Question

Identify a common healthcare service or product that you think is well suited to being priced using a cost-plus strategy. Then, identify a service or product that is better suited to a value-based strategy. please explain and write 500 words.

Answer 1

Cost plus strategy

You can “name your own price” for a hotel room, but what if you could name your own price for a hospital stay? That is exactly what a growing number of employers are doing through their self-funded health plans. It’s called Cost Plus, and it is saving early adopting employers 25% or more of their healthcare spending.

You know that managed care networks negotiate agreements with hospital systems. The negotiations occasionally make headlines when they break down, but then they settle. The negotiated fees are often expressed as a discount off billed charges, sort of like wholesale vs. retail pricing. However, what you may not know is that although these discounts can be 50-60%, the actual prices are still two to ten times what Medicare pays for the same service—and Medicare may be the hospitals largest customer. What a deal!

That’s where Cost Plus comes in. Here’s how it works:

A self-funded employer drops its managed care network, hires a Cost Plus administrator, and amends its plan document to limit spending on hospital charges to a reasonable amount, like Medicare plus 20%. The Cost Plus plan has no in or out of network hospitals; in fact, it has no hospital network at all. It does include a physician and prescription only network, but that’s easy.

After a hospitalization, the employee gets a hospital bill, say $100,000, and the Cost Plus administrator pays Medicare plus 20%, say $25,000. Often the hospital accepts the payment as reasonable. About 20% of the time, the hospital “balance bills” the employee for the $75,000 difference. Now it gets interesting. The key to the success of the Cost Plus strategy is that the administrator then steps in on behalf of the employee. The administrators’ legal team explains to the hospital that the plan is limited to paying Medicare plus 20%, which given that the hospital accepts Medicare charges every day should be more than reasonable. The conversation might go something like this:

“But the patient signed pre-admission paperwork taking responsibility for the hospital charges,” says the hospital. “Were the actual charges listed on that paperwork? How can patients consent to prices they will never see until after discharge,” replies the administrator. In the end, knowing that the courts recognize a reasonable payment from an unreasonable charge, the hospital settles.

value based strategy

Healthcare

The time for value in healthcare is now. Value analysis has become an important discipline for healthcare providers and payers. Suppliers of innovative healthcare products, including medical devices, diagnostics, pharmaceuticals and healthcare IT companies, need to articulate the value of their solutions. Great tools for quantifying and selling value are essential.

Capture the Value of Innovative Solutions

With supplier costs representing 30-40% of overall healthcare provider expenses, providers and payers are sharpening their pencils. Successful healthcare suppliers are responding by providing better technology and solutions that improve value in healthcare. The best teams are in the sector to design, launch and sell their products and solutions. Using a quantified value proposition, sales teams are able to quickly deliver the business case for hospitals and other providers to improve patient care by adopting innovative products.

Develop Valuable Products in Healthcare

Better healthcare technology is no longer sufficient. Innovative products have to deliver value to providers and to the healthcare system. This has changed the new product process in a fundamental way. Quantifying healthcare value early in development helps product teams make better decisions to move a product through their R&D process. Setting value-based prices and communicating product value at launch are essential to driving rapid product uptake.

Sell Value in Healthcare Clearly and Effectively

Customer value in the hospitals provides a strong focal point for sales conversations in the hospital. By understanding value in healthcare, sales, clinical specialists and market access professionals are better able to translate new technology into a direct benefit for patients, providers and healthcare cost and profit centers. LeveragePoint’s cloud platform allows users to draw on repositories of the best content. Value propositions can be published in LeveragePoint in a way that is effective for sales but is also consistent with regulatory requirements and compliance. The result is faster product uptake and sales growth.

Adapt Quickly to Provider and Payer Conversations

Quantified Value Propositions are essential to making premium priced new products available for clinical and practical use. Too often, spreadsheets and the reliance on a few experts slows down the launch of innovative healthcare products. A cloud platform for value provides the leverage needed to mobilize sales. The flexibility allows teams to adapt rapidly to provide the content that works best in the field. Great value propositions are both agile as they are continuously improved and are compliant as they adhere to legal and regulatory process.