The following is Part II of a detailed five-part series focused on the drivers behind the branding transformations taking place in the healthcare service providers market.
Author of this series, Todd Lunsford, served as chief marketing officer and held substantial roles in strategy and change management for Envision Healthcare, and its predecessor AMSURG, for over thirteen years.
In Part I of this series, I established that branding has often been neglected as a key business driver in healthcare with investment in marketing and communications as a percentage of revenues lagging behind other service industries, particularly in the provider space. I also examined the first of five powerful market forces destined to change the game for branding in healthcare services: the accelerating consolidation of the healthcare services provider market, recently driven by private equity M&A investments. I then highlighted the pressure this is creating to generate scale advantages in revenue growth, which has historically translated into aggressive brand integration in other fragmented industries.
Today in Part II, I’ll examine the second of the five forces: fundamental changes in the way healthcare is priced and providers are compensated.
The Shift Toward a Value-Based System
There is a very good reason branding has lagged behind as a key business driver in the healthcare provider services market, namely, that it has been very difficult to earn any kind of pricing premium as a return for investments in brand recognition. It’s a function of the very unique way in which healthcare services pricing and provider compensation structures evolved. Key elements include:
- Prices have been negotiated by third parties, typically an employer or other group purchasing agent, a health insurance payer or the government, and the providers themselves.
- Providers have been paid for “procedures completed” without explicit incorporation of care quality or outcomes into payment calculations.
- The consumer of the actual services rendered has often paid only a small portion of the negotiated price.
This can create incentives for higher or even unnecessary utilization. More importantly, it strips consumers of the ability to make a fundamental choice they often make in other purchasing decisions – to pay more on a per unit basis for higher quality or a better “total solution.”
This doesn’t mean that consumers don’t seek higher quality providers, but their ability to search and compare has been limited by two key factors. First, it has been very difficult for consumers to understand what quality means in healthcare services, and second, their primary source of comparative information has typically been the opinions of friends, family, and other providers. The result is that returns on branding investments in healthcare have been murky at best. It has been very difficult in this industry to link enhanced services or brands with consumer decision-making.
Now our healthcare system is in the midst of a shift toward value-based compensation, with new incentives for achieving specific care goals and outcomes in a more cost-efficient manner. With the passage of the Affordable Care Act, there was a flood of optimism around the speed with which these new structures could take hold and change the game. Some very credible consulting firms predicted that, combined with digital tools offering consumers more transparency in provider cost/quality comparisons (which I’ll cover in Part IV), the vast majority of healthcare spending would occur in a new value-based, consumer-oriented regime by the end of this decade.
Progress Hasn’t Been Revolutionary—Just Steady
The real transition has proven to be slower and more challenging, which should probably come as no surprise in such a complex and highly regulated industry. Reasons include, but are not limited to:
- lack of incentives for payers and providers to work together or share the required data.
- difficulty in bridging data and systems interoperability gaps across providers to track outcomes.
- lack of agreement on quality-oriented outcome measures.
- limited access to good cost data for many physicians.
- lack of robust strategies to enhance patient engagement and communication.
Still, progress is being made. The fact that a shift of this magnitude is not easy does not detract from its importance or the need for providers to adjust strategies. A report released by the Health Care Payment Learning and Action Network found that the percentage of payments tied to value-based care rose to 34% in 2017, up from 23% in 2015, and encompassed 226 million Americans, or 80% of the covered population. Adoption rates in commercial lines lagged those for Medicare, but healthcare payers remain optimistic with 90% of health plans believing adoption will increase over the next 24 months.
The fundamental driver for including alternative payment models in the Affordable Care Act—the United States’ exceptionally high per capita spending on healthcare versus its mediocre position in international rankings—isn’t going away. If anything, rapidly increasing out-of-pocket costs for consumers are only serving to underscore this disconnect and heighten its importance as a political issue. Additional payment reforms aimed at accelerating adoption should be expected in the years ahead.
The focus on procedure volume for compensation purposes has a tendency to compartmentalize and commoditize the care that many physicians provide. It also favors incumbents with existing reputations and referral networks. Marketers in provider services organizations have only been able to focus on access (referrals, which are more of a sales function) and price (often controlled by managed-care contracting functions).
Shining a light on outcome quality and the relative cost of achieving those outcomes opens up an enormous opportunity to differentiate brands on clinical quality or other dimensions of customer experience (which I’ll cover in Part IV of this series.). It provides more pathways for new entrants or care models to gain share, which in turn creates risk for the incumbents that don’t adapt. Therefore, the extended adaptation period for new payment models should be seen as a window of opportunity for developing stronger brands, and not an excuse for inaction.
In the next article in this series—Part III: The Gap Between Supply and Demand for Highly Trained Healthcare Professionals—I will focus on how provider organizations are coping with a looming shortage of clinicians and its potential impact on brand strategy and investment.
If this article struck a chord, it may be time for a branding “Health Check” from a third-party expert. At TopRight, we have partner-level resources who know healthcare, both from a marketing and clinical leadership (MD) perspective. So, let’s have a conversation. Otherwise, feel free to connect with me on LinkedIn, follow TopRight CEO Dave Sutton @toprightpartner, or if you want to go deep on transformative branding, grab a copy of Dave’s new book, Marketing, Interrupted.