Demand Destruction or Health Optimization?

If you view healthier patients as a destructive threat to the demand for your healthcare services, you’re probably not ready for value-based care.

Whenever gas prices go up, as we’ve recently experienced, we hear discussions from economists about Demand Destruction – the movement of consumers away from petrol-powered mobility toward other modes of transportation or finding ways to avoid needing to travel altogether. In the face of high oil prices, consumers look to staying home, electric vehicles, e-bikes, and/or telecommuting to mitigate the rising cost of fuel. Some of these changes remain permanent, thus “destroying” the demand for oil from its previous level.

The concept of Demand Destruction (also called Demand Erosion) has been bandied about for decades in the commodities and retail markets. The common accepted definition for this phenomenon is a “permanent or sustained decline in the demand for a certain good in response to persistent high prices or limited supply. Because of persistent high prices, consumers may decide it is not worth purchasing as much of that good, or seek out alternatives as substitutes” (https://www.investopedia.com/demand-destruction-5222107 5-24-2022).

Demand destruction can also occur due to technological advances where developments or improvements can destroy the demand of a previous commodity or service. The quintessential examples often cited are the fall of brick-and-mortar DVD stores due to video streaming and camera film’s demand being eroded by the advent of digital camera technology.

A similar model can exist in healthcare, as well. Technology and research are the usual drivers in medicine – new treatments usurp the role of older techniques (laparoscopic surgery versus older open techniques), new meds displace old meds (SSRIs for depression treatment rather than tricyclics), or research shows an intervention once thought to be helpful is actually harmful (face irradiation as a treatment of acne or aspirin for everyone to prevent heart disease).

Over the years, in my discussions with health systems, the term Demand Destruction has popped up in the context of value-based care. This is disturbing to me, not conceptually but because to the warped perspective it reflects in the minds of those using the phrase. The occasions when I’ve heard this discussion of Demand Destruction have typically been when a health system is contemplating moving its efforts toward value-based care and away from strictly fee-for-service, volume-based care. The conversations tend to go something like this: “So this value-based care work will keep people from needing to go to the hospital or be readmitted? If our eventual goal becomes to decrease ED use and inpatient utilization, won’t that decrease the census of our hospital(s)? How will we make up for that lost revenue due to Demand Destruction?”

Conceptually, the question is a valid one. Taking better care of patients and supporting them when and where needed will decrease the likelihood of decompensation of patients with chronic conditions, thereby decreasing their need to go to the ED or occupy a bed in the hospital. For health systems who have lived by the “heads in beds” motto of revenue, decreasing the bills generated from the number of “heads” needs to be accounted for. It’s fiscally responsible to consider how the fee for service, sick-care revenue is going to be replaced.

Where I cringe is when this is couched in terms of “Demand Destruction.” In my mind, it’s Utilization Efficiency or Healthcare Optimization due to the enhancement of patients’ health and well-being through best-practice medicine, appropriate support, and a smoothing of transitions. Isn’t that the stated goal of most healthcare delivery organizations: improving the health and lives of the communities they serve? According to the Mission Statements of many of these organizations, it is. The change in revenue sources that will occur will reflect more efficient and more effective care delivery. That’s a good thing, not a “destroying” thing. 

However, I question the priorities, principles, and motivations (as well as the readiness for change) of a healthcare organization that speaks of this trend as Demand Destruction. Using this term, in my opinion, reflects misplaced priorities and incentives. It is a selfish focus and concern, directed inward at the organization’s needs, as evidenced by using a term noting the destruction of the demand for hospital beds rather than an accounting for how one can monetize the delivery of superior care that keeps patients out of the hospital.

We’re not selling fuel or DVDs. In my mind we’re selling our expertise to maintain health as possible and restore health when needed. Getting better at that will (hopefully) have an impact on the number of people needing to go to the ED or be admitted to the hospital. Again, that should be a good thing as we’re focusing on the needs and outcomes of the patients we serve. 

It’s just semantics, right? No, it goes deeper. The words we choose to use always go deeper. If our focus is inward and on preservation and maximization of historical income for billed services as we know it (based on people being ill), we’re putting our needs and interests first, we’re likely not ready for the change to value-based care, and any attempted change efforts will be frustrated by this resistance. If we recognize that better outcomes and improved health and well-being are truly what we’re in business for, we’re putting the needs of the patients and the support of physicians and providers at the heart of the business. We can then figure out how to get paid appropriately for doing the job we want to do – keeping people healthier and happier.

The true goal of value-based care isn’t decreased utilization or the ED or the hospital; the goal is the optimization of health and well-being through increased access and quality, appropriate cost, and an excellent experience. In other words, the creation of value. If one’s mindset is about preserving and optimizing billable encounters rather than preserving and optimizing health, it will likely surface as a fear of Demand Destruction rather than managing a more efficient and effective system. This perspective must be overcome before a health system can successfully navigate the waters of value-based care.

At one point in my career, I worked as a physician and medical director for a medical mission in Appalachia. There were some in the mission’s administration that focused their concerns solely on how to keep the doors of the mission open. By this I mean, their main concern was fundraising from folks on the outside to be able to pay for all the infrastructure of the mission, to keep it running.

This focus missed the mark, in my estimation. The focus and eventual goal of a service-based mission, serving an underserved and marginalized population should be to build a world in which a mission is no longer needed – work yourself out of a job. Or at least build a program to the point that it alleviates the problem initially set forth to be solved, and then move on to the next issue.

 The sad truth is that there will always be needs and opportunities to serve. The trap a missionary can fall into, though, is building a “mission” that encourages or even perpetuates the forces working to cause the need in the first place. When this happens, the mission often falters or struggles for the capital to remain open, because they find themselves serving themselves more than the needs of the people.

Unlike health systems, most missionaries don’t get to bill for the circumstances they create and perpetuate. Even so, I suggest that many health care organizations now find themselves in a similar position.

As healthcare providers, we shouldn’t want to rely on patients having sub-standard care and poor outcomes simply to support our business. But this is where fee-for-service, volume-based care will lead us – and has led us.

We lose sight of the outcomes, circumstances, and issues as soon as the patient walks out our door. If they have a poor outcome or a gap in care or a rough/non-existent transition or a misunderstanding of meds/treatment/followup, they can come back, and we can drop another bill. If their conditions worsen to the point of needing more urgent care, and they can’t gain access to our Primary Healthcare System for whatever reason, they can simply go to the ED where their chance of hospital admission increases with their age and number of medical issues. This is the cycle that feeds the healthcare machine in the US today.

We need to plan for alternatives to having patients decompensate, getting hospitalized, and then getting readmitted, and we need to find revenue streams to support those alternatives. We’re not destroying demand, though; we’re optimizing health and outcomes.

Value-based care and sharing in the premiums that pay for healthcare is the answer. And it doesn’t have to be a slow, tedious, painful transition to value-based care. We need to provide the services necessary to adequately support the care and outcomes of our patients and ask the health insurance premium holders – CMS and the commercial payers – to pay for the medical management and social services we render to these patients. We need to then participate in the financial risk of patient care, providing ready avenues of access, maintaining high quality, supporting good outcomes, and improving the experience of the patients, physicians, and providers to engage them all in the care.

These steps will give the best opportunities for optimization of health and well-being, leading to a decrease in overall utilization and cost of care, creating a revenue stream from value-based care that exceeds fee-for-service. Demand isn’t destroyed; we actually start getting paid for the delivery of high-quality healthcare.