The Incentives Reform Effect

Submitted by on Friday, June 13, 2014 - 02:34

Could it be that incentives reform is having an effect? The latest figures from the U.S. Census Bureau (albeit sans Rx costs) shows that medical cost inflation continues to be moderate. Year-over-year hospital revenue is anemic at 2.9% after having risen considerably in the past. Before we rejoice, however, we should note that at 4% it's still rising faster than the GDP. That means health care costs, in aggregate, continue to rise as a percent of total domestic product, and that's not good. It is important to note that the recent figures include the newly enrolled and that the anticipated surge in healthcare costs has not yet materialized. It might never for two important reasons: benefit design and payment reforms. The majority of the newly insured are in high deductible health plans and they join the ranks of the many that are already in these plans. As a result, they're spending a fair amount of their own money in up front deductibles and making self-rationing choices, or simply taking advantage of the significantly lower prices available in the growing retail market. For example, consumer-patients are increasingly choosing to pay less than $50 for full blood panel tests through Theranos labs rather than sending to the more traditional labs and paying either the full price of roughly $850 or a significant percentage.

What this means to you – The health care system is starting to reform and we're seeing signs of it popping up everywhere. And of course, it's the innovative disruptors that have found a significantly better and more efficient way of providing services that are displacing the incumbents. And it's not simply Theranos and ZoomCare who are displacing the provider incumbents, but also Imagine Health who is kicking out the payer incumbents. And they're all doing it the same way: they offer an awesome customer experience. They're showing that this industry can actually work like others in rewarding those that truly cater to their customers, and that creating that delightful experience will be rewarded with more business. Some of this is about better use of technology, but most of it is understanding that locking customers in will no longer be tolerated. That seems counter cultural at a time when plans are again trying to lock in patients into ACOs or very tight networks, but it actually is a warning for them. Lock customers in at your own peril because their core incentive is to choose freely. Incentives, as we're seeing, matter a lot, but some continue to think they can ignore their effect. That's good news for the disruptors.