Description:

Today we're going to talk about methods of payment. The analogy I'm going to start with is food. Then we're going to move on to providers and hospitals.

So when we talk about ways you pay for food, we're going to talk about units of service. So what are you paying by? Purpose, why would you pay for food this way? Financial risk for overeating. This is the tricky one. So if you have somebody who's paying for food, who potentially stands to lose money if this person eats more than originally planed for or eats a large amount? And then what's the downside to this method of payment? It'll all make sense once we have some examples.

So a la carte is when you just pay by the item. If you order five things, you get five things. You pay for what's eaten, or at least what's delivered to your table. If you eat more than you planned on eating, the bill, the large amount of money goes to the eater. The restaurant doesn't lose any money if someone eats a large amount because they pay as they go.

The downside of this is as the person paying, maybe you don't eat as much because you can't afford it. Or maybe you're ordering stuff that doesn't have good nutrition because you're looking for stuff with high caloric value. So there would be a downside, but it's not really a big downside when we're looking at this from the food perspective. But if you do have someone with a limited income, that is the risk a la carte.

Now we're going to go to the buffet. Your unit of service-- you're paying for a meal for a person. So the purpose is to have more options, to have some choice, to pay for the entire meal. If a person eating the meal eats a super-large amount of food, the person financially at risk is the kitchen or the facility, because the person who's eating had a flat fee, and they're at a buffet. This is an all-you-can-eat buffet.

The downside to having a buffet is because the kitchen or the facility's liable for all the cost, maybe they don't give you a good selection. Maybe the food's kind of poor quality or kind of cheap food. And maybe they run out of it. So that's the downside.

Now we're going to go to a school meal plan. So think about on an undergraduate campus where people live there, they may have a meal plan. And that is paid for over the course of the semester for time. So you may pay for a one-semester meal plan for one person.

Why would you do this? It's a time-based system, so it's convenient. The kitchen can project the number of meals they're going to serve because all their people are concentrated. If a person who's at the school eats a very large amount, it's the school or the kitchen that's going to eat the cost. Because the person who bought the meal plan, they just pay by the semester, whether they eat a small amount or a large amount.

The downside to this is maybe the school gives you cheap food. Maybe they run out. Maybe the selection's poor. Maybe the hours are inconvenient. Maybe you have to wait in line a long time. You could also say that there's a downside if you don't eat very much. You're paying for a meal plan, but your meals are so small that you're spending more money than you're eating.

So now let's look at a school meal plan that actually pays over the time of the semester all your meals on- or off- campus. Probably wouldn't happen, but just kind of work with me on this one. This is a time-based system, so you're paying for a person over the course of the semester. It's more convenient in some ways for the eater because maybe they have more choice. And if they have more choices, maybe the school gets better food.

From the school's perspective, they probably want to keep you kind of in-network, eating your meals on campus. So they're going to try to give you better food and more convenience and better customer service so that you don't go elsewhere. Because if you go elsewhere, the school has to pay for it. The downside of this is the school could potentially have a big financial loss if you were going off-campus and eating expensive meals all the time.

Then the last layer is really more of a layer, bonuses and penalty. So the unit of service depends. But say food places were given bonuses at the end of the year or penalties based on their Yelp review, so based on the number of stars they got. So you would hope that this would get them to give better quality food and be more efficient so they're not wasting. The risk for overeating depends on how you set it up.

The downside, though, is if the school wasn't giving you their true statistics. They were saying, oh, I got more stars or we didn't spend as much. Also, if there were certain standards that were in this evaluation that got them a bonus, they might only pay attention to that.

So say, for instance, there was a bonus based on amount of selection. And so they're really catering to amount of selection, but they're not paying attention to the quality of food. Or say there were points for having a really good salad bar, but there were no points for desserts. Maybe they would put all their money and time into getting good salads to get a good score, and they would ignore desserts. So that's food.

Here is a link to the media file cryan_payment_w03_p01.mp4