In this episode, we are joined by Karen Horgan, Co-Founder & CEO of VAL Health, to discuss how behavioral economics is transforming the healthcare revenue cycle.
Highlights of this episode include:
- Background on behavioral economics and where we see it in our everyday lives.
- How behavioral economics can be used to transform revenue cycle management.
- Some areas of healthcare where behavioral economics has seen high and low acceptance and impact.
- Ways that hospitals and providers can incorporate behavioral economics into their organizations.
- And more…
Mike Passanante: Hi, this is Mike Passanante and welcome back to the award-winning Hospital Finance Podcast®. Behavioral economics is a well-established field that is now being used to transform the healthcare revenue cycle. To explain this new application, I’m joined by Karen Horgan, co-founder and CEO of VAL Health. Karen co-founded VAL Health to apply behavioral economics to improve health and healthcare. A proven expert in developing high-impact behavior change and engagement programs, Karen is commonly found presenting at leading industry conferences and private speaking events, including South by Southwest, HIMSS, the AHIP Institute, and the World Economic Forum. As CEO, she has spearheaded the development of hundreds of behavior change programs that enable clients to overcome healthcare’s biggest challenges. Karen holds an MBA from the Harvard Business School, a BA from the University of Pennsylvania, and a BS from the Wharton School of the University of Pennsylvania. Karen, welcome to the show.
Karen Horgan: Michael, thank you for having me, and I’m a little embarrassed by that full bio there. Thank you.
Mike: Well, it’s certainly impressive, and we’re glad to have an expert like you on the show to talk about a topic that I find so interesting. Karen, why don’t you start out by explaining for our audience what behavioral economics is?
Karen: That’s a great question. So behavioral economics, many people have heard the term before. We like to think of it, it’s a science, and it’s used to nudge people. So think about how behavior change has been pushed over the years. We used to think that if we give people information, that alone is going to drive them to do something. We literally put “Smoking kills” on cigarettes, and people still smoke. Then where we evolved to is what I’d like to say, traditional economics. I want you to do X; I’ll pay you Y. And we see this in healthcare. I want you to go get a mammogram. Here’s $50. I want you to complete a health risk assessment. Here’s 25. And that works for a subset of the population who are perfectly rational, but what we know now is most of us are not rational. We have biases to the present, which is why we’ll eat the chocolate cake when we see it. We have aversion to loss and regret. We overweight small probabilities, which is why we spend over 70 billion dollars a year on lotteries. And so what we do with behavioral economics is you acknowledge these irrationalities people have, and you can use that to nudge people to make the preferred choices and the right choices in healthcare.
Mike: So, Karen, where do we see behavioral economics in our everyday life?
Karen: That’s a good question, and after I speak, you’re all going to be looking at everything slightly differently now. So healthcare is just starting to adapt behavioral economics. So finance and retail, they’ve been doing it for a long time. So one of the ways you think about behavioral economics is you want to make the right path the easy path. Netflix does this. So we’re now in July under this pandemic, and many people have been binging on Netflix. How many times have you watched the next episode because they give you like six seconds to stop it? They’re making their right path the easy path. Or if you have a 401(k) when you joined your organization, it probably defaulted you into contribution versus asking you to contribute. And back in the ’80s when that change was made, where it used to be that when you joined the company you had to sign up for a 401(k), it went from about 17% of Americans contributing to a 401(k) to about 70 or 80 percent, just by changing the default. So that’s happening in your everyday life. Other ways you see it would be around social framing, understanding what your neighbors are doing. Your energy bill probably comes with a comparison of how you’re doing relative to your energy-efficient neighbors. Or even another example is airlines, for those who are used to book airline tickets but aren’t doing that right now, there’s one seat left at this price. They’re creating a sense of scarcity to nudge you to make a decision right now and not procrastinate anymore. So all of these are just simple examples of how the other industries are using this to nudge your consumer behavior.
Mike: I can’t figure out how much better or why my neighbors are doing so much better on their energy than I am, but somehow, they are.
Karen: I know that feeling. Every month, I’m like, “Oh, come on. I can do it. I can do it.” And then it shows up and I’m like, “Aw, what did I do different?”
Mike: I know. I know. They need to give me the tools to do better. Karen, how can behavioral economics then be used to transform healthcare and, specifically, revenue cycle management?
Karen: That’s a great question. At VAL Health now, we’re about 10 years old. And over the years, we’ve really seen that behavioral economics is really that last mile to transform healthcare because we have a hard time doing what we know we should be doing. We want to just be healthy. We don’t want to do anything to get there. And I’ll give you a couple of examples of where we’ve been able to effectively apply this. One example, population health. And this could be through a hospital system or a payer whose great condition management programs are out there that you can institute with quick wind and some social proof and lots of other elements. And we were able to double the rate at which people find that for that program by reframing its value because oftentimes, you’re trying to tell the patient, “Here’s all the fantastic 27 things you’re going to get from the program,” and then they’re overwhelmed and they shut down and they never get started. But if you focus on one or two that are very specific, people can understand that and feel that they can accomplish that, and they’ll take the first step. So that’s population health and condition management. Another area of healthcare would be around – this is highly relevant to your audience – around no-show rate and how do you get patients to actually show up for their appointment. And we worked with Mt. Sinai in the high-risk, high-cost population, and we effectively reduced no-show rates by five percentage points. And we did that by applying the social proof that we find in the office that 9 out of 10 patients show up to their appointment. And we also created a pledge form between the physician and the patient. And we know pledging has that impact as well. And so that with no cause and no other changes effectively got 5% of the reduction in no-show rate. Two other examples I want to talk about would be portals and how do you improve the patient experience using portals and creating value there. I’m working with Sutter Health. We increased the rate by 4.9 times at which patients are scheduling appointments online. We know that online scheduling is a patient-satisfier. You can do it anytime you want. You don’t have to talk to anybody. It’s also economically advantageous because you don’t have to man the call centers for people to be calling in to schedule appointments. And so using email as a touchpoint and sending us exclusivity and something new, like a fresh start, we got 4.9 times as many people to schedule their appointments online. So the last example I want to give would be bill payment. We recently have done a project to modify the bills that are sent out to patients to bring in social proof – other patients have paid their bill – using common language, and just simplifying the statement overall, because I already talked about when there’s too much in front of us, we shut down. And so how do you communicate to patients that now is the time to, “Hey, others are doing this, and here’s the common language of what you need to be doing.” So all of that can effectively transform healthcare, improve the patient experience, and actually increased the revenue as well.
Mike: Are there certain areas of healthcare where you’ve seen behavioral economics having a higher or a lower acceptance and impact?
Karen: Great question. So when you can change the defaults in anything, it can have the biggest impact. Our great example are colleagues at PennMedicine. They had an initiative to increase the rate of prescribing generic. And what they did is overnight in the EMR is they change the default from whatever it was before alphabetical, something branded to the defaults prescribing with generic. And overnight, the range of generic prescribing went from about 30 to 50 percent for different meds to over 90 percent, so really powerful when you can take steps away and take away some of the decision-making. That can make a big impact. We worked in the State of Michigan and their Medicaid population in trying to increase the rate in which they completed health risk assessment, and rather than paying people to do them when they were getting single digits for that, it transformed the journey, and we made it, health risk assessment, part of the enrollment process, and we went from single digits to over 95%. So whenever you can make that right past the easy path, eliminate steps, improve the experience, that can have the biggest impact and make the change that you need.
Mike: So what are some of the first steps that hospitals and providers can take to incorporate behavioral economics into their organizations?
Karen: The first step is always the hard to part because we’re itching and having a inertia, and we all know that. So I challenge your listeners to think about specific– maybe even a micro-behaviors that you want to change or engagement that you need. Is it you need to reduce no-show rates, Is it you need to increase bill-pay rate? Is it you need to decrease errors in entry? What is it, that specific behavior, that your goal and one of the behavior that people do to achieve that goal? Obviously, make sure it’s something you can measure because if you want to start in behavioral autonomous into your organization, some people are going to be naysayers, and they’re going to be a pull back, just common sense. So reality is not the way we think because in a hindsight it was common sense, but because we’re irrational, it’s not how we operate. And so you want to be able to measure the before and after so people start to understand the nuances, that if you change three words, it makes a difference, or if you change the order, it makes a difference. And so think about the specific behavior, make sure that you can measure. And, then, think about which behavioral economics tools you might want to use. Do you want to make the right path the easy path? Can you change the defaults, eliminates that? Do you want to bring in framing and social proof to nudge people? Do you need to change the way financial elements are designed because loses are more powerful then gains? So take one easy step. It doesn’t require a whole lot of organizational change but something that you can control and measure that impact, and that can make a big change for you.
Mike: Great discussion, Karen. If someone wanted to find out more about VAL Health, where can they go?
Karen: So definitely on our website, www.valhealth.com. We’ve got resources there. You can sign up for– we call monthly insights, which takes a different form each month because you need to shake it up. Sometimes it’s newsletters. Sometimes it’s an article about behavioral economics. And so you can say in touch with us that way. And there’s some white papers and other examples there.
Mike: Karen Horgan, thanks so much for joining us today on the Hospital Finance Podcast.
Karen: Thanks for having me.