3 Steps to a Strong Pricing Strategy

Michelle Yu

Strategic pricing doesn’t have to be a race to the bottom. Before I explain why, let me share a little context.

CMS’s recent requirement to post charges online has increased the need for hospitals and health systems to have a comprehensive pricing strategy. Many health systems I work with often think being more transparent—either through a digital technology or a call center—will solve the anticipated challenges and consumer confusion this new policy will inevitably create.

Michelle Yu

Michelle Yu

However, a robust pricing strategy must consider a much broader set of questions and solutions in order to drive a competitive advantage. Here are three key steps to ensure that your approach to strategic pricing is a strong one.

Know who you are

I often hear hospital and health system leaders make statements such as, “if we’re going to develop a pricing strategy, it means we’ll need to become the low-cost/low-price player in the market.” This fear of a race to the bottom is understandable, especially because health care pricing has been a mystery for so long. Some low-acuity services—imaging, for example—may require a cost structure with a low-cost option because of competition from freestanding competitors. For many services, however, health systems may continue to provide care at historical rates—as long as the value provided is clear and differentiated from the competition. To avoid prematurely lowering prices or aggressively entering the ambulatory space, provider organizations must first seek to understand what their current market identity is and what they want it to be in the future. Establishing a baseline, then asking consumers about their perceptions of your health system, is a great first step.

Incorporate pricing into strategy

Many hospitals and health systems view their approach to strategic pricing as an isolated initiative. But strategic pricing has to be wrapped into a broader consumer strategy and, ultimately, your broader enterprise strategy.

Some health systems have taken genuine steps to understand their consumer bases—seeking to understand not only which clinical services their patients need but also what drives their decision-making process when selecting a health care provider. These hospitals and health systems measure the trade-offs consumers make when having a range of clinical needs and use these data and insights to prioritize investments. These organizations discovered that while price is a primary driver for many patients’ low-acuity needs, there is also a host of low-to-high acuity services for which their consumers value access, brand, or physician referrals more than out-of-pocket costs.

Make interactions more meaningful

Some hospitals and health systems assume that if they provide price estimates through an online tool, their pricing challenges will be solved. Often, these organizations have scrambled to get an online price estimator tool launched in response to increasing price sensitivity. This hurried decision and execution happens, in part, because they have not taken the time to understand the level of price sensitivity in the market and the speed at which the market is changing. Or they are experiencing an increasing number of inquiries that their call center or office staff cannot handle alone. While an online tool is certainly an important component of a robust pricing strategy, it is insufficient in creating a competitive edge.

Online estimation tools are increasingly becoming another “front door” to the health system. During an individual’s online search, hospitals and health systems have a unique opportunity to deepen the consumer relationship while they have their consumers’ attention for an extended period of time. Providing value messaging, online scheduling, a live chat option, or all three are ways to make interactions with your consumers more meaningful. Ensuring a seamless experience with available flexible payment options is another example of how “searchers” may be converted into “patients.”

The need for a strong pricing strategy is a foregone conclusion. Hospitals and health systems have a window of opportunity now to craft a thoughtful approach to pricing that avoids common pitfalls and ultimately creates a competitive advantage in the market.

Michelle Yu is a partner at Optum.