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Considering Cash—& Consumerism—In Service Line Planning

November 12, 2018 

By: Monica E. Oss - Chief Executive Officer & Senior Associate - OPEN MINDS 

 Most health care provider organizations don’t think about consumers paying cash directly for services—for good reason.

The U.S. has long had a health care financing system that relies on third-party payment. Forty-nine percent of the population is covered by employer-sponsored health plans, 14% by Medicare, and 19% by Medicaid (see Health Insurance Coverage of the Total Population). And, U.S. consumers have been trained to select health plans and services where they pay the least out-of-pocket (OOP). Analysis of consumer buying behavior for health plans has found that in many cases, consumers are willing to trade “choice” for cost reductions (see Consumer Demand for High-Deductible Health Plans Dwindles).

But lack of focus on how consumers choose health care services and what they want in health care services has left many provider organization management teams with a big blind spot. Many managers in provider organizations don’t know how to think about “what consumers want”—and turn that knowledge into service line redesign. The on-the-ground reality is that the “consumer experience” in health care hasn’t changed much—the appointment-making process is clunky, the consumer-facing communication is often unintelligible, and net promoter scores are hard to find. The rationale that I hear from my executive friends continues to be the reliance on referral relationships with health plans and the “shortage” of service delivery professionals.

But the exercise of thinking about what services a provider organization offers that consumers would pay for directly is useful for every executive team. It is the ultimate “value” discussion. What is the price point in a private pay market (see Doing The Private Pay Math)? And a related but equally pertinent question—what “amenities” do consumers expect and what are they willing to pay for them (see How Much Are ‘Amenities’ Worth To Your Consumers?)

While this may sound academic, I think there are a couple market developments that make this new thinking essential. First, consumers are covering more and more of their health care expenses. Second, “consumer reported” performance is playing a bigger role in health plan evaluations—which means it will play a bigger role in how health plans select provider organizations.

Consumer spending on health care

Last year it was reported that the average annual deductible for single adults with employer-sponsored health insurance was $1,077 (see The Challenges Of Rising Consumer Spending On Health Care), and OOP payments clocked in at $656 (see Out-Of-Pocket Health Care Costs – Down For Most, Up For Some). Additionally, about 14% of all families had OOP health care expenses exceeding $2,500 in 2015 (see 14% Of Families Had Out-Of-Pocket Health Care Expenses Exceeding $2,500 In 2015). A Kaiser Family Foundation study puts half of consumers with employer-sponsored coverage with a deductible of at least $1,000 (see Employer Health Benefits: 2017 Annual Survey).

In 2018, the OOP limit for a marketplace plan is $7,350 for an individual plan and $14,700 for a family plan. This is up from 2017, when the OOP limit for a marketplace plan was $7,150 for an individual plan and $14,300 for a family plan (see Out-Of-Pocket Maximum/Limit).

Even with Medicare, retirees in the United States spent 34.3% of their Social Security benefits on OOP medical costs (see Retirees Spend More Than One-Third Of Social Security Benefits On Out-Of-Pocket Medical Costs); and OOP health care costs for a couple entering retirement in 2016 were estimated at $260,000 over the course of their lifetime, about 6% higher than estimated retirement health costs of $245,000 in 2015 (see Estimated Out-Of-Pocket Health Care Costs For Retired Couples Tops $260,000). This does not include long-term care costs.

The strategic implication of this shift is that insured consumers paying more of the bill for health care will likely start to act like consumers paying all the bill. New rules from the Center for Medicare and Medicaid Services (CMS) about hospital price transparency (see Get Your Price List Ready!) and new pharmaceutical cost transparency legislation (see Trump To Sign Bills Lifting Drug Price ‘Gag Orders’ On Pharmacists and Unlikely Bedfellows) are going to speed up this transition. So will the many organizations—from CVS pharmacies to the physician-dispatching app Heal, to the behavioral health platform Talkspace—that are promoting packaged pricing for services directly to consumers.

Health plan evaluations increasingly consumer-centric

Another development is that payers are increasingly evaluating health plans using consumer experience and patient-reported outcomes measures (PROM)—and that will make health plans more sensitive to consumer experience. For example, the National Committee for Quality Assurance has partnered with four health plans to identify approaches to collect PROMs (see NCQA, Health Plans to Measure Patient-Reported Outcomes). And the Centers for Medicare & Medicaid Service’s STARS program is using the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAPHS) to evaluate hospitals—awarding 10% of hospitals in the United States a five-star consumer rating last year (see Under New CMS Hospital Care Rating Methodology, More Hospitals Earn Highest & Lowest Ratings). CMS is extending these consumer-focused ratings to the physician and health home rating programs.

This focus on consumerism and the consumer experience is increasingly important—and will require a new perspective on service line development (see Get Your Price List Ready!).


This reprint appears with the permission of OPEN MINDS. For more information, visit their website at To contact the author, email



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