March 2015: Reference Pricing in the Walk-in Market – Walk-In Operators Need to Prepare

I grew up in an auto dealer family, and I remember the closely protected little gold NADA books that held car price data by year, model type, mileage, and other factors to derive a market price.  New cars had varying optional equipment such that the public would be challenged to decipher what they were paying for.  The public didn’t have access to relevant information, dealers owned their geographies, and there tended to be limited price shopping.  Fast forward 20 years.  Car buying services and online quotes for new and used vehicles are a click away.  Every buyer is armed with pricing, and if they are not, their credit source certainly is.  Dealers now compete on service and a quality experience, and scale through operational efficiencies.  Marketing and customer loyalty are absolutely critical.

The auto industry is instructive for what is likely to come in healthcare.  And walk-in clinic operators should pay attention.

Recently in healthcare there has been an increasing volume of discussion around “reference pricing”, “cost benchmarking”, “price transparency”, and other related terms and phrases surrounding what to charge whom for what services.  Depending on the perspective of the source, they are talking about different things in different contexts or for different end goals.  Cost to a patient (and/or employer) is revenue to a provider, and that expense is a medical claim loss expense for a payer.

A “reference price” is a subjective figure which a customer expects to pay, usually derived from a recently paid amount, a perceived price of a competitor, or some related influencer. In theory, reference pricing fuels competition, which in turn should drive down healthcare expenses for healthcare buyers.  A CalPERS / Anthem study on reference pricing has suggested that by sharing price information openly and educating patients, healthcare costs should decrease or at least stabilize.  There is some evidence this is occurring where (1) large price disparities in a local market area exist, (2) those services may be scheduled in advance, and (3) there are significant savings to be achieved (with corresponding net decrease of profits to providers).

Astute walk-in operators already know what is being charged locally for the same office visit level across the competition.  Prices sometimes vary widely, and “you get what you pay for” doesn’t always apply.  Walk-in operators will naturally develop an informal price strategy in the normal course of business, but often not in a structured and deliberate manner.  As pricing becomes more visible element you should be ready to respond to calls for transparency and have a price strategy to compete.