Can Behavioral Economics Bend the Healthcare Cost Curve? Reports from the field!

In the great debate and political firestorm surrounding healthcare it is easy to forget that the majority of the medical problems people have are due to poor choices. According to a 2008 Management Science paper by Duke Professor Ralph L. Keeney over 55% of the 2.4 million deaths in the United States in 2000 were due to poor choices, ranging from bad eating habits to unprotected sex.  Furthermore, when healthcare organizations–insurance companies and providers alike–design programs to help people help themselves many of them assume a rational customer who is willing to make changes. Unfortunately, the reality is that most people need more help in making better choices.  Behavioral economics is the science that examines how people really think, not how they are supposed to think!  On July 21, I had the good fortune to host a one-day Diamond Exchange conference on Behavioral Economics and Health, where a number of participants from different corners of the healthcare industry explored how we might use principles from behavioral economics to help people make better choices. 

The Prize is Huge

 According to our research (which my partner Tom Weakland presented), we believe that it is possible to save $450 billion per year or more by helping people miss fewer appointments, perform better disease management, improve compliance with their drug regimens, and choose cheaper alternatives for the provision of their healthcare.  For example, in one pilot we conducted we were able to decrease missed visits by 50% through simple reminders on cell phones.

Evidence of the efficacy of applying behavioral economics principles in health decisions continues to grow.  Bryce Williams, Senior Director, Prevention & Wellness, at Blue Cross & Blue Shield of Massachusetts reported that simple notions like setting company-wide goals for a health assessment can increase employee compliance from 20 or 30% to over 65%.  BCBS of Massachusetts has already achieved this with leading customers. Bryce believes that compliance could be raised to as high as 90% if the social goal of everyone participating was set at the beginning of a company's effort.  The "herding" principle is powerful when you want a group to comply.   

 Think about how powerful it would be if every individual in every company had a comprehensive health assessment.  Even if only a small percentage of them were ready to change their behavior to improve their health the financial impact would be stupendous.  Bryce reports that the evidence from the many varied and well-documented behavioral economics pilots he and his team have conducted at BCBS of Massachusetts is so powerful that they are now scaling the effort across the enterprise.

 A Few Simple, but Powerful Ideas:

 Here are three of the many ideas that came up in our workshop:

  1.  Freedom from Choice! –Use defaults for prescriptions and explanations of benefits.  The savings are enormous when participants in a healthcare plan default to electronic explanation of benefits and mail order prescriptions.
  2. Does The Emperor Have Clothes?–When patients are willing, provide transparency about their behavior to family members and loved ones.  A grandmother is much more likely to take her medication if her grandchild is sent a text message when Grandma isn't taking care of herself! 
  3. I Could Have Been a Contender!–Use the power of regret.  If you want people to participate in a health regimen, enter everyone in a lottery and if the person "wins" they will get a prize"¦ unless they fail to participate!  The power of the idea that they won something but couldn't collect their reward is much more compelling than if they had a chance to win and did not.    

Making it Work Takes Leadership

There are over forty BE principles that we have gleaned from the behavioral economics literature; the three ideas above are a small subset of what we discussed just in one day. 

 Injecting new ideas into any organization is challenging.  It is doubly difficult when you have something like behavioral economics that stands against the orthodoxy of economic thinking which is so prevalent in any modern corporation.  My experience has been that you need to:

  1. Educate the organization on the ideas;
  2. Contextualize them so that people can see how they relate to the specific needs of the firm;
  3. Create experiments, because you are truly breaking new ground in trying to discover how people really behave;
  4. Scale the effort when success has been achieved, as they are doing at Blue Cross Blue Shield. 

 I do not for a minute think that BE principles will be a panacea for the world's healthcare problems. But I do think that the evidence is strong enough that any organization participating in the healthcare industry should spend time designing better choices for their customers.

 What do you think? Is there a place to experiment with behavioral economics principles in your organization?

Social Killer Apps and the Humanization of the Marketspace

Cool Idea: A smart coffee cup named Smug