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Health Policy. 2015 Aug;119(8):1111-8. doi: 10.1016/j.healthpol.2015.04.011. Epub 2015 Apr 25.

Pricing hospital care: Global budgets and marginal pricing strategies.

Author information

1
Centre for Health Services and Policy Research, School of Population and Public Health, University of British Columbia, Vancouver, BC, Canada V6T 1Z3. Electronic address: jsutherland@chspr.ubc.ca.

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.

KEYWORDS:

Global budgets; Hospital payment; Hospital prices; Marginal cost; Marginal price

PMID:
25999140
DOI:
10.1016/j.healthpol.2015.04.011
[Indexed for MEDLINE]
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