Week 3 Lecture 2.html

Pricing and Service Decisions

Pricing and service decisions are related but separate. Service decisions involve reviewing the community's needs and the supply of some of these needs by other organizations to determine what and how much services are needed. For example, if another organization is providing orthopedics but not urology, you probably need to provide urology and not focus on orthopedics. If another organization is a level III tier center and is nearby, it probably does not make sense for you to be a level I trauma center. You will likely not see much business, but a trauma center requires doctors on staff for all major traumas at all times, which is very expensive. Service decisions are among the first decisions you should make and involve taking a holistic view of the community and deciding which services you should offer. Pricing decisions involve a look at the indirect costs discussed earlier, such as charity care and bad debt, and the contracted prices for the services. Medicare; Medicaid; private payers; third-party payers, such as Blue Cross/Blue Shield; and self-payers are different types of payers and make up a payer mix. A spreadsheet or a computer model can be used to analyze the prices and the services to be provided to each of these types of payers and to estimate the revenue. The hospital or another service provider cannot adjust the prices paid by the government under Medicare and Medicaid, but it can negotiate prices with all other payers.

Besides the social cost, understand that this type of behavior on the part of HCOs is what causes the government to step in and regulate prices. It is wiser for you as a leader to understand that cost-shifting may work for now but might also cause catastrophe for your organization later.