Journal Articles

The Promises and Constraints of Consumer Directed Healthcare

2010, Business Horizons

Philip T. Powell

Abstract

Consumer-directed healthcare promises to reduce costs and increase quality by expanding provider choice for prospective patients. High-deductible insurance, employer- or government-subsidized health savings accounts, transparent pricing, and accurate information on clinical performance help generate millions of patients shopping for healthcare. As in any other well-behaved market, when patients shop, there is a link between financial reward and value for the individual patient. Absence of price competition, agency problems, and high barriers to entry in local markets are market failures that currently break this link in U.S. healthcare. Consumer-directed health plans are already popular among many employers and have established a momentum that indirectly shapes discussion of reform by the Obama administration. Complexity of reporting clinical results, dependence of treatment success on at-home patient behavior, and scientific ignorance among consumers threaten delivery of results promised by theory. Successful implementation requires regulator attention to sophisticated data reporting that adjusts for clinical risk, avoidance of patient-focused marketing that leads to over-consumption, and adequate subsidy of health savings accounts. In the end, implementation shifts the locus of healthcare system control from cost-shifting negotiations between employers, providers, and payers to new-found purchasing power of prospective patients.

Citation

Powell, Philip T. and Ron Laufer (2010), “The Promises and Constraints of Consumer Directed Healthcare,” Business Horizons, Vol. 53, No. 2, pp. 171-182.

Keywords

Consumer-directed healthcare; Healthcare reform; Patient healthcare choice; Health savings accounts; U.S. healthcare system

Kelley School of Business

Faculty & Research