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Strategic pricing: Not a one-size-fits-all strategy

By Jacob Galante

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Jacob Galante

Jacob Galante

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The recent CMS final rule states providers must post their “standard charges” online as of Jan. 1, 2019. That makes pricing top-of-mind and an angst-ridden topic for many health care leaders. 

Having worked with many provider organizations on their pricing strategy, executives often ask me these questions. What level of exposure or risk am I going to assume? Am I opening a can of worms? What backlash is this going to cause?

Without a doubt, posting charges will add to consumer confusion around health care pricing. Charges versus contracted rates versus out-of-pocket costs all start to blur when trying to answer what it’s going to cost.

Taking the right approach to pricing creates a competitive advantage. As we move into the new year, providers must consider a set of critical factors and questions.

What do we mean by "strategic pricing"?

Price transparency is essentially posting prices digitally, or having a technology platform for estimating prices. But strategic pricing requires a comprehensive and cohesive understanding of several key factors. A few rise to the top, and each is specific to the organization and unique within each market.

Reimbursement position: Charges are important. Yet it’s critical to understand how your reimbursement stacks up against your core competitors. This is particularly true for highly shopped services in the outpatient arena. Contracted rates dictate commercial net revenue. But consumers will ultimately bear the financial burden and responsibility.

Cost structures at each site of service: Ensure you are performing the right services in the right care setting. And make sure they’re under cost structures that allow you to effectively compete with disruptors in the ambulatory space. Many of these disruptors are catalyzing markets to move services out of hospitals and into retail environments.

Current state of activation: Understanding how your local consumers think, behave and purchase healthcare services will allow you to craft a consumer-centric pricing strategy that’s right for your market. Catering to consumer preference simultaneously creates stickiness and builds loyalty, allowing for downstream revenue capture and an increase in share of wallet.

Financial experience: Recognize where your organization falls on the financial experience maturity curve. Consumers want on-demand, personalized out-of-pocket estimates, flexible payment options, care navigators or concierges, etc. The patient financial experience delta within a given market tends to be relatively large. Understanding where you sit on this curve plays an important role in creating concrete value messaging and implementing an effective overall strategy.

Key questions to ask when thinking about strategic pricing

  1. Are you losing volume in particular areas? Could it be due to your pricing? 
  2. How often and through what channels are consumers shopping in your market?
  3. What drives consumer purchasing behavior in your market: price, brand, convenient locations and/or access?
  4. What is your overarching value message to key stakeholders? These include consumers, payers, employers and physicians.
  5. How does pricing fit into your overall enterprise strategy?

Craft the right pricing strategy that accounts for stakeholder sensitivities and market dynamics, while catering to consumer preferences. This will keep your organization relevant and poised for growth as the paradigm shift within health care accelerates.

If you have questions about pricing strategy for your organization, please reach out. We’d love to hear from you.