15 March 2009

The consequences of the Economy hitting healthcare

Some folks wonder why the economy impacts health care, which seems on first glance to have an inelastic demand curve -- that if you're sick, your perceived need for health care should not vary based on the economy.   But that in fact is not the case -- patients/consumers are highly sensitive to economic factors in their health care consumption, and much of that is elective.   The NY times has a nice article on that phenomenon today:

Bad Economy Leads Patients To Put Off Surgery, or Rush It - NYTimes.com

The slowdown is likely to have significant financial repercussions. Elective operations are typically covered by private insurance plans that tend to reimburse hospitals and doctors at higher rates than government insurance programs like Medicare and Medicaid. As those payments dwindle, so do hospital profit margins and the resources to provide charity care to a growing number of uninsured.

“Elective admissions could represent only 9 or 10 percent of a hospital’s admissions and yet represent 25 percent of its bottom line,” said Michael A. Sachs, chief executive of Sg2, a health care consulting firm. “They’re the patients that subsidize the underfunding associated with Medicaid and Medicare patients and uncompensated care.”

This is consistent with what we're seeing at our facilities.  The ER's not terribly effected -- yet.  Volumes are up a tick, and the uninsured rate is up ten percent: overall the effect is minimal.   But our parent institutions are suffering badly from the above factors, and layoffs and severe budget cutbacks are the rule of the day.  Management is coping with it well, but these are indeed tough times, likely to get worse as the recession deepens.


  1. I thought that was a great article. We shall see what happens soon enough....

  2. Shadowfax, I said basically the same thing the other day, though I said it in the language of complexity science (which is also kind of a hobby of mine- especially its sub field of econophysics).

    I personally see health care as being in the midst of the granddaddy of all bubbles right now (similar to our recent housing and stocks market bubbles).

    When this bubble ends, it will not end pretty. And the areas that will see the largest collapses will the areas with the greatest "complexity".

    Just my own 2 cent prediction



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