Executive Summary
The notion of service products directly relates to the service economy, which suffered noticeable economic developments recently. Among these developments are increased role of the service sector in industrialized economies and increased percentage of GDP for the last twenty years. It is worth noting that most companies having leading positions in the world economy are service companies. One example of a service company is IBM, which eventually sees itself as a company offering business solutions rather than the company offering hardware.
The author has chosen Clark Manor nursing home in Massachusetts as a nursing home care provider for this report. The nursing homes industry is the leading provider of long-term care. Due to permanent aging of the nation and increasing longevity, services provided by nursing homes represent increasingly important sector of national health economy.
Objective of the report is to provide the nursing home’s marketing board with recommendations as to the best possible pricing strategy that might increase the firm’s revenue, minimize payment rates and attract more patients. As a multi-nursing home corporation, Clark Manor nursing home currently uses geographical pricing strategy that allows differentiating pricing appropriate to the region served. The author of the report is going to recommend the marketing director of the home to consider using economy pricing along with product line pricing that will possibly bring optimum results to the firm.
The report discusses the following issues: the idea of a service product; nursing home care in service economy; Clark Manor Nursing Home a nursing home care provider; service process at Clark manor; Pricing at Clark Manor; and author’s recommendations.
The first section will discuss the issue of a service product as neither a product, nor a service. Particularly, it will be mentioned that the dichotomy between both ideas has currently been transformed into the idea of service-product continuum that erases difference between the two notions and offers new correlation.
Section 2 describes nursing home care as one of the forms of health care services and discusses the service in terms of service economy and service marketing. Due to the nature of nursing home care, it would be most appropriate to determine this form of care as the service product. Among other services that can be defined as service products (to name a few) are real estate, insurance, accounting, television, data processing, transport, electric power, etc. Also, the report discusses Clark Manor nursing home as the chosen care provider. Clark Manor nursing home is the nursing home with both resident and family facilities, 162 certified beds, as defined at Medicaid official website (see link below). The nursing home is both Medicare and Medicaid certified. Further in the report the author gives brief overview of services provided by the home and indicates which services are included in daily charges and which are not. It is noteworthy that although the home provides care at the highest national rates, many seemingly basic services are not included.
Another section of the report discusses the home’s pricing in all possible aspects such as actual pricing, pricing related problems, pricing options, pricing strategies, and strengths and weaknesses of the existing pricing strategies.
Finally, the author comments upon possible use of additional pricing strategies. He recommends considering implementation of both economy pricing and product line pricing that would establish optimum pricing for the firm while reducing service production costs and increasing revenue.
Table of Contents
- 1.0. What is a service product?
2.0. Nursing home care as a service product
3.0. Service provider: Clark Manor nursing home
4.0. Service overview
5.0. Pricing- 5.1. Nursing home care pricing: Clark Manor vs. Massachusetts
5.2. Pricing options
5.3. Existing pricing strategies, their strengths and weaknesses
6.0. Recommendations
7.0. Appendix A
7.1. Table 1. Quality measures
7.2. Table 2. Licensed nursing staff
7.3. Flow Chart 1. Pricing Strategy Implementation
8.0. References - 5.1. Nursing home care pricing: Clark Manor vs. Massachusetts
1.0. What is a service product?
Michael Braungart and Bill McDonough defined in their Ecological intelligent Design three types of products: consumables, unsaleables, and service products. According to their definition, "durables including cars and television sets are called service products because what we want as customers is the service the product provides – food, entertainment, or transportation. To eliminate the concept of waste, service products would not be sold, but effectively leased to the user." (Levit 1981, p.38)
The notion of service products directly relates to the service economy, which suffered noticeable economic developments recently. Among these developments are increased role of the service sector in industrialized economies and increased percentage of GDP for the last twenty years. It is worth noting that most companies having leading positions in the world economy are service companies.
Service product is neither service, nor product. The term is rather used to define the share of service that product consumption brings. This notion is also known in management theory as the servitization of products. The idea that nowadays many products have been more services than products refers to a service-centric view of modern economy.
One example of a service company is IBM, which eventually sees itself as a company offering business solutions rather than the company offering hardware. Specialists at IBM have found that the elasticity of demand for IT solutions is not as elastic as for hardware (Levit 1981, p. 46).
As it was previously mentioned, the service sector of the world economy has been increasing. Today, the dichotomy between the ideas of service and product is transformed in the notion of service-product continuum. In the health care industry, any form of care is rather a service product than any of these notions separately.
2.0. Nursing home care as a service product
Due to the nature of nursing home care, it would be most appropriate to determine this form of care as the service product. Among other services that can be defined as service products (to name a few) are real estate, insurance, accounting, television, data processing, transport, electric power, etc.
The nursing homes industry is the leading provider of long-term care. Due to permanent aging of the nation and increasing longevity, services provided by nursing homes represent increasingly important sector of national health economy. Thus, for the last decade nursing home expenditures increased by 0.4 percent and now represent 1.2 percent of GNP.
However, nursing homes industry, though major sector of the national health economy, still encounters public discontent as regards the cost containment, quality of services, and access to long-term care. These concerns generally refer to three major problems: (a) long-term care is not easily accessible; (b) quality of services is poor; and (c) long-term home care leads to long-term financial problems of a payee due to high cost of care (Ashwood 2002).
The author has chosen Clark Manor nursing home in Massachusetts as a nursing home care provider for this report.
3.0. Clark Manor nursing home care provider
Clark Manor nursing home is the nursing home with both resident and family facilities, 162 certified beds, as defined at Medicaid official website. The nursing home is both Medicare and Medicaid certified. The information in Appendix A is divided into three groups: quality measures, nursing home staffing, and inspection results provided by Medicaid specialists. Quality measures are based on resident assessment data collected by nursing home staff o a routine basis. Nursing home staffing data is based on reports provided by the home on a regular basis. Finally, inspection results are based on the information about ‘regulatory requirements that the nursing home failed to meet’ (Medicare official website).
Table 1 in Appendix A reflects the level of quality provided by the nursing home. The author will return to the issue of quality later in this report. The data provided in the table will be useful for future quality assessment and the elaboration of case mix for this [particular nursing home.
As for nursing home staffing, Medicaid provides following information on Clark Manor nursing home: Clark Manor accounts for 143 residents as compared to 172.8 sate average and 95 National Average. Information on nurse staffing is given in Table 2 (see Appendix A).
The data in Table 2 is retrieved from Medicaid official website. The data could be useful for staff performance assessment, which will be discussed later in this report.
Medicaid also provides information that refers to the home inspection’s results. The data provided is comparatively up-to-date (last record provided on 10/31/2005).
During the inspection, inspectors determined that Clark Manor nursing home failed to respond properly in 9 potential situations and concluded that:
- 1. Each patient was not watched properly. Inspectors registered cases, in which patients had no access to assistance devices when they needed them.
2. More than a half of patients received less care and services than they should.
3. The quality level of services did not always meet the quality standards.
4. the home failed to provide proper care for residents who need specialized care and require technically sophisticated services such as injections, foot care, ureostomy, thracheostomy, respiratory care, etc.
5. Clark Manor nursing home does not have a complete care plan that would allow residents to use all services properly and at the highest quality level. Particularly, inspectors found no timetables and other plans that should be used by any nursing home.
6. The home staff did not provide residential assessment data on a regular basis, which disabled proper monitoring of residents’ health.
7. Food served to patients was not stored and cooked properly.
8. Drugs were not always properly stored.
9. A resident who caught infection was not always isolated from the other. Inspectors registered cases where infection spread could be localize and stopped if a resident was separated from the rest.
To sum up all mentioned above, Clark Manor nursing home is the facility that provides comparatively high quality health care, e.g. the percentage of patients who need specialized care is generally higher as compared to state/national data, which requires higher standards of care in general. Also, nurse staffing in the nursing home shows higher rates as compared to both national and state indices as well. Finally, Medicaid inspection results give ground to conclude on ‘blank spots’ and to correct the mistakes by the future inspections. the detailed information given in this report above will be used to comment on quality of services and staff performance, which, in turn, will give ground to assume potential pricing strategies to be used by the nursing home.
4.0. Service Overview
Clark Manor is the nursing home care provider certified in 1990. Clark Manor provides short term care, long term care, and post-acute care to both private and public patients. Among medical services offered to Clark manor patients are 24 hour professional nursing services, physician services, psychological/social rehabilitative programs, physical therapy, occupational therapy, speech therapy, iv therapy, respiratory therapy, whirlpool treatments, activity programs, respite & hospice care, podiatry, dental and optometry services, x-ray & laboratory services, outstanding dietary services, modern spacious facility, tastefully appointed accommodations, housekeeping services, laundry services, beauty & barber shop, religious services, social services, and community outings (The Official Clark Manor Nursing Home website).
Although mentioned at the official website, such services as barber shop, dental services, x-ray, and laundry are not included in service price.
5.0. Pricing
Health care services pricing still remains unresolved issue. Patients, both private and public, suffer from three major defects of modern health care industry: low quality of care, limited access to care, and high cost of services related to care and living assistance. All three factors are interconnected as the level of quality directly depends on reimbursements to the home, access to quality care derives from Medicaid limitations, which in turn derive from market revenue and are calculated annually, and payment rates are affected by severe limitations by Medicaid that minimize home’s revenue through reimbursement percentage. Our current task is to resolve the problem by deciding upon the new pricing strategy for Clark Manor nursing home that would lower barriers for patients to enter, increase the quality of care and popularize the service among patients who need professional help, but use alternative forms of care due to permanently increasing rates (Vandermerwe & Rada 1998).
5.1. Nursing home care pricing: Clark Manor vs. Massachusetts
Nursing home care remains the most expensive form of care in the United States. According to 2002 statistics (Massachusetts Division of Health Care Finance and Policy data files for median charge, January 2002), average charge for private patients in Massachusetts was $210 per day. This givers ground to conclude that at this rate the average cost of nursing home care approximates $76,000 per year, though rates exceeding $100,000 per year are not surprising for private pay patients in many nursing homes throughout the state (Ashwood 2002).
It should also be noticed here that assisted living as an alternative form of care is twice as cheaper as compared to nursing home care. The Massachusetts Assisted Living Facilities Association (January 2002 as noted in 2002 Resources Guide) indicates that the average annual assisted living including rent, electricity, food, laundry, etc costs payees approximately $36,000. Another alternative form of care, home care, is usually cheaper than nursing home services. Statistics show that in 2001 in Massachusetts average cost of home care per day was approximately $44 (Massachusetts Division of Health Care Finance and Policy, January 2002 derived from 1997 data published in the Federal Register standardized for case-mix, adjusted for the eastern Massachusetts wage area factor, and update for inflation). Pricing for home care varies dependently on frequency of aide’s visits and the type of services (Ebersole & Hess 1998). Another important aspect of nursing home care pricing is that the inflation rates in the industry play significant role. Thus, it is known that long term care cost increases by approximately 5% every year (Ashwood 2002). This means that in 15 years rates for nursing home care services will double.
Clark Manor nursing home care rates average $195 per one day for private pay patients. The rate includes all basic services like food, therapies, physician services, and laundry. Additional services like barber shop, x-ray, or dietary services are charged separately. Rates at Clark Manor are lower than the average rates throughout the state. However, $210 per day in a nursing home is the highest daily charge in the United States. National average charge approximates $158 (Health, United States, 2001, Department of Health and Human Services CDC, compiled by ElderWeb (www.elderweb.com) from data available from http://www.cdc.gov/nchs/hus.htm). Once again, we should remember that payment rates are heavily affected by Medicaid regulations, which set strict reimbursement limits for every particular home taking into consideration state statistics.
5.2. Pricing options
When assessing pricing issues that need to be taken into consideration when determining the pricing strategy for the firm, the following issues should be included:
- 1. Geography of the service
2. Facilities
3. Reimbursement sources
4. Staff performance
5. Competition
Demographics of the service directly affect the demand trends. One of the most important factors that influence the geographic distribution of service products is a nursing home’s occupancy level. Another issue that should be given proper weigh is that some states regulate demand for service products within the industry by vetoing construction of new facilities.
Condition of facilities is another issue that is equally important in service product pricing. Actors that need to be taken into account here are (a) age of a facility; (b) general condition; (c) ownership of a facility; (d) capacity constants; and (e) requirements as to future expenditures (Ashwood 2002). According to statistics, nursing homes in the United States nee to spend over $420 billion including nearly $230 billion for new beds, $120 billion for replacing beds, and over $70 billion for the working capital by 2010. The issue is even more urgent as it is directly related to the issue of reimbursement, which is very vital in the United States, where payment rates are controlled by programs like Medicare and Medicaid. Facilities have certain control over a firm’s profitability and thus pricing as new beds could be funded from a firm’s earnings. However, another aspect is that the issue is dependent on the reimbursement rates that could not be controlled by the firm’s management (Vandermerwe & Rada 1998, p. 84).
Reimbursement is the issue that generally allows nursing homes more elastic price limits. Among sources of reimbursement the issues of governmentally-regulated incentives, insurance, and Medicaid reimbursements are the most widely discussed.
The question of establishing nursing home insurance for private patients was raised in response to the increasing level of long-term care expenses. It is not a secret that nearly 25 percent of private patients stay in a nursing home for more than a year, which, according to 2005 statistics, costs them $112 to $155 per day. Thus, due to high costs of long-term care private patients have to spend all their income on care.
Essentially, private nursing home insurance guarantees distinctly decreased payment rates during the first months in a nursing home. Nursing home insurance for private patients reduces the cost of care at admission. Private nursing home insurance establishment would lead to positive results not only for private nursing home users, but for nursing home industry in particular. Reduction in cost for private patients would distinctively lower the barrier for admission and thus would higher the level of demand for long-term care in the private sector. Moreover, since nursing homes’ primary task is to provide substitute for home/family care in a new living environment, private patient nursing home insurance establishment could provide a stronger moral background for the service of health care (Ebersole & Hess 1998).
Another important issue that is worth analyzing is the major reimbursement source for the firm in the United States, Medicaid. In the U.S. nursing home industry, Medicaid as the reimbursement source is the most important factor affecting profitability and pricing strategy in general.
The mechanism for reimbursement in the United States is based on three major principles. First, payment rates for every nursing home are determined resting on nursing homes’ financial indices (allowable expenditures) for the previous fiscal year adjusted for annual inflation. Second, when determining payment rates for a nursing home, specialists consider a nursing home’s case mix, which shows the distribution of services among patients and demand for a service. Third, every geographic region has its own reimbursement limits.
This report focuses on the aspects of the reimbursement system that relate to resident care, administration, and operation. It has been found that it is possible for long-term care providers to earn operating revenue within the system offered by Medicaid. Medicaid provides for the opportunity to earn efficiency incentives that reach $2 per resident day. Recent studies show that nearly 80 percent of nursing homes throughout the United States do earn efficiency incentives. Moreover, 50 percent of them earn maximum possible payments (Ebersole & Hess 1998). As a matter of fact, all nursing homes, including non-profit, city-county, and profit nursing homes, spend costs on non-nursing services such as laundry, maintenance, administration, housekeeping, etc. A more serious control over these costs would enhance nursing homes’ profitability and thus allow lowering all possible prices. Same research shows that a fair part of expenses by nursing homes proved to be ineligible for reimbursement, which is directly related to a nursing home’s profitability and thus to cost of service products.
As it was previously mentioned, the demand for nursing home services comes from two different groups of consumers – private patients and public patients. Indemnity insurance is another aspect that adds to the demand from private users. According to Scanlon (1980), Palmer, Vogel (1983), and Nyman (1985) who applied the theory of the firm to nursing homes, permanently decreasing demand for a firm’s service product from private patients indicates monopolistic competition (as cited in Vandermerwe & Rada 1998).
The number of Medicaid days for Medicaid patients is not limited and is supplied at the public price since the demand for nursing homes’ service products is permanently high. It is assumed that profit maximizing nursing homes set the output rates so that marginal cost equals marginal revenue. The profit maximizing nursing home that receives fixed reimbursement rates for Medicaid patients should organize public care so that margin revenue from private patients is equal to margin revenue from public patients. Also, the theory suggests that the firm should reach its optimum firm size where the assertion that marginal cost equals marginal revenue from public patients would be legitimate.
It is commonly known that Medicaid’s presence in the market causes increased pricing in private segment due to high public demand and severe outside control. However, there are other factors that cause high prices in private demand such as spend-down phenomenon. There is a group of patients who soon or later will spend down and price of a service is only the rate at which their assets will be spent down completely. For these patients price differentiation is insignificant. Moreover, the number of such patients is constantly growing which means that for more patients bankruptcy is only a matter of time (Ashwood 2002).
The negative aspect of the segmentation of the market and its strict regulation is that since the long-term care industry is divided into two segments, the products of the care providers are likely to differ for each segment in quality, quantity, and, of course, price. In contrast, one positive aspect is that patients who are not able to pay for expensive care can access it on Medicaid’s terms (Ebersole & Hess 1998).
Medicaid provides resistance to small shifts in demand for private patients who were insured. Indemnity payment insurance for private patients sets reimbursement rate for a facility regardless the number of patients. Even incase the demand for a facility increases, reimbursement rate remains fixed. However, this applies only to small shifts in demand. In case the industry expands naturally to meet private demand, price for service products will increase respectively due to increase in marginal cost of the industry in general. Also, prices will increase for specific products in case private demand for quality grows. Moreover, if due to reduction in public access to long-term care caused by private insurance Medicaid starts lifting supply constraints and increasing reimbursement rates, private prices along with overall firms’ expenditures will also increase.
The situation with the nursing home industry is far from ideal competitive model as Medicaid and other regulative factors do not allow free competition in the market. Furthermore, private nursing home insurance is another factor that diverges the market from an idea of normal competition. Incentives for long-term care providers as well as for consumers would bring the market to a more competitive environment and improve quality, quantity, and pricing of service products.
As it was mentioned previously in the paper, Medicaid reimbursement system is set on a prospective basis. All states in the U.S. except for 6 states adopted either this system of reimbursement or some combination of prospective and retrospective payments. Insufficient payment rates set by Medicaid have led to discussion as to how to stimulate nursing homes and to satisfy their reimbursement needs. Some states have adopted incentive programs that share marginal cost between the home and the state by 60/40. This means that nursing homes can save 40 percent of the difference between Medicaid reimbursement rate and the actual cost of care. There are states that offer 100 percent of the difference for efficiency.
Staff performance is one of the core issues in determining the price for a service product as the matter here concerns the quality and productivity of nursing homes specialists who are the immediate care providers. Facility condition may influence pricing of the firm, but this factor would not have as much effect on price formation as quality of care and productivity of staff would.
Among major factors that affect pricing of a nursing home are: (a) appropriate quality of care; (b) appropriate return on investment to nursing home owners; and (c) appropriate supply of beds for a home. Any changes in any of the three factors should result in a fairer rate. However, there is another factor that would adjust pricing for long-term care in nursing homes in accordance to patient characteristics – case mix. Using a case mix system could result in lower prices for patients who need basic care and appropriately higher rates for patients who are terminally ill or need special care. The approach may adjust pricing proportionally to the level of quality of care thus setting a fairer pricing for patients. Nevertheless, one of the basic problems that the approach has in a while encountered is that evaluation is based on absolutely subjective estimations.
Nyman, Bricker, and Link conducted a study in 1990. The study was aimed at analysis of productivity in 296 homes throughout the United States. The authors also incorporated quality and case-mix measures in the study. It was concluded that higher level of productivity corresponds to profit nursing homes and larger than the average homes. This gave ground to conclude that marginal improvements in quality of services were due to extra staffing. The authors suggested that nursing homes provide additional costs for extra staffing in order to improve productivity indices. Nyman, Bricker, and Link concluded that "the relationship between reimbursements and quality is complex and may be counterintuitive under excess demand conditions" (Nyman, Bricker, and Link 1990, p. 550 as cited in Levit 1981, p. 135). Another way for productivity augmentation is increased reimbursement rate for nursing homes from Medicaid. However, these are not about to change in the nearest future.
The idea of competitive market incorporates two issues that would improve the competitive situation in the nursing home industry. On the one hand it is informed consumers; on the other hand it is care providers seeking ways to maximize the difference between cost and revenue. Though the market is hard to achieve desirable effects because of knowledge barriers, small service differentiation, choice limitations, governmental regulations, and imperfect financing, it is still possible to improve the situation using strengths of the market to reduce such problems as cost containment, over-consumption, low quality and productivity, and limited access to care.
Though heavy problems exist in the market, the demand for service products within nursing home market is still high. Thus, nearly 40 percent of patients in the United States pay for themselves; the demand in Australia remains high as well (Ashwood 2002). Also, consumers voluntarily choose nursing homes as a care environment as an alternative to their previous milieus and pay for services on their own at prices determined by homes. Also, some nursing homes have their waiting lists, which indicates that patients agree to wait for admission although other forms of care are available.
Alternatives to nursing homes make demand for long-term care more elastic thus providing consumers with broader choice. Nursing home patients are able to choose between such forms of care as nursing home care, supportive care received from relatives, or paid home care.
Nursing home patients are free to choose among many options provided by nursing home. Basic care is not sophisticated and does not require prescription. Nursing home environment is sufficient for living and accomplishing daily tasks. Nursing homes also provide additional options for patients who require a more quality care and cannot perform their daily actions.
As a mater o fact, many patients have their own preferences as to nursing homes. Some patients choose homes from considerations of distance. Many patients do not want to move far and to lose contacts with their relatives or friends. Also, there are homes that run affiliate programs with organizations, churches, etc., which brings the home additional patients.
Despite the fact that the demand for home nursing services is permanently growing, sometimes it is difficult for caregivers to mobilize particular services for specific patients. Nursing homes are able provide all their services together.
Another factor affecting consumers’ choice is naturally low frequency of changing homes by patients. This factor weighs even more in cases with physically disabled patients and those requiring technically sophisticated care.
It is worth mentioning that the number of potential patients who are able to pay for themselves and are free to choose among nursing homes is enough to increase market outcomes on conditions that price is equal to marginal cost and that due to increased demand same price for service products implies additional quality equal incremental cost. Distribution of information about nursing homes and their services also may lead to increased demand and enhanced differentiation of services.
Customer attraction is one of the least developed issues that affect pricing in the nursing home industry. High payment rates constitute the major obstacle to high demand for services in the industry. To increase customer attraction, Nyman, a long-term care industry researcher, suggested that payment mechanisms be built as follows: nursing homes are reimbursed with fixed percentage of the price for private services; the percentage increases as increases the percentage of private patients using home’s services. Nyman’s experiments show that in homes that received fixed percentage of the price the quality of care increased respectively and, what is even more important, cost for homes and price for private patients decreased.
Another strategy that was used by some nursing homes to attract private-pay buyers and to adjust the staff to specific patients’ needs is called the teaching nursing home. The strategy developers took into account that private service users are price-sensitive. High price for long-term care is the major problem for service users; therefore the service must attract patients on a quality basis. Teaching nursing home strategy is aimed at high standards of cost behavior appropriate to high price that long-term care patients pay for.
There are nursing homes that broadened their scope of service to greater level that allows greater revenue – they combined long-term care with post-acute, rehabilitative, and other resembling forms of care.
5.3. Existing pricing strategies, their strengths and weaknesses
Clark Manor nursing home currently uses geographical pricing. The home operates in several states and represents chain ownership.
Geographical pricing is used where there is geographical differentiation of the product and where firms are able to sell products for different price without any loss in revenue.
Strengths of the strategy include possibility of reducing pricing in compliance with state average rates and both governmental and Medicaid regulations. Geographical pricing strategy allows Clark Manor to meet patients’ demand in accordance to their payment possibilities and not to exceed (mostly) the average state rates. It is known that in Texas, Clark Manor patients are charged $121 per resident day, while in Washington payment rates estimate approximately $189 (The Official Clark Manor Nursing Home website).
Nevertheless, the strategy will remain ineffective as long as other strategies are not used. Charges for nursing home care services a re still high for the majority of potential patients. Along with geographical pricing, several other pricing strategies are available. Among these are economy pricing and product line pricing. The author will return to the issue in recommendations.
Also, as it was mentioned previously in this report, there are ways to reduce service production costs and to maximize revenue share without increasing either price or reimbursement rates. In order to maximize production efficiency, Clark Manor nursing home should pay more attention to costs that are not illegible for reimbursement.
6.0. Recommendations
Having assessed and summarized all available pricing strategies used by Clark Manor and all possible pricing options, the author has come to a conclusion that the existing pricing strategy used by the firm needs to be re-assessed and improved. The author has concluded that implementation of available pricing strategies by Clark Manor management is inefficient. In order to minimize the inefficiency, the author recommends the marketing board implementing (a) product line pricing strategy along with (b) economy pricing.
Product line pricing is another pricing technique used by firms that offer a range of products or services in order to differentiate between product categories. For instance, one cheeseburger will cost $1, cheeseburger and soda $2, and double cheeseburger and soda $4.
As for the case with the nursing home market, the strategy could be used for service products differentiation. For instance, patients could receive basic care at optimum pricing (living environment, meals, laundry, etc.) for $80, basic care plus technical support (injections) for $90 per day, and supportive care for $110 per day.
Economy pricing strategy is used by companies that would like to reduce costs of services or products. Economy pricing strategy would work for our firm as well as services cost reduction would allow reducing pricing, which again will increase demand for our services due to price-sensitive characteristics of service users. Clark Manor could offer its clients basic set of services for a reduced price. Many homes offer additional services for patients in order to keep in line with the high price they set for the service. There are a substantial number of patients who cannot afford $158 to $210 per resident day. Many patients among these do not require any sophisticated care; what they need is just living environment and basic living conditions.
Overall benefits from using the combination of abovementioned strategies include reduced pricing (retaining optimum level of rates), increased demand for nursing home care services, positive changes in customers’ choice, increased customer attraction, maximized revenue, minimize service production cost, increased quality of care, and decreased barriers for admission.
7.0. Appendix A
7.1. Table 1. Quality Measures
7.1. Table 1. Quality Measures
| Quality Measures | Clark Manor | National Avg. |
|---|---|---|
| Percent of Residents Whose Need for Help With Daily Activities Has Increased | 28% | 16% |
| Percent of Residents Who Have Moderate to Severe Pain | 4% | 6% |
| Percent of Residents Who Were Physically Restrained | 4% | 7% |
| Percent of Residents Who are More Depressed or Anxious | 17% | 5% |
| Percent of Residents Who Spend Most of Their Time in Bed or in a Chair | 6% | 4% |
| Percent of Residents Whose Ability to Move About in and Around Their Room Got Worse | 30% | 12% |
| Percent of Residents Who Lose Too Much Weight | 9% | 9% |
7.2. Table 2. Licensed Nursing Staff
| Licensed Nursing Staff | Clark Manor | State Avg. | National Avg. |
|---|---|---|---|
| Registered Nurses Hours | 44 min | 36 min | 30 min |
| Licensed Practical Nurses/Licensed Vocational Nurses Hours | +47 min | +42 min | +42 min |
| Total Number of Licensed Nursing Staff Hours | 1h 31 min | 1h 18 min | 1h 12 min |
| Certified Nursing Assistants Hours | 2h 19 min | 2h 18 min | 2h 18 min |
7.3. Flow Chart 1. Pricing Strategy Implementation
References
Levit, T. 1981, Managing intangible products and product intangibles, Harvard Business Review, pp. 94-102.
Vandermerwe, S. and Rada, J., 1998, ‘Servitization of business: Adding value by adding services’, European Management Journal, vol. 6, no. 4, pp.83-87.
Medicare Official Website, Clark Manor Nursing Home Information [online]. Available from
