Nonprofit Hospitals Get Wealthy Fast, but Don't Share Much

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  VizierVic04/15/08 Report as spam
  1

  What Type of Not-for-Profit Hospitals

  The headline for this article is terribly misleading. It implies that all not-for-profit hospitals nationally use the tax advantages they receive to enrich themselves and their directors at the expense of service to their communities. The article clearly identifies only a few elite institutions who happen to be able to do this. The majority of not-for-profit hospitals nationally are struggling with the reduction in government sponsored healthcare reimbursement for uncovered care while trying to provide acceptable levels of care to the hospitals' indigent and uninsured population. Perhaps if the reporter had bothered to do the hard work of investigating and reporting on how too many of these institutions are slowly bankrupting themselves they wouldn't have been able to produce such a titillating headline.

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  David P Hamilton04/18/08 Report as spam
  2

  Response to VizierVic

  Vizier: I take your point, and there is certainly no shortage of strapped community hospitals out there. At the same time, there's really only so much nuance you can cram into a headline, and since I was mainly following the WSJ's lead -- I couldn't hope to duplicate what I suspect was weeks or months of reporting on their part -- I figured it would serve readers well enough.
  
  In any case, I didn't mean to be sensationalistic, just to highlight an interesting and counterintuitive finding about the hospital sector. Even if these wealthy nonprofit hospitals are an outlier -- and I think you're right that they are -- they're still worthy of discussion because their newfound wealth is both contrary to common expectations and in sharp contrast to their charitable-care contributions.

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  Rick Siple04/16/08 Report as spam
  3

  Supply creates its own demand?

  No argument with most of the article. Curious about this statement though:
  
  "For reasons too complicated to get into here, medical care is one of the only markets in which supply creates its own demand. If a hospital administrator orders up a new wing or an expensive new CT scanner, doctors will find a way to fill it or use it to capacity."
  
  I would like to know where to get more information on this idea.
  
  Keeping in mind the "too complicated to explain here" disclaimer, your example fits the standard workings of supply/demand. Why build a new wing if you didn't think you could fill it? If you have a new wing, doctors are going to fill it with the "marginal" patients that didn't qualify for an overnight stay when there was a shortage of beds. Pretty standard stuff.
  
  This isn't a minor issue in discussions about healthcare and its costs. The idea that healthcare doesn't behave like other industries (like say the design and manufacture of computers, which have consistently gone down in price despite getting ever more ubiquitous and ever more capable) contains the implicit assumption that the supply of healthcare must be managed or rationed. If a person starts with the wrong assumptions they will undoubtedly end up at the wrong conclusion.
  
  I, personally, would like more information, please.
  
  Thanks.

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  David P Hamilton04/18/08 Report as spam
  4

  Supply creating demand in healthcare

  Rick: First of all, sorry for the delay -- I'm not currently notified when people comment, so I'm often behind the curve.
  
  Most of what I know about this subject is from offline reading, so I'll just summarize. I'm particularly indebted to Shannon Brownlee's book Overtreated, particularly pp. 109-112.
  
  The phenomenon, it turns out, is known as Roemer's Law, for the UCLA health researcher who first coined a phrase in the 1960s: "A built hospital bed is a filled hospital bed." But it wasn't until Dartmouth research into medical-utilization rates in the 1980s that people began to understand how this all worked.
  
  Jack Wennberg and his group took a close look at hospitals in New Haven, Conn., and Boston, the latter of which had 55 percent more beds per Medicare recipient on a per-capita basis. As it turned out, seniors in Boston also spent 40 percent more time in the hospital than their New Haven counterparts, even after controlling for demographics, rates of illness and the like.
  
  Wennberg went on to survey doctors in both cities about their hospitalization decisions, all of whom felt their procedures were correct and that the number of hospital beds was appropriate. Sometimes Wennberg would trick his audience -- showing New Haven physicians mislabeled Boston data, then revealing his "mistake" after the doctors were all nodding in agreement.
  
  This is just one of many pieces of evidence supporting the notion that medical utilization is strongly dependent on supply. Other examples include huge variations in surgeries such as hysterectomies or tonsillectomies that correlate with the number of surgical specialists who happened to practice locally. Usage of many diagnostic tests, clinical imaging, spinal surgery and minimally invasive procedures such as laryngoscopy or angioplasty show the same correlations. There are 2.5 times as many ICU beds per capita in LA than there are at the Mayo Clinic in Rochester, Minn., but they're still filled to capacity.
  
  My argument would be that this inverts the "standard" explanation that capacity is built up in advance of demand, because demand varies tremendously by geography. Instead, the availability of care "supply" -- beds, CT scanners, cath labs or what have you -- seems to determine how many people will be treated in them. Some of this reflects defensive medicine. Some of it may be the result of patient insensitivity to medical costs. Quite a bit of it can be explained by the way doctors' decision-making with respect to discretionary care is influenced (often subconsciously) by awareness of its availability.
  
  However you slice it, though, medical supply does seem to create its own demand, weird as it seems the first time you encounter the notion.

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  pranavb99@...05/07/08 Report as spam
  5

  Supply creates demand

  David,
  
  I think you put your finger on it. "Some of this reflects defensive medicine. Some of it may be the result of patient insensitivity to medical costs."
  
  Given these conditions, it is only rational that more supply (at no cost) increase utilization. Of course there's nothing unique about this. An all-you-can eat lunch buffet leads people to pile it on. In other words, if another industry were structured the same way as the medical industry, it would act in the exact same fashion. Instead, we need to structure the medical industry along the same lines as any other...transparent costs and outcomes (easier said than done but far from impossible) and minimization of government interference that distorts pricing and decision-making. Sometimes people object that medical services are not a commodity similar to that found in other industries. But as I recall from reading the Michael Porter study, that is precisely how consumers should treat them.
  
  I appreciate that in this article you are pointing out the excesses of one non-profit hospital. All good. However, I notice that your stories are predominantly negative. Perhaps you can also focus on positive developments that are improving conditions, such as Convenient Care (NP) facilities, as well as the Urgent Care facilities which I first informed you about on the "Cash Up Front or Else" article, and Walmart's move to slash drug prices. These are significant developments with wide implications for consumers whose repercussions should be examined. I am sure there are limitations and a negative side to each of these as well, so you should be able to satisfy the urge to discuss problems (which I tend to focus on as well, in order to identify and fix them), while yet informing your readers in a holistic and balanced way.
  
  Thanks,
  Pranav