Pricing Strategies. What’s Your Defense?

In today’s era of intense public scrutiny on medical costs, what’s your pricing strategy? Does it pass the test of fairness and accuracy, without sacrificing revenue objectives? Panacea’s CEO, Frederick Stodolak, provides his recommendations on where to start.

Over the decades, many hospitals were reimbursed or paid less than cost by federal and managed-care payers. These shortfalls were often subsidized through selective-price adjustments or cross-subsidization. After years of deploying such techniques, chargemaster pricing has become indefensible and hospital CFOs find themselves facing renewed, intense public price scrutiny — and with chargemasters that are difficult to explain to outside observers.

What’s a provider to do? How can you develop and pursue an appropriate and defensible pricing strategy, in your market, that achieves net revenue objectives?

Here are some places to start:

Know yourself. Can you document and defend each and every line item charge based on cost, market data, fee schedules or other benchmarks, or a hybrid thereof? Were some of your prices set as a multiple of two or three of the Medicare fee schedule, as with most hospitals nationwide, only to find that such charges are below commercial and managed care rates, causing lesser of charge lost revenue? How does your drug and supply charge-to-cost markup compare with other providers, and is your methodology a “best practice” approach? How important is transparency to your organization, and what steps are you willing to take to achieve appropriate transparency levels?

Know your market. The better you understand your market position, the competitive landscape (in terms of quality, cost, payer mix, price elasticity, etc.), and the relevant data, the greater your ability to make appropriate pricing decisions.

Get familiar with modeling. Develop an understanding of the most commonly used pricing methodologies and technology (Cost-based, Market-based or Hybrid Pricing) and follow through to create a consistent, defensible pricing strategy.

Create clear pricing policies and communications. These may vary somewhat, based on whether they are public-facing documentation of performance or internally focused discussions of future goals and guiding principles.

Conduct regular evaluations of pricing strategy. Health care markets and payer requirements are always in flux — be prepared to make appropriate adjustments. Do you have the technology and team in place to implement defensible prices and to update them each year as unit cost, market data, fee schedules, payer contract terms, case-mix and your strategic objectives change?

If you need help, consider Panacea’s Hospital Zero-Base Pricing Program. We provide a proven cost- and market-based strategy that delivers the pricing discipline the market demands, helps you achieve your net revenue objectives, and enables you to defend your pricing.