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Pricing Transparency Comes to Healthcare

How provider organizations should think about pricing.

Nearly every meeting I’ve had with our clients’ executive teams in the past year has included the phrase “pricing transparency.” Everyone sees it coming but, but very few really know how to move forward.

It was with this in mind that I attended David Marlowe’s Healthcare Marketing and Physician Strategies Summit session on pricing transparency.

Marlowe reiterated that like so many trends in healthcare, our customers are driving us forward and healthcare organizations are fighting to catch up. Consider these stats:

  • Research indicates that 12-20% of consumers report “price shopping” in the past year, up from 6-10% in 2004/2005.
  • Younger consumers are more likely to shop, up to 25% of those under age 44.
  • Amongst shoppers, 40-50% indicate that price is a key decision factor.

Given the number of patients that are truly in play to be influenced as to where they receive services, this has become a significant part of the audience. Certainly too big to be ignored.

How Provider Organizations Should Proceed

Obviously, actually sharing pricing is a good place to start. Diagnostic imaging in particular seems to be an area where consumers research and select a provider because they know exactly what the test will cost.

You can also look to insurers for inspiration, as they have long led in this space. They have the data and understand the plans best. A new collaborative effort by Aetna, Assurant Health, Humana and UnitedHealthcare offers a consolidated view.

Some providers are deploying pricing engines of their own. Past efforts in this area typically shared charge master data, which is often so disconnected from what consumers actually pay it’s often counter-productive. Newer iterations go beyond this, like the personal expense calculator NorthShore LIJ developed.

It’s important to tote that not all services are equally influenced by price comparisons. Diagnostic Imaging is the top service consumers shop for, along with physician office care, lab services and dental care.

In contrast, few consumers are price shopping from the back of an ambulance – trauma care isn’t a price sensitive service.

The future of Pricing in Healthcare

Pricing transparency is the beginning of a strategy, not the end-game. If we walk through the evolution we’re likely to see, it looks like this:

  1. Pricing certainty – only player in the market able to answer the pricing question
  2. Pricing comparison – multiple providers offering or health plan allows comparison
  3. Pricing adaptation – pricing transparency leads to changing pricing strategies

As we move towards adaptation, pricing will either become a commodity pricing battle (he who becomes cheapest wins) or it becomes a strategic competitive tool.

I’ve been in this industry long enough to remember when marketing healthcare was very uncomfortable for many organizations. Over the years, it’s become a normal part of the business of healthcare.

Pricing, too, will need to go through this transition. We will need to understand that strategic pricing strategies like discriminatory pricing, discounts for pre-payment, set price service bundling, two-for one pricing, loss leader pricing strategies, introductory pricing to drive initial volumes, convenience pricing, and other strategies are acceptable in healthcare just like they are in other service industries.

Pricing Transparency Comes to Healthcare