By Anthony Vecchione
Is there an art to pricing occupational health services? If by art you mean a skill acquired through experience, study and observation, then the answer is a resounding yes! When it comes to pricing, studying the marketplace and observing competitors closely goes a long way toward teaching occupational health professionals how to select a pricing strategy that will help them compete and remain profitable and relevant in today’s changing healthcare universe. Occupational health experts say that to get pricing right you must start with the basics. Joseph Marty, manager of occupational health services at SharpRees-Stealy Medical Group in San Diego, CA, said the first thing you need to know is what it costs to provide a particular service.
“It’s shocking that a lot of people won’t be able to tell you that,” Mr. Marty said. “That’s one of the key points right up front, is to know your Cost-per-unit-of-service.” Rees-Stealy is a multispecialty medical group within an integrated healthcare delivery system that includes seven hospitals and two medical groups.
Forty-three percent of Rees-Stealy’s practice is comprised of workers’ compensation, 31 percent is employer-based services and 26 percent is private patients. There are six occupational health sites within Sharp Rees-Stealy clinics and 21 clinics throughout San Diego County. According to Mr. Marty, the medical group will log 110,000 occupational health patient visits this year.
Mr. Marty said that once you know what it’s costing you to provide a particular service, you could compare and analyze, for example, what a consumer would pay out of pocket or what the price would be for a consumer as an individual covered by private insurance.
In other words: “What would a private insurance company be charged if the service was not being provided as an employer-based service.” Knowing what the occupational health market will bear regarding pricing is an important piece of data, said
Mr. Marty. “We know this by sending out employer surveys with some of the questions on the survey reflecting employers perception of the level of our care, the level of our service, and the value they find in our pricing.” Mr. Marty said he also looks at what other providers charge for the services his organization provides and where they fall on the value scale. “To me, value is quality divided by cost,” said Mr. Marty, who separates quality into two areas: the quality of the actual care (or medical component) and the quality of the service.
For instance, one occupational health facility may charge $2 less for a drug screen but have a two-hour wait before patients are seen. In contrast, the clinic across the street might have a 10-minute wait but charges $2 more. The value to the employer, according to Mr. Marty, would be not having their employee sit in an office for two hours. “I want to get him in and out and that’s worth $2 to me. We’re not going to necessarily price ourselves at the same level of a lesser-value service or a lesser value of care.” Donna Lee Gardner, R.N., M.B.A., senior principal at Ryan Associates said that due to fierce competition before any pricing decisions are made, occupational health programs need to perform a competitive analysis to find out what other people are charging.
“The other component to this pricing issue is that in order to set a price, you really need to know what it costs you to do business,” Ms. Gardner said.
A cost analysis should include these components:
- administrative overhead
- profitability
- cost of electronic medical records (EMR)
- salary and benefits
“Today, EMR costs are quite high and really need to be included in your pricing,” Ms. Gardner said.
Occupational health professionals point out that it’s also important to understand the different entities involved in pricing. “You have injury management that is an insurance product paid by workers’ compensation insurance or directly by a self-insured. Many states regulate that so there is a fee schedule,” said Ms. Gardner. The challenge is determining if you are going to price straight by the fee schedule or add a profit component. Most programs add at least a 15 percent profit component to the fee schedule, said Ms. Gardner.
Then there are the employer-related services. They include exams, screenings, prior-to-hire as well as immunizations and flu shots. Prices for these are established according to what the market will bear, said Ms. Gardner. Before establishing a pricing strategy, occupational health programs should ask themselves the following:
- For the amount of money you charge, how do you validate what you are doing?
- How do you show employers that you are providing a better product than the guy next door who charges $3 less?
- How do you select prices for workers’ compensation and validate them if they are higher than the fee schedule?
- How do you marry your outcomes to their pricing so you can demonstrate value?
Mr. Marty said that after setting a price, he looks for better and more cost-effective ways to produce every service offered. “We’re constantly reworking workflows, looking for ways to increase our value and at the same time decrease our cost.” If you can produce a higher value at a lesser cost, Mr. Marty said, then you really have something for your market- place and, as a provider, will be able to broaden your profit margin. Mr. Marty stressed that he is constantly looking for efficiencies that will translate into cost-effectiveness.
“We do that by evaluating our workflows and looking at new tools and electronic reporting. We have a hybrid electronic medical records (EMR) [system] that we believe is of great value to our employers and to our carriers,” said Mr. Marty, adding that it offers a self-service portal that allows end users to look up any information on any particular patient.
To Discount Or Not To Discount
Offering discounts and embracing the loss leader pricing strategy is a common practice in occupational health.
For example, some providers may have a very inexpensive drug screen price, but many of their other services are priced equal to or higher than the market rate. Many occupational health systems have had success in attracting employers with this approach. However, not everyone thinks discounting is a good idea.
“If somebody doesn’t mind if their employees are sitting in a waiting room for two hours, then they may not want to go with our prices. But we are not going to lower our standards to have that kind of service,” said Mr. Marty. “If you want this value, it’s here for you. If value is not of interest to you, then that would be a hard client for us to sell to.” “I don’t believe in lost leaders,” said Ms. Gardner,” who suggested that occupational health professionals address the following questions:
- What does it take for best practice?
- Is their special training needed to perform the task?
- Do you need to upgrade your equipment to meet the standard for best practice? What does it cost for you to do this? [Time for each staff involved in the service and their salary for that time plus benefits, plus supplies and overhead.]
- What is the customary cost for the same service when offered by other programs in your market?
On the other hand, Steve Crawford, M.D., corporate medical director of Meridian Occupational Health and NAOHP board president, is a proponent of discounts.
“We discount to our preferred clients, to companies that are loyal to us and use us exclusively. If it’s a big company and we really want [their] business, we’ll try to discount a price based on that.”
Meridian, based in Eatontown, NJ, is a 100 percent workers’ compensation practice with six offices in Mon-mouth and Ocean Counties in New
Jersey. While Dr. Crawford stressed the importance of staying competitive when it comes to pricing, he also warned against pricing yourself out of the market.
Obstacles
Occupational health programs are facing more competition these days and because of that, experts say that they must be very careful when it comes to pricing strategies. Workers’ compensation, said Ms. Gardner, is not really the issue.
“Because you’re going to get paid either by the fee schedule, third party administrator or self-insured because they feel that the value-added benefit of your services is so great, they are willing to pay a little more on workers’ compensation.”
Ms. Gardner pointed out that it’s important for occupational health personnel to be appropriately competent to perform the services that are offered––like DOT pulmonary function testing––because they must be certified and that costs the company Money. “You have to show that the people who are doing the job are certified and competent and you have to show that your outcomes are excellent,” said Ms. Gardner.
The value that you bring to your client, said Ms. Gardner, is determined by how competent you are and how productive you are. The successful clinic, according to Ms. Gardner, can maintain a profit on an ongoing basis, provide incentives to their workers, and validate good quality to the community they serve.
