Baxter Pricing Spineometer: 3 of 5 Vertebrae

Baxter International Inc. , a global healthcare product company, had a mixed FY 2024. Revenue rose 2.7% to $10.6 billion, while operating income fell 98% over the last year to $14 million.

A review of Baxter’s 22 February 2025 earnings call and associated financial reports provided insight regarding the importance of pricing on performance.

FACTS FROM EARNINGS CALL AND ANNUAL REPORT

Pricing and price management are a concern of senior executives at Baxter.  Specifically, pricing related to negotiations, new product launches, and mix management was identified as positively impacting financial performance. 

Heather Knight, COO of Baxter, reported on the improvement in price negotiations with major customers.  Knight stated, “I've served as the lead interface to many of our key customers and have been deeply involved in successfully renegotiating the recent renewals of select US GPO contracts, helping to ensure we continue to meet our customers' needs, while also delivering positive movement in pricing.”

Joel Grade, EVP and CFO of Baxter, noted the positive impact of price initiatives.  Grade stated, “Positive contributors to margin in the quarter were ongoing benefits from our margin improvement programs within our integrated supply-chain network as well as favorable product mix and pricing initiatives in select markets. … Positive contributions to earnings included improved commercial performance from new product launches and positive pricing.”

VALUE-BASED PRICING FRAMEWORK IMPLIED PRICING REQUIREMENTS

Out of the 38,000 professionals employed at Baxter, industry benchmarks suggest that 21 to 106 should be dedicated to pricing strategy and price management.  Given the complexity of their business and rapid evolution in their markets, we would expect Baxter to be in the upper end of this range.

1. Baxter provides an extremely wide variety of offerings across their three business segments: Medical Products & Therapies, Healthcare Systems & Technologies, and Pharmaceuticals.  Companies with a wide range of offerings benefit from a deeper pricing team. 
2. Baxter’s connected care offerings encompass digital solutions.  The digital healthcare industry is being revolutionized by the prospect of applying artificial intelligence to improve patient outcomes.  Price management of AI and digital healthcare solutions would be under pressure from the rapid changes in potential business models, the desire to capture data for AI training models, HIPAA data security requirements, and doctors’ desire to maintain power over patient care practices.  This would argue for a stronger pricing capability.
3. Baxter engages customers through a direct sales force, independent distributors, wholesalers, and specialty pharmacy providers.  A multichannel strategy spanning the globe increases the demand for price management in relation to channel management.  Each channel and geography would have a different price waterfall with different strategic and tactical discount and rebate policies.  The complexity of these challenges would increase the value of a strong pricing capability.
4. Baxter’s customer base has strong buying power through GPOs and IDNs, along with an increase in ambulatory surgical centers, which are enhancing their purchasing power and increasingly demanding lower cost solutions.  Strong price discipline in numerous and powerful customer negotiations requires investment in price management technology that includes AI to predict the proper range of closing prices, as well as sales management technology to deliver these predictions before bids and negotiations begin.  This increases the value of a strong pricing capability.
5. Baxter’s competition is diverse and varies with the country being served.  Competitive price pressure can be expected to vary by geography as well. This would increase the value of having price professionals distributed globally to address the specific commercial environment in different regions and countries.
6. Baxter spent $540 million on R&D, or 6% of revenue.  Pricing research is required to both justify a development project and identify the go-to-market prices across the globe.  While outsourcing pricing research is common with larger projects, many smaller efforts can be handled in-house with a strong pricing capability.
7. Baxter participates in mergers and acquisitions (M&A), including disposals of businesses.  Integrating newly acquired businesses benefits from a detailed price and commercial policy review that requires a strong pricing capability. 
8. Many of Baxter’s contracts to supply are annually negotiated.  Sudden economic shocks, such as supply disruptions, tariffs, or high inflation, could manifest in higher costs that are not offset by higher prices.  Applied economists, and, in certain situations, index-based pricing, are required to mitigate the impact of economic shocks.  Since economic shocks are always occurring somewhere in the world and Baxter serves the globe, Baxter would have value for deploying professionals in these areas.

OBSERVED PRICING CAPABILITY

Research into the investment by Baxter in pricing yielded mixed results. 

1. The pricing team was at the lower end of the industry benchmark range, not the higher end that would be suggested by the complexity and dynamism of their pricing requirements.
2. Team roles ranged from analyst and manager to director.  No vice president of pricing was identified.
3. Responsibilities ranged from transactional to pricing research roles.  In the transactional area, professionals were managing government contract pricing to tenders, deal management, and price coordination.  At the research level, professionals were working in healthcare economics, market access, and customer insights.  One junior professional cited pricing strategy as their responsibility. 
4. Pricing professionals are mostly located in the United States, with some presence in Europe. 

Given the importance and capability of pricing at Baxter as indicated in financial reports, management statements, and our pricing team research, and given their performance, we have come to the following conclusion as of September 2025.

Baxter Pricing Spineometer: 3 out of 5 Vertebrae. An investment in pricing capability has been undertaken at Baxter, yet many gaps appear. 

BAX (Baxter International, Inc.) rose slightly from 33the day prior to their February 2024 earnings call to 34 one week later. FY 2024 revenue of $10.6 billion with a 0.1% operating margin and a currently negative P/E ratio. 

For FY 2024, a 1% improvement in price would yield a 760% improvement in operating profits, holding all else constant, at Baxter.

The incoming CEO has an opportunity to make a strong impact by improving the pricing capability at Baxter.