Sanford Health Individual Project

Sanford Health Individual Project

University of Phoenix

Economic For Managerial Decision Making (ECO)

533

Alan Beideck

October 02, 2007

Executive Summary

Table of Contents

Title Page------------------------------

Executive Summary------------------

Introduction----------------------------

Product Pricing------------------------

Costs------------------------------------

Market Structure----------------------

Economic Forecast--------------------

Conclusion-----------------------------

Sanford Health Individual Project

To obtain maximum profits, Sanford Health USD Medical Center needs to look at many factors that affect supply and demand. These factors include the determinants of supply and demand and how they affect the hospital, the laws of diminishing marginal utility and diminishing returns and their consequences, and the economic forecasts. Appling these factors to their oligopoly market structure can maximize profits by predicting how the market may change in the future and making appropriate adjustments in the pricing of the product and costs associated with the running the hospital.

Product Pricing

Utility

According to McConnell and Brue (2005), utility is "the satisfaction or pleasure a consumer obtains from the consumption of a good or service (or from the consumption of a collection of goods and services" (p. G-25). Sanford Hospital USD Medical Center's (formerly Sioux Valley Hospital USD Medical Center) mission is "dedicated to the work of healing". The physicians, nurses, and support staff take it upon themselves to help the hospital meet this mission by providing service excellence to all patients, family, and visitors. When patients are in the hospital they expect and deserve to receive high quality care, to be treated with respect, and to be kept informed on treatments and options. This includes showing compassion, empathy, and respect to both patient and families during their vulnerable times. Sanford has been recognized by the J.D. Power and Associates Distinguished Hospital Program the last three years. ""Because patients place a high value on the service aspects of their hospital stay, providing patients with a consistent, positive experience year after year is as important to hospitals as it is to any other service industry," said Steven D. Wood, senior vice president and general manager of the healthcare division of J.D. Power and Associates. "To be recognized three times shows a sustained commitment to service excellence and demonstrates the hard work of Sioux Valley's nurses, physicians and administrative staff"" (J.D. Power and Associates, 2006, p. 1). Results of Sanford's patient satisfaction surveys are generally above the national average. Sanford employees know that if patients are not satisfied with their care or stay, there are hospitals in the area that the patient can choose from in the future. Patient choosing another hospital can lead to declining admissions, decrease in the quantity demanded, and therefore, loss income of the hospital.

The Law of Diminishing Marginal Utility

The law of diminishing marginal utility states that, as consumption of a good and service increases, the marginal utility, or extra satisfaction received for each additional unit will decrease. This decreases the consumers desire to buy more of that product or service unless, the price is decreased (McConnell & Brue, 2005, p. 375).

The law of diminishing marginal utility may not hold true for healthcare services because in most cases, each time one receives healthcare services it adds value or quality to ones health. For example, a person is having extreme abdominal pain and seeks medical attention. This person receives medications to control the pain, he/she is grateful for the pain control. The patient has cholecystitis (inflammation of the gallbladder) and needs the gallbladder removed. A few days to a couple of weeks after surgery, the patient is feeling better and resumes normal activity level. A few months later, the same patient is walking and trips on the sidewalk, breaking his/her hip. The patient goes to surgery to get the hip pinned. The patient will value getting the hip fixed just as much if not more than having the gallbladder removed.

When seeking healthcare for an illness or injury, the consumer wants to feel better and for the injury to heal. Even with end-on-life care, patients (and families) want to be as comfortable as possible as they pass on. Each healthcare service provided can have as much satisfaction as the first. For these reasons, the law of diminishing marginal utility does not affect the price or decrease the quantity demanded.

Determinants of Demand

A change in one or more of the determinants of demand will affect the demand schedule and shift the demand curve to the right or left. If the determinate increases demand it will shift the demand curve to the right and if it decreases demand it will shift the demand curve to the left. (McConnell & Brue, 2005, p. 51)

Determinants of Demand

Determinant How Determinant Affects Demand of Product or Service

Consumer's tastes Sanford Hospital is one of the top hospitals in the region, offering the latest advances in medical technology and treatment options. Many consumers also desire continuity of care, wanting to receive their healthcare services from the same doctor(s) and hospitals where medical records are easily accessible. These factors shift the demand curve to the right, indicating an increase in demand. Price is generally unaffected due to the primary source of income coming from the insurance companies.

The number of consumers in the market The number of consumers in the market is increasing do to unhealthy lifestyles, the aging population, and the increased life expectancies, all on which contribute to increased chronic illnesses. These factors increase the demand for healthcare,