Rise of Retail Healthcare

The US retail healthcare revolution seems to be starting. Undoubtedly, the system is in need of a major change and the regulatory efforts in recent years have not come close to delivering what they were supposed to.  For the average patient consumer, health insurance premiums and deductibles are going up and everyone seems frustrated by the lack of value and exorbitant prices for healthcare services. Driven by consumer and employer demand, it seems inevitable that price transparency is coming and, with it, large changes in the healthcare market.

A path to seeing how this change might unfold comes from humbly studying how other markets deliver value and pricing and seeing if we can apply those lessons to the healthcare market. As will likely be touched on in future posts, the regulatory environment and third-party payment system that dominates the US healthcare system are somewhat understated, yet massively influential, components of why price transparency is so hard to achieve on an ongoing basis.

There are many analogues for market pricing in non-medical environments. Fortunately, there are also areas that touch medicine and healthcare that also demonstrate how market forces can be applied in medical settings even if they are somewhat peripheral to the pricing of  healthcare services. Consumers and practitioners looking to purchase medical products like MCAT review books, clothing such as medical scrubs, and high-quality stethoscopes have a myriad of review to visit to make high-quality purchasing decisions. As such, these consumer markets and have long demonstrated principles that align more closely with free market forces and, as such, readily demonstrate price transparency.

What makes these types of goods priceable?  In teasing out the elements of price transparency in markets such as these, it is helpful to think about what elements of books and clothing make them easy to price. Books, for example, are well-differentiated goods. While each book is unique in its content, the overall attribute of the book can be largely described using widely understood attributes such as weight, number of pages, publisher and the like. Medical clothing can be priced using attributes such as size, color, materials and thread count. Any number of suppliers can readily buy a book or a set of scrubs and resell it at a price of their choosing and sources can easily differentiate between higher and lower quality items along the lines of their unique characteristics.

Some might argue that books and clothing are pure retail goods, even if they are used in a medical setting, and lessons from those markets should not be applied to traditional medical services markets. In that case, one can move further along the spectrum in an effort to study how pricing might be utilized for more traditional medical services. One market that has a number of similarities to the prescription drug market is the medicinal compound market (i.e. supplements). Supplements have demonstrated transparent pricing for some time and, no matter how one feels about the nature of the industry, supplements have long been subject to market forces between buyers and sellers. And, because of the lighter hand that government plays in regulating it (for better or for worse), changes in pricing in the supplement market demonstrate the effects of traditional forces such as marketing, branding and distribution in establishing a competitive position. Under the assumption that a manufacturer is actually selling what’s listed on the bottle, supplements can be identified along definable characteristics such as ingredients, dosages, serving size and form. And, like the product market, supplements such as prenatal vitamins or even less medical dietary compounds such as probiotic supplements can be reviewed based on their unique attributes. As far as the supplement market goes, as long as customers find value in the supplements they are taking (placebo effect or not), suppliers will continue to exist in the market to serve them and transparent pricing should play a part.

Looking forward, in considering traditional medical markets, it will be interesting to dig in to see what can be uncovered and why price transparency has been so hard to nail down. Unlocking the answers to these questions will likely give insight into newer models of care that, in this time of change and frustration, will form and thrive, driving value away from incumbent players and into new places.

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