ii. Covering the cost of service to indigent patients, and
iii. Generating funds for up gradation and expansion of existing facilities.
The cost of producing a service becomes evident after cost finding studies. The departmental charges should be set at least to equal these costs.
Classification of hospitals into profit-oriented and nonprofit hospitals tells little about the differentiation between them.
Some profit-oriented hospitals may produce little profit from the hospital operations, not because of inefficient management, but because profit from hospital operations may be a secondary consideration.
Some hospitals are only places which are created to provide a workplace for doctors with the doctors themselves managing the hospitals.
The type of management of such hospitals, where making profit is a secondary consideration, is not much different from those of nonprofit hospitals.
On the contrary, some voluntary hospitals do follow the policy of creating an inspiring surplus, to generate funds for expansion, renewal and growth.
The operational losses are made up in such hospitals mainly through differential payment scales for the hotel services provided.
These are the basic differences between proprietary profit-making hospitals whose aim is to maximise profit and the nonprofit hospitals whose aim is to give quality care to patients many of whom may be unable to pay for it.
1. Approaches to Rate Setting:
Four different approaches are in use for determining rates for different services, and are based on:
i. Relative values,
ii. Cost plus a percentage,
iii. Hourly or time-based rates, and
iv. Gradation of accommodation and facilities.
2. Relative Values:
A procedure or a unit of service consumes the time and skill of a doctor, nurse, or technician, besides consuming material resources.
The rate per procedure or service can be fixed on the basis of time, skills and material involved.
Certain procedures, e.g. an appendectomy, cholecystectomy, herniorrhaphy, lumbar puncture, etc. require more or less the same amount of time of the surgical team. Such services or procedures are suitable for rate determination by this method.
3. Cost plus a Percentage:
This approach is applied to merchandising type of departments, viz. the pharmacy.
As the maximum permissible rate of all pharmaceutical preparations and appliances are predetermined, the actual cost of the item to the hospital, plus a margin of profit added to it make up the rate of the item. However, the percentage of profit cannot exceed the maximum permissible price.
4. Hourly Rates:
Rate setting for operation theatres, anaesthesia, ventilators, physiotherapy and a few other facilities or services can be determined by this method.
5. Gradation of Accommodation and Facilities:
Room charges and additional nursing charges are determined by the type of accommodation provided-deluxe rooms, private, semiprivate or general wards and the type of special and additional nursing requirements of the patient, based on fixed and variable costs as applicable.
There is no single best method for rate setting. One of the above methods or a combination of two methods can also be considered.
The aim is that the charges must be reasonable yet sufficient income must be generated.
Once the cost data are known, it is possible for management to fix up different rates to special patients and general patients by weighted value computation, so that there is no loss overall. Generally, the cost of free care is covered in the charges levied.
In fixing rates for accommodation, other hotel services and special facilities, the hospital must make up its philosophical and moral stance, because charging double or treble rates for nursing to a private room patient as compared to general ward patient may seem unethical to some and not to others.
Should the hospital rob Jerry to pay for Tom? Not-for-profit hospitals may consider it perfectly valid to charge more to rich patients to offset the inability of many poor patients to pay.