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Pricing in a medical practice

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You are the administrator for a medical practice. The majority of your patients is covered by a certain insurance plan. The insurer has revised patient cost sharing for some services.

Service Patient's Share
old new
1 20% 30%
2 10% 10%
3 20% 10%

Estimate what will happen to the revenue of the practice. Use the concept of price elasticity to make the projection. Assume that price elasticity for patients in good or excellent health is â?"0.35 and for patients in fair or poor health â?"0.16. Currently, the patients' health and fee charged for three services are as follows:

Service Patients' Health Fee Charged
Good or Excellent Fair or Poor
1 70% 30% $200
2 50% 50% $100
3 35% 65% $50

Based on your analysis, make recommendations about the fee charged by the practice.

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Solution Preview

Let's look at how the new cost sharing will change the prices patients will pay. For example, for service three the old copay was $10, but now it's $5. This is a 50% decrease. Thus we have:

Service Fee Charged % Change in price (Patient's share)
Good or Excellent Fair or Poor
1 70% 30% $200 +30%
2 50% 50% $100 + 0%
3 35% 65% $50 ...

Solution Summary

Optimal pricing for medical services