Is Incentive-Driven Healthcare the Holy Grail of Engagement?

Industry studies confirm the strong connection between healthcare costs and the ingrained behavior of consumers and providers. Ironically, consumers and providers have access to more health information, tools, programs and support than ever before; yet healthcare costs continue to increase and chronic diseases continue to affect a larger portion of the population.

The healthcare industry is at an inflection point where payers, employers, providers and consumers must all be directly involved in the effort to manage the cost of care and to improve health outcomes. A critical aspect of this effort involves the motivation and behavior of all healthcare market participants, but primarily applies to the healthcare consumer and provider at the point of care delivery.

To drive engagement in programs designed to improve health, organizations have applied both incentives and disincentives, with varying degrees of success, as part of an overall engagement strategy. Generally, the presence of an incentive leads to improved results, but most incentive designs have fallen short of their potential. But some valuable lessons have been learned.

The healthcare industry has learned, for example, that incentives can drive behavior change, and can help establish a new baseline for consumer expectations, consumption patterns and health awareness. In turn, this newfound awareness has the potential to address the root causes of the nation’s healthcare crisis, leading to a more rational care model and slower rate of health cost increases.

More importantly, the well-intentioned but haphazard evolution of the application of incentives to various healthcare initiatives has yielded a robust volume of actual performance and cost-related information that can finally provide reliable links between program participation, behavior change, health outcomes and cost savings; and all of the necessary data to determine return on investment.

When properly designed, incentives can serve as the cornerstone of an engagement engine that creates alignment with earned and available incentives, and supports related protocols such as social media, behavioral economics, shared communities and mobile interactions.

This emergence of Incentive-Driven Healthcare (IDH) – a new era of heightened awareness and application of strategies to change behavior – has the potential to engage consumers and providers through intelligently designed incentive strategies that are based on population health issues, organizational culture, change readiness and behavioral theory.

In addition to its quantitative foundation, Incentive-Driven Healthcare also embodies what is already known at an intuitive level: that incentives such as financial remuneration, group recognition and personal fulfillment motivate people to change their behaviors. More simply put, people are driven by a “What’s in it for me?” mentality, and respond accordingly.

Success in IDH will not be based on an exploration of whether incentives can actually change behavior. Instead, the focus will be on how incentives can be designed, applied and monitored in order to achieve measurable results. This scientific approach to health incentives, driven by actual performance data, monitored user experience and detailed cost analysis – rather than surveys, incidental reporting or actuarial projections – delivers the insights that can help employers, health service organizations and health plans to accurately gauge the underlying value of incentive strategies, and ultimately to reduce the cost of healthcare.

The potential cost savings associated with increased consumer and provider engagement is significant. Deloitte has estimated that the combination of factors such as personal health records (PHRs), increased transparency, incentives and technology could achieve savings as high as $440 billion over 10 years.

Most organizations are well positioned to benefit from this trend, based largely on the underlying characteristics of incentives.

  • Incentives possess a “built-in” return on investment. Unlike many other tools in healthcare, no one pays for an incentive until an action is taken. This means that return can be generated as incentives are issued if the proper actions and behaviors are incented.
  • Incentives are simple and easily understood. In a healthcare world full of confusing jargon and complex formulas, people understand simple messages such as “be healthy and be rewarded.” This fundamental concept resonates with consumers and providers alike.
  • Incentives are viewed positively. In a world of cost-shifting and reduced benefits, incentives positively engage consumers and providers, and put them in control.

More broadly, these inherent characteristics combined with support from both sides of the political aisle, points to broader application of incentives. According to Lockton Benefit Group, healthcare constituents viewed the incentive components of recent healthcare legislation as the “most beneficial element” of the health reform law. This national sense of urgency, strongly suggests that consumer and provider engagement may be the most promising approach to address the cost and effectiveness of healthcare.

However, to realize the full potential of incentives that will drive engagement, the healthcare community needs a standardized and effective framework for their design and application that:

  • Is based on actual performance data
  • Is measured in an objective and consistent manner
  • Delivers immediate, near-term and long-term cost savings
  • Reflects the need to engage and change behaviors of consumer and providers

The good news is that in the era of Incentive-Driven Healthcare we are well prepared to address this challenge. We now have reliable data and the analytic tools to develop a rational, integrated approach to the design, implementation and evaluation of incentives, and they can be applied to increase engagement, improve outcomes and reduce the cost of healthcare.

From where we sit, Incentive-Driven Healthcare has the potential to drive engagement and change behavior in a meaningful manner. The resulting health and cost-related benefits should be significant.

We expect IDH to be an exciting journey.

Michael Dermer is CEO, President and Co-founder of IncentOne, a leading provider of incentive solutions to the healthcare industry. Mr. Dermer has authored numerous articles and has been a frequent speaker  at health industry conferences and events including World Congress, AHIP, Blue Cross Blue Shield Association, and others.

16 replies »

  1. The head of benefits from a major trucking company once said to me “it’s offensive to me that I have to pay drivers to deal with their sleep apnea but they keep crashing trucks into buildings.” As far as the carrot and stick debate, we believe every design needs both. Hopefully incentives with clear communications that expose individuals to health programs and social media, mobile and common communities helps to energize the effectiveness of all those tools.

  2. The last 5 years have proven people don’t like carrots. Withgout the stick you can’t achieve any meaningful change. The same characteristics that cause someone to get overweight or live in poor health preclude them from participating no matter how many carrots you offer them.

    Now that we have safe harbor in the way of penalities full steam ahead.

    Small group would imbrace this even more then large group, they have a bigger problem with rates and everyone knows who the non compliant diabetic driving up rates for everyone is, but no one is offering it to them. Trying to find someone that will sit down, explain, and sell such a program to a 25 life imployer is impossible.

  3. I have an incentive idea – lets stop paying to train so many specialists and more primary care docs.

    Most people don’t realize that nearly all residency and interships in the US (at a cost of $100,000 per doc/hospital a year for 4 to 7 years) are paid for by CMS.

    Perhaps if we had less highly paid speicalists ordering expensive tests then the patients wouldn’t have to be punished for the failure of our health care system to actually help keep them healthy?

  4. 1. I have raised this question before. What expectations do we have of person who needs to be provided incentive to maintain his/her health?

    Just to prove absurdity of this, how about paying couples to not to be split.

    Now apart from healthwise lowly engaged folks, other set that would take advantage of incentives would be the hypochondriacs.

    2. Are they healthier and cost any less money?

    Unless we answer these questions we will be spinning wheels around, for each one of is capable of 150,000+ diseases and incur millions of dollar expenses.

    I would agree with incentive as a way of promotional activity to spike interest and get some tongues wagging but not as a way to provide sustained income stream.

  5. I did find it amusing that AHIP is now calling CDHPs ‘Action-Based Health Plans’ to diminish a bit of the negative stigma around HSAs/HRAs.

  6. Agreed about the Deloitte stats as being almost meaningless. It is interesting though about how many employers are really thinking about moving toward a ‘stick and carrot’ approach regarding incentives as evidenced in the 2 years instead of just a ‘carrot’ approach today linked to completing an activity (e.g., completing an HRA, etc):

    – Only 8% of the medium/large-sized employers have penalties today for biometric screening results today but another 9% are adding it next year and 48% ‘are considering’ for 2013-14. (Source: Towers Watson report)

    – In 2011, just 17% of employers will impose some form of penalty on employees, although an additional 36% of employers are considering doing so over the next three to five years. In addition, 40% of employers show interest in extending penalties to spouses/partners, and 39% are considering imposing penalties on entire families over the next three to five years. (Source: Aon Hewitt report)

    The issue is that especially in the Aon Hewitt report is that these are mostly large employers who are self-insured and not typical of the average small firm at all. One of the biggest problems I see with reporting on employer-based sponsored insurance in the general press is that this is never mentioned. Worst example was the McKinsey report which had a disproportionate amount of smaller employers who would be impacted potentially by the state exchanges but it was reported as being entirely representative in a number of cases for all employers regardless of size, industry, geographic location, etc.

  7. Who can be against incentives? But, having recently attended a meeting of the Society for Medical Decision Making (more posted on that at a later time), motivation to make the best decisions is a lot more complicated than presented in this blog — which, of course, is pushing one point of view.

    I did laugh out loud at the Deloitte statistic quoted as one of my favorite examples of don’t-let-them-see-the-denominator. If you add up incentives and PHRs and transparency you get $440 billion in savings over 10 years, or $44 billion a year on a denominator of $2,500 billion ($2.5 trillion). That’s 1.8 percent savings for ALL those strategies combined if you assume total spending doesn’t rise over 10 years, which, of course, is absurd. Even if that number is inflation-adjusted (unlikely), the percentage of all those strategies accounted for by incentives still makes it pretty small potatoes.

  8. Thanks so much for the discussion. IncentOne is trying to help the community think about incentives in a way that can deliver return not only in the long term but also right away (i.e., at the time of the action) as well as over time. We have clients that have saved, for example, $508 per individual in claims and $1,012 in claims. But even those programs could have benefitted more by aligning incentives to immediate and intermediate return actions. Aligning incentives to minimally invasive procedures, medical tourism, use of lower cost screening providers and imaging providers can help to drive $ today while investing in longer term. Trifecta hopes to help all think about design regardless of who is executing.

  9. I spent a couple of years pretty heavily involved in the employee wellness world, and one of the biggest things I learned was that incentives work for wellness only or primarily when they help drive culture change. And to create culture change, you need a bunch of other things to happen. The three most important are: visible and sustained involvement from the C-suite, social engagement by employees (it’s “cool” rather than “lame” or “irrelevant to my work” to participate) and changes to the work environment (such as cafeteria food, use of stairs, etc.). Incentives in the range employers typically offer (a few hundred bucks max) don’t make a real difference without these things.

    I think that’s also partly why the data on the effectiveness and ROI of wellness programs is all over the place. Some show 5:1 ROI and others show no return on investment at all.

  10. I don’t think there’s any question that incentives can be critical in encouraging patients to engage in health-positive behaviors. The marvel in this piece, though, is that after several years of business, Michael can’t already offer more substantive evidence of measurable results. So what’s happened from efforts in this area so far, and what promise does an employer have that their overall spend will decline if they invest still more dollars in health care? The fact that this article tries so hard to make the argument for incentives without offering any real data hardly inspires confidence.

    As Matthew points out, a $44 billion annual savings is, over a decade calculation that considers inflation, less than 1.5%. Is this meaningful? If this number has any credence at all, which is questionable, doesn’t this mean that we should be focusing instead on the incentives/disincentives of providers and others in the health care sector, whose excesses are well documented and effectively double our current expenditures?

  11. So Michael sets himself and his company a rather higher bar than most here. Instead of wanting to see incentives create behavior change, he’s looking for incentives to actually change measurable results. The key phrase is “health incentives, driven by actual performance data, monitored user experience and detailed cost analysis”. I’ve been looking at the world of measuring/monitoring, and it appears that if you combine incentives, games and persistent or perpetual monitoring you can get behavior change and even result change (such as weight). The $440 billion question (BTW I hate stats that are small but get bigger when you multiply by 10) is whether those behavior changes make any difference to health care costs or productivity. We’d like to think that they will; but I think Michael is suggesting that IncentOne will only get paid if he can prove it. A brave man!

  12. Interesting comments. Hopefully the role of incentives is to “cut through” the clutter that prevents patients from seeing cost and quality. But without incentives it is tough to ask people in the busy daily lives to pay attention to plan designs and formularies. That being said, while good incentive designs have both carrots and sticks, positive incentives that reward every employee in equal amounts but for different activities is a program design often employed.

  13. For many of us that starts with our employer..why should i pay the same towards my health care if i don’t smoke and can prove i am physically fit?..why wouldn’t all employers be required to have a wellness program like Pfizer?..I don’t consider it an incentive if across the board all the employees are asked to ante up more for deductibles..This motivates the un-healthy ones to not go to the doctor..

  14. 1) I have lunch occasionally with our marketing guys. Their research shows that patients are largely oblivious to incentives/costs/advertising. You can cite outstanding statistics and lower costs and it changes the market share very little. Geography and referral patterns matter much more. When people need to make decisions about major medical interventions they want familiarity and they want to be close to home (excluding the tiny percentage of hyper-informed internet experts).

    2) A lot more info is available on the net. I find that few patients avail themselves.