Hospital Pricing Transparency a Marketing Game Changer

While hospital and health system marketers have traditionally been charged chiefly with touting the qualities of their healthcare services, the exposure of pricing data adds a level of complexity to the marketing mix.

Price comparison has been a top priority for consumers since the dawn of commerce, but it's something I was never particularly focused on until I started receiving daily emails from social spending sites like Groupon and LivingSocial.

Transparency has made me realize that for some things, such as haircuts and shoes, I'm willing to pay a premium in order to get exactly what I want when I want it. For other purchases, such as manicures and cupcakes, I'm willing to wait around for a deal to pop up. At the end of the day a cupcake is a cupcake.

I couldn't help but draw a comparison between consumer social spending and the hubbub revolving around the mandated hospital price transparency that was enacted earlier this month. Suddenly, instead of merely having to produce the best cupcake, er, healthcare, hospitals will have to compete based on price, too.

Price comparison panic
On May 8 the federal government for the first time released the "rate card" detailing the full price hospitals charge before insurance companies apply discounts for more than 100 of the most common services and procedures.

The "sticker price" data comes from claims filed with the Centers for Medicare & Medicaid Services in 2011, including 163,065 separate charges from 3,337 hospitals in 306 metropolitan areas.

And though hospitals have long been required to share this data with CMS, hospital leaders, as Forbes so aptly puts it, "have traditionally guarded this information from the public as carefully as the launch codes required to start a nuclear holocaust."

Now that the sticker prices are freely available, it's clear why hospitals wanted to lock up the information and throw away the key. Nobody wanted the distinction of having the highest billing rates in the nation. Sorry, Bayonne Medical Center. You're it.

There are vast price variations within states, counties, and even cities. This realization has caused an outcry among the public and media, prompting The Huffington Post website to create a comparative graphic and The Washington Post to build a helpful comparative tool that allows you to contrast hospitals by state.

The release of the data creates a unique problem for marketers as any promotions or even public acknowledgement of pricing is uncharted territory. While marketers have traditionally been charged chiefly with touting the qualities of their services, the exposure of pricing data adds a whole new dimension to the mix.

Miami market case study
Already, the Miami, FL healthcare market is creating keen interest in how hospitals are reacting to the release of prices.

The CEO of Miami Beach's Mount Sinai Medical Center, Steve Sonenreich, is upping the ante. He made a public pledge on a local radio show to divulge the contractual rates the hospital pays private insurers for diagnoses and treatments, according to the Miami Herald.

"We will post our prices relative to Blue Cross and Aetna, our contractual prices, and we'll challenge Baptist and the other systems in the community to do the same,'' Sonenreich said in the radio interview.

Seven-hospital system Baptist Health South Florida CEO Brian Keeley was also in the radio studio for an interview and, while he declined to accept Sonenreich's challenge for price transparency, he acknowledged "That's where the whole industry is going, undoubtedly."

If Mount Sinai follows through on Sonenreich's promise, it will likely create a positive perception among the public when it comes to price transparency—something that will only grow in importance as healthcare reform changes the way consumers pay for insurance coverage and prices become a bigger factor in patient decisions.

"We're moving more from co-pays to co-insurance, which means that instead of paying a dollar amount for an MRI, say $100 out-of-pocket, now they're moving it toward a percentage of the price, so you might be paying 20 percent,'' Steven Ullmann, a professor of health management and policy at the University of Miami, told the Herald. "So 20 percent of a $1,000 MRI is going to be really different in terms of out-of-pocket costs versus a $3,000 MRI.''

And once the internal panic over transparent pricing course corrects, I suspect many organizations will ultimately offer the same services and procedures for a similar price.

And, when that occurs, marketers need to be sure consumers have a clear reason to choose their organization over all the other cupcakes… I mean hospitals.