Novice’s guide to hospital pricing
HealthLeaders has a very good article today by Anthony Cirillo of Fast Forward Strategic Planning and Marketing Consulting, LLC that provides guidance to hospitals who are waking up to the reality of price transparency. Price transparency is coming, and the author suggests a few ways for hospitals to prepare. For those hospitals that may not pick up on the nuances behind Mr. Cirillo’s points, here is my blunter summary.
- Look at existing best practices. Some hospitals are ahead of others. Tellingly, of the two examples given, one is in Thailand
- “Align price with value.” In other words if you are going to charge a premium price make sure it doesn’t look like a ripoff. On the other hand if patients don’t have real alternatives go ahead and stick it to ’em
- “Develop price packages based on customization.” Offer a big broad set of high-end options and let customers subtract what they don’t want, like the post-partum pedicure. Guess what? Customers will trade down a little but still spend more than they would have otherwise. (Cadillac did something like this in the 80s when they were trying to push their crappy diesel engines to improve CAFE results. The diesel was standard but could be deleted in favor of a gasoline V8 as a ‘cost saving’ option. The idea was that the Cadillac buyer wouldn’t want to look cheap and would take the diesel. True enough but they also didn’t want to look stupid, smell bad, and put up with the noise either. These sorts of tricks can only be taken so far.)
- “Prepare to tell your price story.” That means figure out how not to back down when asked for discounts. A good place to look as an examples is Roche, which is not embarrassed by the high prices it charges for cancer drugs and believes there is room for more increases.
Good luck hospitals! It will take you awhile before you figure out how to place this game well.June 30, 2006