Cambridge Transplant Center Case Solution
Cambridge Transplant Center (the Center) is a part of University Healthcare System, which is the regional leader in the intense area of organ transplantation. Out of all the organ programs at the center, one of the most successful program was liver transplant program in both volume of procedures as well as the number of transplants performed. The phases of the transplant process are:evaluation of patient, awaiting surgery of patient care, organ procurement, surgery and in-patient stay as well as one-year of follow-up visits. There are two categories of phase four oriented cost, including:physicians cost and hospital cost. The primary concern is to bring cost efficiency at the Center, due to which the cost of phase four must be reduced,because the average cost of the patient for phase four, amounts $119805 for 19 days stay.
The Center is presented with the achievement of goals related to fixed reimbursement to prose contract negotiation for phase four hospital services and methods for effective handling of outliers, including: additional reimbursement scheme and threshold amount and reduction in the overall costs incurring to the hospital.
Should the hospital worry about a long-term pricing strategy, or is it sufficient to think only of the first-year contract?
Signing a contract with LTNET would be beneficial for the hospital as Life-care Transplant Network (LTNET)is committed to pay a fixed amount per physician-work related to the value unit. But, the negotiation is vulnerable to the high cost of phase four and LTNET is less willing to sign a contract that tends to pay 120000 dollars to the hospital to cover the phase four’s costs incurred by the hospital. The hospital should stress over the significance of signing the contract with LTNET as it is being pressurized to cover the fixed cost.
The company should be concerned regarding the long-term-pricing strategy on account of the fact that the long-term pricing method tends to capture the fixed cost being incurred by the company; whereas, the marginal cost pricing is not acceptable for long-term pricing setting as it would result in prices that could be unable to capture the company’s fixed cost. By stressing over the significance of long term pricing, the company would be able to increase its profits and its revenues by focusing on the fixed cost. The company should make contract with LTNET on long term basis rather than thinking only about the first year’s contract. Thus, the marginal cost of the phase four hospital services, is calculated at the marginal volume of 30 or less patients, which amounts $3194.8 ad if the marginal volume increases over 30 transplants, there would be an increase in the marginal fixed cost between the ranges, i.e. 15 percent to 25 percent. The marginal cost associated with the new contract volume, amounts $186496.45; whereas the average marginal cost per transplant would be $6016. The lowest average marginal cost per transplant could be yielded by assuming low fixed cost and high volumes, which are of paramount importance in ensuring LTNET that the hospital would be engaged in performing more transplants, in near future.
In order to yield greater benefits from the negotiation with LTNET; the hospital needs to think beyond the first year’s contract and it should try to convince LTNET through cost reduction and viability of transplants to be performed in the forthcoming years……………….
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