Healthcare Market Entry Case: Worked Pricing Example
| Case type | Market entry |
|---|---|
| Industry | Healthcare / Technology |
| Difficulty | Medium |
| Firm style | McKinsey |
What does this healthcare market entry case ask?
Your client is MedSuite Technologies, a healthcare IT startup that has developed a new electronic health records (EHR) platform for hospitals. They need to set the right price to maximize revenue in their first year of launch. How should they price the product?
MedSuite has developed a cloud-based EHR system that integrates patient records, billing, and scheduling into one platform. The product is ready for market. They're targeting US hospitals and need to determine the optimal annual subscription price. The market has approximately 5,800 hospitals of varying sizes, and willingness to pay differs significantly by hospital size.
Which exhibits set the pricing decision?
Exhibit 1
US Hospital Count by Size and Maximum Willingness to Pay
US hospital count by size (large/medium/small) at each maximum willingness-to-pay price tier. Counts show hospitals willing to purchase at each price point; hospitals outside these tiers would not buy at any listed price.
Show the data behind Exhibit 1
| Annual Price | Large (500+ beds) | Medium (200-499) | Small (<200) | Total Hospitals |
|---|---|---|---|---|
| $150K | 800 | 1,400 | 2,200 | 4,400 |
| $200K | 800 | 1,400 | 800 | 3,000 |
| $275K | 800 | 900 | 0 | 1,700 |
| $350K | 800 | 0 | 0 | 800 |
| $450K | 400 | 0 | 0 | 400 |
Exhibit 2
| Vendor | Annual Price | Cloud-Based | Integrated Billing | Scheduling | Market Share |
|---|---|---|---|---|---|
| Epic Systems | $500K+ | Hybrid | Yes | Yes | 35% |
| Cerner | $350-450K | Hybrid | Yes | Yes | 25% |
| Meditech | $150-250K | Yes | Partial | No | 15% |
| Allscripts | $100-200K | Yes | No | Yes | 10% |
| MedSuite (New) | TBD | Yes | Yes | Yes | 0% |
McKinseyMarket entry · medium
MedSuite Technologies Hospital Software Pricing
Healthcare / Technology
How a strong candidate structures it
A strong framework for this pricing case would cover
Alternative valid frameworks include: value-based pricing approach, or competitive positioning analysis.
Question by question
- 1
Case context
Understand the Case
“Can you summarize the situation?”
- 2
Clarifying
Clarifying Questions
“What clarifying questions would you ask before analyzing the pricing?”
- 3Drill the structure
Structure
Framework
“How would you structure your pricing analysis?”
- 4Drill the brainstorming
Analysis
Exhibit 1 Analysis
“Using Exhibit 1, identify the price point that maximizes total addressable revenue and explain the trade-off of pricing higher.”
- 5Drill the brainstorming
Analysis
Competitive Positioning Analysis
“Using Exhibit 2, assess how MedSuite compares to competitors and whether this supports the $150K price point.”
- 6Drill the math
Math
Revenue Calculation
“If MedSuite prices at $150K and achieves 10% penetration of addressable hospitals in year one, what's the revenue? How does that compare to pricing at $200K with the same penetration rate?”
- 7Drill the brainstorming
Analysis
Tiered Pricing Analysis
“Using Exhibit 1, what are the pros and cons of tiered pricing by hospital size?”
- 8Drill the synthesis
Synthesis
Final Recommendation
“What is your pricing recommendation?”
The worked path
The numbers that decide it
- $150K maximizes annual addressable revenue among the five listed flat prices at $660M, not necessarily launch-year realized revenue or revenue across all possible prices.
- The $200K scenario loses 1,400 small hospitals and $60M of annual revenue potential.
- At equal 10% penetration, annual contract-value scenarios are $66M and $60M; timing and capacity remain unmodeled.
- Segment-optimal listed tiers of $350K large, $200K medium and $150K small total $890M before changes in conversion or selling complexity.
- Competitor feature and price tables support positioning but do not establish implementation equivalence or win probabilities.
- Test conversion, renewals, capacity and tier friction before treating any launch price as proven optimal.
Final synthesis
Treat the five price rows as alternative annual demand scenarios. Revenue potentials are $660M, $600M, $467.5M, $280M and $180M. The best listed flat price is $150K. At stipulated 10% penetration this produces 440 customers and $66M of annual fees versus 300 and $60M at $200K. This is not necessarily revenue earned in the launch year because sales cycles, contract start dates and delivery capacity matter. The competitor table supports feature-rich positioning within budget-to-midrange prices but does not prove customer conversion. Compare the CEO's preferred simple flat price with a size-based menu: large $350K x 800, medium $200K x 1,400 and small $150K x 2,200 total $890M annual potential if demand is unchanged. Recommend $150K provisionally if simplicity and comparable conversion govern, then validate timing, capacity and segment conversion and test tiers without an arbitrary year-two delay.
McKinseyMarket entry · medium
MedSuite Technologies Hospital Software Pricing
Healthcare / Technology
Why this case
Generic market-entry cases often stop at market size and competition. This healthcare version hinges on a segmented willingness-to-pay curve: small hospitals disappear at higher prices even while large hospitals remain addressable. The trap is choosing a higher sticker price without calculating lost volume. It also tests whether you can separate a launch price from a later tiered strategy and target expiring incumbent contracts.
FAQ
- What price maximizes revenue in this healthcare market entry case interview?
- The case’s single-price recommendation is $150K annually. That price reaches 4,400 hospitals and creates $660M of potential revenue, higher than every other listed tier. At $200K, potential revenue falls to $600M because 1,400 small hospitals leave the addressable market. The reason is volume loss outweighs price uplift.
- How should you segment hospitals?
- Separate hospitals by size and willingness to pay. At $150K, the addressable base includes 800 large, 1,400 medium, and 2,200 small hospitals. At $350K, only 800 large hospitals remain. This shows why a flat launch price should preserve broad access while a later tier can capture more value from large hospitals.
- How do competitors affect the pricing recommendation?
- MedSuite combines cloud delivery, integrated billing, and scheduling. That feature set matches the case’s full-platform positioning, while $150K sits near mid-market pricing. It undercuts enterprise options such as Cerner’s $350K to $450K range and offers more functionality than lower-end alternatives, giving the launch price a clear position.
- Should a new entrant use tiered pricing immediately?
- Not necessarily. The case favors a simple $150K launch to maximize accessible volume and reduce sales complexity. Tiering is a sensible phase-two test because 800 large hospitals remain addressable at $350K and 400 at $450K. The decision should follow observed adoption, segment demand, and the team’s capacity to sell and implement differentiated packages.
McKinseyMarket entry · medium
MedSuite Technologies Hospital Software Pricing
Healthcare / Technology