Price Transparency: How Do You Compare to Competition? And Who is Your Competition, Really?
I recently lived a strategic pricing case study. I wanted to share because it so perfectly describes the anxiety that many health system leaders are having. And because this is exactly what hospitals and health systems should expect.
A few weeks back, my husband and I both had to have MRIs. His was to rule out anything serious that could be causing his back pain. Mine was to try and understand 5 weeks of an unusual headache.
I’m a very loyal patient to my health system, because I believe in the importance of all my records being in one system. I chose, like always, to go to my health system. My husband is pretty loyal, too, mostly because I preach about the power of a single EHR, but thinking that his back pain was really just the same thing again, he price shopped.
He found out – over the phone – that his MRI at the free-standing MRI shop, only 3 blocks away from our health system, in equally as prime real estate, would be about $850, including the reading and a DVD with his images and results. His out of pocket would be $160 and he’d have the DVD within the hour.
Knowing our health system would be more and would take 1-2 weeks to schedule, he went to the MRI shop on the corner. Spent $160. Had a coffee. Picked up the CD and walked it over to the health system to give it to the orthopedic spine specialist. Thankfully, nothing serious. He’s doing PT. He went skiing last weekend.
I, on the other hand, stayed loyal. Without going into details on the charges, it was over 10 times more in charges and out of pocket expense. Thankfully, all clear of anything serious. Get a message, do yoga, take Advil and go on with life. But next time I need an MRI, I will walk the three blocks and save money.
Point is: for health care providers, this is the reality. Loyal patients, who have increasingly high out of pocket expenses, will shop. Maybe not for everything, but certain for commodity-like services.
The fear is that if prices are transparent and this information is more easy to access, then patients will decide on price alone. But it’s not so black and white. If your organization is particularly great in a certain area, publish that too – right beside your prices that are a little higher.
While some may always choose the lower cost, many (most) will want the best care for themselves or their family. If they can see quality scores, volume and experience, top physicians, patient testimonials, and meaningful accolades, they will take note. You don’t have to lower prices to win necessarily.
Moreover, if you want to or need to lower prices for your “front door” services such as MRIs, then do. But, do it with full information.
- Know the impact on your net revenue by payer if you lower prices.
- Know where you can possibly increase prices to make up the difference.
- Identify where you are pricing too low and adjust accordingly.
- Or feel confident that you’ll drive downstream volume through lowering entry services.
Point is… model, analyze, project.
Of course, this is hard work. Excel crashes. Consultants are expensive and usually only hired once a year for the annual pricing study.
The good news… Strata has developed an advanced Strategic Pricing module that enables providers to quickly run algorithms on their CDMs to compare to market competitors, to identify prices that are too high or too low compared to cost, and too high or too low compared to payer terms. From there, providers can model scenarios to know the impact on net revenue and margin.
Knowledge is power. For health systems and for patients. Use the federal transparency requirements as an opportunity to align your pricing and to grow volume by providing patients with the information they need to choose your health system.