Do Service Guarantees Have a Place in Health Care? - Annals of Internal Medicine: Fresh Look Blog


Wednesday, March 13, 2019

Do Service Guarantees Have a Place in Health Care?

Drawing on evidence from other industries, a recent Annals Ideas and Opinions article makes the case that they do (1). The author argues that these guarantees—through which businesses offer customers some form of compensation for service delivery failure—possess the potential to build a culture of service reliability, improve execution, hotspot and remedy service deficiencies, all of which are highly salient for health care. The article also details the experience of Geisinger Health System to demonstrate an application of service agreements within health care to address issues related to poor communication and wait times.

With so many opportunities to improve health care delivery, the Annals article uses a relevant example to raise an intriguing idea. However, as described in management literature dating back decades, service industries face many different strategic considerations than product industries (2). I believe at least 3 are relevant to health care and could complicate efforts to broadly implement service guarantees, particularly amid the nationwide shift toward value-based payment and care.

1. Variation in service business types. Service businesses may vary based on the training level of employees (e.g., unskilled laborers versus professionals), the extent of automation used in service delivery (e.g., machine- versus human-operated services), or scope (e.g., full-service “solution shops” provide a wide range of services versus “focused factories” more narrowly oriented toward a smaller set of services). Because organizational structures in health care can be complex and many providers span the spectrum on multiple fronts, local approaches to service guarantees may be needed in different organization types. Guarantees can be complex to implement (e.g., how to define what is in versus out of the agreement, how to assign accountability for specific elements across segments of the labor force, how to monitor for unintended consequences). As providers reorganize in response to value-based care imperatives (e.g., consolidation, mergers), they are likely to only face more complexity these efforts.

2. Approach to service pricing. It can be difficult in any service business to determine the most appropriate way to price its services, particularly as it grows over time. This issue is particularly salient for health care, in which prices are widely maligned as being highly subjective (e.g., chargemasters, negotiated rates) and independent of service quality. Clarity about what services are and are not guaranteed is one thing; appropriateness of how to charge for or refund services that fall short of expectation is another. Both are needed to reduce purchasing decision risk among customers (i.e., give them more confidence of paying for a business’s services)—a major goal of service agreements.

3. Need to develop new services. Every service industry faces the imperative to offer new services over time in order to provide competitive benefits to its customers. However, as health care continues to evolve toward value and less fragmented care, its service and product elements may not be so easily separable in all instances. For example, a number of large employers have promoted value-based arrangements for their employees by referring them to health care providers that are able to demonstrate high performance as “Centers of Excellence” in a particular area, such as bowel or joint replacement surgery. Such relationships incorporate elements of warranties (procedures and related care are bundled and guaranteed over set time periods), as well as indirect service guarantees (provider organizations are selected by and compensated by employers based on their ability to deliver high-quality care and experience, which includes ensuring patients are guided through their care experience end-to-end by dedicated navigators). If such models continue to expand, there may weaker rationale for separating service guarantees from warranties or other measures as health care becomes more coordinated and less piecemeal in the transition toward value.

To be clear, this is not to say that service guarantees cannot be designed and implemented within the context of value-based care. The Geisinger example is relevant not just because of the patient experience lessons, but also because the organization has been a leader in value-based payment and care delivery. However, it’s also important to recognize that despite being an exemplar, Geisinger possesses characteristics that may enable to them to deploy guarantees more easily than other organizations. For example, its size, integrated structure, and market presence (as noted in the Annals article, it delivers care to 10,000 patients daily) creates the ability to provide end-to-end services for geographic populations, optimize cost structures and revenue streams, and absorb the financial costs of guarantees.

Ultimately, I believe an emphasis on service excellence has a clear place in health care: Provider organizations should pursue it as both an ideal and key aspect of patient-centered care. As demonstrated in a wide range of non–health care industries, guarantees can also potentially be an effective marketing tool for reducing customers’ purchasing risk and differentiating service offerings. However, it’s less clear to me whether and how the approach can be scaled across health care as an entire industry. This will be increasingly true amid ongoing transition toward value-based payment and care.

  1. Berry LL. Service guarantees have a place in health care. Ann Intern Med. 2019. [PMID: 30615788] doi:10.7326/M18-2412
  2. Thomas DRE. Strategy is different in service businesses. Harvard Business Review. July 1978.

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