Break Even Analysis In Healthcare

According to research there are several factors that impact cost and being able to analyze these factors is essential in understanding them. When looking at costs there are two types of cost fixed and variable. When looking at these cost factors the organization will need to determine a break even point or use the cost value analysis. As the break-even analysis is a subdivision of CVP most managers tend to use CVP method (Freedman, 2018). These two methods are used in determining the price setter for product/services. In a hospital setting we are dealing with providing services to patients.
The benefits of CVP analysis is it uses allows an organization to prediction of cost and profit among different volumes and is used in setting up a flexible budget. This method helps in controlling, formulating policies and being able to designated cost depending on their level of output. Some of the limitation of using this method is that variable are not constant, fixed costs stabilize at higher volumes, discounts may be applied during times of higher volumes (Yash, 2014). Understanding the benefits and limitations that CVP entails will enable healthcare managers to adequately use this method in healthcare decisions. …show more content…
In general hospitals have a higher fixed cost than variable costs. Which places emphasis on pricing related to different qualities of care provided. “The limitations of a fixed and variable framing of cost behavior are particularly pressing in areas such as health care where a large proportion of cost is fixed (Chapman et al, 2016).” Although cost data in setting standardizing price setter within this industry. Due to the upcoming changes from FFS to value-based care will cause additional impact in determining prices for patient level of