Optimal package pricing in healthcare services

Abstract

Fixed pricing for healthcare services is emerging as an attractive business model for private healthcare service providers. Under fixed pricing (or flat rate) contract, the patient is charged a fixed price for the healthcare services irrespective of the actual cost incurred by the hospital. Such contracts increase the risks for the healthcare service provider, thus making pricing decision crucial. In this paper, we study uncertainty and analyse the flat rate pricing contract for a profit maximising hospital to find the optimal price of treatment and examined value-at-risk (VaR) associated with such contracts for a risk minimising hospital. Bounds on price were derived to support healthcare providers with price negotiations. We extended the basic models by adding constraints to obtain risk-adjusted optimal price. We proved analytically that the optimal price lies between profit maximisation value and risk minimisation value of price, which we refer to as the efficient pricing interval. Our models and insights provide practical support to private healthcare service providers for optimal pricing and keep them informed about their risk position.