Pileup in the Emergency Room | WP | 3.1.05
They were there waiting for me when I came back this morning: the sick, the hurt, the scared, the unwise, and a few who knew exactly what they were doing, waiting all night — for health care. …
How did it come to this? Easy. Imagine any system with shrinking supply and increasing demand for something important. Then imagine one source of relief in this system, one place where you can get what you need regardless of your ability to pay, where they have to and want to help you, and do so very well. Unless that one resource has infinite capacity, it will be overwhelmed. …
Hat tip DB’s Medical Rants
Unfortunately, all the pseudo-prescient health planners of the 1980s and 1990s failed to understand that driving down the cost of delivering services by increasing “efficiencies,” à la the elimination of “excess” bed capacity, would have no impact on demand other than to move it “upstream” into the ED, the safety net. With the typical bravado of the clueless, while extolling their administrative panache, they moved the dam upstream and heaped it much higher. It’s hard to think of any other industry that has behaved so foolishly—and continues to do so…
18 Comments
The cost of healthcare may have been driven down, but what controls demand is price. Artificially low - i.e. government subsidized - prices allow demand to rise disproportionately to supply.
Become as efficient as you can and you will still be chasing a phantom equilibrium so long as extrinsic forces control your prices.
The cost of healthcare may have been driven down, but what controls demand is price. Artificially low - i.e. government subsidized - prices allow demand to rise disproportionately to supply.
Become as efficient as you can and you will still be chasing a phantom equilibrium so long as extrinsic forces control your prices.
The US has an increasing population, and more importantly an aging population—these two factors are independent of any notion of price having an impact on demand. If price was a factor (price always being a function of the underlying cost) then an artificial price (subsidized by government in your argument) lowered will have no impact on demand. To the contrary, the relative demand will increase because less providers will be able to provide services in the marketplace at the “lower price.” Margins are extremely thin (whether for-profit or not-for-profit), that was the impetus for driving up efficiencies at the expense of capacity (and in particular what is termed surge capacity).
Additionally, there is no statement in the post about the cost of healthcare being driven down, rather the providers tried to manage their costs as a response to the move to managed care by increasing efficiencies (and driving down [their] costs). This only served to accentuate the overall disparity between demand for healthcare services in the US and the supply of healthcare services in the US. If they truly are independent and uncoupled—then affecting one will have no effect on the other. The reason I believe we see what we see in EDs across the nation today—demand that can not be met in any other fashion, because the infra-structure that would be required to support such demand is non-existent. Healthcare funding in the US (governmental and non-governmental) has always been about who would be covered and for what. Managed care is and was all about ratching down the “who” and the “what.” Providers have had to deal with that reality to survive. Demand is left unfathomed, unmanaged, and wild—and fills those venues that aren't blocked or have very low obstacles.
I am only a guest here, but stick to medicine. Economics isn't your strong suit.
Unauthorized practice. ;))
Yea, but the empirical data…
The US has an increasing population, and more importantly an aging population—these two factors are independent of any notion of price having an impact on demand. If price was a factor (price always being a function of the underlying cost) then an artificial price (subsidized by government in your argument) lowered will have no impact on demand. To the contrary, the relative demand will increase because less providers will be able to provide services in the marketplace at the “lower price.” Margins are extremely thin (whether for-profit or not-for-profit), that was the impetus for driving up efficiencies at the expense of capacity (and in particular what is termed surge capacity).
Additionally, there is no statement in the post about the cost of healthcare being driven down, rather the providers tried to manage their costs as a response to the move to managed care by increasing efficiencies (and driving down [their] costs). This only served to accentuate the overall disparity between demand for healthcare services in the US and the supply of healthcare services in the US. If they truly are independent and uncoupled—then affecting one will have no effect on the other. The reason I believe we see what we see in EDs across the nation today—demand that can not be met in any other fashion, because the infra-structure that would be required to support such demand is non-existent. Healthcare funding in the US (governmental and non-governmental) has always been about who would be covered and for what. Managed care is and was all about ratching down the “who” and the “what.” Providers have had to deal with that reality to survive. Demand is left unfathomed, unmanaged, and wild—and fills those venues that aren’t blocked or have very low obstacles.
“The ultimate source of the determination of prices is the value judgments of the consumers. Prices are the outcome of the valuation preferring a to b. They are social phenomena as they are brought about by the interplay of the valuations of all individuals participating in the operation of the market.”
http://www.mises.org/humanaction/chap16sec2.asp
Armed with this new knowledge of what prices really are, imagine what havoc subsidies and price controls can cause. Hang on, you've already described such a scenario in the openning comments of this thread.
I am only a guest here, but stick to medicine. Economics isn’t your strong suit.
Unauthorized practice. ;))
Yea, but the empirical data…
Yes, price is a valuation metric to discriminate a from b; but has nothing to do with the independence of demand in the healthcare equation. Demand is a function of population and actual and perceived “unwellness” in the population—many want wellness at any cost (price is a function of cost + other factors). We're not talking about purchasing a car, where the attributes of car a over car b creates demand and drives the price. There is no option b for the desire to be well. Health is a binary decision—what car or what resturant has multiple answers, multiple valuations and multiple pricings (Mises used curves with a singular answer, you can use a Venn diagram for multiple solutions). Price, in healthcare, as in Mises' writings is a dependent variable—demand is independent. Supply, since there is no attempt to create any relationship (we don't fund for actual demand), in the US is also an independent variable. Cost and price are dependent variables.
“The ultimate source of the determination of prices is the value judgments of the consumers.” Is nonsense for healthcare, which is basically all about the mitigation of risk, indemnification and capitation. Reality: the ultimate source of the determination of prices (in healthcare) is the value judgments of the payers (governmental and non-governmental). The consumers of healthcare services are the repurchasers, the recepients of value judgment made wholly beyond their direct control and their direct valuations. We receive (in terms of services) what has been deemed to be acceptable to the payers and providers. You may switch health plans, but the offering will be very similar for a similar “price.” And the indigent and under-insured have no choice.
How does Mises address the valuation of a over b when there is no ability to purchase a or b at any price? Not to mention unfunded mandates that our operant in healthcare. There is a luxury in pulling an economic theory piece, but it has no boots to put on the ground with the reality of healthcare.
There is a significant difference between the view of healthcare as a commodity that may be purchased in a free market and the view of healthcare as an essential services—a quasi-utility or quasi-right.
“The ultimate source of the determination of prices is the value judgments of the consumers. Prices are the outcome of the valuation preferring a to b. They are social phenomena as they are brought about by the interplay of the valuations of all individuals participating in the operation of the market.”
http://www.mises.org/humanaction/chap16sec2.asp
Armed with this new knowledge of what prices really are, imagine what havoc subsidies and price controls can cause. Hang on, you’ve already described such a scenario in the openning comments of this thread.
You desparately cling to public money under the false premise that we'll all drop over dead without government subsidy. The only reason health care competition is so limited is because it's practitioners labor under the delusion that they are better off in a socialist paradigm. Well, hospitals might like their government funding but health care consumers are the one's who suffer for it. Reality is what you make it. You can fight natural economic laws or use them to your advantage. Frankly, it's much harder to fight them.
Yes, price is a valuation metric to discriminate a from b; but has nothing to do with the independence of demand in the healthcare equation. Demand is a function of population and actual and perceived “unwellness” in the population—many want wellness at any cost (price is a function of cost + other factors). We’re not talking about purchasing a car, where the attributes of car a over car b creates demand and drives the price. There is no option b for the desire to be well. Health is a binary decision—what car or what resturant has multiple answers, multiple valuations and multiple pricings (Mises used curves with a singular answer, you can use a Venn diagram for multiple solutions). Price, in healthcare, as in Mises’ writings is a dependent variable—demand is independent. Supply, since there is no attempt to create any relationship (we don’t fund for actual demand), in the US is also an independent variable. Cost and price are dependent variables.
“The ultimate source of the determination of prices is the value judgments of the consumers.” Is nonsense for healthcare, which is basically all about the mitigation of risk, indemnification and capitation. Reality: the ultimate source of the determination of prices (in healthcare) is the value judgments of the payers (governmental and non-governmental). The consumers of healthcare services are the repurchasers, the recepients of value judgment made wholly beyond their direct control and their direct valuations. We receive (in terms of services) what has been deemed to be acceptable to the payers and providers. You may switch health plans, but the offering will be very similar for a similar “price.” And the indigent and under-insured have no choice.
How does Mises address the valuation of a over b when there is no ability to purchase a or b at any price? Not to mention unfunded mandates that our operant in healthcare. There is a luxury in pulling an economic theory piece, but it has no boots to put on the ground with the reality of healthcare.
There is a significant difference between the view of healthcare as a commodity that may be purchased in a free market and the view of healthcare as an essential services—a quasi-utility or quasi-right.
You desparately cling to public money under the false premise that we’ll all drop over dead without government subsidy. The only reason health care competition is so limited is because it’s practitioners labor under the delusion that they are better off in a socialist paradigm. Well, hospitals might like their government funding but health care consumers are the one’s who suffer for it. Reality is what you make it. You can fight natural economic laws or use them to your advantage. Frankly, it’s much harder to fight them.
You blogged:
“Unfortunately, all the pseudo-prescient health planners of the 1980s and 1990s failed to understand that driving down the cost of delivering services by increasing “efficiencies,” à la the elimination of bed capacity, would have no impact on demand other than to move it “upstream” into the ED, the safety net. With the typical bravado of the clueless, while extolling their administrative panache, they moved the dam upstream and heaped it much higher. It's hard to think of any other industry that has behaved so foolishly-and continues to do so”
I disagree. This suggests that there was no excess capacity. Obviously, there was. In addition, as ALOS dropped, the excess increased.
The only question is the degree of excess capacity and whether the pendulum swung too far.
Given that health planning programs (at least enforceable ones) were eliminated in most states during the Reagan administration, I have trouble blaming problems that have arised (or worsened) in recent years on these programs. In addition, the ability of these programs to reduce capacity is generally questionable. For example, Sacramento's HSA never turned down a request for increased ED capacity.
It would be interesting to see if there was a difference on states that have maintained CON (e.g., Florida) and those that didn't (e.g., California). I suspect that the capacity squeezing that really impacted this was a result of market forces (those paying for insurance forcing rates down with a trickle down force on the providers) and not the health planning programs.
/Rick Narad
Should have been “excess” bed capacity–now edited.
You blogged:
“Unfortunately, all the pseudo-prescient health planners of the 1980s and 1990s failed to understand that driving down the cost of delivering services by increasing “efficiencies,” à la the elimination of bed capacity, would have no impact on demand other than to move it “upstream” into the ED, the safety net. With the typical bravado of the clueless, while extolling their administrative panache, they moved the dam upstream and heaped it much higher. It’s hard to think of any other industry that has behaved so foolishly-and continues to do so”
I disagree. This suggests that there was no excess capacity. Obviously, there was. In addition, as ALOS dropped, the excess increased.
The only question is the degree of excess capacity and whether the pendulum swung too far.
Given that health planning programs (at least enforceable ones) were eliminated in most states during the Reagan administration, I have trouble blaming problems that have arised (or worsened) in recent years on these programs. In addition, the ability of these programs to reduce capacity is generally questionable. For example, Sacramento’s HSA never turned down a request for increased ED capacity.
It would be interesting to see if there was a difference on states that have maintained CON (e.g., Florida) and those that didn’t (e.g., California). I suspect that the capacity squeezing that really impacted this was a result of market forces (those paying for insurance forcing rates down with a trickle down force on the providers) and not the health planning programs.
/Rick Narad
Should have been “excess” bed capacity–now edited.