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Tom Weakland at Consumer Centric Health, Models for Change '11

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Behavioral economics meets healthcare. PriceWaterhouse Cooper

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Tom Weakland at Consumer Centric Health, Models for Change '11

  1. 1. www.pwc.com/diamond Consumer-Centric Health: Models for Change 11 Behavioral Economics Meet Healthcare October 2011Tom Weakland – Enterprise Strategy & Conversion, Health Industries Advisory
  2. 2. What is Behavioral Economics?PwC
  3. 3. PwC
  4. 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. 5. Behavioral Economics – Our FrameworkBehavioral economic principles can be classifiedinto 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 AversionPwC
  6. 6. Behavioral Economics - Cross-Industry Behavioral Economics Perspective – 1. Decision ShortcutsDefaults Organ Donation by Country Higher Percentage of Organ Donors 100 % Organ Donors 80 60 Lower Percentage of Organ Donors 40 20 0PwC Retirement Research Consortium, August 2008
  7. 7. Relative Choices Is This Expensive? Signature 6 Burner BBQ $5,984.05PwC 1Predictably Irrational, Dan Ariely
  8. 8. Behavioral Economics PrinciplesRelative Choices Is This Expensive? Signature 6 Burner BBQ $5,984.05 $6,299.00PwC 1Predictably Irrational, Dan Ariely
  9. 9. Behavioral Economics PrinciplesRelative Choices Is This Expensive? Signature 6 Burner BBQ Signature 6 Burner BBQ: Gold Plated Edition $5,984.05 $12,500.00 $6,299.00PwC 1Predictably Irrational, Dan Ariely
  10. 10. Behavioral Economics PrinciplesLove of FreePwC 1Bloomberg Businessweek, Stone 2010
  11. 11. Behavioral Economics PrinciplesLove of Free Prime members increase purchases by 150% and account for 20% of all Amazon purchases1PwC 1Bloomberg Businessweek, Stone 2010
  12. 12. Why is Behavioral EconomicsRelevant to Healthcare?PwC
  13. 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 continuePwC
  14. 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) - CDCPwC
  15. 15. Poor Behavior and Choice Kills ~2.4 M2,500,000 Deaths2,000,000 135, 375 453, 377 Alcohol, Smoking Accidents, Suicide ~1.3 M1,500,000 Deaths 434,395 Weight 46,013 Unprotected Sex1,000,000 Homicide Drugs 500,000 0 Source: Personal Decisions are the Leading Cause of Death – Ralph L. Keeney, 2008PwC
  16. 16. 10-20% Movement = Billions in Opportunity Patient Steerage $45B $45B Drug Adherence Disease Management $30B $60B Missed AppointmentsPwC
  17. 17. Does this really work?PwC
  18. 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 answerPwC
  19. 19. Reducing Unnecessary ED VisitsIssue• Unusually high rate of Emergency Department visits by Medicaid membersHypothesis – ED visits can be reduced through• Proactive outreach to members immediately following an ED visit• Ensuring members know how to reach their primary medical providerPwC
  20. 20. Reducing Unnecessary ED Visits5 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 TestPwC
  21. 21. Relative ChoicesPwC
  22. 22. Loss AversionPwC
  23. 23. What does the future hold?PwC
  24. 24. More prevalence of Behavioral Economics inHealthcare• 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

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