Question

Your hospital has been approached by a major employer in your market area to negotiate a preferred provider arrangement. The employer is seeking a 25% discount from your current charges. Describe a structure that you might use to summarize the financial implications of this decision. Describe the factors that are critical in this decision.

Answer 1

If our hospital has been approached by a major employer in your market area to negotiate a preferred provider arrangement, we would have rejected the offer because the employer is expecting a discount of 25% discount from your current charges and it will reduce the revenues by a great extent. The financial impact of this decision would be :

1) Our revenue and income will remain impact as per our budget predictions.

2) Being the market area under our preview, so the employer has to take our services at the listed rate.

3) Cash flow of the hospital will remain positive as per the higher income.

The factors that are critical in this decision are :

a) Cash requirement : If the hospital is urgent requirement of the cash than only we accept the employers offer, otherwise not.

b) Empty capacity : If the capacity of the hospital is much vacant, than we can accept the employer's offer to fill the gap.

c) Not our market area : If the employer belongs to some other hospitals market area, then we can taken up the offer to enhance our marketing area.

d) High Margin : If the hospital is charging high margin, then the offer will be accepted as it does not affect the hospital's profitability much.

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