The recent increase in national insurance contributions presents a significant financial challenge for UK healthcare providers. To mitigate this cost impact, healthcare businesses can move towards a more sophisticated approach to pricing. Traditionally, pricing in healthcare has been set using a cost-plus model or influenced by perceived competitive pressures, often underestimating patient willingness to pay. By aligning pricing strategies with the value delivered, providers can enhance profitability without reducing service quality. At Pearson Ham Group we leverage pricing as a strategic tool can drive profit growth of 2-5% as a percentage of revenue while fostering innovation in service delivery.
Situation and Challenges
Healthcare providers in the UK are facing an increase in operational costs due to rising national insurance contributions. This additional financial burden affects profit margins and puts pressure on businesses that are already dealing with high overheads, skilled labour shortages, and increasing patient expectations.
The impact of this cost increase is particularly severe in healthcare for several reasons:
- Labour-Intensive Industry: A significant portion of a healthcare provider’s expenses is dedicated to wages, meaning that any increase in national insurance has a disproportionate effect on overall costs.
- Perceived Price Sensitivity: Many providers assume that raising prices will drive patients to competitors or deter them from seeking care, leading to pricing strategies that err on the side of caution.
Given these challenges, healthcare businesses must find innovative ways to offset rising costs, and pricing presents a powerful but underutilised tool to achieve this.
How Pricing Can Help
A more sophisticated approach to pricing can help healthcare providers navigate the increased cost of national insurance while maintaining patient trust and business sustainability. Several key aspects must be reconsidered:
1. Healthcare Services Are Often Underpriced Relative to Patient Willingness to Pay
Many providers set prices based on cost-plus calculations rather than patient-perceived value. However, healthcare decisions are often driven by trust, quality, and convenience rather than price alone. Patients are willing to pay a premium for high-quality care, particularly in specialist or urgent services. By shifting towards value-based pricing, providers can capture a fairer share of the value they create.
2. Competitive Pricing Pressures Are Often Overestimated
Unlike retail or commodity services, where consumers actively compare prices, patients prioritise relationships, trust, and convenience. Price plays a secondary role in decision-making, particularly in specialised or urgent care services. Healthcare providers should focus on differentiation and patient experience rather than purely competing on price.
3. Reevaluating Cost-Plus Pricing and Aligning Closer to Patient Value
Many clinics set prices based on incomplete cost allocation, which does not accurately reflect the true value of the service provided. Instead of a simplistic cost-plus approach, pricing should be structured around the problem being solved for the patient.
This could include:
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- Charging for treatment programmes for a condition rather than focusing on individual procedures. The patient’s problem is to get the symptoms treated not to wonder if a particular cost element was required to achieve it. Focus on solving the patient’s problem and their understanding of value received will increase
- Consider how you can become a greater part of the patients’ health journey. Through their life time a patient will be moving through phases of 1. Preventative Care; 2. Diagnostics; 3. Treatment; 4. Rehabilitation. Many healthcare providers find that they are actually already participating in some phases reacting to the patients’ impulses. Healthcare providers likely know the patient needs as well or better than their patients. Preventative healthcare subscription programmes is one way both achieve better health outcomes and drive improved commercial performance
- Are there patients segments that value different levels of service? Naturally, the clinical treatment should not be compromised. However, the services around the clinical experience could and should be varied to target the needs of different patient segments. Transportation to and from the clinic could be provided. Having a single or shared room post-surgery could be a value driver. Rehabilitation care could be included or not.
By rethinking pricing models, healthcare businesses can both improve the clinical outcomes for more patients and drive better commercial performance.
Benefits of Using the Pricing Lever
By adopting a more strategic approach to pricing, healthcare businesses can unlock significant financial and operational benefits:
- Revenue and Profit Growth: Even modest pricing adjustments can result in profit improvements of 2-5% as a percentage of revenue, offsetting increased costs without increasing patient volumes.
- Encouraging Innovation in Service Delivery: Higher margins create room for investment in better patient experiences, new technologies, and staff development.
- Improved Patient Satisfaction: Pricing that reflects quality and outcomes rather than just cost encourages a better perception of value among patients.
- Sustainability: A well-structured pricing model ensures financial stability, allowing providers to continue offering high-quality care without cost-cutting measures that may compromise patient outcomes.
The increase in national insurance presents a financial challenge for UK healthcare providers, but it also offers an opportunity to reassess pricing strategies. By moving away from cost-plus models and aligning pricing with patient-perceived value, businesses can enhance profitability without sacrificing patient trust. Thoughtful pricing strategies can drive sustainable revenue growth, ensure financial resilience, and allow for continued investment in high-quality patient care. In an industry where the pricing lever is often over-looked, now is the time for healthcare providers to leverage pricing as a strategic tool for long-term success.
For more insights on the benefits of working with an experienced pricing consultant or partner, get in touch.
