Winning the Hardware Software Game Winning the Hardware-Software Game - 2nd Edition

Using Game Theory to Optimize the Pace of New Technology Adoption
  • How do you encourage speedier adoption of your product or service?
  • How do you increase the value your product or service creates for your customers?
  • How do you extract more of the value created by your product or service for yourself?

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pricing

  • Current Doctor-Patient Communications Involve Miscommunications

    Suppose a patient damages his knee. He goes to see an Orthopedic Surgeon. The surgeon conducts some tests and concludes that the patient has torn his meniscus and needs arthroscopic surgery to fix it (see Figure 1)

    Figure 1

    1 mensicus

    Source:http://www.newhealthguide.org/Meniscus-Surgery-Recovery-Time.html

    After informing the patient of this, the patient then asks the surgeon, “How much will this surgery cost me?”

    The surgeon replies to the patient’s question with something akin to, “I have no idea,” or “I can’t tell you.”

    That simple statement goes a long way towards killing the patient’s trust of the doctor. And without trust, patients are less likely to comply with the doctor’s recommendations, which, in turns leads to worse patient outcomes, less satisfied patients, fewer patient referrals, and more billing disputes.

    And all this happens due to a miscommunication between the surgeon and the patient.

  • Price discrimination may be defined as selling the same thing to different people for different prices. Price discrimination can take many forms, such as volume discounts, price premiums, or market segmentation. Suppliers regularly use many different forms of price discrimination, which people generally don’t object to.

    Some suppliers use dynamic pricing, a sub-category of price discrimination, in which prices change over time with market conditions. Consumers have been used to the fact that prices for airline tickets and hotel rooms change constantly, and that different people end up paying different prices for a seat on the plane. While uncomfortable with the practice, consumers have generally come to accept this type of dynamic pricing (what choice do they have?).

    Over the past few years, dynamic pricing has become more widely used by sellers as a means of supplementing shrinking margins in an increasingly competitive world. As more information becomes easily available in digital form, pricing algorithms used to support dynamic pricing systems have been able to draw upon more and more information to hone prices and increase profits.

    A more controversial sub-category of dynamic pricing is personalized pricing, which uses personal information on each customer to tailor prices specifically to that customer.

    This analysis examines the different types of price discrimination, how they increase profits, why they are becoming increasingly prevalent, and some emergent issues surrounding their use.

  • Underlying Issue

    Trends in Total US Healthcare Expenditures

    Trends in Personal Healthcare Expenditures

    Trends in Healthcare Expenditures by Condition

    In Sum

     

     

    Underlying Issue

    The total annual costs of healthcare paid by each individual is the sum of the healthcare premiums he pays and the out-of-pocket costs he incurs:

    Total Cost of Healthcare = Insurance Premiums + Out-of-pocket Costs

    Roughly speaking, the annual insurance premium an individual pays is the average of the total annual costs paid by his insurance company for the healthcare costs incurred by all individuals in his (age) group. What this means is that if the healthcare costs of one individual rise, then that individual does not bear the full burden of the costs increase, but rather, the burden is shared by all members of the group. This is the very nature of risk-pooling, and it works fine when all the members in the group face the same risks.

    Out-of-pocket costs for healthcare depend on the type of coverage an individual has, plus the amount of healthcare individuals use.

    Moving on, the amount of healthcare an individual will use/need during the year depends on several factors:

    • Genes: People will end up using more healthcare services to the extent that they have “bad” genes.
    • Luck: People will end up using more healthcare services to the extent that they have bad luck or are otherwise accident prone.
    • Lifestyle: People will end up using more healthcare services to the extent that they have an unhealthy diet, don’t exercise, smoke, don’t take safety precautions (e.g., wear seatbelts), or otherwise lead more risky lifestyles.
    • Compliance: People will end up using more healthcare services to the extent that they don’t comply with their doctors’ recommendations (e.g., take medication, lose weight, stop smoking, etc.)

    Obviously, people can’t control whether they have bad genes or bad luck. However, they can control the type of lifestyle they live and whether they comply with their doctors’ recommendations.

    This begs the following question: To what extent are healthcare costs attributable to factors that people cannot control (bad genes and bad luck), as opposed to factors that they can control (lifestyle and compliance)?

    Most people would probably agree to have society (government) subsidize healthcare costs associated with factors people cannot control. However, to the extent that people choose to not control those factors over which they do have power, then to what extent should society be responsible for subsidizing those people’s higher healthcare costs?

    Clearly, the issue becomes more important as the costs of healthcare have increased so dramatically over the years.

  • Healthcare Expenditures Are Concentrated

    High-Cost Healthcare Users

    Causes of Common Chronic Conditions

    Addressing the High Costs of Healthcare

     

    In my previous blog entry, Why Are Healthcare Costs So High? - Part 1, I presented data indicating that

    • US healthcare expenditures have been increasing over time (see Figure 1 below reproduced from my previous blog entry),
    • There seems to be a shift during the 1980s, in which annual personal expenditures on healthcare started increasing at a faster rate (see Figure 1 below reproduced from my previous blog entry),
    • Healthcare expenditures for treating the top 20 medical conditions account for 75% of expenditures captured in surveys of healthcare expenditures for hospital inpatients, patients treated in physicians’ offices, and prescription medication, and
    • The increases in spending for the top 20 diseases are due mostly to increases in the number of people being treated for (chronic) diseases, rather than to increases in per-patient costs of treatment (see Figure 2 below reproduced from my previous blog entry).

    In this blog entry I examine the distribution of healthcare spending across different portions of the population.

     

  • Factors Contributing to Rising Healthcare Expenditures Over Time

    America’s Weight Problem: Increasing BMIs Over Time

    Changes in Society Causing Increases in BMI over TIme

    The Rise in Healthcare Expenditures is a Consequence of America’s Weight Problem

     

     

    In my last two blog entries, I found that

    Part 1

    • US healthcare expenditures have been increasing over time,
    • There seems to be a shift during the 1980s, in which annual personal expenditures on healthcare started increasing at a faster,
    • Healthcare expenditures for treating the top 20 medical conditions account for 75% of expenditures captured in surveys of healthcare expenditures for hospital inpatients, patients treated in physicians’ offices, and prescription medication, and
    • The increases in spending for the top 20 diseases are due mostly to increases in the number of people being treated for (chronic) diseases, rather than to increases in per-patient costs of treatment.

    Part 2

    • Healthcare expenditures are concentrated, where the Top 5% of Users account for over half of total healthcare expenditures
    • the Bottom 95% of the population is paying roughly twice as much for healthcare services than they actually use, where the difference is going to subsidize the Top 5% of healthcare users, and the Bottom 70% of the population is paying seven times as much as they use, where the difference is going to subsidize the Top 30% of healthcare users.
    • The high-cost healthcare users are people with multiple, chronic conditions, including coronary artery disease, diabetes, congestive heart failure, and chronic obstructive pulmonary disease.
    • At least seven of the top ten medical conditions that account for the majority of healthcare spending can be at least partially prevented and/or mitigated by factors under the control of individuals, namely, weight control, eating habits, drinking (alcohol) habits, activity levels, and smoking status.

    In this blog entry I examine how changes in society over time have led us to where we are now, with so many people suffering from chronic medical conditions.