A different future – Part IV: How is a hospital like an airline?

  In a couple of my last posts I suggested that the combination of a newly insured segment of society coupled with a glut of hospital beds in many urban areas might produce a situation in which hospital administrators begin to compete for patients. Some people have asked me whether this would remain true if those formerly-uninsured people were provided with a government-sponsored insurance product that provided relatively low reimbursement to doctors and hospitals. After all, why would a hospital want to accept more Medicaid patients when they claim to lose money caring for them today? The answer lies in the difference between fixed and variable costs and the best analogy I can think of is an airline. Imagine the following scenario: your brother, who lives in New York, is about to turn 50 and you have been invited to attend a party for him. Unfortunately, his wife insists that... continue reading...