One primary key to a successful health care organization is having a strategy to achieve the mission of the organization. This is particularly true in reference to creating a budget and generating revenue for a profitable bottom line of a hospital. Executives are experiencing a gap that is continuously widening between technology and hospital demands, which is causing additional conversation around pricing. According to Nugent (2004), there are three major themes to consider when it comes to strategic pricing. These themes include pricing at the margin (pricing new business to cover variable costs and margin, if capacity exists), cross-subsidizing (funding one service with profits from another service) and testing what the market will bear …show more content…
“Will demand drop if prices are increased, if so, by how much?” This is the question that is asked when speaking of price elasticity, however, this can be hard to evaluate due to price sensitivity. Outpatient services are assumed to be more elastic due to the method of payment with all or a large portion being collected prior to service. When prices are being determined, it is expected that reasonable costs and ROI (typically 8%), and losses from patients are covered. Establishing a price can be done by a method called “across-the-board” which was mentioned earlier or selective pricing which lends to the overall goal of a charge increase by increasing or decreasing each line item code. According to Cleverley (2003), utilizing selective pricing can display a 20-50% improvement in places where recovery is …show more content…
Prices are structured by the concept of supply and demand. Another strategy and even taking strategic pricing further is cost based pricing. This is the act of pricing based on an organizations cost to produce a product (boundless.com). How projects subject to funding are defined, rules for price calculation and rules for updating the prices are another set of standards that should be examined. Accurately estimating the cost of services is pivotal in preventing consequences in the quality of healthcare. This is especially true of diagnosis related groups DRGs. Not only does the United States use DRGs but it has also spread throughout other countries (European countries refer to DRGs as healthbaskets or Euro
To guarantee that its members receive appropriate, high level quality care in a cost-effective manner, each managed care organization (MCO) tailors its networks according to the characteristics of the providers, consumers, and competitors in a specific market. Other considerations for creating the network are the managed care organization's own goals for quality, accessibility, cost savings, and member satisfaction. Strategic planning for networks is a continuing process. In addition to an initial evaluation of its markets and goals, the managed care organization must periodically reevaluate its target markets and objectives. After reviewing the markets, then the organization must modify its network strategies accordingly to remain competitive in the rapidly changing healthcare industry. Coventry Health Care, Inc and its affiliated companies recognize the importance of developing and managing an adequate network of qualified providers to serve the need of customers and enrolled members (Coventry Health Care Intranet, Creasy and Spath, http://cvtynet/ ). "A central goal of managed care is containing the costs of delivering care, but the wide variety of organizations typically lumped together under the umbrella of managed care pursue this goal using combination of numerous strategies that vary from market to market and from organization to organization" (Baker , 2000, p.2).
Hospitals were reimbursed using a fee-for-service standard, sanctioning all insurance companies to pay the same prices for hospital services offered by different providers. Due to removing restrictions on hospital prices, hospitals now negotiate reimbursement rates for each payer, thus, causing a substantially difference in prices among payers.
Pay-for-performance (P4P) is the compensation representation that compensates healthcare contributors for accomplishing pre-authorized objectives for the delivery of quality health care assistance by economic incentives. P4P is increasingly put into practice in the healthcare structure to support quality enhancements in healthcare systems. Thus, pay-for-performance can be seen as a means of attaching financial incentives to the main objectives of clinical care. However, reimbursement is a managed care payment by a third party to a beneficiary, hospital or other health care providers for services rendered to an insured or beneficiary. This paper discusses how reimbursement can be affected by the pay-for-performance approach and how system cost reductions impact the quality and efficiency of healthcare. In addition, it also addresses how pay-for-performance affects different healthcare providers and their customers. Finally, there will also be a discussion on the effects pay-for-performance will have on the future of healthcare.
It would be necessary for a hospital administrator to look closely at ways to lower healthcare costs and provide more efficient care when a large employer like BRPP states they are thinking of relocating their employee inpatient hospital services to a company like InduShealth. InduShealth is offering substantially lower prices for several surgical procedures and a U.S. hospital administrator would not want to lose this large consumer population if it was possible to find more efficient methods of providing healthcare to their patients (McLaughlin & McLaughlin, 2008). One pricing strategy that a hospital administrator could advocate for is a bundled...
Formed in 1998, the Managed Care Executive Group (MCEG) is a national organization of U.S. senior health executives who provide an open exchange of shared resources by discussing issues which are currently faced by health care organizations. In the fall of 2011, 61 organizations, which represented 90 responders, ranked the top ten strategic issues for 2012. Although the issues were ranked according to their priority, this report discusses the top three issues which I believe to be the most significant due to the need for competitive and inter-related products, quality care and cost containment.
reimbursement determinations. As a result, the camaraderie among physicians has developed into a more aggressive approach to impede competition (Shi & Singh, 2012). Little information is shared with patients in regards to procedures or disease control. The subjects are forced to rely on the internet for enlightenment on the scope of their illnesses (Shi & Singh, 2012). Furthermore, the U.S. health care system fails to provide adequate knowledge on billing strategies for operations and other medical practices. The cost in a free system is based on supply and demand and is known in advance of hospital admission (Shi & Singh, 2012). The need for new technology is another characteristic that is of interest when considering the health care system. Technology is often v...
By early 1988, Augustine Medical executives were actively engaged in finalizing and marketing the program for the patient warming system named Bair Hugger Patient Warming System. The principal question yet to be resolved was how to price this system. Several considerations are required in terms of organizational objectives, demand for the product, customer value perception, buyer price sensitivity, the price of competitive offering, and direct variable costs. The company has two alternatives to price this system, either the skimming pricing strategy or the penetration pricing strategy.
Health care systems rely heavily on good business principles to be successful. Business principles outlines the structure of how a business will be managed and operated. More importantly, it sets standards and establishes core values for consumers. In a health care system, business is sought from patients. This discussion board will discuss three business principles that are necessary to uphold safe, quality, patient-centered care that is financially sound, if the principles are exercised at my current facility, the reasons why the principles are pertinent in health care, and an explanation of why the principles are of significance.
A competitive market is one that allows easy entry and exit: a market in which companies are generally free to enter or to leave at will. This does not describe the health care market in the US. There are certain assumptions that the competitive market model operates under some assumptions, first is the consumer/patient has full information about the nature of the services required, the anticipated results of their decision and the benefits obtain from the service. This is not true in health care often time the patient is operating at a distinct information disadvantage when they require health care services such as insurance. If a patient purchases health insurance often they don’t know enough information to ascertain if they have purchased a quality plan. Second, consumers/patient and providers (physician, health insurance) act independently. This does not happen in health care because of the asymmetry of information that exists; patients must depend on the decisions made by their doctor or health care provider who is acting on their behalf as a health agent or gatekeeper. Sometimes physicians own diagnostic facilities or invest in health care organizations this affects their ability to be impartial. Third consumers bear the financial impact of their decision and are aware of price differences; most patients are insulated from the true cost of health care because of a third-party payer who bears the financial brunt of the decision to receive medical care. Shi and Singh state that even if a patient wanted to find out the cost of services sometimes it is difficult because of item based pricing. Fourth there is unrestrained competition regarding price and quality among providers. Access to the health care market unrestricted is b...
Competitive advantage matters greatly to those responsible for the management of healthcare institutions. Together with rapidly escalating healthcare costs, increasingly complex medical technologies, and growing regulatory and legal pressures, healthcare organizations face a critical need to improve the quality of care at reduced costs (Cu...
In order to assure organizational success, a competitive analysis is vital to perform. The framework of an effective market strategy should involve identifying the surrounding groups of organizations that can be distinguished from others, patterns that occur in the market, and the competitive level that occurs within and among them (Ruzo, Barreiro, & Losada, 2006). The identified competitors are Salt Lake Regional Medical Center (SLRMC) and Intermountain Healthcare (IHC). Both organizations are accredited by The Joint Commission (TJC) and provide identical services: cardiology, critical care, gastrointestinal (GI), orthopedic, neurology, neurosurgery, pulmonary, bariatric, men’s health, women’s services: labor and delivery, obstetrics, and gynecological, newborn, oncology, rehabilitation, and behavioral/mental health. The differences include the number of inpatient beds (SLRMC has 158, STMH has 317, and IHC has 220) and STMH has additional services which the other two facilities do not
From the A12 redesign proposal, it shows that the current standard cost system is unable to link the reduction in the number of parts to activity reductions and cost savings. The labor-direct-based standard cost system reflects the cost of A12 is distorted. Using the ABC system, according to the activities of A12 allocate the overhead cost to A12 that could find that the current overhead cost of A12 was overstated by the standard cost system. At last, A12 Junction Box could be identified it is an attractive and profitable product, at the same time, it demonstrates the value of ABC.
How Supply, Demand and New Policies Affect the Costs of Medical Supplies, and Healthcare Just like other markets, the costs of medical supplies, healthcare services and insurance premiums are affected by supply and demand. In general, when there is high demand for a product or service and supplies are limited, costs rise. That said, there are other factors responsible for influencing the costs associated with healthcare: These factors include tax increases, additional regulations placed on medical devices and/or healthcare services. The Journal of the American Medical Association (JAMA)
Another aspect of effectiveness and strength that this system has is to minimize costs. For this reason, doctors only prescribe the necessary medicines or treatments, and patients share costs with other members of the network. So managed to reduce what they have to pay. The Health Care Strategies Center conducted a study in 2003 that established that the average costs of $ 20.46 for pharmacies were the fee-for-service system and $ 17.36 for the capitation
The causes of the increase in cost are new medical technologies, doctor and hospital visits, lab test, and drugs. The cost of these services increasing is causing an increase for both insurances and patients to pay. In order to accommodate for this increase in cost, health insurances raise their premiums to individuals that have to pay directly to them in order to receive the medical services provided without paying full cost. Creating a way to consolidate medical services can lower health care cost and make it more affordable for the public. Also, instead of waiting until a patient needs to visit the doctor or go to the hospital, prevention should be the main focus and not treatment alone.