Why no-show fees won’t actually reduce your no-shows

Why no-show fees won’t actually reduce your no-shows
Overview

Healthcare providers are confronted with high no-show rates. In order to reduce no-shows they have introduced a no-show fee. However, studies show that charging a no-show fee may not decrease the no-show rates and even lead to an increase of no-shows.

No-shows are a vast problem with a significant financial impact. For instance, when we look at dental practices in Belgium, we see that they are confronted with no-shows rates of between 5 to 10%. When you take into account an average hourly rate of 100 to 200 EUR, the lost profits can easily be estimated at between 10 000 EUR to 40 000 EUR each year per full-time working dentist.

So a lot of organizations and practices in healthcare have introduced no-show fees which they charge to patients when they don’t show up. Or why not let patients pay their healthcare bills upfront? That’ll really motivate them to show up. Right?

Well, in terms of economics, paying the healthcare bill upfront would constitute a sunk cost, which is a cost that has already been incurred and cannot be recovered. When taking the decision to show up for the scheduled consultation (or not) with your healthcare provider, sunk costs are not taken into account. So whether or not the bill was paid upfront, it won’t motivate patients to show up for the appointment.

And although a sunk cost fallacy may be at play, there’s another reason why no-show fees won’t reduce your no-shows. According to a study of Gneezy & Rustichini[1], introducing a fine may even have an adverse impact, and counterintuitively increase the amount of unwanted (no-show) behaviour.

In that study, child day care centres were confronted by parents repeatedly picking up their toddlers too late. In order to motivate the parents to show up on time, the child day care centres introduced a fine.

What do you think happened? The same as everyone else including the researchers. Yet, what they saw is that the number of latecomers did not decrease at all. In fact, it even increased significantly! And perhaps even more important: when the fine was abolished, the number of latecomers the next four weeks did not decrease to the level of latecomers before introducing the fine. The damage was irreparable, at least within a relatively short period of time.

This goes straight into our intuition. So what could explain this? Gneezy & Rustichini put forward several explanations which can be interlinked.

The first explanation is based on the notion of incomplete contracts. Before introducing the fine, the parents were not sure about the consequences of their behaviour. When they would come too late too many times, perhaps the day care centres would terminate the contract. By introducing the fine, the parents had a reason to believe the fine was the worst thing that could happen. As the weeks after implementing the fine go by, it’s clear that parents are ‘testing’ the system by increasing the delays – still the same fine applies. Even after abolishing the fine, parents still have no reason to believe that anything worse than the fine could be imposed. So the unwanted behaviour is sustained. The damage the fine did appears to be irreparable or at least very hard to roll back.

Another possible explanation is based on the social norms theory. How the parents perceived the teachers at the child day care centre changed by introducing the fine. Before the fine, the parents may have seen the teachers as generous people, by taking care of their children even after closing time. So they felt a moral obligation vis-à-vis the teachers to be on time. Not getting there on time might have given the parents a feeling of guilt or shame. But when the fine was introduced, coming in late became a market transaction. Parents had the opportunity to buy time, and they considered the time of the teachers as a commodity. And as is the case with commodities, consumers buy as many as considered convenient. When abolishing the fine, the unwanted behaviour was sustained, for which Gneezy & Rustichini coin the social norm “once a commodity, always a commodity.”

Although Gneezy & Rustichini didn’t study the effect of no-show fees as such, it is clear that a no-show fee is a fine, at least from a psychological point of view.

So just as fines in general, no-show fees too may have adverse effects, leading to an increase of no-shows whereas it was meant to decrease no-shows. We shouldn’t focus on incentivizing or punishing desired resp. unwanted behaviour, especially not in a healthcare context. Instead, we should focus on creating inner believes and driving intrinsic motivation with patients.

 

Do you apply no-show fees in your day-to-day practice? What is your experience?

 

[1] U. GNEEZY, A. RUSTICHINI, “A fine is a price”, Journal of Legal Studies 2000, Vol. XXIX, 1-17.

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