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Historically, price has been the forgotten “P” of health care marketing – and a relatively minimal aspect of overall provider management. With the exception of bulk managed care negotiations (e.g. – per diem rates) and retail prices for a few totally elective services (such as laser eye surgery), price has played a very minimal role in the provider marketing mix. As a result, the industry has very little experience with the pro-active use of price as a marketing and business development strategy.

In recent years a number of factors have caused the beginnings of a change in the view of price as a key part of the overall marketing mix. These factors include:

· A continued growth in the number of consumers with no health insurance (though many of these individuals are employed).

· A steady increase in the number of individuals covered by Consumer Directed Health Plans (HSA’s) and high deductible plans – both of which put much more financial responsibility on the enrollee.

· Changes in healthcare technology that have increased the level of direct to consumer services (laser eye surgery, complementary medicine, fast CT scans, etc.).

· An increase in the level of “medical tourism” – consumers traveling overseas to well qualified facilities in Thailand, Singapore, India, etc. The primary motivator for this medical tourism is the cost – sometimes only 25% of the cost of the same service in the United States.

· Consumer research across the United States that shows that an average of 15% of consumers (with a range of 8% to 24%) have “price shopped” a health care service in the year prior to the survey. This level increases among younger adults, who are more likely to have no insurance or a high deductible plan.

The outcome of these various factors has been a steady (though not universal) increase in attention paid to the price side of “transparency”. A number of states now encourage or mandate the public posting of hospital prices, though in most cases these are charge master rates and thus have limited utility. A small but growing number of providers are giving consumers price related information, either via their web site or via telephone inquiry. Two of the best examples of this are Allegent Health in Omaha, NE and Dartmouth-Hitchcock in Lebanon, NH. A good example among foreign providers is Bumrangrad Hospital in Thailand.

A related outcome is that more providers are starting to look at price as a pro-active marketing and business development strategy rather than just a by-product of updates to the charge master or bulk negotiations for per diem rates with major managed care entities. A recent analysis of actual pricing strategies being used by providers shows the following:

· Comparative Pricing – Maintaining a price position relative to specific competitors.

· Discount Pricing – A percent off of the noted price for volume, cash paid on the spot, for being a member of an affinity group, etc.

· High End/Image Pricing – Charging a higher price to reinforce an exclusive image (Rolex watches, a high end dental practice).

· Incentive – Providing a lower price as an incentive to take certain actions (e.g. – a reduced price to use a DI Center at off hours).

· Introductory – A discount for the first X users of a specific service or program (e.g. – a discount for the first 50 users of a new bariatric surgery service in order to capture volume to get accredited).

· Loss Leader – A lower price on one item or service to attract consumers who might then purchase other goods or services (e.g. – a low price on teeth cleaning that might then lead to other work).

· Convenience – A higher price paid for convenience (e.g. – prices charges in the health products store/pharmacy in the hospital lobby vs. the chain store down the road).

· Market Share Capture – Using deep pockets to discount prices in a way that drives out competition and captures market share. Could be illegal if done in a predatory manner.

· Price Lining – The Chevrolet/Pontiac/Buick/ Oldsmobile/Cadillac approach. Might be seen in different levels of health club membership.

· Skim Pricing – Taking advantage of the fact that the provider has the only service of its kind in the market – until a competitor gets the same machine or service.

· Year-End Cafeteria Plan/Flex Plan – Using pre-tax cafeteria plan benefits before the year runs out and the dollars are lost. Providers frequently advertising in November and December for elective services to use these funds.

· Access Pricing – Paying $X for access to a boutique medical practice.

· Cash Only – A lower price for a service if payment is made at the time of service in cash (or check/credit card).

· Money Back Guarantee – Money back if service doesn’t work (e.g. – In-vitro fertilization). A variance – no charge for re-treatment if there are post-surgery complications.

· Barter – Yes, I said barter. Not seen all that often but has been used on occasion (e.g. – trade health services for electricity from a rural power company).

· Integrated/Bundled Pricing – Not really a pricing strategy as much as it is a pricing approach involving the bundling of all elements to create a single, easy to use price (e.g. – hospital, surgeon and anesthesiologist services for elective plastic surgery).

One of the potential implications of the advent of price as a more pro-active strategy among health care providers is the impact on the public perception of “quality”. Quality is currently being measured and communicated in a near vacuum when it comes to price information. But in virtually every sector outside of health care, value is made up of equation that combines price and perceived quality. If more and more consumers end up paying all or a significant portion of their health care costs out of pocket, will it impact their perception of quality (as it does for cars, hotels, refrigerators, etc.)? Is a CT scan conducted at a major university medical center (on the U.S. News & World Report Top Hospitals list) worth $400 more than at the freestanding center down the road when you are paying for it yourself?

So what should hospitals and other providers be doing now to develop a more pro-active position toward the use of price as a marketing strategy? Some recommendations include:

· Get familiar with transparency and price issues in the health care field at a national and local level.

· Get a handle on local market factors – Level of working uninsured; level of employers offering high deductible plans; the degree to which consumers are price shopping for health services, etc.

· Get a handle on internal factors – How many price inquiries are coming in, where are they going to and how are they being handled. Are there any services that are “ready” for pricing strategies (e.g. – more retail/elective in nature).

· Get a handle on what the competition is doing – and not just other hospitals in your market.

· Examine opportunities to develop a more organized, strategic approach to using price as a marketing tool – is there a service that is “ready for prime time” and could be a candidate for a more pro-active pricing approach? Is it time to develop an on-line price information tool?

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