What is the result of setting prices below the full cost of service?

Setting prices below the full cost of service leads to a situation where the organization is not covering its expenses related to providing that service. This means that despite potentially attracting more patients, the revenue generated from those patients will not be sufficient to cover operational costs, leading to financial losses.

When prices are set below full costs, the organization must subsidize the shortfall from other revenue sources or reserves, which is not sustainable in the long term. This approach can lead to a quickening of financial loss as each service provided at a loss further exacerbates the financial health of the organization. Over time, this scenario may force the organization to make difficult decisions, such as cutting services, reducing staff, or even facing insolvency.

In contrast, increasing patient volume does not guarantee profitability if the service isn't priced to cover costs. Similarly, while lower prices might create competitive advantages, this competitiveness can translate into losses when a broader financial strategy is not in place. Lastly, while greater competition could arise from lower prices, it does not inherently lead to sustainable operational success. Ultimately, setting prices below costs places the organization on an unsustainable path that leads directly to increasing financial challenges.