Marketing of Health Maintenance Organizations: Consumer Behavior Perspectives



Citation:

M. Venkatesan (1975) ,"Marketing of Health Maintenance Organizations: Consumer Behavior Perspectives", in SV - Broadening the Concept of Consumer Behavior, eds. Gerald Zaltman and Brian Sternthal, Cincinnati, OH : Association for Consumer Research, Pages: 45-69.

Broadening the Concept of Consumer Behavior, 1975      Pages 45-69

MARKETING OF HEALTH MAINTENANCE ORGANIZATIONS: CONSUMER BEHAVIOR PERSPECTIVES

M. Venkatesan, Professor of Marketing, the University of Iowa

It has become increasingly evident that United States may be the only industrailized country in the world without a comprehensive health care delivery system available to its citizens. For this reason, the 1970s promise to be the beginning of an era when health care concerns will receive prominent attention-from policy makers in the State and Federal level. Legislation currently under consideration will eventually provide some type of National Health Insurance. It is no longer a question of if we would have a national health insurance system, but when.

The $83 billion health care industry is the third largest in the nation, and employs 44 million people. While medical technology has made tremendous advances, the health care industry taken as a whole is in the midst of a crisis. As Elwood (1973) has aptly observed: (a) it has somehow managed to escape the industrial revolution, (b) it lacks both vertical and horizontal integration, (c) features at least 150,000 small and separate units of production, and (d) sells to consumers who have little price or quality information on which to base their buying choices. With the enactment of the Health Maintenance Act of 1973, a new and significant milestone has been reached in the health care delivery system. This Act is intended to encourage the establishment of organizations known as "Health Maintenance Organizations" (HMOs).

The purpose of this paper is to review the current status of HMOs, to point out the relevance of marketing to HMOs and to suggest strategies for the diffusion of HMOs. To this end., a brief description of the concept of an HMO, its structure and the present status of HMOs is presented. Then the paper points out the marketing activities of HMOs and suggests looking at the diffusion of HMOs as an innovation. The paper concludes with suggestions for utilization of marketing strategies such as concept testing, segmenting the market for health care and promotional techniques conducive to the adoption and continuous enrollment in HMOs.

CURRENT STATUS OF HMOs

Concept of an HMO

HMO is a way to organize delivery of health care. This organized system provides a set of comprehensive health care services to a voluntarily enrolled group at a prenegotiated prepayment basis. The concept of prepaid group practice has a history of more than 40 years, Kaiser Medical Care Program (Saward, 1968) is the best known. The concept itself appears to be a generic one, and thus, an HMO can be defined as follows:

Any organized system of health care that provides a full range of health maintenance and treatment services to an enrolled population in return for the prepayment of a fixed annual sum (Katrana, 1973, p. 1).

Elwood (1970, 1971), who is the originator of a "health maintenance strategy," conceived the HMO as a way to bring together all the services needed to keep a consumer healthy and to assure him (her) that services will be available to him (her) when needed. The emphasis is on "maintaining health rather than merely providing services when illness occurs. It is essentially a market-oriented approach in which medical care is delivered by organizations" (Elwood, 1971, p. 295). For this purpose, economic incentives are tied to the providers as a means of their having an interest in maintaining good health of the users. While the concept of prepaid group practice is not new, the concept of health maintenance with its attendant emphasis on preventive care, early disease detection, health education and restoration of health are radically different than the conventional mode of consumer health care seeking, which entails a health-crisis orientation, and the seeking of physicians only when they become ill. The orientation of the health maintenance strategy is decidedly different. For a known price per person, pet group and per year, there is guaranteed availability of comprehensive preventive and curative health care services. It differs both from the traditional means of providing care and traditional means of financing such care. In the traditional system, the insurance system provides full or partial reimbursement for services already performed, usually on a fee-for-service basis. In the HMO approach, the providers and the users share the common goal of reducing or eliminating the need for in-patient services by providing preventive care and health education. Thus, the dependence in an HMO is on the number of enrollees rather than the number of illnesses treated.

Structure of HMOs

An HMO is expected to provide complete and comprehensive Health care services. The Health Maintenance Organization Act of 1973 clearly indicates the minimum benefit package (services) required for an HMO. They are: (1) physician services (including consultant and referral services by a physician); (2) in-patient hospital services; (3) medically necessary emergency health services; (5) medical treatment and referral services for the abuse of or addiction to alcohol and drugs; (6) diagnostic laboratory and diagnostic and therapeutic radiological services; (7) home health services; and (8) preventive health services. Thus, in order to provide these basic services, an HMO requires the availability of several medical specialists and in-patient (hospital) care facilities. This results in a variety of organizational configurations. HMOs' sponsorship varies and so does its organization structure. Katrana (1973) places them into three categories: (a) highly structured, where the HMO owns and operates all of its health facilities; (b) moderately structured (for e.g., contracts with independently owned and operated hospitals); (c) decentralized--plans which are affiliated with a group, groups or solo practice physicians through a common plan administrative unit. To look at these structures differently, these three respective categories can be characterized as (a) vertically integrated structure with centralized services, (b) vertically integrated structure with decentralized services, and (c) vertical, non-integrated structure (Bucklin and Carman, 1972). [For a clear and an excellent exposition of vertical market structure theory's relevance to health care system, see Bucklin and Carman (1972).] Much of the HMO literature is concerned with the morphological aspects of this organization. In order to look at the structure, one must be aware of prepaid group health care plans and the interaction among these elements (Katrana, 1973). This is illustrated in Figure 1.

The morphology of an HMO is closely linked to the sponsoring agent. It is not incumbent upon the sponsor to engage directly in providing the services. In other words, the sponsor can contract out these services or own and operate many of the required services. This gives rise to the alternate forms of organizations with varying-amounts of vertical integration. The concern of HMO organizers relate to the capital requirements for differing organizational configurations. Initial start-up costs are estimated anywhere between $500,000 to $1 million. The analysis of differing sponsorships and different levels of integration reveals that "converting existing arrangements to health facilities, especially utilizing a multi-specialty group practice as a base and >phasing in' the prepayment plan would result in lower implementation and operational costs than initiating a brand new HMO " (Katrana, 1973, p. 105). The theoretical analysis of the alternative structural configurations for HMOs by Bucklin and Carman (1972) lead them to conclude as follows: While the flat, nonintegrated structure represented by the present solo practice (fee for service) is most likely to enable the consumer to select the particular health service suited to the consumer needs, this structure is likely to incur the greatest waste of resources and to be the least efficient. On the other hand, the vertically integrated health maintenance organization is likely to be more efficient and is likely to result in better use of health care resources. But it has an attendant problem, that is, bureaucratic rigidities are likely to accrue and consumers will have the least choice of specific providers. Thus, they conclude that the vertically nonintegrated structures provide a middle ground. This conclusion is similar to the conclusion arrived at by Katrana (1973) recommending conversion of existing arrangements by moderately structured HMOs. Structural considerations have been receiving greater attention because of their direct relationships to cost-effectiveness of the HMO operation.

FIGURE 1

INTERACTION AMONG THE BASIC ELEMENTS OF A PREPAID HEALTH CARE PLAN

There are two major types of HMOs that are presently operational. They are the "prepaid group practice" model and the "medical care foundation model" (free choice of private practitioners with fee payments). Prior to 1971, there were 29 or more HMO-type plans in operation. During the last three years, the HMO movement has rapidly accelerated and by February 1974, over 120 HMO-type plans were operational in the country. Nonprofit organizations and medical foundations had been instrumental in the past in the startup of HMOs. Now, banks, insurance companies, national Blue Cross and Blue-Shield Organizations and others in the private sector are becoming increasingly involved in HMOs. The "health maintenance strategy" and its corrollary "the HMO" advocated by Elwood (1971) was envisaged as a form of providing competitive health services within the health industry, with minimal interventions by the Federal government. The new HMO Act of 1973 is, in this sense, intended to encourage organizational reforms within the health industry, i.e., providing alternatives to the present fee-for-service method of health care and was conceived as a way of increasing the choices available for the consumer.

Current Status of HMOs

To be sure, the Health Maintenance Act of 1973 is a benefical legislation which will facilitate and accelerate the growth of HMO-type organizations. There are many states where legislation intended to discourage new forms of health delivery are on the books; and the county and state medical associations or interest groups have been able to restrain competition from these new forms of health delivery. The HMO Act of 1973 preempts the most restrictive provisions in state laws. With the emergence of this federal legislations for HMOs, which would follow the Federal Act. Secondly, this Act (HMO Act of 1973) permits qualified HMOs to advertise all non-professional aspects of their services. Thirdly, the Act requires that employers give their employees a choice to join an HMO, if one is available. Thus, these provisions will enable the HMOs to compete with other providers of health care services.

The Act is not entirely beneficial from the perspective of HMOs. The benefit package required for an HMO to qualify for certification is so much more than for those competing with HMOs, such as Blue Cross-Blue Shield and private insurance companies. Thus, the extensive package required of HMOs will result in their relatively high premiums. It is estimated by some that ten to fifteen percent increase in the present price (premium) of HMO will result while the total costs (see Table 2) will be less from the consumers view point, Compared with commercial insurers and Blue Cross Blue Shields, the higher price will be distinctly apparent to the consumers and it is likely to hinder the HMOs as consumers are likely to compare the prices of alternatives more than computing the total costs for health care. The present rigid benefit package requirement is likely to result in present HMOs being unable to qualify for grants, etc. from the Federal Government. From a marketing viewpoint, such a requirement greatly diminishes the HMOs' ability to practice "benefit segmentation." In the long run, such restrictive provisions may be amended in order to insure the growth of HMOs.

A review of HMO literature indicates that HMOs are mainly concerned with the economics and efficiencies of the health care delivery systems. The problems are seen as problems of "scientific management" to cut costs and increase the efficiency of the physical plant. On the distribution side, they have not yet heard of the "marketing concept." They are in the production-oriented era--consumer has not become the center of their universe.

The concerns at HMOs seem to be with insurance, structure, providers, and costs and not with consumer behavior, consumer needs, and shaping of health care package to meet their needs. Thus, in trying to relate psychology to emerging health care delivery systems. Harry Levinson (1972) despairs of the task and ruefully observed:

It is my dismal and unhappy impression that the contemporary discussions of health care delivery systems are an amalgam of industrial engineering and economics, that they have more to do with who is going to get paid for what than with health service and health maintenance, that they deal with human beings as commodities and with services as salable actions, and finally that we are many, many, many years away from adequate, let alone comprehensive, health care for all of our citizens (pp. 2-3).

The preoccupation of HMO planners and advocates with cost considerations, determination of basic benefit packages without any input from potential users, and the perception of those involved in promoting HMOs that they truly offer a socially desirable product and therefore, everyone will beat a path to -the door of HMO--all are indicative of understanding of the marketing concept and reflect the meager applications of available consumer behavior knowledge in making these innovative health care services available to the largest number of potential consumers. However, one point which was repeatedly stressed by those who have had some experience with the operation of HMOs was that the success of HMO depends on its marketing efforts, which have proved crucial for the very existence of HMOs (Biblo, 1972). Unfortunately, their understanding of marketing is not sophisticated and their approaches do not reflect the sophistication of marketing management practices that are applied to consumer products and services by business organizations. In fact, theirs is not a marketing orientation, it is a sales orientation. The chief concern expressed by HMO planners is in enrolling members which is considered the major marketing activity of an HMO. (Marketing Prepaid Health Care Plans, 1972). This sales activity, euphemistically called marketing, takes place considerably after all other activities are planned, including the structure. This is dramatically illustrated in Figure 2.

While the available literature indicates a lack of emphasis and understanding of marketing, there is increasing recognition that consumer orientation and modern marketing management and marketing strategies are needed (Gumbiner and Frye, 1973). The proponent of the HMO Concept, Elwood (1973) observed that the fact that HMOs can hold their subscribers and grow exponentially by attracting new ones attests to the excellence of their medical care programs, but that marketing has been a forbidden field for the health professional. [Two excellent reviews (Donabedian, 1969; Roemer and Shonick, 1973) are available which evaluate the performance of HMOs. In the Roemer Shonick review their findings relate to the following. 1. subscriber composition, 2. participation of physicians, 3. utilization rates, 4. quality assessments, 5. costs and productivity, 6. health status outcomes, and 7. patient attitudes. The Donabedian review deals with the following aspects of performance; (a) choice of plan and satisfaction with the plan on the part of the subscribers; (b) utilization of ambulatory and hospital services and costs; (c) productivity and the quality of care.]

FIGURE 2

INITIATING A HEALTH MAINTENANCE ORGANIZATION

Marketing of HMOs

The objective of the health maintenance concept is to provide consumers with a truly different option of health care than that which is presently available. Unless the concept is known to the consumers and is accepted by them, HMOs cannot hope to exist as viable options competing with the present forms of health care.

Available evidence indicates that consumers (a) are not aware of HMOs or their benefits and (b) have not turned to the presently operational HMOs in large numbers. HMOs' market shares is about 4% (8 million out of potential market of 200 million). Actual enrollment in HMOs appear far short of their projected enrollment (HMO Program Status Report, 1974). Irrespective of the profit or nonprofit making status of the sponsoring organization, both need an understanding of the marketing concept, and the utilization of marketing strategies.

Profit-making organizations in this country have passed through four distinct eras of orientation to the current marketing revolution; (1) Production orientation, (2) Sales orientation, (3) Marketing orientation, (4) Marketing control (Keith, 1960). Generally, sales orientation has been replaced by the marketing concept. The marketing concept is a "customer orientation backed by integrated marketing aimed at generating customer satisfaction as the key to satisfying organizational goals " (Kotler,. 1972, p. 17). Such an orientation on the part of HMOs would require that they expend efforts to ascertain what potential users of this type of health care system and then design the basic health services to satisfy these wants. This involves substantial information to be obtained from consumer research to measure, evaluate, and interpret the wants, attitudes, and behavior of the various target groups. In the commercial sector, the practice of marketing management has become very sophisticated and introduction of new products and services place a great deal of reliance on consumer research, and market planning.

Environment of Marketing for an HMO

In this section, the environment of marketing for HMOs is examined, followed by concepts from consumer behavior which are relevant to the choice-making process.

Figure 3 shows the totality of forces and entities that would potentially affect the marketing of HMOs. The inner circle contains elements or instruments which are under the control of the organization while the forces depicted in the outer circle are noncontrollable by the organization. There is interaction between the controllable elements of the organization and the environmental forces. The HMO is expected to forcast potential changes and adapt its activities to changing environmental conditions. Such adaptations usually involve the various instruments under an HMO's control. Failure to adapt to environmental changes result in the dissolution of the organization.

Marketing Mix of an HMO: In Figure 3, the controllable elements, usually referred to as "marketing mix," of an HMO is shown as: (a) Benefit Package, (b) Price (Premium-prepayment), (c) Communication, (d) Distribution.

Benefit Package. The benefit package is the required services that are to be available to potential enrollees of an HMO. This extensive package need not be followed if an HMO is not interested in getting "qualified" under the federal regulation. However, the "product" of an HMO is the offering of a comprehensive package of health maintenance services with emphasis on preventive care, while ambulatory and hospital care (for sick and illness care) should also be available. The major difference between this offering and others is that an HMO will have these services available for consumers, while insurance plans only guarantee reimbursement for services the consumer finds on his own. The second major difference is that all health services an individual needs are available under the benefit package generally within the organization or arranged through the organization. Finally, the services are for the entire family, thus negating the need for search of different medical specialities for different members of the family. The benefit package is amenable to the "product-mix" concept, depending upon the target group that an HMO will serve.

Available evidence suggests that HMO plans seem to have lower hospital utilization rates and higher usage of ambulatory care. (Roemer and Shonick, 1973) which is compatible with the health maintenance strategy and which attest to the comprehensiveness of the "package" to meet the needs of consumers. The utilization rates are as follows:

FIGURE 3

THE MARKETING ENVIRONMENT OF AN HMO

TABLE 1

HOSPITAL AND AMBULATORY CARE UTILIZATION

Price. The price or premium for the "product" is on a prepayment basis. That is an HMO contracts to provide the services in exchange for a fixed annual fee. The unique feature of pricing is that it is "community rated." That means, the cost is spread equally over all enrollees. Such a pricing policy will prevent discrimination against high risk individuals. Another unique feature is that many employers, because of labor contracts negotiated, do provide to the employee the price for the health service contract and as such the price for an HMO enrollee can be paid for by his/ her employer. An HMO has only limited control over price as it is required to be "community rated" and the alternative is "experience rating,"

While the price comparison among the alternate forms of health care will lead to disadvantages for competitive purposes, HMOs' "true price" is reflected in the total costs of alternate plans to the consumer. Available evidence suggests that for families of all sizes, the total costs were as illustrated in Table 2.

TABLE 2

COST OF MEDICAL CARE

Thus, the HMOs can be competitive on the basis of price, if all costs of health care are taken into account.

Communication. The restrictive provisions with regard to advertising by the state is pre-empted by the HMO Act of 1973. Thus, HMOs can effectively communicate their HMO concept, their services and their competitive pricing. Generally, communications by HMOs have been limited to local community leaders, group presentations, and printed handouts. Mass media communications and other nonverbal methods of communications (e.g. trade marks, logo type, etc.) should be part of an HMO's integrated marketing activities. Every employee of the HMO, every contact by the consumer, the physical facility --all involve communication. Salesmen and sales promotion are also part of communication. HMO communication must be continuous since it needs to continually educate consumers in the use of health services, particularly its preventive services and also to maintain present consumers as repeat enrollees.

Distribution. The third element of the marketing mix has to do with "distribution" or location of tbe services. The location is very important factor for an HMO. Accessibility is a key determinant in the utilization and therefore in buying of health services. The location of ambulatory and emergency facilities should be within the reach of potential enrollees. Two or more locations of facilities for an HMO is needed to make the services accessible. The travel patterns and reasons for trip generations should be taken into account in location decisions.

Environment forces. The macro environmental forces affecting the operation of HMOs are divided into five major components: socio-cultural, competitive, economic, legal and political, and technological. These environmental forces shape the emergence, operation, and changing nature of HMOs. Because of space limitations, detailed discussion of the environmental forces and their interaction with the marketing mix variables of an HMO is not included here. However, it is easily seen how these environmental factors affect the character of marketing activities of HMOs. The economic condition of consumers will basically contribute to their behavior with respect to all products and services. The state of the economy will affect employers and through them both their participation in HMO programs and premium payments. The socio-cultural environment has special relevance to health industries. Not only utilization rates are dependent on the attitudes toward illness, preventive measures, the HMO and the like, but the social psychological environment contributes to the well being of the individual and nonphysical causes of illness and therefore seeking of health services. The specific aspects of this environment which affect consumer behavior in the health services context are examined later.

The political and legal environment will affect HMOs in important ways, as this is an area of public policy where concerns with the state of health delivery and health services become political problems and eventually find their expressions through legislation. For example, the present restrictive legislation in many states affects the feasibility of setting up HMOs. As the HMOs mature into viable organizations for health delivery, both state and federal legislators will increasingly be enacted to assure proper functioning of HMOs to eliminate discriminatory practices or other undesirable social effects. Suffice to point out that laws enacted in the health areas (e.g. national health insurance) will have important impact on the characteristics of HMO's services. Since other modes of health care delivery (such as fee for service solo practitioner) will be present and HMOs will be but one mode of operation, all the units in the health industry subsystem will operate in an atmosphere of competition, with price still somewhat functioning as the core to the exchange relations.

Finally, the technological environment will affect the type of services provided by HMOs and/or the character of these services, and may even induce more para-medical non-medical professionals in the health service industry, thus affecting operations of HMOs. For example, computerized multi-phasic screening techniques, new technology for analysis (such as blood), new type of immunizations and the like will continuous ly change the character of the services provided by HMOs. Therefore, the marketing activities of HMOs should correspond to its environment.

Consumer Behavior and HMOs

Consumer decision-making for health services in general and for HMOs in particular has received very little attention in the HMO literature. Therefore, the social-psychological variables affecting consumer decision-making have not been fully explored, nor had such information been utilized in the marketing strategies for HMOs. As McKinley (1972) pointed out, while social-psychological research relating to health behavior was emerging with some order form what was an unsystematic body of knowledge, what is lacking is specification in any detail of the various processes (stages and type of decisions) made in the seeking of medical care. Some attempts to "model" health consumer behavior have been reported, including "The Hochbaum Model," "The Rodenstock Model,"The Behavioral Science Model" and "The Health Belief Model" (McKinley, 1972). However, none of these models specifically relate to seeking of preventive and ambulatory health care to "maintain" health.

The concept of health maintenance is different than the prevailing concepts for seeking health care by consumers. Thus, the Kasl and Cobb (1966) formulation of three major aspects of behavior related to health and illness seems relevant here. They are: (1) health behavior, (2)illness behavior, and (3) sick role behavior. The definitions are as follows: (Kasl and Cobb, 1966, p. 246).

Health behavior: is any activity undertaken by a person believing himself to be healthy, for the purpose of preventing disease or detecting it in an asymptomatic stage.

Illness behavior: is any activity, undertaken by a person who feels ill, to define the state of his health and to discover a suitable remedy.

Sick role behavior: is the activity undertaken by those who consider themselves ill, for the purpose of getting well.

It would seem that the HMO framework encompasses the first two behaviors characterized above as health and illness behaviors. The determinants of health behavior of Kasl and Cobb (1966) can be seen in Figure 4. The major determinants of illness behavior do not vary from this conceptualization. In general, the influence of psycho-social variables for health care decision making are thoroughly reviewed by Suchman (1970), Kasl and Cobb (1966) and McKinlay (1972). It is sufficient to point out that these variables have not been analyzed, interpreted, and evaluated in formulating HMOs.

Anyone familiar with consumer behavior literature will be aware that social-psychological variables viz., perception, attitude, motivation, and learning (internal variables) and subculture, social class, social and personal influence and family influence (external variables) affect the consumer decision-making process. From the two comprehensive reviews of HMOs to date (Donabedian 1969, and Roemer and Schonick, 1973) it is clear that the social psychological variables affecting consumer decision-making have not been fully explored, nor such information is utilized in the formulation of marketing strategies of HMOs. The available evidence relating to consumers deal mainly with the demographic characteristics and patient attitudes, once they are enrolled in a prepaid group practice plan (HMO). These findings are presented here in two categories: (a) demographic characteristics of present enrollees, and (b) their attitudes and their satisfaction with the prepaid plan.' While income and education do not differentiate HMO members from other forms, it appears HMOs tend to attract individuals with children, and higher age individuals. Greater proportion of the members are foreign born and a higher proportion of their families do seem to have a history of one or more chronic illness in the family. There are regional differences that affect the choice of HMO versus competing health care services. The higher educated group seem to make greater use of the ambulatory care facilities of HMOs. Patient attitudes have been determined by the speed and degree with which the HMO service has helped the person from illness to maintain his health. But in general knowledge of the attributes and the degree of importance or valuation placed on each attribute seem to affect the overall attitude towards HMOs. Attitudes are also affected by satisfaction/dissatisfaction. Available evidence suggests that there is a high degree of satisfaction with the health services associated with HMOs. The dissatisfiers amount to only 6-8% in HMOs and 70% tend to continue with HMO type organizations,

While empirical evidence on the relationship between other social psychological variables and enrolling in HMOs is lacking, there is considerable recognition that these variables are relevant. For example Donabedian (1969) points out the perception problems relating to patient and physician in a HMO setting. He also recognizes that the predisposition to receive and act upon HMO information may be related to the needs and interests of the potential recipient. The learning of available health services in HMO and the need for member education is also recognized. (Roemer and Shonick, 1973). Personal influence (word of mouth) and family influence (joint decision making to join an HMO) are recognized as areas needing more attention (Marketing of HMOs Vol. V).

FIGURE 4

FACTORS RELATING TO HEALTH BEHAVIOR

Earlier, the Kasl and Cobb (1966) model for health behavior was presented as an explanation for seeking preventive health care. It would seem that the choice process (of enrolling in an HMO) can best be explained by presently available "buyer behavior" models, viz the Nicosia model (1966),Engel et. al. model (1973) and to the Howard-Sheth model (1969). While these models are relevant, in a general sense, they are unable to provide better explanations for choice in this area. Some models are concerned mainly with brand choices, while others are too general (such as seeking internal and external information, evaluation of alternatives, etc.). Moreover, in the current dual-choice context, enrolling in an HMO is more related to its adoption first by an organizational entity, such as unions, employers, and physicians. Since HMOs are an important social innovation in its own right, it seems appropriate to look at the process of adoption of HMOs both by organizations and by consumers in the framework of "adoption of an innovation."

Adoption of HMOs

[Discussions in this section are entirely based on a research proposal titled "Innovations in Health Care: A Study of HMOs" by G. Zaltman (1973).]

The concept of health maintenance as proposed by Elwood (1970) is a radical departure from the conventional way of seeking health care services. While it may be contended that the concept of prepaid group practice has been in existence for over 40 years, most consumers are generally unaware of this and even now only a small percentage of consumers are becoming aware of the nature of this concept and consequently the characteristics of such a service organization. The health maintenance organization can certainly be considered an innovation, as an . . .

innovation is an idea, practice, or object perceived as new by an individual. it matters little, so far as human behavior is concerned, whether or not an idea is 'objectively' new as measured by the lapse of time since its first use or discovery. It is the perceived or subjective newness of the idea for the individual that determines his reaction to it. If the idea seems new to the individual, it is an innovation (Rogers and Shoemaker, 1971) . . .

In addition, HMOs can be characterized as " incremental innovation in the sense that this mode of health care services is an addition to the existing organizations for health delivery in the culture (Graham, 1973).

The traditional view of innovation-decision process, called the "adoption process" is appropriate if one is viewing the adoption of HMOs by potential consumers or utilizers of these services. However, in the case of adoption of the concept of HMOs and its implementation rests, in part, with the organizational entities related to providers of health services, viz., solo-practioners, medical societies, insurers or other third party sponsors of this type of organization. Thus on the one hand one must look at the micro-adoption process by consumers and utilizers of HMOs and on the other hand one must focus attention on the "organizations" as consumers, such as employers, unions etc. who must first adopt the "concept" before the ultimate user or consumer of these services adopt this new type of organization for health care delivery. Thus both micro and macro perspectives of the adoption processes must be utilized in the case of the adoption of HMOs. Rogers and Shoemaker (1971) provide a model of the micro innovation-decision process, which consists of the following four stages: (p. 103)

(1) Knowledge: The individual is exposed to the innovation's existence and gains some understanding of how it functions.

(2) Persuasion: The individual forms a favorable or unfavorable attitude toward the innovation.

(3) Decision: The individual engages in activities which lead to a choice to adopt or reject the innovation.

(4) Confirmation: The individual seeks reinforcement for the innovation-decision he has made, but he may reverse his previous decision if exposed to conflicting messages about the innovation.

In the case of the "adoption process" by organization, the process can be dichotomized as follows: initiation and implementation. Such a conceptualization recognizes that it is not enough that the new idea has been accepted by organizational units, but includes actions resulting thereafter in terms of actually implementing the idea. Such a framework is provided by Zaltman (1973) as indicated below:

(1) Initiation Stage

1. Knowledge-Awareness substage

2. Formation of Attitudes toward the innovation substage

3. Decision substage

(2) Implementation Stage

1. Initial implementation

2. Continued-sustained implementation

There are three classes of variables which relate to the study of HMO as an innovation. They are: (a) variables relating to the innovation itself, viz., HMO; (b) variables relating to individuals participating in the adoption-decision process; and (c) variables relating to the organizational structure. It is not our purpose here to consider these in detail, but rather to point out that characteristics or attributes of the HMO are relevant in considering the marketing of HMO. Similarly, the study of individual characteristics will greatly help in the formulation of marketing strategies based on information gained on user characteristics or at least of the early adopters of HMOs. Organizational variables affect the initiation stage and implementation stage of the innovation. Zaltman (1973) has identified twenty-three attributes which will have important impact on whether or not HMOs are adopted by the consumers. (See Table 3). Whether all these variables are equally important is a question for which there is no answer now. However, it is reasonable to conclude that the weighting or importance of these variables will differ based on the standpoint of consumers or providers of this new form of health services.

Currently, there is no research information on these three sets of variables. However, as HMO& are beginning to be introduced in various parts of the country, information on these and other related variables must be obtained in order to accelerate the speed of HMOs and in order to design marketing strategies that will identify the target group and provide information to facilitate adoption of HMOs. Not only the adoption process but also the communication sources that parallel the adoption process is of interest in order to determine the effectiveness of these sources. Such information is important for effective persuasion not only for joining the HMOs but to educate consumers for asing the services properly and thus ensure repeat enrollment by the same members.

MARKETING STRATEGIES FOR HMO

Given the present rigid package structure and the requirements for "certification," it is premature to suggest marketing strategies that may be relevant to the introduction of HMOs. However, in the long run, these regulations will have been changed or modified. Thus broad marketing strategies can be suggested that might suit HMOs which do not want "certification" and they may even be appropriate for the introduction of HMOs in its early stages. The concept of an HMO is unknown among the majority of our population, The concept of "health maintenance" was proposed by Elwood (1970) and since then the term has been continuously used among the small group of "knowledgeable" individuals. No effort to this date has been made to "concept test" the HMO idea with potential consumers to determine what their concept is with respect to health maintenance and health services that are part and parcel of such a concept and what are the needs and wants of potential consumers in this area. This simple first step, which is normally undertaken by commercial firms before engaging in any large scale production and marketing of consumer products, is not yet taken. Thus, the immediate need is to conduct "concept testing" in order to conceive the "package of services" for an HMO as viewed by consumers. Generally, the next stage is to engage in prototype testing, followed by test marketing and finally marketing the product. In the case of HMOs, such a sequence may not be possible as the product is not divisible in small quantities and the set-up costs prohibit much experimentation. For this purpose, it is suggested that before setting up an HMO in a location, a survey of buying intentions be made (in place of current "head counting" practices--e.g.,see the model proposed by Texas Instruments Inc. study, 1971). Such intentions to buy scales may provide rough estimates of the potential consumers of the services to be offered by HMOs.

TABLE 3

ATTRIBUTES OF HMO=S AS INNOVATIONS

Concept testing is the initial stage. Once we ascertain the reactions of potential consumers to the concept, appropriate names must be devised by HMOs to communicate the concept. Health maintenance as a concept is generic in nature and individual HMO plans may want to devise names such that they communicate the content and essence of the maintenance idea. The next stage is to propagate this concept to potential consumers to make them aware and through that process initiate primary demand stimulation for this mode of health care. Selective demand stimulation will be the logical next step. What is proposed here is that first "industry demand" be stimulated and only then demand stimulation efforts for individual HMOs will be successful. That is, in the early years of its introduction, concentrated efforts must be made to increase the primary demand for the type of services an HMO provides--viz., comprehensive health services. Once the concept becomes accepted, attempts must be made for "selective demand" that is demand stimulation attempts to enroll members for particular types of HMOs or for specific HMOs.

Presently, HMO organizers are preoccupied with economic incentives to providers, with notions similar to "profit sharing" to doctors and the like, in order to encourage health maintenance strategy. Incentives for consumers have been neglected. Since an HMO is not divisible, incentives and inducements for consumers are essential for both enrollment strategies and for their continuance in the same HMO. Variety of consumer incentives both monetary and nonmonetary can be utilized to influence the enrollment of potential consumers. In order to provide a "trial" situation to the potential consumers, "trial memberships" for short duration of few months or less (with certain restrictions regarding hospitalization etc.), remission of some period's capitation payment or applying the "trial membership" payment towards regular membership if the consumer decides to enroll after the trial membership, monetary incentives for taking appropriate preventive health care measures and the like are likely to encourage both enrollment and continuation with the same HMO. The potential possibilities with incentives are numerous but the point is that incentives are essential to induce adoption of HMOs and repeat enrollment.

It was noted earlier that there are different segments of potential consumers. For example, unions may be a segment for an HMO or medicare-medicaid recipients may be another segment. Federal employees might be another segment depending on the nature and location of the HMO. The point is that a variety of bases of segmentation can be used. Segmentation strategies (Frank, Massy & Wind, 1972) based on the benefit packages desired by consumers is a method currently used in marketing research for consumer products. This generally goes by the name of "benefit segmentation " (Haley, 1968). Segmentation strategies in general and benefit segmentation in particular seem well suited for the HMO type of health care services. This area needs to be fully explored. Currently, there are attempts to apply segmentation strategies conceptually to the HMO problem (Acito, 1974; Sicher, 1974).

Finally, the perpetuation of an HMO is contingent on the repeat enrollment by members of an HMO. This "repeat buying" will depend on consumer satisfaction with the services provided by the HMO. Presently, the administration of an HMO provides for the views of consumers by including a few among its directors. The exact proportion of members that should come from the cadre of consumers is specified in the HMO Act of 1973. However, such unrepresentative sampling of opinions on satisfaction from the consumers-directors may be of little help to an HMO. Therefore, it is suggested that a consumer panel monitor the use of and satisfaction with- the services continuously should be maintained. Such longitudinal data will provide ample information not only with respect to consumer satisfaction/dissatisfaction, but will provide information for continuously updating and reshaping the character of the services offered by the HMO in response to changing needs of the consumers.

CONCLUSIONS

Even though prepaid group practice has been in existence for over 40 years, the concept of "health maintenance" is a radical departure from the conventional way of seeking health care that is prevalent. The future for HMOs appear to be promising and particularly with the prospect for a National Health Insurance, HMOs become much more attractive as the new form of health care, with its emphasis on preventive care and restoration, rather than the present "crisis" oriented approach of consumers to health care. However, the implementation of this concept (HMO) has not had the benefit of sophisticated marketing management techniques. This paper advocates the use of marketing techniques to ascertain the needs of the consumers in this area and to effectively plan marketing strategies for the successful introduction and continuance of HMOs. The aim was to point out the areas of applications and, therefore, the descriptions are not intended to be complete details. Future research in HMOs using marketing management concepts, it is hoped, would provide a wealth of information for the diffusion of health maintenance organizations.

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Authors

M. Venkatesan, Professor of Marketing, the University of Iowa



Volume

SV - Broadening the Concept of Consumer Behavior | 1975



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