Medicare Marginal Analysis

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Medicare Marginal Analysis

Medicare Marginal Analysis

Executive Summary

Most proposed solutions to control health costs such as price regulation, capitation and managed care, not directed towards the technical efficiency from the perspective of the hospital. The concept of fixed and variable costs has important implications for controlling costs of health care. Relatively low variable costs found in this study draws attention to consider the need for more information on the cost differences between hospitals and the advantage of knowing the cost information and structure to establish an appropriate policy of containment and cost planning in hospitals and clinics. This publication defines the distribution of fixed and variable costs for medical care in a private clinic and discusses the implications of health policies based on these results.

Medicare Marginal Analysis


The objective of this research paper is to provide the economic analysis of the health care issue or a topic. The selected topic for the applied project is Medicare and it is based on the theme of Marginal Analysis. One concept that came up with economics is the costs and benefits of the project which can generate a particular income. Economists call this marginal analysis, and it is perhaps the key concept in economic analysis.

Marginal analysis is defined as the process of identifying the costs & benefits of different alternatives by analyzing the incremental effect on total cost and total revenue caused by a relatively small change in the output or input of each alternative. Marginal analysis supports the management's decision-making process based on marginal or incremental changes to resources instead of one based on 'totals' or 'averages.' (Borger, et al. 2006)

The concepts of fixed costs and variables have important implications to control the expenses of the care of health. The relatives low variable costs found in this study get the attention on considering the necessity of more reports in the differences of costs between hospitals and the advantage of knowing the information of costs and their structure to establish an appropriate policies of contention and planning of costs in hospitals.


The current environment of health care presents a number of innovative scenarios and changes in relation to market forces and government reforms. These pressures demand a health care which is cost-effective without compromising and also improve the quality of care. A competitive disadvantage for any institution is to disregard the structure of their costs. (Chernew, et al. 2003)

Most programs to reduce costs have focused on restricting patient access to medical services and reduce the use of expensive tests and treatments. Unfortunately, these measures have not yielded the expected results. We hypothesize that there are additional factors to the consumption of health resources that contribute to escalating costs.

The total cost of medical services including hospital charges and costs of the operation. Hospital costs can be classified into two types: fixed and variable. Fixed costs are those that do not depend on the volume and not recovered or compensated by the short-term hospital without paying a particular service. The fixed cost elements include among others the ...
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