Pricing Strategies

Describe a pricing strategy at Kaiser Permanente for one of its services or products (e.g., a pharmaceutical drug or a medical device). Then, explain how costs would be taken into account when formulating that pricing strategy.
Unlocking The Mystery Of Health Care Pricing (2006). Unlocking the mystery of health care marketing. Retrieved from the worldwide web on 11/21/2012 at
For many Americans, the high-deductible health plan is a bitter bill to swallow. Such plans have grown in number since 2003, when President George W. Bush signed a law making them tax-free. Billed as the president’s prescription for health care’s ills, such plans force consumers to spend their own money on health care, so they’ll have an incentive to conserve.
But there’s a problem. Consumers can’t shop around for inexpensive health care unless price information is readily available, just like it is for everything else in the economy. “We know the price of everything we buy, but when we need something that’s really important, we’re clueless,” says Regina Herzlinger, a professor at Harvard Business School and a scholar at the Manhattan Institute.
Insurers are slowly responding to this need, but there have been a few complications. Both physicians and insurers profit from the current system in which pricing is so complicated that it is sometimes impossible to determine what a given procedure or office visit will cost.
“If you are an insurer that thinks you have good deals with providers, you don’t want your competitors to know what those deals are,” says Gary Claxton, director of the Health Care Marketplace Project at the Kaiser Family Foundation, a nonprofit research organization.
The status quo benefits physicians as well. If consumers don’t know what charge to expect when they go to the doctor’s office, they won’t complain when a simple, 15-minute office visit is billed as a 30-minute consultation.
“I would love to be in a business where I didn’t have to publish my prices,” says Allan Hubbard, the president’s economic policy adviser, who has been promoting consumer-directed health care. “Then guess what I would do? Charge higher prices. And do you think that goes on? Absolutely. It’s absolutely rampant, I guarantee you.”
Insurers are slowly testing the waters of price transparency, but the programs are often in their early stages and only available to a few customers. Last August, Aetna started a pilot program, primarily in Cincinnati, in which members can compare doctors’ prices for 25 common procedures.
Humana has doctor-by-doctor price information in Milwaukee, and will start expanding the data beginning in 2006. WellPoint , which owns all the for-profit BlueCross BlueShield plans, offers customers in its high-deductible Lumenos plans price information for two procedures and hopes to expand to cover the ten most common doctor charges.
Not all insurers offer detailed price information. The BlueCross BlueShield Association, a coalition that includes many of the independent BlueCross providers, just announced a new price-transparency initiative today, but doctor-specific prices weren’t part of the plan. UnitedHealth gives physicians a star if they meet certain quality requirements, and another star if they achieve cost-efficiency targets. Even this limited rating system angered physicians when it was rolled out in St. Louis last year.
Dr. Ravi Johar, president of the St. Louis Metropolitan Medical Society, says UnitedHealth’s quality information was insufficient, so the rating system judged many doctors on price alone. “If you’re going to put price information out there, you have to put quality information out there as well.”
Cheaper doctors, after all, could end up costing more. If a physician charges less but requires three visits to get the job done, the overall cost will be high. Hubbard, however, is unconvinced by that argument. “If you have a leaking roof, there are some roofers who can fix it in one visit and others will take three visits,” Hubbard says. “We have this challenge in the rest of the economy and the important thing is to provide as much information as possible so people can make decisions.”
There’s another problem: Consumers buy health care in bundles, not à la carte. It’s nice to know that a doctor charges $61.43 for an office visit, but the actual cost could vary widely, depending on the services performed. Few consumers know exactly what treatments to expect when they make a doctor’s appointment.
That’s one reason why Dr. Jeffrey Kang, chief medical officer for Cigna‘s health insurance division, says his firm has no plans to provide specific price information for individual physicians. “The answer is ‘no,’ because it’s not meaningful,” he says. The company does highlight some specialists who meet certain quality and cost-efficiency targets. Kang says this information is more useful for consumers. “People want information that’s quick, easy and digestible.”
But supporters of high-deductible plans say any information is a good start. “A public airing of charges will induce competition,” says Dr. Scott Atlas, a professor at Stanford University Medical School and a fellow at the Hoover Institution. “You can’t have competition if it’s a secret what things cost.”