How I Chose My Prices

How I Chose My Prices

TRANSCRIPT:

Hello, Dr. Keith Smith with you – Surgery Center of Oklahoma. Thank you for joining me in this video blog series.

Prior to putting our prices online, my thoughts about pricing were quite flawed and I think have evolved and I’d like to share that with you. First of all, I understood that prices were signals and that was very appropriate. I think that prices are signals that connote scarcity, shortages or surpluses and they’re signals between buyers and sellers that are very important. I’ve understood that for quite some time.

But when I realized that something was really terribly wrong in healthcare, my first thought at the Surgery Center was that I need to find out what people are paying everywhere else and get those prices, find out what those prices are so that I’ll know how to beat them and I’ll make a better deal.

And then I thought, no, I need to do the work as the seller. I need to decide what my prices are and tell the buyers. Then I decided to basically open a website and tell everyone what these prices were. Today in healthcare, it doesn’t really work the way that I went through that. People are always asking what are the prices so I can compare, so I can beat them, rather than put their own prices out.

I think as I’ve thought through this over the years… and we’ve had our prices online now for over six years… I’ve come to the conclusion that it’s the obligation of the seller to provide and display prices to the buyers. It’s the obligation of the seller to do this. It’s not the obligation of the buyer to discover prices that are probably hidden. And in healthcare, most of the time they are. As a seller, if I say ‘here is what I am, here is what I do, and here is what I charge for it,’ then the buyer can very deliberately determine whether that represents a value or not. They can comparison shop. And they can do it without revealing anything or providing any commitment whatsoever to me, the seller. This is present in every industry in the U.S. but it is largely absent in healthcare. Fortunately it is a growing phenomenon and more and more people are realizing that it is incumbent upon the seller to provide prices.

If buyers provide prices like the government, they always get it wrong. Fortunately the government ultimately gets everything wrong. If they guess what my price should be, they’re either going to guess too low, which means I’m not going to provide the service, or they’re going to guess too high, which means resources are wasted.

Any attempt by anyone in a top-down central planning type of fashion to guess what the prices for services or products should be, is going to be wrong. Real prices emerge from competitive activity. The market clearing price where the buyer and the seller have each found their optimum space… the market-clearing price is revealed to us all through competitive activity. And it emerges from competitive activity. It is never imposed from top down.

This was a bit of a flaw in my thinking before we put the prices online. And now I’m convinced this is the only way that you can ever have rational pricing in anything – including healthcare. I wanted to share these thoughts with you. Thank you for joining us. We will see you next time.