Tom Weakland at Consumer Centric Health, Models for Change '11
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The document discusses how behavioral economics can be applied to healthcare to better understand irrational consumer behavior and decision making. It provides examples of how cognitive biases and psychological factors influence health behaviors and choices, contributing to poor outcomes and high costs. Applying behavioral economics principles may help design interventions to positively influence behaviors and steer patients towards healthier options.
Tom Weakland at Consumer Centric Health, Models for Change '11
- 1. www.pwc.com/diamond Consumer-Centric Health: Models for Change '11 Behavioral Economics Meet Healthcare October 2011 Tom Weakland – Enterprise Strategy & Conversion, Health Industries Advisory
- 2. What is Behavioral Economics? PwC
- 3. PwC
- 4. Behavioral Economics is the application of neo- classical economics and psychology to explain irrational* behavior Neoclassical Economics • People are rational and driven by self- interest • Identifies common • People make decisions which “shortcuts” used in maximize their own economic utility consumer decision- making • Assumptions break down when humans do not consider decisions in unemotional, strictly rational terms • Explains external variables affecting + Cognitive Psychology • Decision-making is affected by consumer decision- making • Explains market inefficiencies environmental influences • Provides explanations as to why • Offers insights into people’s decisions differ from classical product design and economic predictions marketing PwC *Behavior not predicted by traditional economic theory (typically attributable to cognitive biases, limitations in knowledge/cognitive ability, or psychological / environmental factors)
- 5. Behavioral Economics – Our Framework Behavioral economic principles can be classified into four broad categories • 1.1 Relative Choices • 2.1 Love of Free • 1.2 Reliance on Defaults • 2.2 Anchoring • 1.3 Attribute Priming • 2.3 Endowment Effect • 1.4 Mental Accounting • 2.4 Hyperbolic Discounting • 1.5 Framing 1. Decision 2. Value Short-cuts Assessments 3. Social 4. Emotional Impacts Impacts • 3.1 Social/Financial • 4.1 Loss Aversion Domains • 4.2 Self-Herding • 3.2 Dishonesty Effect • 4.3 Self-Control Facilitation • 3.3 Signaling • 4.4 Hot vs. Cold States • 3.4 Bandwagon Effect • 4.5 Overconfidence Effect • 4.6 Risk Aversion PwC
- 6. Behavioral Economics - Cross-Industry Behavioral Economics Perspective – 1. Decision Shortcuts Defaults Organ Donation by Country Higher Percentage of Organ Donors 100 % Organ Donors 80 60 Lower Percentage of Organ Donors 40 20 0 PwC Retirement Research Consortium, August 2008
- 7. Relative Choices Is This Expensive? Signature 6 Burner BBQ $5,984.05 PwC 1Predictably Irrational, Dan Ariely
- 8. Behavioral Economics Principles Relative Choices Is This Expensive? Signature 6 Burner BBQ $5,984.05 $6,299.00 PwC 1Predictably Irrational, Dan Ariely
- 9. Behavioral Economics Principles Relative Choices Is This Expensive? Signature 6 Burner BBQ Signature 6 Burner BBQ: Gold Plated Edition $5,984.05 $12,500.00 $6,299.00 PwC 1Predictably Irrational, Dan Ariely
- 10. Behavioral Economics Principles Love of Free PwC 1Bloomberg Businessweek, Stone 2010
- 11. Behavioral Economics Principles Love of Free Prime members increase purchases by 150% and account for 20% of all Amazon purchases1 PwC 1Bloomberg Businessweek, Stone 2010
- 12. Why is Behavioral Economics Relevant to Healthcare? PwC
- 13. Poor Behavior and Choice is a Rampant Problem • 3 in 4 Americans do not take their prescribed medications as directed • No show rates for doctor’s appointments are 20-30% • 34% of US adults over 20 years old are obese • Over the past 30 years, the number of overweight children has doubled and the number of overweight teenagers has tripled • Diabetes prevalence has increased by 33% in the in the past 20 years • 1 out of 3 children born today will develop diabetes at some point in their lifetime if dietary trends continue PwC
- 14. Poor Behavior and Choice Costs Money • Healthier diets could prevent over $70 billion per year in medical costs, lost productivity, and lost lives – USDA • In 2008 the direct medical costs of obesity was $148 billion (and unchecked will rise to $344 billion in 2018) - CDC • Prescription non compliance costs ~ $290 billion per year • Missed Doctor visits cost over $150 billion per year • Inappropriate ED visits (by insured) costs up to $10 billion per year • State and federal governments spend one thousand times more to treat disease than to prevent it ($1,390 vs. $1.21 per person each year) - CDC PwC
- 15. Poor Behavior and Choice Kills ~2.4 M 2,500,000 Deaths 2,000,000 135, 375 453, 377 Alcohol, Smoking Accidents, Suicide ~1.3 M 1,500,000 Deaths 434,395 Weight 46,013 Unprotected Sex 1,000,000 Homicide Drugs 500,000 0 Source: Personal Decisions are the Leading Cause of Death – Ralph L. Keeney, 2008 PwC
- 16. 10-20% Movement = Billions in Opportunity Patient Steerage $45B $45B Drug Adherence Disease Management $30B $60B Missed Appointments PwC
- 17. Does this really work? PwC
- 18. Reducing Unnecessary ED Visits • 10-20% of all ED visits are classified as non-urgent • The cost to the healthcare system is $6 - $20 billion per year • Universal coverage does not appear to be the answer PwC
- 19. Reducing Unnecessary ED Visits Issue • Unusually high rate of Emergency Department visits by Medicaid members Hypothesis – ED visits can be reduced through • Proactive outreach to members immediately following an ED visit • Ensuring members know how to reach their primary medical provider PwC
- 20. Reducing Unnecessary ED Visits 5 month pilot program launched in Evansville, IN with ~10,000 Medicaid members 700 600 593 500 479 400 300 200 100 0 Monthly Visits Prior to Test Monthly Visits During Test PwC
- 23. What does the future hold? PwC
- 24. More prevalence of Behavioral Economics in Healthcare • As a means to “steer” consumers to specific treatment regimens • As a way to reduce / control costs • As a way to influence personal choice • As a means to enhance population health initiatives • As a differentiator for Health Insurance Exchange participants •… PwC