Friday, February 09, 2007

How to price healthcare-by justifiability?

The website of the US-based Healthcare Financial Management Association has a summary of an article published in one of their newsletters titled "Justifiable Pricing Strategies For CFOs." The summary begins as follows:

"Providers are increasingly being drawn into personal healthcare financing for consumers as patients' out-of-pocket costs rise. In order to develop new price strategies to meet this trend, CFOs will need to analyze the true costs of every service that patients want to buy, whether it's a gall bladder operation, hip replacement or normal childbirth. Open-ended pricing will be acceptable only in the case of unpreventable complications and life-saving emergency care."

The concept of "open-ended pricing" should horrify anyone who has had any education in the field of economics. One of the core premises of economics is that resources are finite. Any health care system that is based on the idea that any patient may be entitled to unlimited amounts of resources is fatally flawed.

Also mind-boggling is the idea that hospitals don't know the true costs of services that they provide. In most industries, failure to understand your business's cost structure inevitably will lead to the bankruptcy of your enterprise.

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