Health Affairs, 24, no. 6 (2005): 1554-1558 doi: 10.1377/hlthaff.24.6.1554 © 2005 by Project HOPE	New Online   Senate Health Reform Bill   Rewarding Providers   Public Option Policy Brief   Health Reform & Abortion   Delivery System Reform

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Consumerism

PERSPECTIVE

Consumer-Driven Health Care: Just A Tweak Or A Revolution?

Abstract

 
Although some believe that consumer-driven health care amounts to nothing more than a tweak to the current system of third-party payment, others see it as a far more profound development. They argue that enabling patients to control more of their health care dollars will lead to transformation throughout the health care system, starting with a demand for information. Once patients control the resources and are equipped with information, they will expect health care providers to deliver high-quality services at reasonable prices and at the convenience of the buyer.

There are those who believe that consumer-driven care will do nothing more than give consumers some sense of choice in a system that remains grounded in a world of third-party payment and decision making. Account-based programs such as health reimbursement arrangements (HRAs) and health savings accounts (HSAs) would simply reduce resistance to managed care by giving consumers some tax-free cash to spend on trivialities.

Others have a very different vision. They see the growth of third-party payment as the essential problem. As recently as 1960, U.S. consumers paid directly for 49 percent of all health spending.¹ That amount has gradually eroded as both public and private third parties came to control a greater and greater share of the national health budget. In 2002 consumers directly paid only 14 percent of the national tab, with third-party payers picking up 86 percent of the total.² As third-party payment has grown, the health care system has become ever more expensive but less satisfying to physicians and to patients.³

It is said that "he who pays the piper picks the tune," and the tune we have been dancing to lately leaves a lot to be desired. It includes runaway costs, demoralized physicians, questionable quality, enormous administrative costs, and a system that is incapable of reforming itself because of the power of entrenched interests.

Restoring Control Over Resources

Top Restoring Control Over Resources Information Services The Wider Impact NOTES

 
The promise of consumer-driven health care from this perspective is to begin to roll back the role of third-party payment and to restore the control of resources to individual consumers. We speak of "restoring control" because all the money spent on health care services already originates from the consumer’s pocket. Whether the payer is the government, an insurance company, or an employer, every penny spent on health care comes from the consumer in the form of taxes, premiums, or earned compensation. Consumers may allow these payers to use the money as long as they believe there is value added by doing so. But U.S. consumers are increasingly discontented with how all three entities (government, insurers, and employers) have done the job, in terms of both holding down costs and ensuring access to care.⁴ They want to make their own decisions on how to spend their own money.

So the first step in a consumer-driven system is to balance the role of direct payment with the role of insurance coverage. Clearly there will always be a need for insurance to cover high-cost, unexpected events. Just as clearly, insurance is not the only way, nor always the best way, to pay for some services. A routine office visit is more efficiently paid for with cash at the time of service, instead of incurring the administrative expense for both the insurer and the provider of processing a small claim. What the current innovation around HSAs and HRAs is really about is trying to empirically find the optimal balance between insurance coverage and direct payment. This optimal balance may vary between individuals, depending on a host of circumstances—age, geography, utilization patterns, income, health status, and so on. Each family may want to decide for itself what the appropriate balance is. Economic theory is of little use in answering these questions. They must be tested under real-world conditions.

Information Services

Top Restoring Control Over Resources Information Services The Wider Impact NOTES

 
Once a sizable number of consumers have control over more of their resources, they will demand the information services that enable them to make cost and quality comparisons. A recent study by McKinsey and Company found that employees with an HRA were more likely to change their behavior and shop for treatment alternatives, but they were frustrated by the lack of information available to help them make these decisions, and they tended to turn to sources other than their health insurers for finding such information.⁵ These information systems are Step Two of a consumer-driven system.

Some people have argued that consumers shouldn’t be allowed to control their decisions until the information infrastructure is in place, but that is putting the cart before the horse. Information services develop when there is a market demand for them—and not before. Until now, efforts to develop such services have fallen flat because there was no demand. Even if people had the information, there wasn’t much they could do with it in a managed care environment.

Information will go far beyond simple report cards on price and quality. People will also want to know what their treatment alternatives are and how convenient the services will be (hours, location, speed of recovery, amenities). They may look to trusted partners to act as their agents in dealing with complex systems and to find providers who are off the beaten track or who offer highly innovative approaches.

Patients may want to communicate with others who are experiencing the same condition through online chat rooms and support groups. They may want information about a physician’s bedside manner; subjectivity is important in health care, as it is in most other intimate personal relationships. One of the problems with payer-controlled evaluation and tiering of physicians and hospitals is that it misses the essential emotional component of the health care experience.

These sorts of information services are under fast-track development. There is an enormous amount of venture capital and entrepreneurial innovation already being invested in new products and services. These innovators are not waiting around for Washington to take the lead or to establish standards.⁶

The Wider Impact

Top Restoring Control Over Resources Information Services The Wider Impact NOTES

 
Armed with money in hand and information they can act on, U.S. consumers can be an impatient and demanding bunch. This is where the revolution really begins: in the impact such informed buyers will have on the rest of the health care system. We don’t need a crystal ball to get an idea of the dimensions of the changes; there are already hints of what may lie ahead in practice in the real world.

Financing. Insurance is only one of several ways to pay for health care services. "Prepayment" is not inherently superior to "post-payment." Some people may decide that it makes more sense to finance the cost of care afterward, instead of tying up money in an insurance company waiting for an untoward event. Childbirth is one example of a medical event that can easily be (and has been in the past) paid for on the installment plan. At a minimum, banks, credit unions, mutual fund companies, and other financial service organizations see a very bright future in managing HSA funds and adding services such as credit and debit cards and investment vehicles. They argue that they are far more efficient and customer-oriented than most insurance companies. The insurance industry might find that it is competing against an entirely separate industry in the financing of health care.⁷

Physician practice. Rather than ever-greater consolidation into group practices, increasing numbers of physicians are starting cash-only practices. Others are establishing "boutique medicine" practices. The cash-only physicians find that they are able to slash their overhead costs by not participating in networks. As a result, their fees are not much higher than patients’ copayments in a preferred provider organization (PPO) setting ($35 for a simple office visit is not unusual). The doctor can spend more time with the patient and get home in time for dinner.⁸

"Boutique" or "concierge" medicine physicians may continue to accept insurance payment, but they charge an additional annual fee for a higher level of service than is possible under the time demands and low pay of a typical PPO setting. They will typically have a smaller number of patients than a usual practice, possibly 600–800 patients. Many patients are perfectly willing to pay extra to get better service. These physicians have now established their own medical society, the Society for Innovative Medical Practice Design.⁹

Other primary care. Many medical encounters can be handled by nonphysician practitioners at a lower cost and far greater convenience than has been true in the past. Americans are pressed for time, so clinics are being established in retail stores, enabling busy patients to combine their waiting time with getting their shopping done. These clinics often have evening and weekend hours, so people do not have to take time off work to receive services.¹⁰

Specialty hospitals. At a time when the hospital industry is widely criticized for primitive information management and questionable quality of care, facilities that are dedicated to a single focus are increasingly popular. So far, most of this activity has been confined to surgery, cardiac, and maternity care, but it is not hard to envision facilities that specialize in the treatment of diabetes, arthritis, or other chronic conditions.¹¹

The growth of physician-owned specialty hospitals has been controversial, and Congress imposed an eighteen-month moratorium on new construction, which expired in June 2005. The Centers for Medicare and Medicaid Services (CMS) has administratively applied a further six-month moratorium on paying for services at these facilities until it can adopt policies relating to certification and payment procedures.¹²

Importantly, the U.S. Department of Justice and the Federal Trade Commission are concerned about a lack of competition in the hospital industry and have urged states to reconsider anticompetitive regulations such as certificate-of-need to encourage the growth of such innovation.¹³

Hidden subsidies. Existing hospitals resist the growth of specialty hospitals because they fear these facilities are "skimming the cream"—that is, concentrating on a few well-reimbursed services and skipping the ones that are poorly paid such as emergency and trauma care. This concern reveals just the tip of the iceberg of a dysfunctional payment system. There is no reason that cardiac and maternity patients should be singled out to subsidize a hospital’s trauma center. It is similar for the discounts enjoyed by PPOs: There is no economic justification for charging a self-pay patient four or five times what a PPO patient is charged. It is not less expensive to care for a PPO patient, and it may in fact be more expensive if the self-pay patient can pay cash at the time of service.¹⁴ Hospital pricing has got to be made transparent and bear some reflection to the cost of care. The CMS review of its diagnosis-related group (DRG) payment system mentioned above may help to resolve these issues.

Globalization. Hospital care is becoming an increasingly global market with nations such as Thailand, India, and Taiwan pursuing "medical tourism" as an economic development strategy. Americans can travel to these countries for surgery as varied as hip replacement, heart bypass, and plastic surgery for a fraction of what similar care costs in the United States. Self-paying Americans are sure to find such arrangements attractive, and it is just a matter of time until health care brokerage houses are set up to facilitate these transactions.¹⁵

Medical management. Agency is an important element in dealing with any complex system, such as the tax code, the legal system, or the health care system. But the agent must clearly be working for the consumer. To date, the role of agency in health care has been performed by payers (employers or insurers), but there is an inherent conflict in having the payer also be the manager. Consumers are justifiably skeptical that the payer has their best interests at heart. There will be an important role for independent entities to act as medical managers and trusted agents on behalf of consumers. Several firms have already been established to provide these services independently of the employer or health plan.¹⁶

These developments are examples of activities that are already under way. Similar challenges will be presented to insurance agents, pharmaceutical manufacturers, long-term care providers, and employers. We can’t know exactly how they will evolve. And we can’t predict what else may come along to shake up a fossilized industry.

What we can forecast is that American consumers are unforgiving when it comes to rejecting goods and services that no longer meet their needs. Unlike government agencies that worry about "soft landings" and "transition assistance," few consumers weep when an inefficient business goes under.

Empowered consumers will impose a level of discipline and accountability on health care that has long been missing. It will result in a system that is far more efficient, convenient, responsive, and affordable than anything we have seen in decades. That, at least, is the promise that consumer-driven health care holds for some observers.

Editor's Notes

 
Greg Scandlen (greg{at}chcchoices.org) is the founder of Consumers for Health Care Choices, in Hagerstown, Maryland.

NOTES

Top Restoring Control Over Resources Information Services The Wider Impact NOTES

 

1. K.R. Levit et al., "National Health Expenditures, 1990," Health Care Financing Review 13, no. 1 (1991): 29–54 (37–39 for cited information).[Medline]
2. K.R. Levit et al., "Health Spending Rebound Continues in 2002," Health Affairs 23, no. 1 (2004): 151.[Abstract/Free Full Text]
3. See, for example, M. Friedman, "How to Cure Health Care," Public Interest, Winter 2001, www.thepublicinterest.com/archives/2001winter/article1.html (23 August 2005); R.J. Blendon and J.M. Benson, "Americans’ Views on Health Policy: A Fifty-Year Historical Perspective," Health Affairs 20, no. 2 (2001): 33–46[Abstract/Free Full Text]; and J. Haas, "Physician Discontent: A Barometer of Change and Need for Intervention," Journal of General Internal Medicine 16, no. 7 (2001): 496–497.[Medline]
4. Employee Benefit Research Institute, "Health Care in America: Satisfaction and Confidence," Health Confidence Survey, October 2003, www.ebri.org/pdf/surveys/hcs/2003/03hcsfs1.pdf (23 August 2005); and C. Schoen et al., "Primary Care and Health System Performance: Adults’ Experiences in Five Countries," Health Affairs, 28 October 2004, content.healthaffairs.org/cgi/content/abstract/hlthaff.w4.487 (23 August 2005).
5. V. Agrawal et al., "Consumer-Directed Health Plan Report—Early Evidence Is Promising," 2005, mckinsey.com/clientservice/payor provider/Health_Plan_Report.pdf (23 August 2005).
6. Emerging Technologies and Health Care Innovations Congress, Washington, D.C., November 2004, www.tethic.com/program.asp?Day=1&ShowID=106 (23 August 2005).
7. N. Garrison-Springer, "Bankers Bet on HSAs to Tap Growing Market," Business Journal of Minneapolis-St. Paul, 21 January 2005, twincities.bizjournals.com/twincities/stories/2005/01/24/story1.html (23 August 2005).
8. One of the more prominent examples of an organization of cash-only physicians is SimpleCare in the Seattle area. See its home page, www.simplecare.com. See also "Consumer Driven Health Care: Physicians Respond," Briefing by the Galen Institute, 18 June 2004, Webcast available at www.kaisernetwork.org/health_cast/hcast_index.cfm?display=detail&hc=1174 (23 August 2005).
9. See the home page of the Society for Innovative Medical Practice Design, www.conciergephysicians.org/index.html.
10. R. Kazel, "Demand for Convenience Puts Clinics in Stores," American Medical News, 13 September 2004.
11. R.E. Herzlinger, Market Driven Health Care: Implications for Providers, Payers, and Policymakers (Reading, Mass.: Addison-Wesley, 1997). See also A. Dobson, "A Comparative Study of Patient Severity, Quality of Care, and Community Impact at MedCath Heart Hospitals," May 2003, www.medcath.com/corp/content/Lewin-executive-summary-5-13-03.pdf (23 August 2005); and Thomas A. Gustafson, Centers for Medicare and Medicaid Services, Testimony on Physician-Owned Specialty Hospitals before the Senate Finance Committee, 8 March 2005, www.hhs.gov/asl/testify/t050308.html (23 August 2005).
12. Centers for Medicare and Medicaid Services, "CMS Outlines Next Steps as Moratorium on New Specialty Hospitals Expires," Press Release, 9 June 2005, www.cms.hhs.gov/media/press/release.asp?Counter=1478 (23 August 2005).
13. McDermott Will and Emery, "The FTC and Department of Justice Provide New Guidance: Antitrust Enforcement against Health Care Providers to Remain a Top Priority," 27 September 2004, www.mwe.com/info/news/wp0904b.htm (23 August 2005).
14. H.H. Raattama Jr., "Non Profit Hospitals Sued," June 2004, www.akerman.com/documents/res.asp?id=133 (23 August 2005). See also the home page of Consejo de Latinos Unidos, www.consejohelp.org.
15. B. Simon, "Vacation, Adventure, and Surgery?" CBS 60 Minutes, 24 April 2005, www.cbsnews.com/stories/2005/04/21/60minutes/printable689998.shtml (23 August 2005); C. Rajghatta, "Outsourcing Blues? Have a Heart," Times of India, 30 September 2004; and R. Goldsmith, "Europe: Shopping for Health Care," Seattle Times, 10 February 2005.
16. S. Roberts, "Advocacy Firms Help Cure Benefits Troubles," Business Insurance, 12 January 2004.

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