Pricing hospital units of service using microcosting techniques

Traditionally, pricing of hospital-based ancillary and diagnostic services has been a reactionary response to a cost-based budgeting system. Revenue objectives have been determined by budgeted costs, new development, contractual allowances, and required net income. Since hospitals have found it difficult to accurately measure the costs of specific services, price setting has been reserved solely for senior management or for the financial division. Thus, operating managers and their professional (medico-administrative) counterparts have had little opportunity to participate in the price-setting process and, for the most part, have had little understanding of the cost components which should be analyzed before the rates are set. A great deal of confusion and questioning has developed surrounding the establishment of prices at the departmental level. Although hospitals have given some consideration to market forces, this element in the new competitive environment will have a greater impact on the services purchased by the various payors.