HMGT 335 UMUC Health Care Marketing Discussion

Week 6 Discussion

Week 6 Discussion – Responsibility

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Who’s responsibility is it to communicate pricing to patients (hospitals, government, insurance companies, physicians, others)?

Week 6
Designing the Marketing
Mix:
Price and Place Decisions
HMGT 335
Health Services Marketing
University of Maryland University College
HMGT 335 – HEALTH CARE MARKETING – WEEK 6
Week 6 Readings
• Journal Articles:
– ALEXANDER, SHERI. “Next Steps And New Tools: Transparency And
Reference-Based Pricing.” Employee Benefit Plan Review 68.5
(2013): 20-21. Business Source Complete. Web. 23 Mar. 2014.
– Lambert Paul. Haggard, Mary, “Develop your distribution strategy”,
Managed Healthcare Executive. May 15, 2013. Available online at:
http://managedhealthcareexecutive.modernmedicine.com/manag
ed-healthcare-executive/news/develop-your-distributionstrategy?page=full
• Online Text: Core Concepts in Marketing
– Chapter 9, “Pricing the product”
– Chapter 10, “Channel concepts, distributing the product”
HMGT 335 – HEALTH CARE MARKETING – WEEK 6
Week 6 Objectives
1.
Second and third element in the marketing mix
– “P”rice – copayments, deductible, per diem, fee
– “P”lace – pathways of services or benefits from producer or provider to end user
2.
Setting a price for a health service
3.
Identify ways consumers evaluate health services prices
4.
Identify the role of government and private payers in the pricing of health
services
5.
Understand how health services prices adapt to meet needs of the customer
6.
Define a marketing channel system and value network
7.
Design a health care delivery channel
HMGT 335 – HEALTH CARE MARKETING – WEEK 6
1. Setting a price for a health service
• What is the lowest price we can charge? This is the price floor
and based on a break-even analysis
• What is the highest price we can charge? This is the price ceiling
based on the consumer’s perceived value of the service and may
be significantly higher than break even.
• The price point will be somewhere in between these two
extremes factoring in other variables such as:

Third party payer negotiated prices, copays and deductibles

Competition or lack of competition

Organization’s expectation for return on investment

Government guidelines
HMGT 335 – HEALTH CARE MARKETING – WEEK 6
2. How consumers evaluate health services prices
• Consumers seek utility from their purchases
– Time utility – Timeliness of health service
(emergency room services, urgent care center, one
day teeth whitening, for example.
– Possession utility – the ability to own the health
service or product, drugs, medical equipment,
nutritional products, for example.
– Place utility – Convenience of the health service,
convenience of getting to and from the health
service
HMGT 335 – HEALTH CARE MARKETING – WEEK 6
3. Role of government and private payers in pricing
health services
• Reference-based pricing – payers develop a set of standard
prices in a geographic area and establish a cap on that amount.
• Affordable Healthcare Act, most significant change to health
service pricing ever!

Incentivizes consumers to chose providers who charge at or below
the reference price

Punishes consumers who chose providers who charge more than
the reference price
• Federal Drug Administration (FDA) approves price of proprietary
prescription drugs
• Other government agencies can impact all four marketing mix
elements
HMGT 335 – HEALTH CARE MARKETING – WEEK 6
4. Adapting pricing strategy to meet needs of the
health services customer

Prices can vary based on regional demand and costs, target market requirements, timing,
order levels, frequency, guarantees, contracts and other factors

Price adaption strategies include:

Geographic pricing – based on specific regions

Discount pricing– giving a discount based on a consumer behavior such as early payment

Promotion pricing – a short-term discount of a product/service for purposes of stimulating extra
demand.

Differentiated pricing – Different prices for different customer groups, different prices for volume of
purchase

Image pricing – Brand name or generic product/service

Channel pricing – Based on the number of members in the value delivery network before service gets
to customer

Time pricing – based on calendar events such as day of the week

Location pricing – Services provided in high cost facilities will require a higher price than same service
elsewhere
HMGT 335 – HEALTH CARE MARKETING – WEEK 6
5. Channel systems and value delivery networks
▪ Marketing channel: An organized network (system) of agencies
and institutions which, in combination, perform all the functions
required to link health service organizations with end customers
to accomplish the marketing task.
▪ Value delivery network: A marketing channel including the
organization, suppliers, distributors and customers who partner
with each other to ensure ultimate delivery of customer value to
meet and exceed customer expectations.
▪ Channel design begins with understanding the consumers’
needs. All members in the value delivery network strive to meet
the customer’s needs most efficiently and effectively.
HMGT 335 – HEALTH CARE MARKETING – WEEK 6
6. Designing a health services value delivery network
▪ What does the customer of the health service need?
▪ Examples of health services customer needs


The right number of units

The shortest wait time

Access to information

Variety of services

Ease of purchase

Ease of payment

After purchase service
Ideal channel will match the channels with the customer needs
HMGT 335 – HEALTH CARE MARKETING – WEEK 6
How many channel members are needed to meet
customer needs?

Direct channel: Service provider or product manufacturer directly meets the
customer’s needs. Internet sales can be direct channel (e.g. Weight Watchers
Online)

Indirect channel: More than one channel involved.

Exclusive distribution: Useful for services and products requiring a high level of technical
and medical knowledge, usually involve patented products. Few channel intermediaries.

Selective distribution: Service or products available at a few specially picked distributors.
Useful for specialized health services that have some diffentiated feature from
competitors, e.g. Mayo Clinic brand image differentiation, Lasik Eye product
differentiation. Select number of channel intermediaries.

Intensive distribution: Service or products are relatively the same in the eyes of the
consumers and are available wherever such products or services would be expected to be
found. Over the counter drugs and health aids and equipment, weight loss programs.
Many channel intermediaries.
HMGT 335 – HEALTH CARE MARKETING – WEEK 6
Which channel members should be included?
▪ Include only those organizations and intermediaries that
absolutely need to be included in a system to deliver the
customer’s perceived value, and
▪ Include only those organizations and intermediaries who share
the organization’s commitment to providing a quality
patient/client experience.

If quality control and cost containment are important, might chose a vertical
channel system where organization controls all or most channel functions (e.g.
wholly owned health networks or franchise systems)

If specialized expertise or market coverage are important, might chose a horizontal
channel system where health service organization partners with other organizations
that have the expertise to perform a specific channel function (pharmacies contract
with drug manufacturers and logistics providers)
HMGT 335 – HEALTH CARE MARKETING – WEEK 6
Week 6 additional sources
• Check out this article
on 10 characteristics
of effective pricing for
health care products
for transparency
• Available online at:
• http://www.beckersh
ospitalreview.com/fin
ance/10characteristics-ofeffective-healthcareprice-transparencytools.html
Example of health care channels
HMGT 335 – HEALTH CARE MARKETING – WEEK 6
Week 6 Activities
• Review the overview and ask questions in the LEO
discussion
• Participate in LEO discussions on this week’s
journal articles on pricing transparency,
referenced based pricing and distribution strategy
• Prepare and submit Written Assignment 3

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