From Dollars to Sense: Strategic Pricing Key Challenges and Solutions
Of the various factors that impact your healthcare organization’s profitability, pricing is an often overlooked lever that you have control over.
Even those healthcare organizations that do address pricing sometimes undermine their strategic pricing strategies by failing to address lesser-of-charge clauses or skipping the charge description master (CDM) modeling process, which can wreak havoc on their bottom line. The price transparency mandate added another layer of complexity, as raising prices to eliminate lower reimbursement may have adverse effects.
To help you overcome this conundrum, let’s examine the challenges of strategic pricing, “lesser of” charges, the hidden impacts of denials, and how modeling can help you leverage every opportunity to generate net revenue.
Challenges of Strategic Pricing
Hospital CFOs are looking for ways to cut costs and strengthen margins. However, healthcare pricing is a complex puzzle that features multiple elements, many of which are often at odds with each other. Some of the strategic pricing roadblocks you will have to navigate include:
Data Complexity
The healthcare field is notorious for its intricate reimbursement models. Navigating the quagmire of multi-procedure bills, discounting, outliers, and “lesser of” charges requires nuance and expertise.
Governmental Oversight
The 2021 CMS mandate is only one of the latest signs of increasing governmental demand for transparency in healthcare pricing. However, ensuring your organization is compliant while maintaining adequate margins can be a chaotic balancing act.
Competitive Balance
You must offer competitive pricing to attract patients, especially as healthcare adopts more consumerism trends.
Navigating “Lesser of” Charges
Charges are the foundation of your hospital’s revenue, but they can often be misleading. It’s imperative that you discern and measure potential loss points. You should also look beyond individual line items and focus on the broader claim spectrum to maintain revenue integrity.
Performing a detailed analysis can spotlight areas where your hospital is unintentionally undercutting itself, setting prices lower than payer reimbursement rates. Once you identify these services, you can realign the associated charge codes and bypass the “lesser of” charges trap. Sometimes, the solution isn’t just about adjusting rates but rethinking your services altogether.
During this exercise, you might find that it’s not feasible to raise the rates of certain charges. In these cases, work with your managed care team to push new language during the next contract negotiation.
The Hidden Impacts of Denials
Pre-authorization hard denials spiked double digits in 2022, and overall denials are also up. This sharp rise can have a major impact on your pricing strategy.
Many organizations target price increases for charge sensitive services or services that are not frequently price shopped without considering denials. In turn, you could face an inflated revenue forecast that won’t materialize, leading to significant budgetary shortfalls.
A more pragmatic approach involves raising rates on services that don’t typically get denied, thereby actualizing forecasted revenue. Also, ensure that you have a process in place to identify denials at the CDM level. When you know what’s getting denied and what isn’t, you can stay one step ahead of potential revenue leaks.
Hospital Brands Have a Role in Strategic Pricing
Branding isn’t just for consumer goods — it also plays a critical role in your hospital’s strategic pricing efforts.
After all, patients have morphed into discerning consumers. The price transparency mandate has only accelerated this process, meaning patients can (and will) shop around. According to a VisitPay survey, 66% of patients consider costs before choosing where to receive treatment.
Your market positioning may heavily dictate your pricing strategy. For instance, if you position your organization as a value-driven entity, you’ll need to provide low-cost options in as many service areas as possible. Conversely, if your hospital is known for providing premium care, patients can expect to pay more.
You also need to assess the competitive landscape. But this isn’t just limited to direct competitors — outpatient free-standing services, alternative healthcare providers, and even telehealth platforms are all on patients’ radar when comparing care options. Therefore, you must account for these service providers when creating your pricing strategy.
Keep in mind that your services don’t necessarily need to be priced the same as the industry average. However, your pricing needs to seem rational to your target patient demographic.
Model It Anyway
In an industry where margins are razor-thin, proactivity is key. Don’t ignore annual contractual provisions that allow for CDM rate hikes. Even if an increase feels unnecessary, modeling neutral price changes will often reveal hidden revenue opportunities.
What seems like a minuscule adjustment on paper can translate to millions in revenue increases. Before dismissing any change, ensure you’ve explored all possible outcomes through modeling.
Assessing Effectiveness: The Midpoint Checkup
You’ve created a plan and put it in place. But how do you know if you are steering the revenue ship in the right direction? Here are three ways to measure the efficacy of your pricing strategy:
- Data Analysis & Adjustment: Quarterly comparisons of predicted against actual revenue can highlight areas of concern or potential opportunities
- Payer & Denial Analysis: A close examination of payer and denial trends provides insights into how your strategy is impacting your bottom line
- Competitive Benchmarking: This ongoing assessment allows for real-time adjustments, ensuring you consistently meet your financial goals
The bottom line is that you must stay dynamic and be willing to pivot if your strategic pricing plan fails to align with market conditions. The sooner you identify an issue, the more time you have to get the organization back on track.
Position Your Brand to Benefit from Strategic Pricing
“Lesser of” traps, soaring denial rates, and the emergence of consumerism in healthcare have created a perfect storm that demands a strategic pricing plan. However, it also means that creating this plan is more complex and tedious than ever, and it requires your brand to remain adaptable and stay informed of the latest developments in the healthcare landscape.
Get a Consultation
As a leader in strategic pricing and revenue cycle optimization, PMMC can support your organization as it navigates its pricing hurdles. Contact PMMC to learn more about our strategic pricing services.