© 2015 kaufman, hall & associates, llc. all rights reserved. consumer strategy in healthcare...

© 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

© 2015 Kaufman, Hall & Associates, LLC. All rights reserved. 2| South Carolina Hospital Association

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


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?


Market Forces Creating the Retail Imperative1


Key Driver of Shift to Retail Environment Is Incentive to Shop


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%


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


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


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


Information Asymmetry Is Declining, and Health Plans and Employers Are Activating Consumers


Castlight One of Many Players in an Increasingly Crowded Transparency Market

Source: Screenshot from www.Indiana.edu


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


Consumer Activation: Transparency Vendors Are Innovating to Improve Ease of Use and Foster Price Sensitivity

Transparency Vendor Innovation

Behavioral Economics


Sophisticated Tools Focused on Driving Behavioral Change


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


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.


Develop Your Organization’s Strategy2


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


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


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


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


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)


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


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


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


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


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


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


Questions and Answers


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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© 2015 kaufman, hall & associates, llc. all rights reserved. consumer strategy in healthcare...

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