Pricing is vital to hospital growth strategy. For decades, hospitals have consistently received price increases that outpace inflation.
But the end of price as a growth lever is rapidly approaching. Four market forces are eliminating hospitals’ prospects for pricing growth:
- Direct and implicit price cuts: The Affordable Care Act (ACA) and sequester are slashing hospital reimbursement rates year after year. But hospitals must also contend with stealth price cuts—pay-for-performance programs, bundled payments, and the rise of observation status.
- Limited offsets from coverage expansion: The slow rollout of health insurance exchanges and uncertain Medicaid expansion are chipping away at the anticipated upside of the ACA.
- Dilution of employer-sponsored coverage: Employer-sponsored coverage is no longer the norm. Instead, high-deductible health plans are increasingly common, and emerging public and private health insurance exchanges will continue to dilute employer-based coverage.
- Patient movement to low-cost sites of care: Hospitals have watched high-margin volumes shift to the outpatient arena for years. But new competitors are now threatening primary care, too. Disruptive innovators like Walgreens and Walmart will drive down prices as they move into the primary care market.