Choice Architecture 2: The psychology of payer decision making

This second article on choice architecture introduces the various psychological aspects of how payers make decisions about new medicines. Article 1 on choice architecture introduced the model I use of a gated decision process (it is binary, one-way process that leads either to acceptance or gate-based rejection of a medicine).

But what is the payer thinking at each stage?

Common thinking would see the process as purely quantitative, as shown in article 1, where sharp-pencils prevail using health technology assessment and other factors. Affordability, commonly used by the pharmaceutical industry locates the decision to buy a medicine on a scale roughly from too expensive to too cheap and within that space, pharmaceutical companies offer prices subject to acceptance by the payer. Affordability may have a GDP component as higher GDP per capita countries can afford to pay more than lower GDP countries — this is one reason the industry resists importation of drugs from low income countries to high income countries by intermediaries — it destroys their pricing model and disrupts supply management assumptions. Canada which lower drug prices and the US with higher drug prices is an example involving broadly equally rich countries.

Decision making based on quantitative analysis alone can produce over confidence in the results of that analysis, indeed be misleading. We have learned this from a number of sources, including the high success rate of non-specialist superforecasters compared to the forecasts of experts. This tells us an awful lot, so we do need to understand what influences decisions. Experts often know the price of everything but the value of nothing, while the superforecasters know the value.

When there is a preference for purely quantitative analysis which may actually depart from what the real world conditions are saying, this is called decoupling, and could lead to decisions being preferred that flow from data, as a proxy for objectivity and can be used to discount or ignore criticism, e.g. lacking empirical basis.

We are all familiar with the obfuscation of management speak and which can act to conceal or suppress dissent based on other considerations. It is worth noting that satisficing is one way to lower the cognitive load of avoiding more information that would make the decision making more complex (or indeed ‘wicked’ in the sense of complex and possibly chaotic or fundamentally unresolvable).

If we look at the underlying logic of reference pricing, you’ll know that it is used to anchor quantitative models, but this becomes a possible source of error in that the anchoring heuristic limits the ability to interpret other pricing models. This type of international benchmarking works on the assumption that others might know better and bestows too much credibility to a basket of countries, the decision makers for which are similarly hopeful that others know better. Thinking this way is called the availability bias, in that it is easier to use available data (from other countries) than to think yourself. We also have confirmation bias as knowing what others have paid makes our own decisions easier to accept — i.e. misery loves company.

I should add that payers are influenced by hyperbolic discounting, which means they are more likely to understand an immediate gain over a longer term one; that means that gains within say the next 90 days are more meaningful than say a 5-year survival rate that has been fully costed. Business too is trapped by hyperbolic discounting as it lives on 90 day or quarterly reporting, which obviously drives out long term thinking. The effect is similar to the way we walk up stairs: if you look down at each step you will stumble and trip.

What this means for market access is that sometimes a bird in the hand is worth two in bush. Hyperbolic discounting, though, can be a trap for industry as a company may discount (the bird) rather than offer a more complex market access arrangement (the bush) because of short-term performance targets. By the same token, market access arrangements are often more complex to manage, and their costs could outweigh the benefits, which means that payers can become distracted by the offer of a discount, and defocus on value for money. But you decide next time you walk up stairs.

I’ve summarised some applicable behavioural heuristics applicable to the gated process introduced in article 1.

As you can see a few heuristics have broad applicability while some are more specific. But knowing which types of heuristics may be influencing decision making, is a productive analysis as you enhance your understanding of a payer’s perspective. And spending time thinking about what information is needed to address the receptiveness of that information will be time well spent and may help you overcome any negotiation barriers.

Now, if you are a payer reading this, you should be able to translate these psychological states into considerations as you work through information on a new medicine, and help you avoid falling into a trap of your own making.

Of course, if you selling to a payer, try a Red Team/Blue Team approach and have one of the teams model the payer. It would help payers to do the same thing, in effect to learn how a seller might be ‘gaming’ your decision process for their own reasons.

Putting heuristics to work in practice

Here’s a quick overview to put this into practice.

Incentives

Use incentives that payers (customers) will value. There is no point guessing what they will value. It might help to know if your own company incentives are actually conducive to achieving the desired results and whether they are potentially dysfunctional: there are well know examples where company sales targets fell foul of the Foreign Corrupt Practices Act for instance. It may be that what incentivises you does not incentivise your customer.

Norms

Use other countries with similar challenges to offer examples of good practice. This helps lower perception of risk as there is a high risk aversion to being first to do something. But a country that your customer uses in their reference basket has solved a highly salient problem for them, this can contextualise the benefit for the cost.

Defaults

Understand the ‘pre-set’ or starting position of payers as this is their “go with the flow” preferences (defaults). This could be scepticism, or an automatic ‘no’. Cultural factors also play in here in terms how commercial behaviours are exhibited. Also, know where lines get drawn. Pricing corridors are a crude tool for assessing affordability and do not really capture payer attitudes and price thresholds. Thinking this type of analysis is giving you ‘truth’ may create a false sense of the evidence.

Salience

Novelty needs to be linked to the payers’ experiences, otherwise they won’t recognise or value it. You should be very concerned with the language used to convey value. Many people may not recognise as novel what you think is the best thing since sliced bread. Keep in mind, too, that overarching regulations and political considerations contribute to salience so recognising when something is technical (salient amongst civil servants) is not the same as something being salient amongst the public (and therefore salient to law makers and politicians).

Priming

Choose influencing language carefully as it is possible to prime an immediate negative response as much as it is possible to prime longer term attentiveness. That means ensuring that your communication strategy is scrutinised (e.g. Red / Blue team, etc to drive out premature closure).

Affect

Pay attention to relevant emotions and what triggers these responses. Know when you are pushing at a closed door to avoid eliciting frustration: a key behavioural red flag is ‘irritation’. The gated process, see article 1, shows you what words are on these doors and can be seen as a user’s guide to irritating your customer.

Commitments

Payers decisions need to be broadly consistent with public promises, and healthcare system strategies. Creating circumstances that cause conflict or dissonance with these will fail. That’s why you need a whole system approach, no silos.

Ego

Payers need to know/feel that they are making the right decisions at a personal level (so they can be proud of their choices, for instance) — this includes perceptions of moral conduct and ethics. I’m sure you know the feeling. Public decision making is usually within a glass box, which involves high degrees of transparency and public scrutiny.

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