The Price for Life, The Universe, and Everything

One of the hardest things to understand in healthcare is pricing. Look at any health service bill (or more appropriately “This is NOT a Bill”) that you receive. You will see a price, the discount, the allowed amount, fractionalization of the services you received, endless itemizations, and my personal favorite “Lunar Monday Adjustment” (JK). Pricing and billing in healthcare is effectively a master class in obfuscation. 

The Lunar Monday reference made me think of The Hitchhiker’s Guide to the Galaxy by Douglas Adams. In this wacky interstellar tale, multiple advanced intergalactic civilizations seek to find “The Answer to Life, The Universe, and Everything”. They turn to the “second most powerful” computer in the universe whose generative AI system requests 7 million years to compute The Answer. When the computer finally completes its near-eternal task, the AI system proudly spits out the long awaited answer . . . “42”. This sends the galactic elites into hysterics because they realize they have no idea what the question even was. 

I found this not only funny but also highly applicable to many of our interactions regarding pricing. Everyone talks a good game about Value Based Care (but they don’t value preventive care that reduces visits), their desire to “pay for performance” (but it’s only ever downside risk), and how eager everyone is to address “Social Determinants of Health” or “Health Equity and Inclusion” issues (but it proves much harder to actually find the budget to pay for these things). Even more ironic, many want the full Primary Health apparatus built to achieve the above but their consultants often guide them to traditional Fee For Service comparisons and compensation paradigms (“why is your cost per visit so high?). That’s like wanting the new age Tesla Roadster but comparing the cost / prices to the classic Honda Civic (“hey, they both have four wheels and an engine” – mmm – no).

In a market economy, price is an incredibly important signal describing the interactions of supply, demand, production, capital allocation, and related economic calculations to market participants. When there’s manipulation of the price, it sends the wrong signals to everyone downstream—suppliers, producers, allocaters, and purchasers. And this creates inefficiencies, misallocations, shortages, overages, and black markets (participants who choose to transact outside of the system). Price should be a function of the cost of inputs plus whatever the client values, which generates the profits companies use to reinvest in making their services even better. Price (and by extension profit) is the real signal amidst the market noise and the homing beacon for entrepreneurs to innovate. 

In healthcare, where prices are in essence administratively set by the high priests of medicine (see the many CPT exposé  articles here, here, and here), the price signal is highly distorted. This error is compounded by hordes of middlemen who add their own layering, by the mechanics of fee-for-service “slivering” (no one can ever put together the full price), and the complete decoupling of accountability via third party payment systems. So, “what’s The Price” is (aka “The Answer”) for High Quality Primary Care becomes a very interesting question. 

We try to help our clients think through this conundrum in the following way:

• What services do you want?  Do you want Primary Care only? Primary care plus mental health? Care navigation? The configurations will inform the basic inputs and functionality requested. 
• What service level do you want? This is a critical modifier of the services because waiting 60 seconds to have your question answered versus 2 hours requires a radically different level of staffing and therefore cost. Various issues around access, capacity, case loads, on call, and a myriad of other operational features factor into this. 
• What channels do you want care delivered in? Finally, how is the care going to be delivered? Virtual only? In-person only? Onsite? Nearsite? Microsite? Mobile? Or some hybrid combination of those? Again, the care channel is another key consideration for the service actually being delivered. 

This is just the beginning, because on the other side of the pricing calculation is the value that the client attributes to what is being offered, as signaled by the price they are willing to pay. Of course, “value” is always subjective, and different parties may have varying reasons to value the same services, service level, and care channels differently. What works for the goose definitely does not always work for the gander. So, in the circle of Price you have to balance the equation by what someone is willing to pay. 

• What price are you willing to pay for what you want? This is the ultimate question. Many times, ambition is larger than budget and things need to be scaled back. Other times, a bigger investment is needed to achieve specific results which pushes out other high priority items. The relative scale of value in general and what is valued specifically is constantly evolving, often at a quarterly pace or with evolving priorities. 

The above framework helps us work our way through what clients value, what services they actually want to provide and ultimately, what they’re willing to pay (given their circumstances, goals, philosophies and perspectives). You can arrive at your answer by fixing the price you’re willing to pay and then adjusting the services, service level, or delivery channel; or, you can go the other way by defining what you want to build and arriving at a price. In most cases, it is surprisingly difficult to provide “The Price” (The Answer) because you must deeply understand “The Product” (The Question) that you’re trying to deliver. Despite the challenges, we feel like we have finally developed a useful, iterative framework to help our partners arrive at the existential Price to Life, The Universe, and Everything.

And, for those who just have to know,  ”The Price” is $420.