Assignment 2: Pricing Strategies In The Healthcare Industry

Henry Ford Hospital in Detroit, is a level one trauma center that is recognized for clinical excellence in cardiology, neurology, orthopedics, transplants, and treatment for cancer (Henry, 2016). Henry Ford Health Systems has over 23,000 employees, and is the fifth largest employer in the Metro-Detroit area, and is also one of the most diverse health systems (Henry, 2016). An important aspect of a marketing strategy is finding the right price for products, and services. Price is the only element in the marketing that produces revenue, while other elements represent cost. Pricing may be challenging, and is greatly impacted by supply, and demand (Pricing Strategies, 2016). Establishing the right price for products and services is a significant

Unfortunately, the current imperfect market produce higher healthcare cost because competition is not driving prices. U.S. healthcare costs are much higher than the actual cost of producing the services. Due to the third-party payment system we call insurance, few patients actually are responsible for the entire cost of services. This oversight makes many patients somewhat oblivious to cost containment, producing a large quantity of consumption. The system is determined by need or want rather than supply and demand. In addition, the U.S. healthcare market is not regulated as it would be with a single payer system, which makes it difficult to control prices.

Payment-determination bases are composed of three factors: cost, fee schedule, and price related. In a cost-payment basis the provider’s cost is the main method for payment (Cleverley, 2010). It is essentially a way to formulate fees for medical services. Prior to this practice, medical cost for medical services differ from state to state, which led to a variety of fee schedules. According to Brumley (2015), the varying fee schedules were inefficient for Medicare; therefore, to solve this issue Medicare linked fees to the actual cost of providing specific services. This became a component of the Section O of Title 42 in the code of Federal regulations; which sought to describe the different costs that can be included when it comes to calculating medical fees. The goal was to structure medical fees on a more cost-reasonable basis.

The new social contract between the health care system and employers, patients, and the government has given everyone involved some breathing room. They have provided a clearer picture of the costs of health care; however, it is evident that there is still work to be done regarding the transparency of complete and exact costs. For example; all hospitals have a price list called the chargemaster that includes nearly 20,000 health care procedures. The prices on this list are the prices that patients will most likely see on their bills; however, the terms are not standardized and many are bundled services that make it difficult to compare them with other institutions. It is obvious

In this system, when payers pay billed charges, they pay according to a rate schedule, called a charge master, established by the provider. To a many extent, this reimbursement system places payers at the mercy of providers, especially in markets where competition is limited. In the very early days of health insurance, all payers reimbursed providers on the basis of charges. At prssent the trend is shifting toward other, less generous reimbursement methods, and the only payers expected to pay the full amount of charges are self-pay (private-pay)

Fee -for-service is the most traditional form of reimbursement, pretty much like a restaurant bill, you pay for what you order. “A physician may be paid for each procedure performed, such as an office visit or the reading of a CT scan”. (Gapenski, 2013, p. 66) There are three primary fee-for-service payment methods: cost based, charged based, and prospective payment. In the fee-for-service reimbursement model the physician is to serve the patient to receive their payment.

6. A fee schedule is a complete listing of fees that is used by Medicare to pay the doctors and or other providers, and suppliers. This listing of fee maximums is used to reimburse a doctor or other provider on a fee-for-service basis. Centers for Medicare and Medicaid Services developed fee schedules for physicians, clinical laboratory services, and durable medical equipment, as well as many other things. The Physician Fee Schedule pays for certain services that are provided by physicians and other healthcare professionals in all areas of service. These services include surgial proceduresm diagnostic tests, certain preventive services, and office visits. Payments are based upon the relative resources typically used to provide the service.

There are many ways of paying healthcare providers, physicians, and hospitals. Fee for service, discounted fee for service, capitation, and salary are a few examples of healthcare provider payments. “The traditional way, used both by private health insurers and by government (Medicare and Medicaid programs) is called fee for service” (Hagland, 2015, p.1). Fee for service pays providers according to what procedures are used to treat a patient. Capitation pays providers a set amount for each patient they see. Both healthcare provider payments are extensively used in the United States healthcare system, but fee for service has been in decline over the past decade.

To review all the different ways healthcare services are paid will take alot more then a few paragraphs. Private payors have contracts with employers and with providers. Each plan can be different in the payment of services. In my personel experience, contract especially at truma hospitals are typically based on % of charges.

Medicare proposed revisions to payment policies in regards to the Physician Fee Schedule while focusing on primary care, chronic care management, mental health and diabetes. The recently proposed rule regarding physician fee schedules aims to improve payment, payment systems, and payment policies, as well as coordinates accountable care organizations’ quality measures with the current Medicare reimbursement rules, specifically, the Quality Payment Program and Medicare Access and CHIP Reauthorization Act, which rewards quality of care rather than the volume of care. CMS is updating payments to better reflect the changing healthcare community and value a service provides by increasing the amount of quality measures. Furthermore, in order to

The Affordable Care Act has changed the way hospitals are reimbursed. Although hospital charges are federally regulated all payments do not correspond, and payments may vary greatly depending on the patient’s insurance.

Besides, studies delving into the economics of the medical marketplace consistently find that a moderately higher or lower price doesn't change consumer purchasing decisions much, if at all, because in health care there is little of the price sensitivity found in conventional marketplaces, even on the rare occasion that patients know the cost in advance. Most hospital administrators defend such chargemaster rates at all, they maintain that they are just starting points for a negotiation. But patients don't typically know they are in a negotiation when they enter the hospital, nor do hospitals let them know that.

Product Cost Structure: To form an accurate depiction of how much doc.com would cost to develop and implement, Healthify modelled out the costs of the system over a 10 year period (Appendix C). With respect to raw resources, the most significant expenditures are server space and computing power. Costs were projected by finding comparable prices of cloud computing power, storage and relational database management from Amazon Web Services and converting them into Canadian dollars (Appendix D). The core expenses are related to human capital, as an appropriate cohort of developers, managers and support staff are to be hired to develop doc.com. Additionally, cash incentives will help speed up the system adoption and integration processes as doctors

In all industries, competition among businesses has long been encouraged as a mechanism to increase value for patients. In other words, competition ensures the provision of better products and services to satisfy the needs of customers (Glover & Rivers, 2009). In the health care industry, competition has an impact on many relational perspectives. There have been several studies examining the relationships between competition and quality of health care, competition and health care system costs, and competition and patient satisfaction. Some elements of competition in health care are price, quality, convenience, and superior products and

The payment rate to the hospital for inpatient stays, are actually case-based. This means that the rate is determined case by case, or per inpatient admission, instead of on a daily basis or a fee-for-service-basis. A standard payment rate is predetermined based on the average amount of staff, supplies, and other resources normally used and assigned to each Diagnosis related group (DRG). Every hospital is paid the same amount for all patients regardless of the actual costs incurred. Every hospital is given a unique reimbursement rate per DRG depending on its geographic location and other factors. .