title: Pricing hospital care: Global budgets and marginal pricing strategies.
abstract: OBJECTIVE
  The Canadian province of British Columbia (BC) is adding financial incentives to increase the volume of surgeries provided by hospitals using a marginal pricing approach. The objective of this study is to calculate marginal costs of surgeries based on assumptions regarding hospitals' availability of labor and equipment.
  
  
  METHODS
  This study is based on observational clinical, administrative and financial data generated by hospitals. Hospital inpatient and outpatient discharge summaries from the province are linked with detailed activity-based costing information, stratified by assigned case mix categorizations.
  
  
  METHODS
  To reflect a range of operating constraints governing hospitals' ability to increase their volume of surgeries, a number of scenarios are proposed. Under these scenarios, estimated marginal costs are calculated and compared to prices being offered as incentives to hospitals.
  
  
  RESULTS
  Existing data can be used to support alternative strategies for pricing hospital care. Prices for inpatient surgeries do not generate positive margins under a range of operating scenarios. Hip and knee surgeries generate surpluses for hospitals even under the most costly labor conditions and are expected to generate additional volume.
  
  
  CONCLUSIONS
  In health systems that wish to fine-tune financial incentives, setting prices that create incentives for additional volume should reflect knowledge of hospitals' underlying cost structures. Possible implications of mis-pricing include no response to the incentives or uneven increases in supply.
authors.affiliation: Centre for Health Services and Policy Research, School of Population and Public Health, University of British Columbia, Vancouver, BC, Canada V6T 1Z3. Electronic address: jsutherland@chspr.ubc.ca.
authors.forename: Jason M
authors.initials: JM
authors.lastname: Sutherland
mesh_terms: D002017:Budgets; D004469:Economics, Hospital / Q000458:organization & administration; D005251:Fees, Medical; D017721:Hospital Costs; D006801:Humans; D013514:Surgical Procedures, Operative / Q000191:economics / Q000706:statistics & numerical data
keywords: Global budgets; Hospital payment; Hospital prices; Marginal cost; Marginal price