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Published: February 28, 2007

 
 

Health Care’s Retail Solution

Long-Term Incentives for Healthy Living. Along with better information, consumers need stronger incentives to make smart long-term choices about their health. These incentives will come from product innovation — in particular, stronger linkages between employer-sponsored plans and Medicare. We still don’t know whether CDHPs, for example, will encourage long-term behavior change as consumers become eligible for Medicare. The retail market requires incentives that lead consumers toward healthier behavior and toward better management of chronic diseases such as diabetes over both the short and long terms. That will mean aligning employer-sponsored incentives with those in the Medicare program; for example, reducing Medicare contributions in exchange for demonstrated healthy behavior in the working years.

Behavioral incentives have already started to appear. In the U.S., Pitney Bowes has reduced co-payments for diabetes and asthma medications to encourage employees to follow their treatment regimens closely. Taking a page from successful innovations in South Africa, Definity Health has pioneered a “Rewards for Action” program that combines personalized health education with financial incentives tied to getting screenings, treatment, and other recommended care for chronic conditions. Wells Fargo is piloting this program and has already achieved promising early results.

A number of employers, including Safeway and Freddie Mac, are also finding success with wellness programs. Typical wellness programs feature free or low-cost health screenings and other sorts of preventive care, including flu shots. Some of these plans mandate that employees undergo health-risk assessments in order to get medical coverage. These programs pay off in better employee health and reduced costs for both employee and employer.

These pilots are a start, but the industry will need to experiment to find the right approach to providing tailored information and long-term incentives. The private sector can’t do it alone; behavior changes must extend past the consumer’s working life as he or she ages and moves onto the Medicare rolls. It’s already apparent, however, that greater consumer engagement is in turn creating pressures for a different market structure from what we have today.

Reshaping the Supply Side
The supply side of health care significantly lags the demand side in the shift to a retail market. But health-care providers have yet to put significant effort into establishing the enabling conditions that will accelerate that shift: transparency on quality, service, and price; new channels and format innovations; and alignment of provider and consumer incentives.

Transparency and Innovation. Consumers are still looking to physicians to provide the cost, quality, and service information they want, but physicians are not prepared to answer those needs. Our study shows that although most doctors believe that consumerism will have the greatest impact on their practices in the future, relatively few plan to alter the way they serve their patients or to share comprehensive cost and quality data. In a true retail market, suppliers who do not embrace the concept of standardized information on cost, quality, and service will be at a disadvantage. Not only do health-care providers need to make the data available, but they need to use it when they refer their patients to hospitals or other physicians and when they evaluate treatment alternatives.

Standardized measures will enable consumers to pick and choose medical services and products based on the dimensions that matter most to them. We already see competition at the margin in the form of different value propositions. Among the new formats are MinuteClinics and RediClinics, which compete on price and convenience. They’re spreading quickly across the country in high-traffic locations, such as workplaces and stores like CVS, Target, and Wal-Mart. Today these clinics deal with routine needs, like school physicals and sore throat treatment. In the future, they’ll help manage the ongoing needs of patients with chronic conditions.

 
 
 
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Resources

  1. Gary Ahlquist, David Knott, and Philip Lathrop, “Prescription for Change,” s+b, Fall 2005: Why consumer-directed health plans are the last chance to avoid a government-controlled monopoly. Click here
  2. Joe Flower, “Five-Star Hospitals,” s+b, Spring 2006: How some hospitals are thriving by taking a consumer-centric approach to care. Click here
  3. Michael E. Porter and Elizabeth Olmsted Teisberg, Redefining Health Care: Creating Value-Based Competition on Results (Harvard Business School Press, 2006): Analysis of the U.S. health-care system, with suggestions for curing its ills.
 
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