1. What are the three major ways that health care providers can control their revenue function?
Payment for healthcare services has grown into a puzzling collection of cross subsidies, cost-shifting, and contradictory incentives. One way to control the complexity of the revenue function is by setting up a list of specific prices for the services provided. Price setting in the health care industry has become ever more substantial as a strategy to battle diminishing margins resultant from cost surges and payment shortfalls. Note that this price list can be as varied as the health care providers that employ them (Cleverley & Cleverley, 2018, p. 153). The revenue function can also be controlled by strategically negotiating the payment schedules …show more content…
Given that the firm must be able to generate enough revenue to cover its operating and other expenses, a business needs to determine how much to charge for its products or services to reach its income goal rather than just break even. One common way to gauge the desired income is using the cost volume profit (CVP) analysis to measure the relationship between costs, business volume, and profitability. Pricing is also influenced by the firm’s competitive position, which is the “position a firm occupies in a market, or is trying to occupy, relative to its competition” (BusinessDictionary). It is critical to track the relationship between prices and a product’s significant benefit over time. The higher the benefits, the more likely the business can become a price maker. One way to secure competitive position is to establish differentiated points-of-parity and points-of-difference (Keller, 2013, p. 54) like perceived high quality, lower cost, greater market share or more favorable payer mix. Third, the market structure can also dictate the price of health care services. Indeed, the more buyers of care and fewer sellers, the more favorable the pricing conditions for providers. And since most firms would rather compete in an environment where the threat of new entrants, as well as the threat of substitutes is low (Carpenter & Sanders, 2009), knowing the market structure is crucial. Finally, price elasticity, which is a measure of the sensitivity of demand or supply of a good or service to changes in price, can have a lasting effect on
Payment for healthcare services has grown into a puzzling collection of cross subsidies, cost-shifting, and contradictory incentives. One way to control the complexity of the revenue function is by setting up a list of specific prices for the services provided. Price setting in the health care industry has become ever more substantial as a strategy to battle diminishing margins resultant from cost surges and payment shortfalls. Note that this price list can be as varied as the health care providers that employ them (Cleverley & Cleverley, 2018, p. 153). The revenue function can also be controlled by strategically negotiating the payment schedules …show more content…
Given that the firm must be able to generate enough revenue to cover its operating and other expenses, a business needs to determine how much to charge for its products or services to reach its income goal rather than just break even. One common way to gauge the desired income is using the cost volume profit (CVP) analysis to measure the relationship between costs, business volume, and profitability. Pricing is also influenced by the firm’s competitive position, which is the “position a firm occupies in a market, or is trying to occupy, relative to its competition” (BusinessDictionary). It is critical to track the relationship between prices and a product’s significant benefit over time. The higher the benefits, the more likely the business can become a price maker. One way to secure competitive position is to establish differentiated points-of-parity and points-of-difference (Keller, 2013, p. 54) like perceived high quality, lower cost, greater market share or more favorable payer mix. Third, the market structure can also dictate the price of health care services. Indeed, the more buyers of care and fewer sellers, the more favorable the pricing conditions for providers. And since most firms would rather compete in an environment where the threat of new entrants, as well as the threat of substitutes is low (Carpenter & Sanders, 2009), knowing the market structure is crucial. Finally, price elasticity, which is a measure of the sensitivity of demand or supply of a good or service to changes in price, can have a lasting effect on