Friday, 31 August 2007 10:00

Penn --- Medicine and Collision Repair: Industries Need Rx

Written by Juliet Penn

I recently attended the Fourth Annual World Health Care Congress in Washington, D.C. The draw was keynote speaker Michael Porter, a chaired professor at Harvard University and the leading authority on competitive strategy.

Porter has recently turned his attention to the quagmire that is health care in this country, an industry, like auto collision repair, where insurance companies drive decision-making. As I listened to him, I was struck by the similarities between health care and auto body repair. Many of the tenets that Porter recommends for “fixing” health care may also be applied to the auto body repair industry.

Health care in this country is broken – a point that everyone seems to agree upon. Americans currently spend $2 trillion on health care, and this is expected to increase to $4 trillion by 2015. This might be acceptable if the results were superb care, but analyses have shown that quality has been spotty at best.

Why is this occurring?

Porter said it is because competition is not working. As in the auto body repair industry, competition in health care is “not aligned with value for the patient [consumer],” Porter said at the World Health Care Congress. The reason is that “financial success for the actors in the system – the hospital, the health plan [insurance company] – have not been aligned with success for the patient.”

This, too, is the case in the collision repair industry. Competition in the collision repair industry, as in health care, occurs at the level of the insurance carrier’s claims department, not at the consumer level. If competition were operating where the value was created – at the consumer level – auto body repair shops would be competing against one another for consumers based on the quality of their work and their competitive points of difference. Instead, insurance carriers’ claims departments drive the market, forcing cost containment over quality – think alternative (non-OEM, used, reconditioned) parts, omitted procedures, caps on paint materials.

The losers: consumers

Porter terms this competition “Negative or Zero Sum Competition” – or, even more bluntly put, “Bad Competition.” He described Bad Competition in his address as such: “It is competition to divide value. It is competition to shift costs from one party to another. It is competition to exert bargaining power, to get a better price, to take the profit from one pocket and put it in another.”

Good Competition, on the other hand, increases value for the customer and improves the industry.

So, why in these two industries do consumers tolerate spotty quality at high cost?

I think, in part, it has to do with the lack of transparency. As in health care, auto body repair is opaque: most consumers don’t know much more about auto collision repair than that the paint matches. They have to trust their repairers to fix their cars properly.

For example, the vast majority of consumers don’t know that, in many cases, insurance carriers are putting limits on the repair procedures, demanding repairers meet an “alternative parts quota” – which includes the use of non-OEM crash parts – and they don’t understand the impact these decision have on the quality of the repair to their vehicles.

In fact, there is a crisis of trust in auto body repair that emanates directly from consumers’ lack of knowledge. Consumers don’t want to be “taken” and, because of their lack of knowledge in the area, they don’t know what “being taken” encompasses. As a result, they feel vulnerable.

Similarly, health care is suffering from a crisis of consumer trust, but in its case, consumer vulnerability emanates from lack of substantive information on a physician’s success rate with patients. In certain cases, this information might be the difference between life and death.

In both industries, this crisis of trust issue is exacerbated by provider choice limitations as dictated by insurance carriers whose priority is cost containment at the expense of quality.

So what is the answer?

Well, in part, it is consumer empowerment via greater transparency and information. In health care, as Porter recommends, it comes in the form of result studies – in-depth, multi-faceted analyses of providers’ success rates and the channeling of patients to the providers who have the most experience and success. In auto body repair, it is consumer education so that consumers can make informed decisions about auto body repair and their choice of repairers.

Another possible solution is increasing consumer choice by offering services free of the constraints of insurer intervention. We already see this occurring in health care in several big cities, such as New York, where some physicians are simply not accepting insurance anymore. For those patients who can afford it, it is a welcome change. The result: physicians can spend as much time as they need with each individual patient and, therefore, offer, in many cases, higher quality care.

In auto body repair, such a solution, coupled with consumer education, would free repairers to focus on quality over cost containment by, for example, following car manufacturers’ repair procedures so as not to degrade the value of the automobile. When insurers balked at paying a reasonable cost of repair, as would inevitably happen, consumers could either shame their insurers into paying for the repair (which would be to manufacturers’ standards), pay the difference in cost between the repair bill and the insurers’ estimate, or foot the entire bill themselves.

Such a strategy on the part of the collision repair industry would mean focusing on the long-term value rather than a short-term fix. Radical? Maybe. Good for consumers? Absolutely.

Juliet Penn is a marketing consultant and an adjunct professor in the Graduate Programs Division at West Virginia University's School of Business and Economics, where she teaches marketing strategy.