Is It Possible to Peg Price to Value in Healthcare?

By Edgar Wilson | Published 1/8/2017 0

Although we can learn about pegging price to value from other industries, healthcare requires a unique approach that recognizes its critical role in people's lives.

Healthcare is not alone in struggling to prove that value corresponds to price.

The rise of ticket prices to enter Disney’s amusement parks—the eponymous –land and –world resorts—has outpaced general inflation since they first opened their doors. Has the relative entertainment value of visiting Disney properties increased by the same amount?

It may be hard to qualify, but likely not. The absolute cost of these tickets as a share of the median American household income—a ratio known in some economic circles as the Disney Index—has gone from 0.08% to 0.2%. By some accounts, this is part of a deliberate effort to control demand and, thus, preserve the integrity of the experience for those who pay up. Raising prices keep the crowds from overrunning the parks.

Healthcare prices face a similar strain. And, like Disney, there has been no shortage of rationalization of healthcare prices by pointing to new technologies and pharmaceutical research—more or less the equivalent of new attractions and rides. Novelty and quality, whether in a Disney resort or an in-patient clinic, are not always the same.


What’s it really worth?

Disney, not being in the business of curing disease or saving lives, has the privilege of measuring its value with more ambiguous metrics. But, even so, it seems safe to say that their prices outpace their entertainment value. That model works, since entertainment is a commodity, as opposed to the necessity of healthcare.

To some extent, yes, healthcare services have improved significantly over time, as new technologies, medications, and therapies have added real value to medical services. Even so, it has become a favorite pastime of analysts and critics to compare outcomes—mortality usually, disease-specific benchmarks occasionally—between the U.S. and other countries. Cuba, the UK, Canada, and any of the nordic countries appear to spend less per capita than America and achieve like or superior outcomes.

The inflation of healthcare costs has also outpaced general inflation and appears poised to continue to do so for the foreseeable future. In healthcare, though, there is (recently, at least) an active effort to better correlate cost with value beyond emphasizing what is new (and expensive to acquire).

American healthcare and Disney parks do have a second, interesting point of intersection: Refunds.


The cost of refunds

It is virtually impossible to get a refund on Disney resort tickets outside of lengthy and costly litigation—regardless of any deficit of value, perceived or otherwise, in the resort experience. Healthcare can attribute at least some of its inflation in costs to the extent litigation undertaken by, for want of a better description, unsatisfied customers. Here again, the push to isolate and measure value in healthcare is taken to represent an outlet for alleviating strain on costs.

In the wide world of sports, a fascinating model has emerged to compromise between the intangibility of an entertainment experience and the absolute cost of admission. Here again, prices have an on-again, off-again relationship with general inflation, as well as ambiguity in measuring value. GameHedge, a ticket-seller representing all of America’s four major professional sports (baseball, basketball, football, and hockey), has an automatic refund system built-in to every transaction. Should the home team lose by a predefined margin, tailored to the scoring potential of each sport, customers can expect a 50% refund on their tickets.

While some fans may well enjoy a blowout as much as a nail-biter, this formula at least sets a floor for entertainment value pegged to prices and gives customers some sense of shared risk in their purchases.

Healthcare’s approach doesn’t go quite so far as to put money back in patient’s wallets when the quality of care falls short—at least as a matter of automatic recompense. Instead, the pressure is being levied on doctors and other providers; fail to check the appropriate boxes vis-a-vis MACRA, and reimbursement gets incrementally lower and incentives slide out of reach. As affected doctors are quick to point out, these metrics have a highly subjective relationship to the actual quality of care delivered.

Still, regulators say, it gives us a starting point for pegging price to value.


America’s next top model

When GameHedge is involved in bringing fans to the game, the athletes in the field presumably get paid either way. In healthcare, provider reimbursement is on the chopping block when quality metrics aren’t met—patients aren’t off the hook to pay. At Disney resorts, prices can be raised almost arbitrarily to mitigate demand. Healthcare costs don’t have as direct an impact on overall demand, and it is at best debatable how much they reflect quality improvements.

We can look to other industries for models of how to manage the tensions affecting healthcare, but, ultimately, they all fall short on providing a clear, actionable path forward. We can try to treat healthcare as a business, and we can designate any number of proxies for measuring quality; for lasting, meaningful change, though, we will need to replicate what actually works in healthcare, not what appears to work elsewhere.

Edgar Wilson


Edgar Wilson is an Oregon native writing on trends in health, education, and global affairs. He studied conflict resolution and international relations and has worked in industries ranging from international marketing to broadcast journalism. He is currently working as an independent analytical consultant. He can be reached via email ([email protected]) or on Twitter @EdgarTwilson, and more of his work viewed through Contently.

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