Will Healthcare Experience a 'Retail Revolution'?

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In our market economy, we've grown accustomed to the convenience of shopping for the best price, service, and quality-except when it comes to healthcare, which happens to account for one out of every five dollars spent in the U.S.

For decades, economists have called for increasing consumerism in our healthcare system, as a way to reduce waste, lower costs, boost quality, and improve the overall experience.

Certainly, we have moved gradually in that direction since the backlash against HMOs in the early 1990s. An early step forward was the introduction of medical savings accounts, followed soon after by the creation of high deductible health plans. Then came the rollout of online tools for comparing the cost of common medical procedures at different facilities.

These changes on the financing side of healthcare were accompanied by changes on the delivery side, including the steady expansion of more convenient, retail-like options, such as the clinics that are now commonly found in major pharmacy chains and big-box retailers.

Telemedicine technologies are truly "delivering" healthcare to consumers, enabling more than 450,000 patients last year to receive medical consultations without ever having to leave their homes. And increasingly popular personal digital health apps and devices like the Apple Watch are giving consumers individual attention anywhere, anytime.

Most recently, the Affordable Care Act (ACA) established federal health insurance exchanges designed to connect consumers with a range of healthcare choices.

Despite these steps toward increased healthcare consumerism, however, a few big questions still have to be answered before we'll know whether the long-awaited and often-predicted "retail revolution" in healthcare is actually close to becoming a reality.

The first question is what the direction that government will take. Federal spending on healthcare as a percentage of GDP has grown steadily over the past several decades-a trend that is likely to continue as the population ages. And although only a quarter of healthcare dollars are spent by the federal government, it is in a unique position to determine the future orientation of our system.

Will we see market-oriented reforms that generate more consumerism and competition, as in the case of the very successful and popular Medicare Part D program? Or will we see policies that take us in the opposite direction, such as price controls, therapeutic restrictions, and increased regulation?

A second big question is whether we will see innovations in how consumers pay for healthcare, giving them more flexibility to choose the care that is right for them.

Today, pricing in healthcare largely occurs through negotiations between payers, providers, manufacturers, and others. Certainly this is not unique to healthcare-many industries, from automobiles to supermarkets, feature negotiations between wholesalers and retailers.

What sets healthcare apart from the rest of our economy is that as consumers, we almost never see the final retail price that has been negotiated on our behalf. In fact, in healthcare we rarely know how much something will cost until after we have already paid for it.

One reason is that we have come to rely on insurance policies that are not only challenging to understand-with terms like premiums, deductibles, co-pays, coinsurance, etc.-but can actually obscure the real value offered by different therapeutic options.

For example, most insurance plans, particularly those offered on the ACA's exchanges, require patients to pay a disproportionate share of their prescription drug costs out-of-pocket, compared to other services. Patients pay an average of 19 percent of the costs for their medicines-and often much more for cancer treatments and other specialty products-compared to about 5 percent of the costs for hospital charges.

This disparity can have the unintended effect of giving consumers an incentive to forgo treatments that might prevent a worsening of their condition, resulting in even higher health costs in the long run.

Therefore, as we are all asked to pay more for our care, and to act like true consumers, a vitally important question will be whether we will be able to determine the relative cost and value of various therapeutic options before deciding on the right one.

A third big question is whether the ongoing consolidation in healthcare will enhance or diminish competition and choice for consumers.

Hospitals and other healthcare providers have undergone an enormous amount of consolidation over the past decade, and proposed combinations among the nation's largest health insurers, currently under review by antitrust authorities, leave only a few big players.

There can be many advantages to consolidation, such as creating synergies between companies that complement one another, or driving down overhead costs and creating economies of scale that result in lower prices for consumers.

In other cases, consolidation can result in less competition and higher prices. Regulators and courts will have to make these determinations as they consider proposed mergers in the future.

Taking all of these considerations together, the likelihood of a retail revolution in healthcare is still very much an open question-but the answer is also very much in our hands. If we pursue market-based reforms, give consumers better information to make decisions, and preserve competition, we could spark a retail revolution sooner rather than later.


Alex Azar is President of Lilly USA, LLC, the largest affiliate of global biopharmaceutical leader Eli Lilly and Company, producing approximately half of its revenue.    

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