Pricing is influenced by desired net income, competitive position, and market structure (Cleverley, Cleverley, & Song, 2012). Desired net income, is the starting block for most short- and long-term pricing decisions. Net income is the difference between revenues and expenses (Cleverley, Cleverley, & Song, 2012). In the business world, there must be enough revenue in sales of products and services in order to maintain the business. If prices are not controlled, the business could suffer greatly. Deficiencies in levels of net income can be tolerated for short time frames, but long-term continuation of inadequate pricing eventually results in business termination (Cleverley, Cleverley, & Song, 2012).
According to Cleverley, Cleverley, & Song …show more content…
Providing lower prices could lead to market expansions and lower cost provider. If they maintain competitive prices, the realization of greater profit may lead to expansion in the marketplace because of better access to capital, and they may even be in a position to acquire local competitors (Cleverley, Cleverley, & Song, 2012). Capital intensity can also have an influence on pricing. Firms that are heavily capital intensive often have higher levels of fixed cost. It is also likely that their variable cost of production as a percentage of total cost may be lower, which may lead to marginal cost pricing in markets that have excess capacity providers must then be in a situation where they can increase levels of payment received from other patients to offset losses from Medicaid and uninsured patients. This payment inequity has been commonly referred to as cost shifting. Of all the influences mentioned according to Cleverley, Cleverley, & Song ( 2012), payer mix has the most pervasive influence on prices in the healthcare marketplace. Market structure also influences pricing. The number of buyers and sellers is a key dynamic that impacts pricing. Increasing the ratio of providers to health plans reduces the pricing flexibility of the provider (Cleverley, Cleverley, & Song, 2012). It is the private market that represents the major area for pricing discretion. The final factor affecting pricing under the market structure umbrella is price elasticity (Cleverley, Cleverley, & Song,
According to Cleverley, Cleverley, & Song …show more content…
Providing lower prices could lead to market expansions and lower cost provider. If they maintain competitive prices, the realization of greater profit may lead to expansion in the marketplace because of better access to capital, and they may even be in a position to acquire local competitors (Cleverley, Cleverley, & Song, 2012). Capital intensity can also have an influence on pricing. Firms that are heavily capital intensive often have higher levels of fixed cost. It is also likely that their variable cost of production as a percentage of total cost may be lower, which may lead to marginal cost pricing in markets that have excess capacity providers must then be in a situation where they can increase levels of payment received from other patients to offset losses from Medicaid and uninsured patients. This payment inequity has been commonly referred to as cost shifting. Of all the influences mentioned according to Cleverley, Cleverley, & Song ( 2012), payer mix has the most pervasive influence on prices in the healthcare marketplace. Market structure also influences pricing. The number of buyers and sellers is a key dynamic that impacts pricing. Increasing the ratio of providers to health plans reduces the pricing flexibility of the provider (Cleverley, Cleverley, & Song, 2012). It is the private market that represents the major area for pricing discretion. The final factor affecting pricing under the market structure umbrella is price elasticity (Cleverley, Cleverley, & Song,