Pricing

Pricing is important. Prices set too low or too high will drag down profits. The trick is to set prices so that your organization captures profitable busi- ness and discourages unprofitable business. To maximize profits, marginal revenue should just equal marginal cost (assuming the product line is profit- able). To maximize other objectives, organizations should start with profit- maximizing prices.

Pricing is a continuing challenge for healthcare organizations for three reasons. First, many managers do not have a clear pricing strategy. They lack the necessary data to make good decisions and may be mispricing their prod- ucts or selling the wrong product lines. Second, many managers lack skills and experience in setting prices and negotiating contracts. Third, the pricing strategy that is best for the organization may not be the pricing strategy that certain departments or clinics prefer. Managers of these units may have incen- tives to price products too high or too low. In the absence of a clear strategy and good data, how prices are actually set will be up for grabs.

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