The Risk: Pricing Services Defensibly and Strategically

March 15, 2019

It’s finally here.

The CMS rule that requires hospitals to publish their chargemasters online in a machine-readable format is in full swing. As expected, health systems are meeting the requirements in different ways and patients are, well… accessing the data every now and again, and not really making decisions with this new data. Yet. When they do, unfortunately, the data does not really help them compare prices nor estimate how much they may pay out of pocket.

There is no doubt that technology will catch up and enable patients this functionality. Helping the cause, CMS Administrator Seema Verma’s #wherestheprice call to the Twitterverse let patients know that if they cannot find a hospital’s pricing online, CMS will drive price transparency.

For now, the biggest risk hospitals face is negative publicity on pricing. While patients may not be acting on this information, the think-tanks, the consultants, the journalists, and the advocacy groups definitely are! They are not only accessing this data, but pulling out interesting – and often embarrassing – facts,  not anecdotes, about pricing. And the headlines are turning heads.

The question leaders should be thinking about is “if my prices were to show up in the media, would we be able to articulate a clear response about how and why we prices our services? Would we embrace the opportunity to discuss the factors that are considered, such as the cost to provide services?”

The question at hand is: does your health system have a well-defined approach to pricing?

Additionally, when your health system considers pricing changes, do you know the impact it will have on your net revenue? Your bottom line? Your patient volume? Your patients’ out of pocket expense? On your competitive position? Do you know how your price relates to your cost?

In short, is your pricing defensible? Is your pricing strategic? Are you confident in the impact pricing changes will have?

For most health systems, pricing is like the annual Analytics Olympics. After years of M&A, system conversions, and pricing consultants, charge masters can be overwhelming to manage. They are expansive (50,000 line items is not uncommon), convoluted and without reason. Intense analytics—meaning lots of time and focus— are needed to find services that are priced incorrectly or put your organization at risk for negative PR

Leaders find themselves asking, “How many charge codes are under-priced compared to negotiated rates? How much reimbursement are we losing because of under-pricing? Are we overpriced or under-priced compared to the market? If we change our charges, what will the financial impact be? We will exceed negotiated limits with our payers?”

With those 5 questions, we just easily generated hundreds of hours or work for a finance team – or thousands and thousands of dollars in consulting fees. And that doesn’t even consider adding the cost of services and modeling margin to the equation!

This is 2019… isn’t there an app for that?

With StrataJazz^® Strategic Pricing, you leverage your investment in accurate cost data by adding purpose-built strategic pricing algorithms and a powerful modeling engine. With this, you can quickly find prices that expose you to risk. In moments, you can identify where you’re losing reimbursement by pricing services below your negotiated rates, where you’re priced under your actual cost or way over your actual cost, and where your prices are out of line with the market. From there, you can model – in moments – what the impact would be if you changed your prices.

This quickly transforms the annual pricing reviewing from the Analytics Olympics to something that can be done as easily as paying your bills online. With this, price transparency becomes less of a looming PR risk and more a strategic tool to grow volume and net revenue.

For more information on creating true Strategic Pricing, check out this whitepaper.