Managing with Courage, Pricing Makes the Difference
- Do not allow for a failure because prices are set too low.
- Have the courage to resist conventional wisdom when dramatic course correction is needed.
- Make necessary adjustments to business models with courage, confidence, and focus for the mission.
According to business success research of KPMG, the number one cause for business failures, is setting prices too low. In Western Michigan, a hospital sponsored health plan was financially failing. The plan had over 100,000 members, but was experiencing seven figure monthly losses. Management turnover was forced and a solution was needed quickly or defeat and closure were inevitable.
Calculations for medical inflation and correcting the present losses produced a face value adjustment in premium of over 20% to produce black ink. The initial reaction to the data left the Health Plan CEO, Terry Newmyer, and his team of decision makers hesitant due to the possibility of mass attrition if such an adjustment in pricing was administered.
Yet, the options for not repairing the losses, or even repairing just half the losses, left the leaders faced with certain failure. Thus, in consultation with Hospital CEO, Frank Sardone, the risk was taken with a thoughtful communication strategy.
- Upon introducing the very significant price increases, management found that the attrition was nominal and bottom line improvement was dramatic. Within weeks, the health plan went from gross failure to sustainable financial performance, all based on the courage to raise prices to a sustainable level.
- While this performance result was useful to saving the existence of this health plan, the American economy has a far greater problem with sustainability of escalating healthcare costs. The question of who is responsible for cost of care in America, still looms. But, it is apparent that each contributor to the costs, must first care for their own sustainability or they will not be around to serve in the healthcare model of the future.