General Factors Influencing the Pricing of Healthcare Products and Services
Anne L Textor
HCM 320-E1WW
Professor Andy Dorn
June 17, 2017
General Factors Influencing the Pricing of Healthcare Products and Services
Healthcare industry is one of the leading and flourishing sectors of the world. The healthcare sector forms an integral part of any economy and is generally around 10% of gross domestic product (GDP) of a developed country. Therefore, it is essential for the healthcare industry to have fair pricing, provide high-quality medicines, and support healthcare providers with adequate reimbursements to deliver a low-cost, effective healthcare system for citizens. Various factors influence the way the prices of healthcare services are affected.
Method of Provider Payment. The healthcare industry uses two different types of payment methods: retrospective and perspective. The retrospective payments are calculated and paid after the service has been delivered, while prospective payments are made before the delivery of the service. In contrast to retrospective payments, in potential payments, the price reflects the anticipated costs of the services provided.
Also, it must be considered whether the payment system is variable or fixed while setting the price of the healthcare services. The price per service in a variable system is fixed, and the aggregate amount of the payment services is proportional to the volume of activity (Waters & Hussey, 2004). In a fixed network, price per service varies about the size of services. The table given below lists the strengths and weaknesses of the standard payment methods used by the patients and providers and also provides the areas where they can be applied.
PRICING OF HEALTHCARE PRODUCTS
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PRICING OF HEALTH CARE PRODUCTS
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Source: Cashin, 2015. Retrieved from:
www.who.int/health_financing/topics/purchasing/payment-mechanisms/en/
Availability of Information. Knowing the actual unit costs of services is essential to minimize the incentives for under- or overutilization of services. Different methodologies are available to measure the unit costs.
Top-Down Versus Bottom-Up Costing. The top-down costing involves the disaggregation of the total expenditure to the units of services, such as patient visits, patient hospital days, or use of medical diagnostic procedures and interventions (for example, the use of radiographic x-rays). The top-down costing determines the number of units of service per cost center, while the bottom-up costing involves the aggregation of the costs of each input used to provide a service.
Tracking and Allocating Costs. The calculation of accurate unit costs for healthcare services depends to a large extent on the “correct” allocation of both direct and indirect provider costs (Waters & Hussey, 2004). Direct costs such as, drugs and supplies, can be allocated directly to cost centers, whereas the indirect costs are those that cannot be directly assigned, including administrators’ salaries...
