Industrial Marketing Management 34 (2005) 147 – 156
The healthcare network economy: The role of Internet information transfer
and implications for pricing
Hope Jensen Schaua,*, Michael F. Smitha, Per Ivar Schaub
aFox School of Business, Temple University, Philadelphia, PA 19122, United States
bFox Chase Cancer Center, Philadelphia, PA 19111, United States
Accepted 31 July 2004
Available online 23 November 2004
Abstract
Over the past several decades, in an effort to increase quality and efficiency, more emphasis has been placed on preventive medicine,
active participation of consumers in their healthcare, and healthcare networks that collaboratively provide medical care. This article addresses
how the Internet has facilitated the development of new communication flows between networked stakeholders and the impact information
transparency has on the demand for and the delivery of healthcare. Using actual patient treatment data, interviews with practitioners, and
consumer interaction on Internet message boards, we discuss how increased information transfer shapes healthcare coverage and treatment
options and the managerial implications for healthcare pricing along the value chain.
D 2004 Elsevier Inc. All rights reserved.
Keywords: Healthcare network economy; Internet information transfer; Healthcare pricing
1. Introduction
offerings. Market-driven healthcare, or the creation of
medical benefits and treatment plans that meet the demands
There is a growing emphasis on consumer participation
of end-consumers and other industry stakeholders, in
in insurance and medical treatment options in healthcare
concert with consumer-driven healthcare which allows
economics, human resource management, and public policy.
consumers an active voice in health benefits, amounts to a
Under the label market-driven healthcare, these discussions
radical new healthcare environment. Still, current discus-
center on increased consumer participation in healthcare
sions revolve around consumers actively choosing benefit
decisions and marketplace responses to more active end-
options within corporately prescribed and structured menu
users, specifically treatment availability and cost-contain-
and treatment regimes from published medical research and
ment (Herzlinger, 1997). Developing from the market-
peer patient experience. Proponents of market-driven and
driven perspective, a new form of health care benefit
consumer-driven healthcare call for a retooling of basic
delivery has emerged, formerly known as bdefined contri-
insurance theories where light users offset heavy users in a
bution health plan.Q Now termed consumer-driven health-
common price premium model. New policies emphasizing
care, this model gives consumers choice with respect to
individualized healthcare coverage and treatment options
healthcare benefits while establishing equilibrium between
are evolving. Healthcare researchers are finding that
supply and demand (Maillet & Halterman, 2004). In
contrary to the previously held tenets of profitability these
essence, consumer-driven behavior drives price where
innovative, tailored medical plans yield increased medical
quality of an offering is weighed against competing
treatment quality and efficiencies in matching consumer
needs with coverage options and preferred medical treat-
ments (Wizig, 2004).
In the wake of these shifting notions of healthcare
* Corresponding author. Tel.: +1 215 204 3806; fax: +1 215 204 6237.
E-mail address: Hope.Schau@Temple.edu (H.J. Schau).
efficiency, medical care quality and consumers’ participa-
0019-8501/$ - see front matter D 2004 Elsevier Inc. All rights reserved.
doi:10.1016/j.indmarman.2004.07.012

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H.J. Schau et al. / Industrial Marketing Management 34 (2005) 147–156
tion, new technologies and increased information access
In response to the budding realities of the healthcare
allow for a far more educated and aware network of
industry, the impact of information transparency, and the
partners and patients. The all-knowing Marcus Wellby,
networked nature of the offerings, the data compiled for this
MD type of healthcare provider within the 80/20 insurance
article suggest that costs and prices throughout the value
plan is out, and personalized healthcare coverage and
chain are significantly impacted by the new communication
direct to consumer advertising for prescription drugs are in.
flows between and among networked participants. Mana-
Diagnoses and treatment plans handed down from medical
gerially, we posit that policies favoring information inte-
providers in 15-min appointments are researched by savvy
gration throughout a multilayered marketing system will
patients with vast amounts of medical information and
create real, discernable value and efficiency within the
ancillary advice at their fingertips. The National Academy
network. In turn, the value and efficiency realized will yield
of Sciences reports that approximately 30% of the use of
a competitive advantage that positively impacts the bottom
the National Library of Medicine’s MEDLINE system was
line across participating network firms. Furthermore, this
accounted for by students and consumers (Shortliffe,
harnessing of information from credible sources will
2003). Enlightened consumers create new pressures on
enhance medical care to consumers as network firms align
employers, insurers, and medical providers. These new
network efficiency with increased healthcare quality. The
pressures result in more consumer choices, more bundled
article will proceed with a review of the relevant literature
offerings and more elaborate pricing decisions along the
streams, a description of the data and methodology
network or value chain (Maurstad, Riddergard, & Vrolijk,
employed and a discussion of the relevant findings.
2001; Rodwin, 2000).
It is not only the consumers who are exerting new
pressures; all along the medical care value chain
2. Traditional structured health insurance for employer
(practitioners, hospitals, insurers, employers, pharmaceut-
groups
ical firms, government agencies, and the end-consumer),
there is increased information exchange between network
Traditional structured health insurance for employer
participants with consequent shifts in how healthcare
groups consists of a single insurance offering with a
decisions are made. In healthcare, as in other industries,
universal premium or a tiered, defined set of insurance
firms compete not as individual organizations, but as
offerings (i.e., Health Maintenance Organization (HMO) or
strategic networks of firms that collaboratively create
Preferred Provider Organizations (PPO)) each with a
products and services (Achrol, 1991, 1997; Achrol &
universal premium. In either case, consumer health insur-
Kotler, 1999; Drucker, 1993). The transparencies that
ance choice revolves around purchasing total health
networks provide create a context where decision making
insurance coverage for a single premium. In the tiered
in the network is not autonomous within a sector (insurer,
choice set physician and hospital access determines the
employer, provider, etc.). Practitioners in their daily
choice between two single premium choices (Herzlinger,
practice often have access to the Internet and Intranet
2004). There is no ability to customize the insurance to meet
whether in their exam rooms or elsewhere within reach in
the needs of the end consumer. There is no relationship
their offices. This puts searchable information about such
between insurance premium (end-user price nor employer
concerns as coverage, approved treatment plans, pharma-
cost for covered employees) and healthcare received. As
ceutical options, patient history, hospital and equipment
such, employers do not necessarily seek to optimize their
scheduling at their fingertips and potentially influences
premium contributions, but rather the costs that are more
treatment decisions in real time (Computer Science and
readily identified as employer operating expenses.
Telecommunications Board, 2000). Similarly, interlocking
Employer groups opt for the total health insurance with
databases that house employment information, insurance
the universal premium option because it reduces employer
contracts, governmental regulations, patient records, and
administrative costs (i.e., educating employees about insur-
drug interactions make providing integrated healthcare a
ance options, enrollment paperwork protocol, etc.).
reality. Providers, employers, hospitals, and other health-
Employee unions support universal premium offerings
care providers who cannot utilize these databases are
because it increases their power with employers and insurers
faced with cost generating redundancies, as information
if they can negotiate large numbers of policies collectively
must be repeatedly entered into systems that are not
(Enthoven, 2004). Insurers favor universal premiums
designed to share information. Effective, efficient net-
because it lowers administrative costs (managing one or
works share databases and utilize complementary and
two versus managing tens of products) and simplifies
contingent policies regarding treatment standards and
marketing of bundled services. Likewise, medical practi-
availability, coverage, cost, and ultimately price (Glazer
tioners prefer the simplicity that universal premiums offer as
& McGuire, 2002). In essence, the rise in accessible
coverage rules are less complicated for their front office
information throughout the value chain impacts healthcare
personnel to manage. In essence, among the stakeholders,
prices in a circuitous fashion that while indirect is
there is a perception of efficiency embedded in the universal
nonetheless potent.
premium strategy. Couple this with the market reality that

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H.J. Schau et al. / Industrial Marketing Management 34 (2005) 147–156
149
bthere aren’t all that many health plans to choose fromQ
large monetary judgments and settlements forcing malprac-
(Gillette, 2000, p. 24), and the prevalence of the universal
tice insurance rates to skyrocket (Bovbjerg, Githens, &
premium is no mystery.
Sloan, 1991; Hay, 1992; Holloway, 2004). Likewise,
Unfortunately, Herzlinger (2004, p. 74) demonstrates that
employer health insurance premiums have been increasing
traditional health insurance for employer groups is structur-
at a rate of 15%, over the past 3 years (Enthoven, 2004).
ally defective because bit causes rapidly inflating costs;
Consumers rapidly formed negative perceptions of managed
inadequate coverage and treatment options for the sick; lack
care as they experienced more restrictions and indeed
of quality incentives; and unhappy consumers, providers,
impediments to healthcare with no corresponding offsetting
payers and insurers.Q In a defined benefit system, employees
benefit. In essence, managed care asked consumers to
have no incentive to trade off resources because they
accept less medical care so employers would decrease their
perceive health benefits are emanating from employer
costs. In an era of patient entitlement, managed care was
pockets. Additionally, insured healthcare benefits are
distinctly unpopular with most consumers. Litigious con-
defined and tightly structured; end consumers are given
sumers sought remedy through the courts, which granted
little choice between offerings and employers give little
settlements that further impeded the financial efficiency of
information regarding the details of the coverage options.
managed care and increased the malpractice insurance rates
Likewise, the prices passed on to the employees do not
of practitioners. Throughout the healthcare network, costs/
reflect the employer’s actual cost; there is no clear
prices rose.
connection between cost and price, or between value and
Less face-to-face time between practitioners and patients
price. Simultaneously, insurers are paid a flat rate no matter
and increased malpractice pressures, lead to less open
who enrolls, so there is no incentive to innovate treatments.
discussion and problem solving—ultimately to decreases
Add the above to the overriding reality that provider fees are
in the quality of healthcare. In the absence of detailed
determined by third parties (insurance companies, govern-
medical advice from their healthcare providers, consumers
ment agencies, trade associations) and there is little wonder
are turning to third party medical information. Consumers
why traditional, defined health insurance for employer
are being encouraged to learn more about the importance of
groups results in inefficiencies and stagnant care quality.
early disease detection, self-examination, and routine
A recent Economist article (No Reverse Gear, 2004)
medical testing as ways to help inhibit and sometimes even
comparing medical insurance to the automotive industry,
prevent the occurrence of illness. New efficiency models
suggests that if employers were to buy cars for employees as
enacted within managed care plans reduce the restrictive
they do insurance, then there would be many more luxury
rules of the 90s, aiming instead to implement rules that align
and sport cars on the road since consumers would not have
the cost-savings interests of the health plans with the
to make cost-attribute trade offs. Furthermore, automotive
interests of the consumers; the result remains that healthcare
manufacturers would have no incentive to enhance the
providers are still induced to treat and process more patients
attributes of their products or innovate their market offerings
with less resources (Oberlander, 2002).
in any way since employers would be paying them an
annual fixed premium regardless of the product attributes.
4. The Internet and information access
3. Early network configurations: managed care
Prior to the emergence of the Internet, most medical
information came directly to the consumer from the
In an effort to reduce costs within the universal premium
practitioner through face-to-face visits, the pharmaceutical
policy, originally managed care networks of the 1980s and
firm through product inserts, and the local pharmacist
1990s created financial incentives to reduce healthcare-
dispensing prescribed drugs and supporting over-the-coun-
related expenses through decreased access to medical
ter medical products. Ancillary information sources
treatment options and through the use of less expensive
included published sources (books and pamphlets) and
mid-level practitioners (i.e., nurse practitioners, midwives,
family, friends, and neighbors who shared medically related
and physical and respiratory therapists). Additionally,
experiences. In rare cases, support groups for severe
managed care practitioners were financially motivated to
diseases and disorders formed (cancer, diabetes, etc.) where
be responsible for more patients thus limiting patient-
medical information would change hands. This hierarchical
practitioner encounters to 10–15 min a piece. Likewise,
form of information dissemination favored practitioners as
managed care practitioners were incentivized to reduce
experts and included a small set of trusted peers. In this
specialist referrals and out of network care. The primary
context, information can be tightly monitored and consum-
care physician became gatekeepers of consumer access to
ers can be carefully guided to the currently received view
medical treatment options. In response to denied access to
within the medical profession. The entire medical industry
needed care and an increase in practitioner error brought on
encouraged and perpetuated the consumer as a passive
by increased responsibilities, consumers relied on the courts
subject of medical trials through creating and perpetuating
to remedy low-quality healthcare. Patients were awarded
practices that continually stripped the consumers of their

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H.J. Schau et al. / Industrial Marketing Management 34 (2005) 147–156
individuality and their intellectual capacity to decide for
themselves (Foucault, 1973). Consumers were reluctant to
read medical texts and inform themselves about conditions
because they lacked confidence in their ability to
comprehend the complexities of biology and pharmacol-
ogy. Likewise, pharmaceutical firms aggressively courted
practitioners alone to adopt their products and prescribe
them to passive consumers. The healthcare network was,
in essence, driven by practitioners in the middle of the
value chain who created demand for suppliers (pharma-
ceutical companies, insurers, hospitals) through treatments
prescribed for a mostly reverent and docile set of end-users
(No Reverse Gear, 2004).
Today, technology, in the form of the Internet, has
provided consumers with unprecedented access to informa-
tion from various stakeholders such as employers, managed
care agencies, health care providers, manufacturers of
healthcare products, pharmaceutical companies, third party
Fig. 1. A model of the network healthcare economy.
information sources (Centers for Disease Control, The NIH
and NCI, American Cancer Society, WebMD), and other
consumers with similar concerns. With the wealth of health-
havoc on the financial incentives within the healthcare
related information now available, consumers are gaining
industry and indeed on the manner in which medicine it
confidence in their own ability to make sense of medical
practiced. Practitioners face increased scrutiny from some-
information, discuss alternative courses of treatment with
times litigious consumers. Pharmaceutical firms are charged
practitioners and challenge the reigning received view on a
with lobbying end-users. Hospitals are branding themselves
host of health-related issues. Unfortunately, the information
to garner positive affect in their communities. Employers are
available varies in source credibility. The Public Citizen
anxious to provide discriminating prospects and employees
Health Research Group, an organization whose goal is to
with more value appropriate options to enhance attractive-
give consumers more control over their healthcare decisions
ness and retention. All these changes, while often advanta-
through dissemination of reliable information, has con-
geous to consumers, have a cost and that cost amounts to
ducted multiple studies that indicate that the availability of
significant expenses within the network that drive the price
the information online has increased, but this information is
of services higher. The increased prices are not directly
often inaccurate, incomplete, and wholly misleading [http://
translated into increased quality and value. It is this critical
www.citizen.org/hrg/]. Consumers are left to sort out
fissure that requires attention within the network to locate
information and reputable sources and take responsibility
competitive advantage in the healthcare industry (Maillet &
for educating themselves about healthcare. This increase in
Halterman, 2004).
consumer responsibility drives an equal desire for consumer
agency and voice in all aspects of healthcare delivery.
Consumers are experiencing expanded agency in their
5. The second wave of market network, expanded
practitioner dyad relationships, their choice of medical
agency, and empowerment
facility (hospital, clinic, etc.), their access to medical
equipment and pharmaceuticals, their employer-defined
With the decline of practitioner-patient interaction
health benefits, and their insurer coverage. With expanded
initiated by managed care and the increased availability of
agency comes empowerment and responsibility. No longer
information (Shortliffe, 2003), healthcare consumers are
reverent or docile, efficacious consumers are actively
faced with a staggering number of choice options for even
participating in their healthcare access and their treatment.
the smallest ailment and the most routine preventive
Communication flows between stakeholders described
practice. For instance, it has been estimated that tens of
above are depicted in Fig. 1.
thousands of Internet sites provide consumers with an array
The medical industry is adjusting to new realities and
of information content covering the gamut from information
new sources of power and influence. Beauregard (2000)
on diseases and therapies to lifestyles (Shortliffe, 2003).
describes an experimental process of health insurance
Increased choice and access to information with varying
negotiations that takes place between benefits managers
levels of source credibility exert pressure on the healthcare
and insurance firms in an online auction format where
value chain to more clearly define insurance offerings,
benefits and costs are set into a parameter function and
recommended preventive medical practices, covered medi-
maximized to yield negotiation outcomes. The information
cal treatment options, and prescribed pharmacological
transparency throughout the healthcare network in wreaking
product attributes and interactions. Recognizing that choice

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H.J. Schau et al. / Industrial Marketing Management 34 (2005) 147–156
151
in itself can be daunting (Dhar, 2002; Iyengar & Lepper,
from value and the idea of trading off attributes to contain
2000), all firms in the network and along the value chain
price is foreign, it is no wonder why patients and even
would do well to integrate credible information regarding
employers are not making price a focal component of their
their products and services for their network partners and
consumption decisions.
end-consumers by differentiating their offerings and making
To complicate matters, pricing in the healthcare industry
a clear connection between value and price. Early adopters
is subject to third party regulation which further obfuscates
of this integrated multilayered marketing effort will be noted
the relationship between the prices the healthcare provider
as innovators in the industry and stand to profit handsomely
quotes and that which is actually reimbursed. The impact of
through strong positive firm reputation (Miller, 1988).
federal regulations on the uniformity of hospital bchargesQ
Currently, healthcare partnering firms and end-consum-
adds opaqueness to the process. Federal regulations were
ers are suffering under a difficult comparison effect, where
commonly understood, until recently, to require that each
the potential buyers cannot easily evaluate the value of
hospital make all patients pay the same, often significantly
perceived substitutes. In this condition, buyers can be less
inflated bcharges.Q The charges established by hospitals are
price-sensitive and less attribute-driven toward known
like those of other high-ticket items, like automobiles,
brands because the positive impact of branding creates an
furniture, and appliances: an unreliable measure of actual
assurance of baseline quality even if the quality ensured is
selling price. However, regardless of the amounts actually
not the best on the market (Edem & Swait, 2004). For
collected from patients, the federal regulations require that a
example, McDonald’s hamburgers are strongly branded and
hospital charge all patients the same amount. This stems
suppliers and end-consumers around the globe know what
from the requirements of the Medicare cost-reporting
to expect from these sandwiches although most would
process, which apportions costs across customer segments
openly admit that McDonald’s hamburgers are not of
based on charges. The level of charges for a particular
superior quality. While in the quick service restaurant
hospital is irrelevant, as long as the charges are being
industry this is not a big problem, within the healthcare
applied consistently. A differential charge structure will
industry, marginal quality offerings could result in loss of
result in an uneven apportionment of costs. The underlying
life and significant reductions in the quality of life. In
regulations comprise a confusing array of contradictory
essence, more than broad stroke branding is necessary in an
instructions, backed by heavy-handed federal regulators.
industry where the stakes are high (life and death) and the
This environment has served to discourage hospitals from
network partners are legally responsible (malpractice
engaging in constructive dialogue with their customers
insurance). Network firms need to create real value for
regarding the price of medical services. [http://www.
their partners and end-consumers. Pricing policies through-
cms.hhs.gov/FAQ_Uninsured.doc] In essence, there is no
out the network should be structured to correspond tightly
real effort to find a harmonious equilibrium between
with value (Kung, Monroe, & Cox, 2002).
demand and supply in the healthcare markets. Conse-
Practitioners and scholars alike have noted the impor-
quently, price is not a determining decision-making factor
tance of emphasizing value creation, both within a network
for end-users.
of value creating firms and for end-consumers. A recurring
theme is that increasing both the quality and assortment of
services, on the Internet, may result in consumers placing
6. Methodology
less emphasis on price. One industry that relies heavily on
an Internet-based network of service providers is the
The data for this article are culled from 11 in-depth
hospitality industry. In order to remain competitive in an
interviews with practicing medical practitioners, three
information rich environment, as found on the Internet,
interviews with human resource benefits administrators,
Walsh (2003) suggests that firms must differentiate them-
thread data from two online medical communities
selves on value added services, in contrast to relying on
(WebMD and HealthBoards), and procedure billing sta-
price for sustainable differentiation. Hunt (2001) reports on
tistics from a well-known American cancer hospital.
a study of 50,000 Internet users across industries, which also
Interviews were conducted by the first author regarding
support this view. For example, the findings suggest
practitioners’ experience of consumer empowerment, spe-
b. . .customers stick with the brand they trust, or use the
cifically patient requested treatment and the inclusion of
Internet because it’s convenient, not because it’s cheap.Q
third party research in practitioner–patient meetings.
[p.29] The study also reports b. . . only 8% of users are
Message Board discussion threads were harvested by the
bbargainersQ who aggressively search for the best deals
first author regarding treatment oriented exchanges pre-
online.Q [p. 29]. Hamilton (2001, p. R8) goes further to
sumed to be between peers (nonpractitioner patients).
suggest that firms must b. . .figure out if it is even possible to
Lastly, we offer medical usage data from billing records
take advantage of the Internet’s unique capabilities to set
for specific procedures across specific years from a well-
dynamic prices, which would better reflect a customer’s
respected cancer hospital operating in the East Coast
willingness to pay more under different circumstances.Q In
region of the United States. Embedded in the billing data
an industry like healthcare where price is so far removed
is information regarding the insurance coverage and

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H.J. Schau et al. / Industrial Marketing Management 34 (2005) 147–156
accepted rate of compensation for the hospital and
by insurance for most patients who met stated eligibility
practitioners.
requirements, (4) the focus of promotional campaigns
Eleven in-depth interviews with medical practitioners
designed to increase public awareness of the procedures,
were conducted by the first author. Each informant was
and (5) discussion topics in both message board commun-
prequalified via biographical material published on his/her
ities. Use data also reveal the number of visits required for
employer’s website to have been in medical practice more
a given condition and treatment plan. Like thread data, this
than ten years. Specifically, each practitioner was asked the
record of occurrences is not subject to demand effects. The
same set of ten questions regarding their clinical experience
data focus around usage of cancer detection and prevention
with patients over the last ten years: i.e., indications of
activities, such as mammography, FOBT (fecal occult
patient self-diagnosis prior to medical appointments, con-
blood test), Pap smear, flexible sigmoidoscopy, colono-
sumer introduction of third party research material into the
scopy, prostate specific antigen testing, chest X-rays, and
practitioner–patient discussion, consumer expression of
the like. These procedures are important both in popula-
treatment opinions/preferences, and consumer reference to
tions susceptible to cancer, such as family members of
insurance coverage regulations. The duration of the inter-
cancer victims and persons in high-risk groups, and for
views ranged from 35 to 70 min tes and relied solely on
survivors who are monitoring for recurrence. These tests
practitioner self-report in response to defined questions and
have been promoted through the NCI (e.g., through the
spontaneously generated follow-up and clarifying questions.
bPDQQ on the NCI’s website, cancer.gov), and by public
The interviews were analyzed thematically and hermeneuti-
figures such as President Bush who has spoken openly
cally where common themes were identified and initial
about his own tests (Wilson, 2002).
analysis informed subsequent analysis and vice versa. The
We believe that the quotes and thread vertabims cited
interviews provide a practitioner perspective of healthcare
reflect the themes that resonate throughout the data set. By
encounters.
triangulating this data, we feel we can offer some insights
Similarly, three in-depth interviews with benefits admin-
into the impact information networks have on four primary
istrators in two large American East Coast firms were
healthcare industry constituents (practitioner, employer,
conducted by the first author. Each informant was respon-
patient, hospital, and insurer). These insights relate directly
sible for analyzing potential healthcare coverage contracts,
to issues of consumer empowerment and ultimately pricing
educating employees on the benefits of the bundled
policies in a market-driven healthcare system.
product–service offerings and handling some claim oriented
paperwork for employees with special needs. The interviews
relied on administrator self-report and ranged in duration
7. Discussion
from 45 to 65 min. As above, the interviews were analyzed
thematically and hermeneutically. These interviews provide
As the literature review suggests, our data confirm that
access into the employer perspective of medical insurance
there is no discernible relationship between price and value
administration.
of healthcare products and services within the network of
Asynchronous peer conversations posted on message
participants involved in this study. We find overwhelming
boards, or thread data, was downloaded and analyzed in a
evidence to support that information transparency is not
manner analogous to transcribed conversations. Message
leading to price transparency within the medical industry.
board threads from WebMD and Healthboards pertaining
In fact, information dissemination is leading to an increase
to medical treatment options were selected for analysis.
in medical treatment access, which does impact price, but
Like the interview data, these data were analyzed to
this impact is anything but transparent. Information trans-
identify common themes and hermeneutically considered
parency drives demand for products and service throughout
so that all threads benefited from any analytic epiphanies
the value network, but the impact on price is at least one
that emerged. Unlike self-report, thread data is in situ or
layer removed so that there is no easy or reliable way to
naturally occurring. While publicly posted, the threads are
measure this impact within local networks, or even the
conversations between peers and are for the most part not
industry as a whole.
tainted by demand effects that plague most other data
Benefits administrators admitted that limiting the
sources. Analyzing threads is akin to naturalistic inquiry or
choices for employees was in no small part a reflection
nonparticipant observation, where the researcher observes
of the paltry amount of insurance offerings available and
the behavior without impacting it.
an effort to decrease administrative costs by making each
The billing data represents the actual usage rates of
administrator responsible for only a very limited array of
given diagnostic interventions in the population of
insurance offerings and their respective rules and use
consumers served by the hospital. The treatments and
regulations. One informant states, bWe are a large regional
billing years chosen for analysis were identified as: (1)
employer with a staff of two to administer general benefits
stable technologies over the last 10 years (the technology
which include medical, dental and life insurance as well as
for the procedures did not change over the analyzed time
employee and familial education benefits and all their
period), (2) available to the patient population, (3) covered
paperwork. It is only the two of us holding the new

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H.J. Schau et al. / Industrial Marketing Management 34 (2005) 147–156
153
Table 1
PHC4 data related to DRG 410, chemotherapy, for the Philadelphia metropolitan area, summer 2004
Year
Facility name
Cases
Mortality rating
Length of stay (LOS)
Outlier cases
Avg. charge
Short LOS
Long LOS
Percent
Rating
Percent
Rating
(%)
(%)
Summer
Albert Einstein
55
O
3.5
0.0
O
5.5
O
$26,353
Summer
Chestnut Hill
35
O
2.4
11.4
O
2.9
O
$19,264
Summer
Frankford
15
O
3.3
0.0
O
0.0
O
$16,921
Summer
Graduate
34
O
3.7
6.1
O
9.1
O
$35,835
Summer
Hahnemann University
182
.
2.4
12.3
.
6.1
O
$31,221
Summer
Hospital Fox Chase Cancer
376
O
2.9
4.8
O
1.9
o
$13,681
Summer
Hospital University PA
454
O
3.0
3.7
O
3.7
O
$18,541
Summer
Jeanes
6
O
1.1
0.0
O
16.7
O
$11,552
Summer
Medical College PA
31
O
3.4
3.2
O
9.7
O
$48,786
Summer
Mercy Philadelphia
165
O
4.0
5.5
O
18.3
.
$34,074
Summer
Methodist Division/TJUH
7
O
4.3
0.0
O
14.3
O
$19,276
Summer
Pennsylvania
32
O
3.7
3.1
O
9.4
O
$22,507
Summer
Temple East
18
O
2.7
22.2
.
0.0
O
$56,812
Summer
Temple University
116
O
3.6
6.9
O
6.0
O
$50,593
Summer
Thomas Jefferson Univ.
470
O
3.1
6.0
O
5.3
O
$23,159
Summer
Univ. PA/Presbyterian
20
O
2.4
0.0
O
0.0
O
$11,266
employee benefits orientations and handling the open
procedures I prescribe are covered within the patient’s
enrollment windows when employees can alter their
insurance plans. . . . I have very limited time with each
coverage. If we had to educate employees on more
patient, if I had to consider price in the treatment options
insurance options, help them navigate these options and
I’d go crazy. I guess I do pay attention to testing and those
switch among these options we would need to at least
procedures I know are new.Q The practitioner here cannot
double our current staff.Q This quote highlights that
be burdened with all the idiosyncratic insurance coverage
employers are financially incentivized to decrease the
rules for multiple carriers and products, but she does
employer offerings to contain costs. Additionally, benefits
inhibit her use of testing per the common insurance
administrators expressed that most of the employee phone
definitions of coverage. Likewise, she inhibits her use of
inquiries that they field in any given day revolve around
innovative procedures because of the financial disincen-
emergent issues for the employee or their family that
tives she faces when the procedures are not covered and
requires some administrative intervention. For example, a
payment for them is uncertain. This practitioner reluctance
benefits coordinator comments bthroughout the day we get
to utilize innovative treatments is based on the lag time
calls that say an employee or their family member could
between the adoption of treatments in the medical field
not be properly verified for coverage, or needs a list of
and the incorporation of these treatments into insurance fee
participating specialists, or is having trouble reading an
schedules (Danzon & Pauly, 2001).
EOB (explanation of benefits). They call us, not Blue
Message board data reflect consumers’ awareness of and
Cross. They know us. They trust us. And they know if we
frustration with this insurance lag inhibiting patient access
can’t fix it, we know the person at Blue Cross who can. If
to new treatment options, bI’m told there is a new chemo
we had more offerings with different carriers we couldn’t
that would be more effective with less side effects but my
have the same impact when we intervene.Q It is clear from
insurance does not recognize it, my doctor won’t prescribe
the quote that not only is it less expensive to manage
it, even if I can find a way to pay for it on my own... he
fewer plans, but it is more efficient to do so since the
claims that the financial pressure might interrupt treatmentQ
communications is more effectively targeted. The benefits
[B4UGO]. Here, the patient is aware of new treatments and
administrators get to know the Blue Cross representatives
wants to access them, but insurance regulation and the
and can leverage this knowledge to improve the consumer
doctor’s perception of the patient’s financial pressures are
experience. Because it may be difficult for consumers to
inhibiting his/her access. The actual price of treatment is
navigate the bureaucratic labyrinth that constitutes health-
never disclosed and is therefore not actually factoring into
care benefits, employers also provide assistance through
this decision.
contracted third-party employee assistance programs (e.g.,
Use data reveal that there is an increase in usage for
http://www.baptistonline.org/services/community/concern/).
procedures in which consumers are aware of the procedure
Similarly, we find that practitioners are generally reliant
and its potential benefit. The use data from the billing
on office personnel to sort out insurance coverage and end-
databases yield interesting insights into the pricing policies
user prices. One practitioner admits, bI treat the patient. I
of the medical institutions providing the services and also in
leave it to my office to determine whether or not the
the regulated reimbursement schedules. The data in Table 1

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H.J. Schau et al. / Industrial Marketing Management 34 (2005) 147–156
illustrate that the charges for similar treatments vary wildly
sources to medical appointments as compared to ten years
without explanation. In fact, as stated earlier, Medicare
ago. One practitioner remarks, bpatients are making the
enacts processes that do not favor standardized pricing per
most of their visitsQ bringing in material to discuss and
treatment across given markets, only standardized prices per
treatment preferences. Another states, bpatients are so
treatment within each hospital or venue. Consequently, a
much more knowledgeable about treatments and the
reliable set of cost and quality measures for healthcare
conditions themselves. I am consistently impressed with
services in the U.S. does not exist. Attempts are being made
the conversations I have now with some patients. They are
on a local level (cf. the Pennsylvania Healthcare Cost
more like partners in their care than just patients. They’re
Containment Council, www.phc4.org) to report charges as
less afraid and more compliant. They know what to watch
well as mortality, length of stay and similar measures to
for and vigilantly report problems.Q These quotes represent
consumers. However, it is not clear that this information is
the intended consequence of the increase in consumer
reaching consumers who need to make the cost/quality trade
access to medical information; consumers are empowered
offs.
to be partners in their care. They are more compliant
We analyzed utilization statistics at a prominent cancer
which suggests that medical costs are contained as patients
research hospital in the Northeastern region of the United
follow their treatment plans efficiently. This suggests more
States. We have expressed our findings in terms of
rapid recoveries or disease control.
screening procedures produced per new patient. For this
An example of a patient eager to seek advice and be an
purpose, we have defined bnew patientQ as anyone who is
active part of his medical care is a recent posting from
issued a new medical record number; that is, they have no
DavidM7654 who writes seeking advice from an online
existing records at the hospital at the time of the visit.
cancer support message board hosted by WebMD: bI am
Over the 5-year period, endoscopic procedures per new
still trying to understand calcitonin. I read how it is
patient has increased by 170%, this encompasses mostly
produced by the thyroid, I have NO thyroid! Where is it
screening colonoscopies. This indicates that a significantly
coming from? It is like being surgically neutered, if the
larger number of patients are coming to the hospital for
testes or ovaries are removed I can’t imagine that you will
screening colonoscopies. During this period, there was a
have any sperm or eggs. So where is it coming from? I
20% increase in the number of physicians providing this
feel the real need to really talk about this with someone
service, which most likely is a contributing factor to this
who has time to listen and explain. On top of all this
dramatic change in usage along with consumer demand for
calcitonin talk, the Dr. is of course concerned but relieved
this procedure.
that my CEA levels are still dropping. What is going on?
Chest X-rays per new patient have increased by 24%.
HELP!Q Here we can see that DavidM7654 trusts his
Chest X-rays are most commonly used to screen for lung
physician, but is not entirely confident that the doctor is
cancer, and to gauge patients’ ability to tolerate anesthesia
giving him all relevant information in their condensed
during a surgical procedure. During this time, the number of
interactions. He is actively seeking the advice and council
chest X-rays per surgical procedure with anesthesia has
of other people on the message board to augment the
decreased. This indicates that the number of chest X-rays
information that comes from his doctor. He laments that he
ordered for both physician-requested diagnostic protocols
has too little time to talk to his doctor. He appears to
and patient-requested screening (i.e., lung cancer) has
embody the active patient in the previous practitioner
increased significantly.
quotes. Interestingly, the responses DavidM7654 received
Screening mammograms per new patient have increased
were not really medically rich, but rather empathetic bhang
by 17%. This is probably one of the most well-known
in there typeQ responses which he expressed extreme
screening tests for a cancer that has been widely publicized.
gratitude for receiving.
This increased usage comes from awareness campaigns
Similarly, we find family member or care givers
from several stakeholders (e.g., government, physicians,
seeking advice. AB05 writes seeking advice for her
third party health agencies, and survivors). In addition, the
mother who is suffering through chemotherapy, bThe
increase in life expectancy for breast cancer victims
doctors have given her Anzemet to try and control the
suggests that mammograms are a successful early detection
vomiting, but she still finds herself with an upset
procedure.
stomach. She is not eating enough because it upsets
As demonstrated in the data about diagnostic proce-
her stomach. Soup usually works well for her, but other
dures endoscopies, chest X-rays, and mammograms, it is
things don’t settle as well. I was hoping that someone
interesting to note that there is no link to price. Usage
could give me some suggestions of foods that don’t upset
rates do not seem to be dependent on coverage or end-
your stomach as much after the chemo and aren’t too
consumer price.
difficult to eat. Thanks for your help.Q Again, AB05 is
Echoing the use data, we find that practitioners are
trying to augment her mother’s care with tried and true
experiencing unprecedented patient requests for proce-
advice from other patients. She received an overwhelming
dures. All practitioners interviewed indicated that consum-
array of suggestions, many of which she claimed worked
ers are increasingly bringing in third party information
for her mother.

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H.J. Schau et al. / Industrial Marketing Management 34 (2005) 147–156
155
Fig. 2. Total ambulatory visits per 1000 members, 200–2003. Source: Ruthardt, Linda, bMasachusetts HMO Rate Analysis: Spending and Utilization in 2000,
2001, 2002 (budgeted) and 2003 (projected)Q, Massachusetts Division of Health Care Finance and Policy.
In the cases above, patients and their advocates are likely
8. Conclusion
reducing the number of visits they need to manage their
conditions by seeking ancillary advice and support. Mes-
The multimethod approach to collecting and analyzing
sage boards provide patients and caregivers with a
our field data reveal that (1) healthcare delivery is
communication flow which augments the information
networked, (2) information transparency is a new reality
provided by the practitioner.
for the industry, and (3) this information transparency has an
Conversely, we find that information transparency
impact on costs and prices throughout the healthcare
might negatively impact medical treatment. One practi-
network. Although this study does strongly support the
tioner notes, bsometimes the information consumers bring
impact of increased information flow on pricing, it
in is simply false, and this means I have to spend time
demonstrates that information transparency within the net-
talking them out of their perceptions. . . I have to sell them
work can both increase and decrease costs with correspond-
my treatment plan.Q The information transparency is
ing impacts on prices. In essence, cost and price impacts
arming consumers with data of their own and challenging
depend on the nature of the information accessed and the
the practitioner to defend treatment choices. While there
use of the information in the delivery of healthcare. Patient
are positive components to making practitioners justify
treatment data reveal an impressive rise in the prescription
treatment plans, these challenges are also perhaps derailing
of certain treatment options often at the request of the
medical treatment due to lengthy discussions about
consumer. These procedures contribute to the short-term
consumer misperceptions. Another practitioner complains,
costs of care, but may indeed reduce long-term medical care
bI spend a lot of time talking to patients about nearly
costs through early detection and prevention. The implica-
irrelevant treatments. It eats up our limited time together.Q
tions for pricing have been demonstrated; however, the
Here we can see that the very context (shortened face-to-
nature of the impact is highly complex and entirely
face encounters between practitioners and patients) led to
contextual. Further studies can parse out the pricing impact
patients locating ancillary materials, which in turn erodes
through the investigation of specific information in distinct
the productive discussions within the appointments. This
patient populations following specific treatment options. For
suggests a cost impact. Specifically, there is an erosion of
now, we show that information transparency, while not
visit time due to extraneous discussions regarding third
having a specific cost attached to it, impacts cost and pricing
party information which often results in an increase in
strategies within the healthcare network. We find that
demand for visits related to a single medical condition and,
pricing and delivery models (managed care) are vulnerable
consequently, an increase in the cost of medical treatment
to the impact of information transparency. Specifically, as
overall. A recent study by Ruthardt (2003), depicted in
consumers become more active healthcare participants,
Fig. 2, supports this assertion, demonstrating that there was
treatment quality and cost containment become issues for
an average increase in visits of all HMOS of 9% over the
all members of the network.
last 3 years, 2000–2003. While the study did not
specifically look at information access, it does clearly
indicate a trend toward more patient visits across the
general patient population in a context that attempts to
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Document Outline

• The healthcare network economy: The role of Internet information transfer and implications for pricing
  • Introduction
  • Traditional structured health insurance for employer groups
  • Early network configurations: managed care
  • The Internet and information access
  • The second wave of market network, expanded agency, and empowerment
  • Methodology
  • Discussion
  • Conclusion
  • References

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