Pricing is a vital factor especially in healthcare. The right pricing should ensure that drugs and services offered by a hospital are affordable by the patients while at the same time profitable to the hospital. The hospital management should therefore put a lot into consideration while coming up with the right pricing and at the same time formulate strategies that will ensure quality in the services they offer. If the management fails to strictly consider all the necessary factors required, the hospital will either experience a stall in the drug inventory if the price is too high or realization of low profits if the price is too low. There are two pricing strategies that hospital managements could utilize. These strategies are the full cost pricing strategy, which factors in the overhead into product pricing in its entirety, and marginal cost pricing strategy, which is designed to push inventory without focusing on profit margins.
In full cost pricing strategy, the main objective is to yield maximum profit, hence the product margin is set against the entire business overhead that includes the overhead of each unit as well as other costs such as warehousing, electricity etc. Marginal pricing strategy, on the other hand, places the price right at the margin or within proxy of the margin. The profit levels are minimal to none since it only recovers the initial overhead cost (Blair, Fottler and Savage, 2011) . This strategy is usually used to push products from the shelves to create room for the incoming ones.
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Given a scenario of a large city, the general care hospital should be recommended to adopt a marginal pricing strategy with the price set slightly higher than the margin. The justification for this is due to the fact that large cities tend to be highly competitive, and since full cost pricing strategy thrives in a monopolistic setting, then inventory might stall indefinitely if it is considered. Implementation of marginal pricing strategy will see most inhabitants getting affordable healthcare, and since the population is huge then there will always be a substantial amount of profit, due to the economies of scale, having set the price slightly higher than the margin.
References
Newhouse, J. (2002). Pricing the priceless . Cambridge, Mass.: MIT Press.
Blair, J., Fottler, M. and Savage, G. (2011). Biennial review of health care management . Bingley, U.K.: Emerald.
Dranove, D. (1988). Pricing by non-profit institutions: the case of hospital cost-shifting. Journal of Health Economics , 7 (1), 47-57.
