Big Ideas: Aping Amazon

In a world where the consumer is king and transparency is an expectation, health systems are taking their cues from the online retailer in strategically remaking their service offerings with customer service and value in mind.

This article first appeared in the December 2016 issue of HealthLeaders magazine.

The consumer's responsibility to pay directly for a larger portion of his or her healthcare through increased deductibles and coinsurance charges is an undisputed fact.

Many words have been written about this reality, but a less obvious consequence of the unrelenting trend is a realization of the patients' increasing power to change how healthcare is administered, albeit in ways that are still unclear.

What does seem clear is that organizations that don't prepare for a world in which acute hospital care is increasingly commoditized and deemphasized will ultimately lose control of their destiny. Innovative leaders know that their organization's future success will be built not only on great reputation and better-than-average outcomes but also on customer service, price competitiveness, and an appeal to consumer loyalty through service and efficiency.

For many organizations, necessary strategic adjustments will need to be massive if the trend toward more out-of-pocket consumer responsibility for costs continues to accelerate at its current rate. A recent Deloitte report shows that even now, out-of-pocket healthcare spending outpaces aggregate consumer spending on new motor vehicles, clothing and footwear, and telecom and Internet services, for example. Consumers still spend more on groceries, but the gap is closing. A 2015 report from U.S. News & World Report's proprietary Health Care Index shows that deductibles, the amount of cash beneficiaries must spend before their health insurance kicks in, have the highest growth rate of any of the components that make up the index. Finally, the Kaiser Family Foundation shows that the percentage of covered workers enrolled in a plan with an annual deductible of $1,000 or more has risen to 46% compared to 10% in 2006.

What are the implications of that growth in out-of-pocket consumer costs on hospital and health system strategies?

At least one effect may rest in the irony that their ability to grow revenues and margins becomes impaired as consumers do more shopping, and express through their wallets their demand for better value in their spending. As other consumer-oriented industries have demonstrated, in healthcare the stickiness of your ecosystem should develop into the new currency for success.

Adapting and evolving
Howard P. Kern took over this spring as president and CEO of Sentara Healthcare from longtime CEO David Bernd, who grew the system from a $600 million revenue organization when he took over in 1995 (then Sentara Health System) to nearly $4.7 billion when he retired in March. While growth of the not-for-profit, integrated 12-hospital, Norfolk, Virginia-based delivery system will still be important under Kern's leadership (he served for 18 years as president and chief operating officer at Sentara before taking the top job), he plans to focus a lot of attention on the health system's relationship with the consumer. In fact, one strategic priority involves building an Amazon-like agenda into the organization, which includes a 450,000-member health plan.

"In the future, competition will be around the consumer and the relationship we can develop with the consumer over their lifetime," he says. "Today we tend to look at our delivery system as designed from provider side out, but we need to design it from the customer side in."

He predicts that in as little as five years from now, consumers will be much bigger drivers of healthcare consumption and choice than they are today. He says the successful organization needs to internalize the fact that high-dollar, expensive services that used to drive the train will do so less and less. Healthcare systems need no less than a fundamental reset of their priorities. In other words, they need to meet consumer needs first, and clinical and provider needs follow.

"The consumers, as much as we're trying to give them transparency, they take that for granted—and that's not to say we won't continue to focus on it, but we need to win on the customer experience," he says. "It's almost an Amazon-like agenda. It won't surprise me if in 10 years we will have organizations like Walgreens helping consumers achieve value through the continuum, so we need to evolve. Our competitors may become our partners."

Indeed, what's value as consumers define it?

Kern discusses the idea of putting the consumer first, which might seem intuitive, but in healthcare, given the provider's arm's-length relationship with the consumer that has developed along with the third-party payment system, it is certainly not. That has to change, he argues.

Kern cites the example of a recent Sentara initiative that achieved a goal of better customer experience at little cost. Of the organization's five major clinical goals for 2015, four revolved around quality targets, such as reducing deep vein thrombosis or reducing bloodstream infections, but the one that involved the most debate was around improving turnaround time for mammogram results that indicated a need for a biopsy.

Average turnaround time, at two-and-a-half to three weeks, was "way too long," says Kern.

Clinicians understood why the organization wanted to improve the metric, but they also made a compelling case that turnaround time doesn't matter clinically.

"But having to sit there and wait for that kind of answer is torture," Kern says.

So the organization set a goal to get 80% of such tests to a definitive diagnosis within seven days of the test's administration.

"Radiologists were very sensitive toward that goal," he says, "but it boils down to capacity and systems management and getting systems aligned."

Though Sentara didn't fully achieve the goal last year, more than 50% did get a definitive diagnosis that fell within that seven-day window. The 80% goal is again on the table for 2016, and Kern says Sentara achieved that goal in the second quarter of this year.

Proving value
While cheaper isn't always better, healthcare leaders would do well to remember that the more expensive doesn't necessarily mean better. For some time, "big-name" institutions have been able to extract higher prices for care because of their reputation, even if they couldn't prove that reputation stemmed from better outcomes than their competitors. Increasingly, organizations will have to make the case that their care may be more expensive because it is better, but they just can't state that. They have to prove it, says Aurelio Fernandez III, president and CEO of Memorial Healthcare System in Hollywood, Florida.

"Of course, the educated consumer will shop based on both price and outcomes, so we still have to price at a level that is, honestly, where the consumer is willing to pay a slight premium for that care," he says. "We'll have price transparency, but we're not pricing below market to get additional volumes. Price has to cover the cost to provide the care."

Fernandez says there's still lots of discounting going on among other providers in his market because it is overbedded, and safety-net organizations are at a disadvantage because they are the healthcare provider of last resort. Still, he's optimistic that consumers won't necessarily choose the cheapest option for care, but that when all variables are transparent, they'll choose the best value and outcomes will be a big part of that equation.

"We like the educated consumer. For that reason, we're investing a lot in tech, and the consumer will use that to meet their health needs."

"The consumer needs information that will influence their decision-making for their healthcare needs," but the health system is prepared to show the consumer many variables besides price to help them make that decision, he says.

For example, he says, for routine but complex procedures such as cardiac catheterization, joint replacements, and coronary artery bypass grafts, consumers should be given the full picture of the outcomes for a particular facility. Outcomes—many of which Memorial publishes on its website—tend to be better for organizations and providers that are able to do higher volumes of such procedures.

"We like the educated consumer. For that reason, we're investing a lot in tech, and the consumer will use that to meet their health needs," he says. "We'll add more and more outcomes on our website to enhance what we are already showing, although we're pretty comprehensive."