Cost Transparency: The Nets Real Threat to Prices and Brands

Even small and midsize businesses can make multiple price changes per day as market conditions and valuations shift. On the level of the individual, consider that when a shopper visits a site, a “cookie” is embedded on his computer. When that shopper returns to the site, the company can customize the prices he sees based on his previous buying behavior. Thanks to sites like Priceline.com and eBay, consumers have started to believe that the prices of even the best-known brands are open to negotiation. Priceline requires that buyers name the price they are willing to pay for airline tickets, home financing, cars, hotel rooms, and now even groceries.

Dynamic investment can play a critical role in helping these enterprises narrow the prevailing ‘digital divide’ and become truly competitive, market-speed organizations. Download the complete list of hospital price transparency questions and answers. Studies of insurance companies and states that have implemented transparency measures have found significant savings for consumers. Solutions to help service, network and technology providers accelerate growth. Businesses increasingly migrate their infrastructure to the public cloud environment – moving there with their servers, mass storage, CRM systems and business processes. IT system integration in the cloud may be another step in this journey.

This strategy balances the importance of covering healthcare services with the need for some market forces acting on controlling pricing and costs. John Santa from Consumer’s Union characterizes the U.S. healthcare market as one shrouded by obscurity around costs, prices, and quality. Santa suggests that even though the healthcare system depends on market forces to allocate care services, it falls short and places patients and consumers at a distinct disadvantage. However, opportunities to address the information asymmetry in the healthcare market are many.

Are you ready for Cost Transparency?

When consumers used P&G coupons or took advantage of retailers’ discounts, they inferred that the reduced prices still allowed the company to profit—in other words, that the lower prices were fair reflections of the company’s costs. In the absence of such deals, shoppers evidently believed the regular prices were excessive and turned to private labels instead. P&G has tried to repair the damage by using an everyday-low-price strategy on many of its well-known items and cutting back sharply on its coupons and trade allowances.

2 less per box than a national brand and taste little or no difference between the two, they could reasonably infer that the cost to produce the higher-priced brand was lower than they had assumed. Not surprisingly, consumer resistance to the higher prices forced manufacturers of major national brands to slash their prices and maintain them at lower levels. Yet even if the costs don’t seem allocated in an ideal way from the customer’s point of view, the customer still applauds the company’s willingness to share its production expenses. «Even if it isn’t exactly what the customer might envision, the customer appreciates the act of disclosure,» Mohan says.

Our challenge will be to find an effective way of presenting these choices in a transparent context that includes price and costs. Hospitals work with physicians who are not directly employed by the hospital and may set their own charges without informing the hospital. Additionally, hospitals are not required to include prices for ancillary services they do not provide themselves. As a result, the “shoppable” services list may not reflect additional sizable charges that could accrue, and 55 percent of hospitals nationwide are compliant with the Hospital Price Transparency requirements. In financial markets, participants usually seek information regarding theask price, trading volume, andbid priceof financial assets, goods, and services. It helps them know their real value, thereby influencing their actual demand and supply.

Price Transparency in Capital Markets

When P&G ended its promotions, customers abandoned them for private labels. Yet in the retail industry—and perhaps in other industries where customers may take for granted how much effort and money goes into producing a good—many firms may benefit greatly from sharing cost figures. Perhaps it makes the price a company charges seem more fair and https://globalcloudteam.com/ justifiable. Or perhaps it’s simply a matter of consumers appreciating a little raw honesty from the corporate world. For companies with goods and services that depend on high fixed costs, such as research and development and overhead, simply providing variable costs may not accurately reflect to consumers many of the other expenses incurred.

For manufacturers, cost transparency means consumers will be better able to infer a product’s manufacturing costs, making it much harder to impose large price premiums. We’re already seeing the benefits of cost transparency in the health insurance industry, from both a provider and consumer perspective. In short, IT cost transparency is tracking the total cost it requires to deliver and maintain the IT services that are provided to the business. By making all costs and expenses highly transparent through management software and systems, organizations are better able to ensure business growth is not impaired by the pressure of IT budgets.

In emergency settings the ambulance typically chooses the nearest facility, while in elective settings patients usually select a physician, whose admitting privileges determines hospital choice. Third, information about quality remains limited and conflicting, with the results and recommendations dependent on which Web site one chooses to search. Finally, there are often few hospital providers in a local market, limiting the scope of choice.

First, cost transparency severely impairs a seller’s ability to obtain high margins. Buell hopes the research findings get company executives thinking about finding ways to engage more openly with consumers in general as a potential way of piquing interest—and even boosting sales. «It would be a lot trickier for an industry that spends millions or even billions in developing a product to reveal its costs,» Buell says. Consumers seem to have varying levels of tolerance for different cost variables. Shoppers seem to appreciate the cost of raw materials, such as cotton, but certain expenses, like the cost of transportation, «seem like a waste of money to people,» John says—even though it is indeed a very real cost for the company.

• Enterprises turning to dynamic investment are becoming aligned as never before with their customers, markets and ever-evolving technology needs.
• Under the circumstances, more and more people are looking at stock trading as an undifferentiated service—in short, as a commodity.
• He provides an overview of some of these strategies, including a focus on comparative effectiveness research, which if performed by neutral, credible, and independent sources, could provide meaningful comparisons and enable fair cost analyses.
• But as we learned in a recent engagement for a global electronics company, price transparency is a double-edged sword.
• For the patient, it allows more informed decision-making and peace of mind.
• Sooner or later, she will come to know the price floor—the lowest price for which a company is willing to sell a product or service.

Research shows that comparative information on hospital quality can be presented in different ways “to ease the cognitive burden and highlight the meaning of important information” (Peters et al., 2007). Most current insurance benefit structures mute the effects of price in a normal market and do not provide the incentives for patients to choose lower-cost providers. Copayments, such as a uniform dollar amount per hospital day or per admission it cost transparency or per physician visit, provide no incentive whatsoever. Coinsurance, where the patient pays a percentage of the bill, such as 25 percent, dilutes the price difference substantially. Even large deductibles, which have the potential for providing undiluted incentives to choose providers on the basis of price, do not work if the patient expects to exceed the deductible, which will be the case for almost every inpatient hospital admission.

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Healthcare payers

Being able to decommission unnecessary hardware and software is a huge piece of cost transparency. The next element of IT cost transparency is business system correlation. What this means is that the numbers from the analysis and asset baseline must be understandable in order for action to occur.

Bundled payment arrangements have been championed for how they can reduce overall costs and improve coordination of care. But creating a defined episode of care could also allow patients and referring physicians to more easily compare total costs. Health insurance plans — as well as providers — should be aware of how consumers might respond to potential cost savings on standard charges and negotiated prices. That’s why insights into consumer behavior are critical to informing any successful strategy related to price transparency. Understanding consumer knowledge, attitudes and behaviors can help organizations design more effective pricing strategies and potentially become innovators in their markets. Healthcare consumers need timely, accurate and trusted information about the cost of care to make important healthcare decisions, and providers are well-positioned to fill this need.

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Transitioning to more value-based payment systems, such as bundled payments, could similarly realign physicians to engage in cost-saving behavior. State and federal regulators are also beginning to take action, a trend that will likely accelerate. Most hospitals are now required to publicly disclose the prices they charge. While it provides a measure of visibility into pricing for insurance companies, Medicare, and Medicaid, it doesn’t show what share the patient will ultimately pay.

Second, the quality of existing analyses is variable; for example, not all have adhered to the consensus recommendations of the U.S. Department of Health and Human Services Panel on Cost-Effectiveness in Health and Medicine (Gold et al., 1996; Russell et al., 1996; Siegel et al., 1996; Weinstein et al., 1996). Third, the pool of investigators who can conduct these analyses is currently limited.

When considering the effects of medical technology and procedures (“healthcare services”) on health outcomes and costs, and particularly when evaluating strategies for limiting spending or spending growth, there are several challenges. Some provide better value than others, but virtually all have positive net costs. Second, some healthcare services may not contribute to improved health, either because they are simply not effective or because they do not have beneficial effects if used in the wrong patients or at the wrong time. Suggesting that neither price transparency nor comparative effectiveness research are sufficient to optimize healthcare resource allocation, G. Scott Gazelle from the Institute for Technology Assessment at Massachusetts General Hospital contextualizes not only the call for more transparency but the value of cost-effectiveness analysis .

For example, when consumers need to have a problem addressed, they have more interest in what the episode of care will cost them than in the prices of individual services that make up the episode. But most price data available today is unit prices rather than price for episodes. Although hospital price transparency started off with the publication of “chargemasters,” insurers are increasingly providing averages of ranges of costs per admission for different types of patients. Should provider payment reform advance so that payment moves from fee-for-service to payment for episodes or for patients’ needs over a period of time, this would advance the effectiveness of price transparency.

This suggests that financial incentives are likely to be a necessary adjunct to readmission reporting. Margaret E. O’Kane of the NCQA concludes this session by discussing NCQA’s work over the past two decades in advancing an agenda of transparency. O’Kane cites some of the resulting improvements in quality, such as the percentage of children under age 2 years receiving the full complement of vaccinations jumping from 30 percent in 1997 to more than 80 percent in 2007. Even so, she states that the effect on cost trends has not been significant because the national transparency agenda has been naïve and limited.

Health Care Cost Transparency Board

Armed with better tools, such as visual analytic portals, the company will have the information it needs to make better strategic decisions and generate more value from its costing data. Visual analytics is an effective way to convey cost data to management and support strategic decision making. It starts with a sketch—also referred to as a “wireframe”—that maps out what an ideal portal or information dashboard might look like if it were designed to answer critical questions the organization has identified. Once the wireframes are finalized, improvement teams can build a rapid working prototype of the visual analytic portal with real data that can answer real questions.

TRANSPARENCY TO IMPROVE THE VALUE OF HOSPITAL CARE

Consumers know that they can often find lower prices for books, CDs, computers, and airfares by clicking on-line rather than by standing in line. But they can do much more than compare the prices of an Internet store against those of a traditional retailer. They can log on to price-comparison sites like Pricescan.com and shopping agents like Bottomdollar.com to readily compare the prices and features of more than 10,000 products available on the Web. And every time a customer takes advantage of a cheaper price from an on-line discounter like Buy.com or Onsale.com, she unlearns her long-held rules of thumb about how price and cost are related for the product she just purchased. This keeps buyers from seeing the cost of individual items in the bundle, and focuses them on benefits of the whole package. When Procter & Gamble resorted to sales promotions during the 1980s, customers concluded that the lower prices more fairly reflected the company’s costs.

An image of a barcode is all you need to be able to compare real-time prices for the same product at multiple retailers. Price transparency can also help a premium business filter out its most price-sensitive customers, the ones who are least loyal and more likely to churn. Anyone who negotiates knows that a big uncertainty factor is what the opponents are bidding. In B2B markets, many of which are information-poor, the next-best alternative is the great mystery.

Second, cost transparency turns products and services into commodities.

Second, cost transparency turns products and services into commodities. The real threat is what economists call cost transparency, a situation made possible by the abundance of free, easily obtained information on the Internet. All that information has a way of making a seller’s costs more transparent to buyers—in other words, it lets them see through those costs and determine whether they are in line with the prices being charged. But so can your company—with a powerful blend of innovative products and services, product bundling, and creative pricing. A firm may not want to share production costs if the cost structure provides a competitive advantage. In addition, contracts with suppliers may prevent making certain information public.