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Can this Vital Buck be More Efficiently Used?
By Dr. David Edward Marcinko MBA CMP™
[Editor-in-Chief]
Recently, healthcare economist Austin Frakt PhD offered these points about healthcare dollars spent on the margin:
1. Spending on health is not without value. It does improve lives [See Cutler]. Yet, we spend much to get that value.
2. Price per QALY is very high [See Aaron’s series on spending and his other on quality).
3. Just staying within the realm of health, the price per QALY on another “service” might be a lot lower [like nutrition, exercise, and healthy habits, etc].
Note: The quality-adjusted life year (QALY) is a measure of disease burden, including both the quality and the quantity of life lived. It is most often used in assessing the value for money of a medical intervention. The QALY model requires independent utility, neutral risk and constant proportional tradeoff behavior.
Understanding Marginal Profit
Recalling the equation: Profit = (Price x Volume) – Total Costs
We could amend it and say that:
Total Profit = P x V – (FC + VC) or: Total Profit = Price x Volume – (Fixed Costs + Variable Costs)
However, most medical office or clinic contracts today are based not on total profit, but on additional or marginal profit, because overhead costs always remain and clinic fixed costs are not important in contracted medicine.
And, for other pricing decisions, the equation can again be re-written, to emphasize variable costs, as follows: Marginal Profit = (P x V) – VC.
In other words, the marginal benefit must exceed the marginal cost of practice.
Cost-Volume-Profit Analysis
Now, once a basic understanding of marginal profit and medical cost behavior is achieved, the techniques of cost-volume-profit analysis (CVPA) can be used to further refine the managerial cost and profit aspects of the medical office business unit. CVPA is thus concerned with the relationship among prices of medical services, unit volume, per unit variable costs, total fixed costs, and the mix of services provided.
Assessment
Austin felt that if [*]od were jointly designing all health-related systems and functions of society and government – He’d look at the marginal cost/QALY over all possible ways to spend the next dollar and pick the smallest. How about you?
But, it’s not always going to be on health care services and it probably isn’t given what we’re already spending for those and what we’re getting for that spending.
Conclusion
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Filed under: Health Economics | Tagged: Austin Frakt PhD, Business of Medical Practice, david marcinko, marginal profit, Medical Cost-Volume-Profit Analysis, QALY, www.BusinessofMedicalPractice.com |
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Marginal Dollars and Hospital, Clinic, and Physician Pricing Transparency
In 2007, federal and state legislatures called for hospitals across the country to make their prices “transparent.” The term was defined as the full, accurate, and timely disclosure of hospital charges to consumers of healthcare, as well as the process employed to arrive at those fees.
Moreover, transparency does not merely involve publishing a list of prices and fees. Essentially, hospital CXOs must be able to present their prices in a manner that is understandable to the general public and they must be prepared to explain the rationale behind their charges.
Currently, at least 33 states have already proposed or passed legislation regarding publication of hospital charges.
For example, the average cost for a hip, knee or ankle joint replacement is $38,443; while a heart valve operation is $124,561and a back fusion is $60,406. Torrance California based HealthCare Partners now notes on its Website that it charges $15 for flu vaccines, $61 for a chest X-ray, while a colonoscopy costs $424.
Such initiatives demonstrate increased industry competition and advancing pricing transparency with marginal healthcare dollars.
Dr. David Edward Marcinko MBA
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Decreasing Marginal Utility in Healthcare Series
[The High Cost of Healthcare]
In the past few decades, spending on healthcare in the U.S. has increased exponentially, far outpacing spending increases in comparable, industrialized countries, as well as the growth of overall U.S. GDP. The amount the U.S. spent on healthcare in 2011 accounted for over 17% of the national GDP.
Despite the significant amount of money spent on healthcare in the U.S., the U.S. population has not necessarily realized better health outcomes.
In fact, some critics remark that the overall health of the U.S. population has arguably declined, despite a rise in healthcare expenditures. Despite the significant amount of money spent on healthcare in the U.S., the U.S. is consistently ranked average or slightly below average on many “quality of care indicators” compared to other, industrialized countries.
These health outcomes rankings demonstrate that the U.S. may not be receiving sufficient “value per dollar” spent on the population’s healthcare.
Read more… http://www.healthcapital.com/hcc/newsletter/03_14/Affording_Healthcare.pdf
Robert J. Cimasi MHA CVA CMP™
http://www.HealthCapital.com
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Welcome to the Zero Marginal Cost Society
According to Jeremy Rifkin, in a zero marginal cost society, the collaborative commons will bypass the conventional marketplace, and society will shift from an exchange-oriented economy to a shared one.
http://www.thezeromarginalcostsociety.com/
So, you better be extremely creative and innovative in whatever industry you’re in – financial advice or even healthcare – or face eventual extinction.
What’s more, expect companies to take on a diminished role, serving as an aggregator or partner for services and solutions, book author Rifkin argues.
Dr. Blyel
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