Scott MacStravic
One of the most common marketing tactics in marketing of consumer goods is the free trial offer. In a recent example, Kimberly Clark Corporation used an advertising insert in Readers Digest to give its readers a free trial of its Viva paper towel by including a sheet of the product in the insert, so readers could feel and try for themselves its “soft, cloth-like texture”. [E. James “See Me. Feel Me. Buy Me.” The Marketing X Factor July 12, 2007 (www.1to1media.com)]
The idea of offering free trials in healthcare may seem absurd, both because it involves a service rather than a product, and because healthcare organizations (HCOs) need all the revenue they can get, rather than offering anything for free. But this is true only with respect to “reactive sickness care”, the traditional source of the vast majority (less than 5% of healthcare expenditures are for “proactive health care”) of their revenue.
For the growing number of HCOs that are investing in proactive health management (PHM), free trials are actually common. When they offer their own employees PHM services, in efforts to reduce their own sickcare costs, absences, turnover, and improve employees’ productivity and performance, HCOs almost invariably offer these services free to employees, and dependents as well. And these are clearly “trials”, with the “customer experience”, extrinsic rewards and personal health/life quality gains they realize what determines whether they continue, repeat, or “defect” from PHM programs.
Moreover, PHM services are opportunities for employees and dependents of businesses in the community served by the HCO to get a “free trial” of the HCO’s facility, staff, and services. Since their employers also offer any PHM programs operated by the HCO free to staff and family members, those who have not yet had a sickcare experience with the HCO can get a healthcare one free of charge. And since HCO charges are typically inflated outrageously, compared to both costs and usual payments by third parties, free trials of PHM experiences can offer a counter to HCOs’ reputations for over-charging.
But there is yet a third type of “free trial” that has both been offered by a number of HCOs, and offered by third-party payer clients and prospects. These are “free” only in the sense that they will not require client payment unless clients achieve agreed upon results. But this kind of free trial may be necessary for traditional HCOs to overcome the general perception that they are entirely in the sickcare business and tend to overcharge for that.
When CMS offered ten integrated health systems and physician groups the opportunity to engage in a demonstration of disease management PHM, for example, this included a “gainsharing” arrangement, whereby participating HCOs would only be paid if they achieved a greater than 2% reduction in Medicare patient costs relative to predictions. The HCOs would be eligible for 80% of such savings, up to a limit of 5% of overall projected costs, if they achieved both cost savings and quality standards. [“Physician Group Practice Demonstration Bonus Methodology Specifications” Centers for Medicare & Medicaid Services Dec 20, 2004 (www.cms.hhs.gov)]
While only two of the ten participating HCOs achieved the necessary savings from diabetes management in the first year of the demonstration, this was largely attributed to start-up costs. And the two that did achieve savings compared to a local control group – Marshfield (Wisconsin) Clinic and the University of Michigan Faculty Group Practice, Ann Arbor – they earned $7.3 million in pay-for-performance fees out of the $9.5 million they saved Medicare. [“Pay-for-Performance Project Finds Savings” Modern Healthcare’s Daily Dose July 11, 2007 (wwwModernHealthcare.com)]
Other HCOs, including Healthways, Inc., which specializes in PHM, have negotiated performance-based contracts with payers where payments depend largely or entirely on achieving agreed-upon goals. These amount to free trials since payors’ payments depend on their getting the kinds of cost savings they wish. Any traditional HCOs that offer such P4P arrangements are also giving all participants in the PHM projects a free trial of their services.
Hospitals that operate their own PHM programs serving local employers are simply adding “free trial” experiences to those they have been offering through their community benefit free services, occupational health, screening, and other services that are free to those using the services. And with many PHM programs enrolling as much as 95% and more of the employee population, this can mean a large number of prospective sickcare patients are getting a free trial of the HCO’s staff and services, even where its facilities are not involved.
For hospitals that partner with U.S. Preventive Medicine, Inc. in operating “Centers for Preventive Medicine”, which serve local employers through “The Prevention Plan” arrangements, all employees who gain the opportunity to use the hospitals’ diagnostic and coaching services free of charge to them (though their employer pays), the same kind of free trial is involved. [www.uspreventivemedicine.com]
And arguably, hospitals, physician groups, and integrated health systems should be getting their own free trials of PHM when they operate their own, or purchase PHM services from other HCOs. As employers, they will gain the full financial benefits of PHM, in terms of total labor cost reductions, rather than just sickcare cost reductions, and even revenue enhancements based on a happier/healthier workforce. And if they take the trouble to measure these full benefits, they will usually find that not only was the experience free, in terms of net savings vs. costs, but that they made a “profit” in the bargain.
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