Pricing hospital care: Global budgets and marginal pricing strategies. Issue 8 (August 2015)

• Record Type: Journal Article
• Authors: Sutherland, Jason M.
• Is Part Of: Health policy. Volume 119:Issue 8(2015)
• Page Start: 1111
• Page End: 1118
• Publication Date: 2015-08
• Subjects: Global budgets -- Hospital payment -- Hospital prices -- Marginal cost -- Marginal price; Medical education -- Periodicals; Medical policy -- Periodicals; Delivery of Health Care -- Periodicals; Education, Medical -- Periodicals; Health Education -- Periodicals; Health Planning -- Periodicals; Public Policy -- Periodicals; Enseignement médical -- Périodiques; Politique sanitaire -- Périodiques; Medical education; Medical policy; Periodicals; Electronic journals; Electronic journals; 362.1
• DOI: 10.1016/j.healthpol.2015.04.011
• Languages: English
• ISSNs: 0168-8510

Abstract

Highlights: Pricing hospital care is important for setting incentives. Marginal costs are closely related to capacity constraints. Marginal prices may provide a balance of incentives for volume and cost efficiency. Abstract: Objective: The Canadian province of British Columbia (BC) is adding financial incentives to increase the volume of surgeries provided by hospitals using a marginal pricing approach. The objective of this study is to calculate marginal costs of surgeries based on assumptions regarding hospitals' availability of labor and equipment. Data: This study is based on observational clinical, administrative and financial data generated by hospitals. Hospital inpatient and outpatient discharge summaries from the province are linked with detailed activity-based costing information, stratified by assigned case mix categorizations. Study design: To reflect a range of operating constraints governing hospitals' ability to increase their volume of surgeries, a number of scenarios are proposed. Under these scenarios, estimated marginal costs are calculated and compared to prices being offered as incentives to hospitals. Principal findings: Existing data can be used to support alternative strategies for pricing hospital care. Prices for inpatient surgeries do not generate positive margins under a range of operating scenarios. Hip and knee surgeries generate surpluses for hospitals even under the most costly labor conditions and are expected to generate additional volume. Conclusions: In health systems that wish to fine-tune financial incentives, setting prices that create incentives for additional volume should reflect knowledge of hospitals' underlying cost structures. Possible implications of mis-pricing include no response to the incentives or uneven increases in supply.