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Two-part transfer pricing improves IDS financial control.
1Boston University School of Management, MA, USA.
Summary
Integrated delivery systems (IDS) should classify health maintenance organizations (HMOs) as profit centers but provider entities as expense centers. This financial control strategy optimizes patient care coordination and cost management.
Area of Science:
- Healthcare Management
- Health Economics
- Financial Accounting
Background:
- Integrated delivery systems (IDS) face challenges in coordinating patient care across diverse provider entities.
- Effective financial controls are crucial for managing costs and ensuring operational efficiency within healthcare organizations.
Purpose of the Study:
- To propose optimal financial control strategies for integrated delivery systems (IDS).
- To define appropriate responsibility center designations and transfer pricing methodologies for IDS operations.
Main Methods:
- Analysis of financial control structures within integrated delivery systems.
- Evaluation of responsibility center designations (profit vs. expense centers).
- Assessment of transfer pricing models for inter-entity transactions.
Main Results:
- Health maintenance organizations (HMOs) within an IDS are appropriately designated as profit centers.
- Provider entities within an IDS are more suitably designated as standard expense centers.
- A two-part transfer pricing model (fixed and variable costs) is recommended for HMOs purchasing care from provider entities.
Conclusions:
- Implementing distinct financial controls for HMOs and provider entities enhances IDS coordination.
- Focusing financial controls on controllable elements like fixed costs, variable costs per case, efficiency, and factor prices is essential.
- Appropriate financial structures support efficient patient care delivery and cost management in integrated healthcare settings.