July 28, 2016

How HIT Vendors Price Their Solutions

Travis Good, MD

Co-founder & Chief Technology Officer

HIT vendors develop and offer services for a variety of applications, such as health records and e-prescribing, among others. Rising cost pressures affiliated with managed-care environments have been driving hospitals’ adoption of clinical and administrative IT systems since such adoption is expected to improve efficiency and lower costs. What is driving these costs though? How are HIT vendors pricing their technologies? Why does pricing seem so fluid in contrast to other industry models?

The power struggle between digital health vendors and enterprise customers is vastly changing due to a convergence of market, economic, and technological influences. No longer can vendors solely control how they sell and price. Now they must account for a new generation of customer that will evaluate vendor technologies by their ability to contribute value to the customer – measuring where, when, how much, and how well the technology is used. HIT vendors must be thinking of their applications as fluid platforms that permit customers to select among various technological components and pricing models.

This new value-based licensing model is being precipitated immensely by the CIO community, and in reply, HIT vendors have complied. The inclination to begin conversations on value-based pricing roots the central shift in power that is occurring, and is now moving towards the customer’s favor. The value and price of HIT solutions can be directly addressed to the business value, market value, and enterprise development cost contributions.

  • Business value – How the solution adds benefit to the customer’s direct cash production (through enabled products and services) must be taken into account. Can the customer easily quantify that value? Presently, most functions cannot be directly pinpointed to their business benefit, although upcoming process management tactics and supportive technologies will make a more tangible relation.
  • Market value – If the technology’s function is too far disconnected from profit generation to quantify a value, what is the market perspective of its worth based on the price of other viable options? Does the market value serve as an adequate replacement for value approximation?
  • Enterprise development cost – The enterprise cost to develop and maintain the solution itself must be heavily considered by comparing the total cost of internal development with the cost of outsourcing it.

In this new relationship where vendor and customer share mutual responsibility for the overall effective usage of solutions, vendors must account for new sovereignty on the customer side. Buyers are going to be very preoccupied assessing the value they think each vendor uniquely brings, what the market will have in store, and what the costs are to actually implement the technology. In an industry dominated by value-based pricing models, buyers can bargain with vendors to encourage more risk sharing that is directly involved with how extensively the technology is used; for example, a customer asking the vendor adjust their per-seat price dependent on level of usage.

Not only are prices influenced by these value-based models. These shifts also affect how and when customers pay for their solutions. Healthcare systems already see a significant move away from up-front license purchases and toward periodical payment installments. This trend meets demands for more constant, predictable expenses during periods of stricter limits on IT spend. Savvy vendors, such as Datica, will adjust pricing models to create a win-win relationship, where buyers can clearly see the value of solutions more directly reflected in their business processes, and vendors can then reduce their internal costs and realize more revenue from a recurring payment model.

Questions? Reach out to us [directly][mailto:hello@datica.com], [tweet us][https://twitter.com/daticahealth], or provide us your contact information. We’ll solve your problem so you can focus on your solution.