¶ … healthcare industry/medical laboratories. As the conditions change and new information becomes available, one can easily realize that this industry has many components that drive it.
Prices
As demand for laboratory services is rather inelastic, laboratories can establish prices as they deem appropriate. Reimbursement for services is limited, however, by contracts which the laboratory holds with various healthcare plans (Daron 2008). These healthcare plans, including Medicare and Medicaid, will negotiate reimbursement fees with the laboratory that are lower than the laboratory's usual and customary fees (Eddy 2007). The laboratory agrees to accept the reimbursement received from the health plan as payment in full. Laboratories are often forced into contracting with the large health plans in its area because referring clinicians will often not send specimens to the laboratory for processing unless the contracts exist (Daron 2006). Because the reimbursement from the health plans is often very low, the laboratory must find other ways to recoup its expenses and make a profit. Unfortunately, the net result of this situation is that patients with no insurance generally end up paying the highest costs for laboratory services. This scenario is one that plays out in all areas of healthcare (Anna 2005).
Price Elasticity of Demand
Price elasticity of demand is the percentage of change in quantity demanded divided by the percentage change in price. (Anna 2005)? An upper level manager in the laboratory industry would use this to see how sensitive the demand for a product can be affected by a price change. We will talk about the affects current price elasticity of demand has on the laboratory industry and where the price elasticity of demand may be going if the current trend stays the way it is (Eddy 2007).
According to Moffatt the formula for price elasticity of demand (PEoD) is "PEoD = (% Change in Quantity demanded) / (% Change in Price)" (Daron 2008). The continue increases in the cost of medical laboratories has made it very sensitive for consumer. An example from the laboratory industry is the Hemoccult Fecal Occult Blood Slide Test, which measures the amount of blood a patient may have in a stool. Normally this test is given to patients when there is a possibility of internal Gastrointestinal (GI) bleeding. Currently a case of 12 packs is worth $1,750.00. (Daron 2006) In this pack you have 1,200 test kits which would be use for 400 patients because each patient gets three test kits. In a large hospital it is a common practice that when someone comes in for GI bleeding to order this test. If the price of test kits increases it will make it more sensitive to be use because the cost of the product will be greater than the demand of the product which in turn will decrease the usage of the test kits and hurt the company that supplies the test kits to the medical laboratories (Anna 2005).
Impact of New Companies Entering the Market
Due to strict government regulations, shortage of qualified technical staff, and fierce competition from large nationwide laboratories, new laboratories do not frequently enter the laboratory marketplace (Eddy 2007). Most pathologists who are entering the marketplace would prefer to join an existing laboratory or become a staff pathologist at a hospital instead of undertaking the enormous task of starting a new laboratory. There are primarily three large laboratory systems in the United States that generate the greatest portion of laboratory revenues (Daron 2008). These three laboratories are very difficult to compete against due to the seemingly unlimited capital money they have to invest in existing and new technologies. New laboratories to the marketplace must overcome the obstacles that the large laboratories present, and that can be a daunting task. Profitability in the laboratory industry is generally dependent upon the laboratory having a high volume of testing, so laboratories entering the marketplace must establish trust with referring clinicians in order to garner their share of the marketplace (Daron 2006). Aggressive marketing campaigns must be initiated to garner enough accounts to stay in business.
Competition
Competition in the laboratory marketplace does increase when an existing laboratory chooses to specialize in a certain area, or when an existing laboratory diversifies with new technologies, methodologies, or improves its current service in a significant way (Anna 2005). Currently in the laboratory marketplace, competition of this type is seen in the form of clinicians who are hiring pathologists to be their employees and read their pathology specimens. These clinicians, largely gastrointestinal physicians, will send the specimens they obtain to an established laboratory for technical processing, (Daron 2008) and then they will have the slides sent back to their hired pathologist for...
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