Is Strategic Pricing a Luxury or a Necessity for Hospitals Today?
Hospitals are operating in a world where they are being crushed by labor costs. I talk to CFOs daily that describe unsustainable labor models they have been forced into. As a result of this financial stressor, hospitals must scrutinize other costs, looking for savings. Hospitals must purchase sutures, oxygen, and other mission critical needs, but how can they to decide on other expenses: outsourcing, consulting, etc.? What is a necessity and what is a luxury? Why spend precious resources on hiring an expert solution for setting prices? Are internal resources sufficient to the task? Is there a financial return for these efforts?
Strategic pricing is the analysis of pricing decisions that align those prices with the goals of the hospital. The goals can be net revenue improvement, market position, among others. Please refer to my earlier blog post on strategic pricing partners to refresh yourself on the subtleties of strategic pricing HERE.
To get to the most important question first – does strategic pricing produce a return on investment? In the nineteen years that I have been working with hospitals developing pricing solutions, I have never seen a pricing set that did not produce a multiple ROI. This result includes year over year results. With the right partner strategic pricing can address strategic objectives while more than paying for the solution.
Some hospitals consider using internal resources to address pricing needs. While hospitals have incredibly talented teams, they lack the technology to accomplish the task. In some cases internal teams can do more harm than good. Without the ability to calculate the accurate impact of price changes, hospitals will either reduce net revenue or sub-optimize the pricing set. The safe course for hospitals is to limit themselves to simple selective price increases or across the board increases. This is not the way to improve net revenue.
With incredible financial pressures that hospitals, are under they should not miss the net revenue opportunities that strategic pricing can provide.
Seth Avery, J.D., CPA
President, Revenue Cycle Analytics
Centauri Health Solutions, Inc.