By Jay Eisenstock, Founder, JE Consulting
LinkedIn: Jay Eisenstock
Dynamic pricing is an increasingly common business strategy in which companies price goods and services based on demand, available inventory, or market conditions. For example, airline fees and hotel prices often increase during peak travel periods.
Dynamic pricing uses algorithms and data (for example, time of day, demand, capacity, or behavior) to change prices frequently instead of keeping them constant. The idea is to manage resources and revenue more efficiently.
Healthcare Examples
In healthcare, versions of dynamic, or more accurately, variable pricing appear in hospital billing, appointment fees, insurance premiums, and drug cost. Prices can shift based on patient behavior, service demand, or utilization patterns. Providers charge cancellation penalties to discourage no-shows, essentially using pricing to nudge patients to come to the appointment. Insurers often tweak premiums based on claims history, health data, or changes in the market, allowing them to offer coverage that’s more tailored to each person.
Insurers also use dynamic pricing to shape their provider networks. For instance, if certain specialties are underrepresented in a market, say, not enough pediatric cardiologists or orthopedic surgeons, insurers can offer higher reimbursement rates to attract those providers into their networks. Conversely, they might lower rates in oversaturated markets to control costs while still maintaining adequate coverage.
Potential Benefits to Providers and Insurers
Because healthcare pricing operates under significant regulation, governing everything from medical service fees and drug pricing to insurance rate increases, price flexibility is limited. Dynamic pricing offers a way to work effectively within regulatory frameworks by focusing on utilization and efficiency rather than circumventing controls.
Providers can use dynamic strategies to fill open appointment slots during slow periods or incentivize medication adherence, reducing complications and long-term costs. Insurers might leverage similar methods to steer patients toward cost-effective care options, such as urgent care instead of emergency departments, while promoting better overall resource management.
Potential Benefits to Patients
Cost is a major reason patients skip recommended medical tests, treatments, and follow-up appointments or fail to fill prescriptions and take medications as directed. Dynamic pricing could help alleviate this by providing targeted discounts or incentives at critical moments. A patient hesitant to complete an expensive preventive screening might receive a reduced rate during off-peak hours. Likewise, discounts for consistent prescription refills could encourage medication adherence, preventing more serious, costly complications over time.
Insurers have long used financial incentives to push patients toward preventive care, charging higher premiums to those who can’t show proof of smoking cessation, metabolic syndrome management, or completed colorectal cancer screenings.
Risks and Safeguards
Dynamic pricing in healthcare typically relies on complex algorithms, which can inadvertently create bias that harms certain groups. The biggest risks include price discrimination that targets vulnerable populations, reduced access for low-income patients who can’t afford surge pricing for care, and a lack of clarity about how prices are determined.
Effective safeguards should emphasize these priorities:
- Transparency in how prices are set and adjusted.
- Fairness audits to identify and correct algorithmic bias before it causes harm.
- Consumer protections to ensure dynamic pricing does not create new barriers to essential care.
Ultimately, dynamic pricing must balance efficiency and ethics. When designed responsibly, with clear rules and equitable intent, it can become a tool for improving care access, managing limited capacity, and aligning incentives across patients, providers, and insurers.