Faced with declining reimbursement and the complexities of optimizing managed-care contracts, many of the nation's hospitals stand to benefit from re-evaluating their pricing strategies or developing new ones altogether.
Among the pricing models hospitals may want to consider are "niche pricing," "retail pricing" or "compassion pricing," all of which take into account the unique economic and demographic conditions affecting the service for which prices are being set.
Distinguishing between these pricing models and the circumstances under which it is appropriate to employ them will be the focus of a presentation at the Healthcare Financial Management Association's annual meeting.
The session's presenters are Susan Clark, senior manager with RSM McGladrey, a Minneapolis consulting firm, and Audra Melvin, assistant director of patient financial services at 383-bed Regional Medical Center at Memphis.
In their presentation, titled "Pricing Strategy Development and Implementation," set for 10: 30 a.m. to 12: 30 p.m. Tuesday, June 27, Clark and Melvin will offer attendees the opportunity to bring rationality back to pricing under constantly changing conditions.
Targeted at financial officers and managers, the presentation will help hospital decisionmakers understand how best to implement and monitor pricing strategies.
"You have to make decisions about being a price leader, a price follower, or to price within the middle of the pack," Clark says.
In their talk, Clark and Melvin will detail the factors to consider when developing a pricing strategy, including evaluation of the community's expectations, an assessment of how competitors in the market have priced their services, and the financial needs and goals of the organization itself.
Among the pricing models that will be covered in the presentation is "niche pricing."
Niche pricing generally applies to a service few if any local competitors can provide, Clark says. Among services that usually constitute a niche offering are emergency and specialty services such as transplant centers and highly specialized cancer treatment programs.
Under the model called "retail pricing," Clark says, services are priced according to what the market can bear. Retail pricing is most often applicable to mainstream medical services.
Yet another pricing model Clark and Melvin will describe is "compassion pricing," which entails pricing services below what the market can bear with the goal of building market share or providing essential medical services to the community.
One service that often fits under the compassion pricing umbrella is cardiac rehabilitation, which is not sufficiently covered by Medicare, Clark says. As a result, many community hospitals might elect to charge lower rates because the therapy is so important and money is coming out of pockets instead of government bank accounts.
In their presentation, Clark and Melvin will also emphasize that during price development strategizing, no department or service should be considered in isolation.