Tag: pricing

Wait Till Health Care Tries Dynamic Pricing

Mar 12, 2024

By KIM BELLARD

Nice try, Wendy’s. During an earnings call last month, President and CEO Kirk Tanner outlined the company’s plan to try a new form of pricing: “Beginning as early as 2025, we will begin testing more enhanced features like dynamic pricing and day-part offerings along with AI-enabled menu changes and suggestive selling.”

None of the analysts on the call questioned the statement, but the backlash from the public was immediate — and quite negative. As Reuters described it: “the burger chain was scorched on social media sites.”

Less than two weeks later Wendy’s backtracked – err, “clarified” – the statement. “This was misconstrued in some media reports as an intent to raise prices when demand is highest at our restaurants,” a company blog post explained. “We have no plans to do that and would not raise prices when our customers are visiting us most.”

The company was even firmer in an email to CNN: “Wendy’s will not implement surge pricing, which is the practice of raising prices when demand is highest. This was not a change in plans. It was never our plan to raise prices when customers are visiting us the most.”

OK, then. Apology accepted.

At this point it is worth explaining a distinction between dynamic pricing and the more familiar surge pricing. As Omar H. Fares writes in The Conversation: “Although surge pricing and dynamic pricing are often used interchangeably, they have slightly different definitions. Dynamic pricing refers to any pricing model that allows prices to fluctuate, while surge pricing refers to prices that are adjusted upward.”

Uber and other ride sharing services are well known for their surge pricing, whereas airlines’ pricing is more dynamic, figuring out prices by seat by when purchased by who is purchasing, among other factors.

Wendy’s wouldn’t be the first company to use dynamic pricing and it won’t be the last. Drew Patterson, co-founder of restaurant dynamic pricing provider Juicer, told The Wall Street Journal that dozens of restaurant brands used his company’s software. The company’s website doesn’t publicize those brands, of course. Still, he emphasized: “You need to make it clear that prices go up and they go down.”

Dave & Busters is public about its pricing strategy. “We’re going to have a dynamic pricing model, so we have the right price at the right time to match the peak demand,” Dave & Buster’s CEO Chris Morris said during an investor presentation last year. On the other hand, Dine Brands (Applebee’s/IHOP) Chief Executive John Peyton said. “We don’t think it’s an appropriate tool to use for our guests at this time.”

The potential revenue benefits are obvious, but there are risks, as Wendy’s quickly found out. Mr. Fares says: “One of the biggest risks associated with dynamic pricing is the potential negative impact on customer perception and trust. If customers feel that prices are unfair or unpredictable, they may lose trust in the brand.”

What Wendy’s tried to announce is not ground-breaking. Catherine Rampell pointed this out in a Washington Post op-ed:

In other words, things will be cheaper when demand is low to draw in more customers when there’s otherwise idle capacity. Lots of restaurants do this, including other burger chains. It’s usually called “happy hour.” Or the “early-bird special.” Non-restaurants do it, too. Think the weekday matinee deals at your local movie theater or cheaper airfares on low-traffic travel days.

Indeed, The Wall Street Journal reported: “An estimated 61% of adults support variable pricing where a restaurant lowers or raises prices based on business, with younger consumers more in favor of the approach than older ones, according to an online survey of 1,000 people by the National Restaurant Association trade group.”

I wonder what the support would have been if the question had been about healthcare instead of restaurants.

Matthew’s health care tidbits: Health care pricing is cray-zee

May 16, 2023

Each time I send out the THCB Reader, our newsletter that summarizes the best of THCB (Sign up here!) I include a brief tidbits section. Then I had the brainwave to add them to the blog. They’re short and usually not too sweet! –Matthew Holt

It’s no secret that health care pricing has been out of whack for a very long time. This past week PBMs and pharma manufacturers were in front of congressional committees trying to defend the indefensible–how much drugs cost and why? Hospitals have been required to publish their fictional price lists (their chargemasters) for a few years now and more recently have been instructed to reveal what they actually get from health plans for specific procedures. You would assume that this would move overall pricing pressure down to the “best price” but that effect seems to not be happening. At least not yet. This week also did see the bankruptcy of PE-backed (or should that be PE-toppled) emergency staffing corporation Envision. But that was more because its business model depended on surprise billing and not being in insurer networks.

More typical is the recent dispute in which primary & urgent care chain Carbon Health went public with its fight against Elevance subsidiary Anthem Blue Cross in California. While it was in-network Carbon claims that it received less than Medicare rates from Anthem, while its large delivery system competitors were getting 2-4 times Medicare rates.

This sounds about right to me. Late last year I had two identical telemedicine visits for back pain with specialists. One in a private practice, another with a doctor from UCSF–my local academic medical center. Before you troll me, they were both offered to me last minute, I didn’t know which doctor would be available if I needed a procedure, and it’s always good to get a second opinion. Plus I had blown through my deductible by then so they were free to me!

My insurer paid $795 to UCSF and $219 to the private doctor. So for exactly the same thing one provider got more than 3&½ times what the other did.

There’s still lots of chatter about the growth of value-based care, but even within Medicare Advantage there’s lots of fee-for-service, and it even pops up in places it’s supposed to be dead-–like Geisinger. We are nearly 20 years on from the Bush Administration talking about transparency as the solution to health care costs yet the opacity and confusion around pricing is as bad as it’s ever been. Yes, we know some of the numbers, but the US is a long way from seeing the invisible hand working its magic and making the same thing cost the same amount across health care. The only place where that happens is under the neo-Stalinist central pricing of Medicare. Not that that seems to work well either.

There’ll be a couple more years while the “new” transparent plays out in the market, but don’t expect too much of a revolution. Then likely we’ll try something else.

It Cost What? Crowdsourcing Costs In An Evolving Healthcare System

Oct 12, 2014• 16

By JEANNE PINDER

Crowdsourcing is engaging a lot of news organizations today. While some journalists are nervous about crowdsourcing — “Yikes, we’d rather talk than listen, and what if they tell us something we don’t want to hear? Or something that we know isn’t true?” — we here at clearhealthcosts.com love crowdsourcing. We find, as journalists, that our communities are smart, energized, truthful and engaged, and happy to join hands in thinking, reporting and helping us make something that’s bigger than the sum of its parts. We learn great things by listening, so … now we’re going to to an experiment crowdsourcing coverage for our blog.

Our current project crowdsourcing health care prices in California, with KQED public radio in San Francisco and KPCC/Southern California public radio in Los Angeles, has been a great success, as was our previous project with WNYC public radio, and we’re looking forward to launching similar projects with other partners.Continue reading…

How Much Is My Colonoscopy Going to Cost? $600? $5,400?

Aug 27, 2014• 88

By JEANNE PINDER

How much does a colonoscopy cost? Well, that depends.

If you’re uninsured, this is a big question. We’ve learned that cash or self-pay prices can range from $600 to over $5,400, so it pays to ask.

If you’re insured, you may think it doesn’t matter. Routine, preventive screening colonoscopies are to be covered free with no co-insurance or co-payment under the Affordable Care Act.

However, we’re learning that with colonoscopies, as with mammograms, people are being asked to pay sometimes. It’s not clear to us in every case that they should pay, and since we don’t know all the details of these events, we can only offer some general thoughts. We’ve also heard from Medicare enrollees without supplemental Medicare policies that they think they’re responsible for 20 percent of the charged price — so 20 percent of $600 vs. 20 percent of $5,400 is a big deal.

If you’re on a high-deductible plan and the charge to you will be, say, $3,600, you can probably ask around and find a lower rate.

A thorough view of some colonoscopy billing issues is in this article in The New York Times by Libby Rosenthal, who has been covering health costs for the paper. We’ve heard also about in-network providers using out-of-network anesthesiologists, so it pays to pay attention.

Is Health Industry Price Inflation Really At a Historical Low?

Aug 2, 2013• 15

By Jeff Goldsmith

One hesitates to make too much of a single report, but the Altarum Institute’s July Report, “Health Care Price Growth at 20+ Year Low,” certainly commands one’s attention. According to Altarum’s analysis, the health sector pricing trend ran at a 1.0 percent annual rate in May 2013, lowest since January of 1990. What is striking about Altarum’s health care pricing trendline is that it has declined for the last three years in spite of an alleged economic recovery.

It also runs parallel to a subsiding utilization trend, suggesting that the health sector has been unable to offset reduced utilization with price increases. Since the beginning of the recession, pricing has subsided from double the rate of the GDP deflator to parity, and it has closely tracked the deflator with only two deviations for more than eight years. Clearly, something more than the recession is at work here.

These trendlines confirm what this observer sees from his contacts in multiple sectors of the health industry: a widespread and durable “top line flu”. The growth in enterprise revenue for most health providers and manufacturers has been static (e.g. very low single digits or actually declining) over the last two years. Most investor-owned hospitals, pharmaceutical companies, device manufacturers, and physician practices (pretty much everyone except the consultants and IT vendors) have reported both revenue stasis and earnings compression.

My economist friends point to rising consumer copayments as inhibiting price increases. The Kaiser Family Foundation has reported almost a quadrupling of the number of covered workers in high deductible health plans (from 5 percent to 19 percent) since the end of the recession. It is also possible that a disinflationary mindset has inhibited providers and suppliers from seeking outsized price increases to compensate for lost sales volume. For suppliers, the marked decline of “physician preference” marketing has also hurt both sales and margins.

Hospital pricing. Performance of hospital prices will provide more fodder for those concerned about hospital consolidation pushing prices up. On the one hand, overall hospital prices rose an annualized 1.8 percent for May 2013, fractionally higher than the consumer price index (CPI) at 1.4 percent. However, when one strips out the “administered price” portion (Medicaid and Medicare), hospital prices to privately insured patients rose 4.8 percent annualized in May, nearly five times rate of health prices as a whole. Altarum suggests that cost shifting might explain this significant disparity. However, even this increase to private patients was not enough to raise overall health costs significantly.

Government payment to hospitals has trended lower for multiple reasons. Many state Medicaid plans have cut hospital rates in the past several years to help balance state budgets. And in addition to the ACA’s mandated reductions in hospitals’ disproportionate share payments and DRG updates, the sequester took a significant further bite out of DRG payments during the winter.

Since most hospital contracts with private insurers are multi-year, it’s difficult to argue that compensating upward revisions in private health insurance contract rates would yet be reflected in national economic statistics. Moreover, not all hospitals are part of systems capable of exerting pricing power on private health plans. Have-not hospitals have had their prices constrained by payer contracts, compensating for the effect of leverage by market hegemons. We’ll have more evidence in a year to confirm or disconfirm the cost shifting/pricing power hypothesis.

There’s another indicator of a tougher hospital pricing environment. According to the Advisory Board’s Dan Diamond, hospital employment has actually contracted in one-quarter of the monthly jobs reports from the Bureau of Labor Statistics since January 2009, including a 6000 person force reduction in May, 2013. On balance, hospital executives would much rather raise rates than lay off staff, so the fact that the nearly unbroken decades-long expansion of hospital headcounts is faltering suggests a very difficult pricing environment for hospital services.