Revenue Determination: Pricing And Contracting Essay

2528 words - 10 pages

Over the last twenty years health care prices for the general public, because of this continuous rise in prices hospitals and health care facilities have given much attention to improving their communication of prices to the public. Most people of the general public are unaware that hospital costs and hospital prices are two different things. Hospital cost is the dollar amount the hospital pays in order to provide patient care. Hospital price is the dollar amount designated to the specific procedures performed in order to provide said “patient care”. This dollar amount is what the hospital bills the insurance company and/or the patient for their care (Cleverly & Cameron 2007). It is important for health care facilities and hospitals alike to provide a sense of reasonableness within their bills so that their patrons do not get the feeling that they are being “ripped off”. Many people feel that the reason their health care bills are so high is because hospitals feel they can charge whatever they want for a product people have to have. In general, sick people will not turn down a life saving treatment because it is too expensive, because the health care industry is aware of this, they charge whatever price they can get away with, like charging the patient’s insurance three times the base price (Cleverly & Cameron 2007). What the general public always seems to overlook is the fact that even hospitals need to turn a profit in order to keep their doors open and keep providing genuinely good health care to their patients.
There are three generic factors that influence the way any firm, including health care facilities influence their pricing. These three factors are, the desired net income of the firm, the firm’s competitive position, and the market structure (Cleverly & Cameron 2007). Each one of these factors influences how a firm can change their prices and to what exact they can control their pricing. The first generic factor is desired net income. This is the initial building block for most long and short term pricing decisions for any firm, including hospitals and other health care facilities (Cleverly & Cameron 2007). Every business, including hospitals have to be able to make enough revenue, though its provision of health care, in order to sustain its operations and provide possible replacements for any of its physical assets. If a hospital fails to realize the adequate levels of pricing, they will most likely face failure. The lack of unsubstantial levels of income can be tolerated by a firm for a limited amount of time, but long term continuation of unsubstantial price changes, will eventually result in the hospital or facility closing its doors (Cleverly & Cameron 2007).
The firm’s competitive position also has a large influence on the firm’s pricing. The perceived quality of health care is one of the most important factors for hospitals to consider. Hospitals that have higher perceived qualities in health care, can usually charge...

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