Consumer Perspective: Lowering Healthcare Costs is Critical, but Complex. In the Meantime, Can We Increase Value?

The Four Components of Consumer Value

I recently wrote several blog posts for my Marketing course highlighting how marketing concepts could be applied to healthcare environments. Here's one of my favorites.

How do people decide what they’re willing to pay for something? And what about in healthcare, when they may not even know the cost of their care until after they’ve received the service? A lot can be said about the cost of healthcare services – clinical care, medications, physical therapy, medical devices. No one will argue that tremendous work needs to be done to reduce these costs which arise from myriad sources. Unfortunately, it seems that significant, disruptive policy changes to reduce healthcare costs aren't on the immediate horizon. With that in mind, could we be doing more to communicate the value of these services to our patients?

The marketing concept of consumer value is critical to understanding how our patients think about their care and whether it was “worth it.” It’s not just about the price tag; it’s about the perceived benefits relative to that price. In general, there are four components that we each subconsciously weigh to arrive at an attitude toward a price. Considering each of these components is important when creating messaging and promotional material for our patients, for healthcare administrators and marketers but also for clinicians.

Let's examine the four factors that comprise a perceived value:

• Perceived Production Costs: This refers to the consumer’s estimation of the cost to deliver the good or service. People generally understand that developing and distributing cutting-edge prescription medications is expensive, but may perceive other products as overpriced even if margins are tight. If patients seem hesitant about the price, explaining the actual costs involved can be beneficial. For example, if we are performing a high-risk surgery with an extremely expensive robotic machine, the high cost (and therefore higher perceived value) should be directly communicated. While this doesn't lower the (arguably too costly) procedure price, it highlights the value and builds trust.

• Cost of Substitutes (Opportunity Cost): This is essentially the opportunity cost – “how bad/good would it be to do whatever I would do if I didn’t buy this product/service?” This may include weighing competitors’ offerings or less expensive workarounds, like simply going without. To continue the surgery example, a surgeon should (ethically and reasonably) discuss the alternatives to a procedure and what the downsides to those options may be. This empowers the patient to make an informed choice.

• Cost of Complements (Hidden Extras): This refers to the cost of other associated or add-on products. Think of it like the phone case you’ll probably want to buy when you purchase your new iPhone. In healthcare, this might be the Anesthesia bill that is often separate from, but related to, the services invoiced on the surgeon’s bill. Perhaps this could be made more transparent by offering holistic pricing estimates prior to such a procedure that delineates all the costs from each associated service. The patient likely perceives “surgery” as one bundled cost and does not expect to receive multiple invoices.

• Value of Net Benefits: At the end of the day, what does one get (physically, emotionally, financially) from purchasing the product or service? This one is straightforward: make sure we are highlighting the benefits the patient will receive. Less pain, walking more easily, more golfing, etc. Of course, this is unique to the patient according to what they value, but it should be explored and emphasized on an individual level.

While the main focus in health policy and payments should aim on lowering costs, we can still bring increased value to our patients by paying attention to these four components. This applies even in clinical settings, where clear communication about treatment options and associated costs is essential.

What are your experiences with healthcare costs and patient perceptions regarding them? Share your thoughts in the comments below!