Ratio Analysis In Health Care

The health care industry is a multi-million dollar industry. Health insurance, providers, technology management, and inpatient and outpatient procedures are among the many terms that we hear nowadays within this industry. The principal phrase that seems to be ringing in the ears of the government and policymakers are debt and cost-control. There are fundamental concepts that should be understood throughout the health care industry as it relates to finance. On one hand, many individuals have a general knowledge concerning health care organizations from the standpoint of insurance, copays, and deductibles. These constructs are more familiar to a person that has any health care needs due to the routine of having to provide some form of payment
This is particularly true in reference to creating a budget and generating revenue for a profitable bottom line of a hospital. Executives are experiencing a gap that is continuously widening between technology and hospital demands, which is causing additional conversation around pricing. According to Nugent (2004), there are three major themes to consider when it comes to strategic pricing. These themes include pricing at the margin (pricing new business to cover variable costs and margin, if capacity exists), cross-subsidizing (funding one service with profits from another service) and testing what the market will bear (utilizing the across-the-board method which increase the charge master by a particular
A large misconception associated with this concept is that pricing makes a small difference in overall profitability. Studies have demonstrated that the recovery rate (financial return a hospital expects for every dollar of rate increase) of those who completed strategic pricing had a recovery rate of 15.5% compared to the method of increasing across-the-board (13.5%). The contracts negotiated show magnitude in profitability, however, other factors are a considerable factor, and strategic pricing aids in defensibility when adverse things happen (Cleverley, 2008).
There are three traditional routes of price manipulation which include outpatient services, stop loss arrangements, and carve out pricing for devices and drugs. Outpatient service payments are typically seen through fee schedules or discounted charges (Medicare and Medicaid) and recovery rates for self-pay patients, while inpatient service payments can come from Medicare and Medicaid, and DRGs through managed care. Stop-loss arrangements (charges hitting high thresholds), and carve out pricing for devices and drugs have their own matrix for