Pricing Strategy in your health care organization


1.Describe a pricing strategy in your health care organization (Salisbury, NC veterans
affair hospital- Bill Heffner Hospital) for one of its services or products (e.g., a
pharmaceutical drug or a medical device).
2.Explain how costs would be taken into account when formulating that pricing strategy.
SLP Assignment Expectations
You will be expected to:
1.**Focus your response to this component of the SLP specifically on pricing strategies in
health care.
2.Implement feedback provided on earlier components of the SLP.
3.Apply principles from the background materials.
4.Provide a scholarly basis for your response.
5.Justify your opinions with evidence from the peer-reviewed literature.
6.Cite several scholarly references for this assignment.
7.Properly cite your references in the text of your essay as well as at the end.

525 SLP 4: Pricing Strategy

Question One

VA Salisbury, NC currently utilizes psychological pricing strategy in almost all medical
services that it offers. A psychological pricing strategy is an approach to pricing that involves
setting prices on products or services with the aim of influencing customers’ perceptions or
emotions (Al-Salamin and Al-Hassan, 2016). One of the services offered by VA Salisbury, NC,
and in which the use of psychological pricing strategy is evident, is rehabilitation service.
Rehabilitation services are currently offered in the Rehabilitative Medicine Department of the

525 SLP 4: PRICING STRATEGY 2
organization. Health care specialists at the Rehabilitative Medicine Department are competent
enough to serve patients with decreased mental functions which have occurred as a result of
diseases and physical injuries.
Very few health care organizations in North Carolina have the right technology to treat
patients with decreased mental functions (VA Office of Inspector General, 2008). Through its
rehabilitation service, VA Salisbury, NC seeks to attract patients with physical injuries and
infections that affect their cognitive functions. To keep customers coming back to the
organization for rehabilitation services in future, VA Salisbury, NC strives to offer services in a
manner that will enable clients to see the value for their money when they pay for such services.
With its psychological pricing strategy, VA Salisbury, NC has been able to attract new clients
who are in need of rehabilitation services, a factor that has greatly contributed to its growth and
survival (U.S Department of Veterans Affairs, 2015).
Organizations that use psychological pricing strategy often set prices of their products
and services based on emotions that their target customers have over low-priced and high-priced
items. For instance, customers in the United States market normally associate high prices with
quality. This means that customers in this region will buy highly-priced products and services as
opposed to those of lower prices (Al-Salamin and Al-Hassan, 2016). As Al-Salamin and Al-
Hassan (2016) explain, organizations that utilize psychological pricing strategy often want to
attract customers based on their emotions, but not on the rationality of the set prices. Similarly,
VA Salisbury, NC currently implements psychological pricing strategy because it wants to
attract clients by influencing their perceptions and emotions.

525 SLP 4: PRICING STRATEGY 3
VA Salisbury, NC perfectly understands that the market that it serves pays more attention
to quality than any other factor when they are selecting a health care organization that can best
address their health problems. According to Feldman (2002), it is important for an organization
to have a comprehensive knowledge of the purchasing behavior of its target customers for it to
benefit from a pricing strategy. This author further asserts that the most appropriate way through
which an organization can understand the purchasing behaviors of its customers is by conducting
a thorough market research (Feldman, 2002). VA Salisbury, NC relies extensively on market
research to gain an understanding of its customers’ attitudes and behavior before it can set prices
on its rehabilitation services.
Through a comprehensive market research, VA Salisbury, NC has discovered that most
veterans and their families perceive that highly-priced medical services are of greater quality and
more benefits than services which are charged at lower prices. For this reason, it ensures that
prices set on rehabilitation services are always relatively high for it to attract clients.
Furthermore, the organization strives to maximize the quality of its rehabilitation services by
integrating technology into service delivery. Ideally, psychological pricing strategy has
considerably helped VA Salisbury, NC to increase its market share and to scare away
competitors (VA Office of Inspector General, 2010).

Question Two

(paragraph position changed)VA, Salisbury, NC take cost into account when formulating
its psychological pricing strategy by setting prices above the costs incurred in the delivery of
care. According to Feldman (2002), profitability is a crucial factor that organizations must
consider when formulating a pricing strategy. In this regard, companies should set prices that
effectively take care of costs to avoid incurring huge losses in the long run. Furthermore, Al-

525 SLP 4: PRICING STRATEGY 4
Salamin and Al-Hassan (2016) assert that price is the only component of the marketing mix that
helps an organization to earn revenue. The other three components of the marketing mix namely;
product, promotion, and place, are the main sources of a company’s expenses. To take care of
these expenses, VA Salisbury, NC is always sure to integrate all components of the marketing
mix into the formulation of its psychological pricing strategy (U.S Department of Veterans
Affairs, 2015).
There are some costs associated with the delivery of quality rehabilitation services. The
costs that VA Salisbury often take into account when setting the most appropriate price for its
rehabilitation services are associated with; integration of technology into service delivery,
medication costs, physician compensation, treating patients without health insurance, utilization
of bed space, costs associated with diagnoses. Before coming up with the best price, VA
Salisbury, NC regularly ensures that the costs incurred in care delivery do not exceed the prices
charged for the rehabilitation services.
The quality of care delivered by VA Salisbury, NC, and which determines the price,
largely depends on the types of technological tools used by the organization in the care delivery
process (Al-Salamin and Al-Hassan, 2016). The health care organization has to purchase the
right technological tools that will enable it to come up with accurate diagnoses for various
mental health problems. This is because the accurate diagnosis of a health problem is the most
important step in delivering quality care that will promote patient outcomes. The technological
tools are extremely expensive and may negatively impact on revenue in the absence of an
effective pricing strategy. Other factors that determine delivery of quality rehabilitative care at
VA Salisbury, NC include; purchase and administration of the right medication by a qualified
physician, clean wards with enough beds, and making financial arrangements to help patients

525 SLP 4: PRICING STRATEGY 5
without health insurance to meet their health care needs. When formulating its pricing strategy,
VA Salisbury, NC strives to ensure that these costs do not prevent it from earning reasonable
profits (U.S Department of Veterans Affairs, 2015).
To come up with the best price for its rehabilitation services, VA Salisbury, NC mainly
focuses its decision making on profitability model of price selection. The company examines
price against promotion, service availability, as well as the quality of service as an essential
component of the marketing mix. In this regard, the company’s management ensures that a price
that will result into profit maximization is selected (Al-Salamin and Al-Hassan, 2016).
Additionally, VA Salisbury, NC often sets prices that will enable it to compete favorably with
rivals who may develop an interest in offering similar services. Failure to take costs into account
when formulating its pricing strategy may make the organization to fall out of competition and to
be dissolved. Since the demand for rehabilitation services may change with time due to rapid
technological advancements in the healthcare industry, VA Salisbury, NC must be sure to set
flexible prices that may be changed at any time to prevent it from incurring losses associated
with unanticipated reforms (Feldman, 2002).

References

Al-Salamin, H. & Al-Hassan, E. (2016). The impact of pricing on consumer buying behavior in
Saudi Arabia: Al-Hassa case study. European Journal of Business and Management,
8(12): 62.73.
Feldman, D. (2002). Modeling pricing strategy. Marketing Research: A Magazine of
Management and Applications, Retrieved from www.sdr-consulting.com.

525 SLP 4: PRICING STRATEGY 6
U.S Department of Veterans Affairs. (2015). W. G. (Bill) Hefner VA Medical Center Salisbury,
NC.
VA Office of Inspector General. (2008). Healthcare inspection: Mental health-related concerns
W.G Bill Hefner VA Medical Center Salisbury, North Carolina. Washington, DC:
Department of Veterans Affairs Office of Inspector General.
VA Office of Inspector General. (2010). Combined assessment program review of the W. G.
(Bill) Hefner VA Medical Center Salisbury, North Carolina. Washington, DC:
Department of Veterans Affairs Office of Inspector General.

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