Blog Post

Pricing Transparency: Medicare Breakeven or Amazon Breakeven?

Amazon Price Transparency 650 X380 Web

The Amazon, Berkshire Hathaway, and JPMorgan Chase partnership to form a new company focused on healthcare services has left the industry piecing together what innovations the new group might introduce. While it is early and there are many trajectories this new organization could follow, the healthcare industry should expect a competitive pricing component to this partnership. Separately, the three companies are built on a deep understanding of the true costs associated with their offerings, as well as the pricing for—and the value delivered to the purchasers of—their goods and services.

How do these companies create a cost strategy with price transparency at its core? Jeff Wilke, CEO of Worldwide Consumer at Amazon, stated about the Whole Foods acquisition, “We’re determined to make healthy and organic food affordable to everyone. Everybody should be able to eat Whole Foods quality—we will lower prices without compromising Whole Foods Market’s long-standing commitment to the highest standards.”

That consumer-focused commitment/philosophy is coming to healthcare in one form or another. We must focus on creating an environment where success is based on delivering exceptional results that are measurable and meaningful while improving the processes and total cost for providing care. For decades, the mantra has been “Can we achieve a Medicare breakeven cost profile for this service?” We now need to ask ourselves “Can we also achieve an Amazon breakeven cost profile for this service?”

To answer both of these questions, we need to step back and develop a clear understanding of our operations, costs, and outcomes, as well as what is or is not working from a process perspective. This assessment needs to be performed strategically across our enterprise and address several critical matters:

  • How do we align our organization’s clinical capabilities, programs, and services with its market’s population health needs and rationalize any misalignment in these areas?
  • How can we understand what our services cost and which services generate positive margin for the organization?
  • What core processes need to be redesigned to improve patient flow, patient satisfaction, and resource utilization?
  • Can we develop and implement robust and sustainable processes to further standardize and reduce clinical variation in high-cost and high-volume procedures?
  • What type of staffing management infrastructure do we need to develop in order to provide optimal access to our programs and services while allowing us to staff to the future demand?

These are not easy to answer; however, the focused efforts of leadership to pose these questions, formulate the answers, and implement solutions create opportunities for future success. While healthcare delivery will not change overnight, it will continue to evolve at an ever-increasing pace given the financial implications. Looking forward, the health industry should shift its focus to what is coming and how it can proactively address changes in the market—hallmarks of Amazon’s pricing strategy.