In a Harvard Business Review article, authors John Quench and Katherine Jocz posited that consumers prioritize consumption by sorting products and services into four basic categories:
Where does health care fit within this priorities paradigm? Treats can be excluded as a class since it does not have a true health care analog. On first blush, one might also conclude that health care belongs in essentials, right up there with food, shelter and clothing. While this is true to certain extent, the reality is much more nuanced.
Throughout a downturn, almost all consumers will reevaluate the totality of their consumption priorities. As these priorities change, they may eliminate purchases in certain categories and perhaps even move things that were once deemed essentials into expendables. So while healthcare consumers will seek treatment for more serious diseases or injuries (essentials), due to finances they will attempt to skip treatments for more minor, non-life-threatening conditions (expendables). A similar trend is present when examining data on hospital admissions and elective surgeries (postponables).
Modifying the Harvard Business Review consumer behavior paradigm then for health care, we still see the same four segments we do for the overall economy (i.e., slam-on-the-brakes, pained-but-patient, comfortably well-off, and live-for-today), but a reduced number of consumer priorities (eliminating treats). We can also introduce the use of color to indicate the level of revenue at risk — green showing a stable market for essential care, yellow a mixed market, where some people may push off some care or eliminate it entirely, and red showing a declining market where consumers intend to deeply curtail their health care spending due too their economic condition. Additionally, there may be “pockets” of virus fearful people (i.e., those that alter their purchase behavior to avoid exposure) that appear in any number of segments — financially challenges not withstanding.
Overall, (see chart) we can expect a decline in demand for health care services in an economic downturn based on a consumer response that navigates a slippery slope between willingness to spend against how services are prioritized. History supports this thesis. Research from 2013 indicated that during sever recessions, people will delay elective-surgical procedures. In turn, these actions create substantial financial headwinds for hospitals and health systems. From 2009 to 2011, the average 300-bed hospital lost about $3.7 million dollars due to decline in commercially-insured patients who were unemployed or underemployed.
Our next post in this series will look at how healthcare providers have typically responded to lower consumer demand in past downturns.