain skills and confidence in managing their own health and health care.¹⁴ In Deloitte’s consumer surveys, two out of three respondents point to service or quality issues when asked for the reason behind a dissatisfying hospital experience.¹⁵ Many say they would like more transparency from both doctors and hospitals regarding the quality of care and prices.¹⁶ This is completely understandable when charges for pharmacy, medical, and dental services often vary by more than 300 percent, even within a given network.¹⁷

The tension in the shift to a customer-service orientation is the divergence between changing consumer expectations and a health care industry unused to dealing with consumerism. A deep understanding of the consumer’s attitudes and behaviors is vital in an environment that places patients at the center. How an individual perceives health care is unique and intensely personal, and it is important to understand how consumer views and actions may be shaped by education, income, and cultural perspectives about what constitutes health and health care. Knowing the customer not only has the potential to allow organizations to gain market share and fend off competition, it can also create new conversations that lead to better outcomes—patients continuing to take their medications, using primary care visits instead of emergency rooms, and keeping chronic conditions under control so that they not only avoid hospitalization but meet their own goals on how they want to live their lives.

Central to this shift…

Foundational to a consumer-centered approach is a profound understanding of consumer segments and how preferences shape attitudes and behaviors. Highly targeted product and service innovations can be designed using sophisticated data analyses of consumers’ preferences, behaviors, and propensity to participate or to purchase certain products and services. Stratification by health status, care utilization patterns, and longitudinal or lifelong relationships with individuals will inform these analyses. Consumers vary greatly in their engagement with the health care system: To understand them better Deloitte has identified six archetypes—defined by attitudes and behaviors which cut across demographic segments that navigate the health care system in distinctive ways. This type of segmentation can help lay the foundation for marketing and outreach strategies and the design of such things as waiting and front-of-house areas; another application is in care management processes. (See “Six consumer segments.”)

Examples of this thinking are emerging as organizations tailor or bundle products to different consumer segments. Some insurance companies are targeting lifecycle-stage and age-relevant products to different generational groups. Case in point: Oscar Health Insurance, a new insurance company in New York State, targets a user-driven telehealth and smartphone app experience toward younger, urban residents. And, seeking to attract uninsured young adults during the initial enrolment period of public health insurance marketplaces, many insurers used highly-targeted youth-relevant messaging at sporting and social venues—in fact, messages were even pitched at their moms!¹⁸

Targeting and personalizing the touch-points between consumers and the health care system to solve some of the root causes of dissatisfying experiences can go a long way in winning with consumers. Many of these steps may be simple. For example, service enhancements such as “know before you go” apps to address wait times and telehealth triage prior to attending the emergency room; patient portals to support self-scheduling appointments and online check-in; and advanced technology in contact centers to reduce queue time and support personalized services are typically high impact and attainable with existing technologies and personnel.

Consumers want to know their out-of-pocket expenses for specific services, and providing clear information up front about the cost of treatment may well make an impact.¹⁹

Shift three: New entrants view health care through a different lens

New entrants are flooding into health care riding the waves of innovation, technical capabilities, and scientific discoveries. Start-ups are targeting clinical delivery, health and wellness, population health management, data, and analytics. Many see consumers as a natural entry point and are built to support patient engagement by helping patients manage their health and care by providing information, skills, capabilities, and support to help consumers make smarter choices.

Examples abound of new entrants into the health care industry targeting improving value—either through business model re-configuration, invention, or re-combination of an organization’s capabilities or by engaging consumers differently. For instance:

Six consumer segments

Deloitte has identified two domains—passive and active—and six unique consumer health care segments that navigate the health care system in very different ways.²⁰

Around half of consumers fall into the “passive” category. The “content and compliant” tend to behave like “patients,” not particularly inclined to challenge a professional’s recommendation and query clinicians. The “casual and cautious” are simply not engaged because they don’t see the need. The other four segments show characteristics of activism. “Out and about” actively seek and use alternatives, look online for information and seek guidance from experts, but tend to make decisions independently; “online and onboard” use online tools and mobile applications to assess providers and compare treatment options and provider competence; the “sick and savvy” seek to partner with their medical professionals and “shop and save” is the value purchaser who comparison shops, switches frequently, and is open to alternatives such as retail clinics.

• Price transparency is an emerging field. Transparency solutions providers such as Castlight Health, Healthcare Bluebook, and HealthSparq are driving access to cost and quality information to help consumers make health care choices and better manage health expenditures. In a significant price transparency initiative, several large health insurers are joining forces with the Health Care Cost Institute to develop by 2015 a publicly available payment database to provide independent price and quality information to consumers.²¹ New players such as PokitDoc, Medibid, and Bid For Surgery are seeking to change the nature of transactions by creating open marketplaces where consumers and providers negotiate and agree upon the price for procedures.

At the industry level

There is strong venture capital interest in enabling technologies. Investment in life sciences (medical services, biotech/pharma, and medical devices/therapeutics) was 23.6 percent of the total dollars invested in 2013 (having peaked at 32 percent in 2009).²²

Health IT companies are attracting a lot of interest. According to Rock Health, a full-service seed fund focused on digital health, the flow of investment interest is switching toward digital health, attracted by the potential for better returns with less invested capital.²³ Investments in digital reached $3 billion through the third quarter of 2014 compared with $1.97 billion for the entire year in 2013.²⁴

• Several start-ups aim to optimize patient engagement and support and sustain health status through carrots and sticks of motivational and behavioral change levers. SeeChange Health, for example, encourages individuals to achieve better health through behavioral change strategies such as financial rewards and personalized health dashboards. Omada Health draws upon digital therapeutics and behavior change therapies to engage individuals managing chronic health conditions (such as pre-diabetes). And, Mango Health leverages mobile software and gamification to improve medication adherence by maintaining longitudinal relationships with consumers.
• Others concentrate upon smoothing the interface between patients and the health care system, such as ZocDoc, a physician locator and scheduler; iTriage which streamlines appointment scheduling; and CareWire, a text messaging service that links patients and providers with personalized reminders, education, and support over the duration of a care experience.

The tools mentioned above are building the foundation of an on-demand interface between the health care system and the consumer. Furthermore, broader social trends such as the “quantified self movement” (where individuals track behavioral and activity levels through wearable technologies such as accelerometers for personal health and fitness reasons) suggest that consumers will ultimately expect personalized and real-time access to health services and information round the clock. Generational change will usher in the use of and interest in technologies for personal health improvement. Evidence of this is clear in Deloitte’s consumer surveys where interest in technologies for health purposes is highest among Millennials (born 1982–1995) 69 percent, and Gen X (born 1965–1981) 64 percent, but over half of Boomers (born 1946–1964) and Seniors (born 1900–1945)are also engaged or interested. Interest is also high in using a device to monitor fitness and wellness goals and for managing specific health conditions. There is also a growing acceptance of the use of digital tools such as email or video interactions to connect the clinician with the patient. (See figure 1.)

Central to this shift…

The next wave of innovation may well emerge from beyond the health care industry—boundaries are blurring and health industry players should seek out and learn how to partner with innovators to keep up.

This will involve developing capabilities to venture into the new and extended health care system, learning from and experimenting with new partners. In particular, industry players should figure out strategies necessary to find the right fit and the right space—whether as the backbone of a platform or as a participant/partner. Other industries such as online retail, technology, and telecommunications that have developed underpinning platforms may well provide instructive models or potential partnerships as they enter the industry themselves. Within the health industry, indicators of game-changing ecosystem engagement are evident in venture fund partnerships such as Ascension Ventures, Partners Innovation Fund, and Rex Health Ventures that are forging connections with what they regard as innovative companies to accelerate the delivery of integrated health care solutions.

The new road ahead—courting consumers

As consumers become more engaged in managing their health care, seeking value will likely become a driving force shaping their perceptions, decision-making, and the long-term relationships they form with players in the industry. Value, for consumers, extends beyond price to include the quality of their service experience, convenience and customer care, and transparent information.

As market dynamics turn toward the consumer, health care organizations should create strategies that build upon five factors:

1. Embed enhanced transparency and clearly articulated value into corporate culture, services, and processes. Consumers will likely seek personalized and integrated information to support decision-making, in particular, information that is specific to their current circumstances and needs (for example, cost and quality information on their physicians, hospitals, health plan choices, products and services, and out-of-pocket expenses). Information must also be easily accessible via online tools and social media.
2. Focus change and innovation efforts on educating, informing, and supporting consumers as they learn how to engage with the health care system. Consumers appreciate basic and simple solutions that remove the irritants in the system (such as self-scheduling, secure messaging, advanced check-in). “Quick wins” can lower the bar so that even small initial steps potentially offer a strong return on investment. Moreover, consumers may ultimately bring different expectations to health care, based upon their experiences in other industries. The shift to digital across all devices (desktop and laptop computers, tablets, and smartphones) is becoming increasingly influential in the retail industry, shaping consumer loyalty and shopping and purchase decisions.25 Although health care is very different from retail, the increasing focus on the consumer’s decision means that health care organizations will need to pay close attention to consumers’ digital expectations, understanding these through data analytics and developing consistent, data-rich, omni-channel experiences.
3. Ensure that organizations have the right insights into consumers’ distinctive behaviors and preferences. Research tools are available to gather data and understand customers and their affinity with brand and channels (for example, observational approaches such as ethnographic research, consumer experience labs, consumer-to-business information flows, open innovation forums, or virtual meeting places of interested parties to become active co-creators). Also fundamental is investment in analytics to help understand patterns and integrate findings into real-time applications.
4. Think through the broader ecosystem and connect with new players using new relationships. Learn how to partner—set up a formal mechanism in the organization to look outside the walls and work with different players. Partnerships may offer opportunities to incubate new possibilities while optimizing the current core business.
5. Achievement of the above requires different talent—creative designers, data scientists, and behavioral economists—and a different way of thinking about the future. Charge teams with the challenge of designing optimal consumer experiences.

Building lifetime relationships that resonate with people in a consumer-friendly, retail-oriented, and technology-driven system—that’s the new road ahead.