What's Next: Consumerism Exerts Real Pressure on the Market

This week we are running our "What's Next" industry outlook series examining the market influences that will have the most impact on healthcare in 2016. Oliver Wyman partners break down five different disruptive innovations that will take root this year, each initiating a chain of reactions and innovation across the industry. Oliver Wyman's Global Managing Partner for Health & Life Sciences Terry Stone kicks off the series with a prediction about the overall marketplace (see sidebar for more on what's next):

There is a long-held misconception in healthcare that things can either be high quality or low cost; the two are thought to be incompatible and mutually opposed. But innovative players are upending that mindset, serving consumer needs with value-based care and a focus on great experience.

Consumer-minded upstarts and retail health companies (primarily) are demonstrating that the one-size-fits-all, not-on-your-terms-or-schedule days are over. Legacy organizations that don’t bend to this rise in consumerism will see market share walk out the door, because 2016 is the year consumers will start to shop with their feet to get what they need, when they want it, the way they want it.

The tipping point to the consumer-centric market is two-fold. First, the rise in high-deductible insurance products will lead consumers to become more informed and selective. With real dollars at stake, consumers will have much larger incentive to “price comparison shop” for major medical expenses, just as consumers would for major home appliances. But it’s not only going to be about price. As more consumers become informed shoppers, they will make use of quality ratings and customer-experience reviews, driving them to reject status-quo options and choose those that offer the best overall value.

Skin in the game

According to Mercer’s National Survey of Employer-Sponsored Health Plans, 25 percent of people with employer-sponsored coverage are in high-deductible plans (HDHPs), defined as $1,500 or higher for an individual. These figures are only going to rise, as HDHPs are expected to be the fastest-growing insurance offering over the next decade.

There has been much discussion about how these “skin-in-the-game” products will impact the market. The criticism of HDHPs is that they may encourage consumers to delay or avoid seeking care, and so they will end up sicker with higher costs. And some research indicates consumers are not yet ready to price-check their providers.

But that is largely because up to now consumers have had precious little information available to them. Consequently, they had low motivation and little reason to comparison shop. As tools now become more sophisticated and relevant, consumes will have the ability—and increasingly the inclination—to be cost-conscious shoppers. Already, consumers in HDHPs are twice as likely to use the online cost-tracking tools offered by health plans.

As HDHPs proliferate, we can expect to see this sort of engagement increase, with more people utilizing cost tools and exploring provider reviews until informed consumer decision-making becomes the norm, rather than the exception. As this happens, the tools will become even more valuable, collecting feedback from a broader consumer basis, driving more users, and leading to the development of new and better tools.

Experience matters

What starts with cost consciousness builds an upward spiral of transparency, driving better decisions, and demanding maximum experience from the healthcare marketplace. Consider Oscar Health Insurance, a Google- and Goldman Sachs-backed start-up that offers itself as an alternative to traditional health plans. It relies on technology and design to deliver a simpler, friendlier user experience—and it nabbed about 7 percent of the New York City-area individual marketplace this year, despite being priced 15 to 20 percent higher than low-cost players. Oscar is an example of how the digital revolution is shifting consumer expectations, as people begin to demand healthcare organizations deliver the same curated, optimized experience that they get from online shopping, travel, and lifestyle sites.

While questions remain about Oscar’s ability to manage risk as well as the legacy insurers, it is indisputable that they have created a great consumer experience. The underwriting and risk-management aspect of their business is not what sets them apart—and leadership on those fronts can always be hired and acquired. What makes Oscar formidable, and why legacy insurers should take them seriously, is the fact that they have cracked the consumer-experience code. Just last week, it was reported that Fidelity Investments believes in the Oscar model enough to invest more than $150 million in the company.

Retail is another segment that recognizes the importance of experience, and this year retailers are expanding their footprint, offering health services with hours and accessibility better suited to consumers’ schedules and lives. CVS Health has plans to expand its retail clinic business to more than 1,500 clinics by 2017; and Walmart is continuing toward its goal to become the nation’s largest primary care provider. If a person can walk into a Walmart Care Clinic without an appointment and pay a flat $59 fee ($4 for employees on Walmart insurance plan), $3 for a pregnancy test, and $15 for a cholesterol test at the same time they pick up their groceries for the week, the traditional physician’s office is going to have a very difficult time staying relevant.

Turns out, value and quality are compatible

Healthcare organizations have historically paid scant attention to consumer science and invested little in consumer experience. That is because experience was a value-add and not the driver of the fee-for-service market. The world is becoming a different place now, though, and consumer engagement is more than a PR investment; it’s one of the most critical success factors.

Consider Amazon.com, the largest retailer in the world. Its simple interface allows consumers to shop a wide variety of products at varying price points, while the website’s technology platform curates and tailors the experience to each user. High quality, low cost, and a homerun consumer experience. In return, consumers awarded Amazon with an industry-leading net promoter score (NPS) of 69.

Companies across all industries aspire to achieve anything close to Amazon’s customer loyalty and high NPS. Meanwhile, Iora Health, a new kind of team-based primary care model, is quietly upending primary care delivery, delighting its patients, reducing health costs, and netting an NPS of 93. For some perspective, that’s a higher score than Apple; and Kaiser Permanente, a company often lauded for its high customer satisfaction, led the insurance industry with a NPS of just 31.

Innovators such as Iora and Oscar are proving quality and value are not mutually opposed. This is the year consumer-centric models will emerge from obscurity and start to exert real influence on the market: Iora is doubling the number of clinics its opening and Oscar has expanded and tripled its market.

Legacy organizations should heed the example of these innovators and consider how they can boost their consumer experience. Of course, becoming the Nordstrom of healthcare is no easy—or overnight—task; but it is critical that legacy organizations begin the hard work of examining their value promise. The innovators aren’t sitting around waiting, and consumers won’t either.