Another Look at the Interdependence of Hospital Beds

Last week, we discussed the issue of hospital beds and hospital bed capacity.  This has been at the heart of the debate over the Covid-19 restrictions and the need to flatten the infection curve to avoid overwhelming the capacity of hospitals.  Based on 2015 data from the Centers for Disease Control, the US and approximately 900,000 hospital beds across 5,500 hospitals.  Two-thirds of these hospitals are under 200 beds on average.

Hospital beds are a rather strange economic good because of the separation of user and payer in most cases in the United States and in many countries.  The user of a hospital bed, the patient, is the consumer of the good.  The payer and the buyer of the good is typically a public or private insurance company expect in the cause of an uninsured individual.  This group includes private insurance companies such as Aetna, Kaiser or Blue Cross.  It also includes public insurance such as Medicare and Medicaid and some local government programs which are roughly half of U.S. health care spending.  The users of hospital beds include direct users such as patients and the indirect users such public health departments, doctors and the general medical community.  These various groups are interdependent in terms of how many hospital beds we have and allow.

Giancotti et al. (2017) found in a meta-analysis of global studies on the relationship between hospital size (as measured by the number of hospital beds) and costs that scale efficiency existed between 300 and 600 beds.  They also found diseconomy of scale of hospital size (beds) of below 200 beds and above 600 beds (Giancotti et al., 2017).

On one side, The Center for Medicare and Medicaid Services located in the federal government may wish to seek to minimize federal outlays on those programs.  This will  also be true of federal and state appropriations committees.  The goal of this group may be minimize the number of beds and to control costs as well as seek optimal hospital size from a bed perspective.

On the other side, we can imagine the public health community and that part of federal state and local  departments whose goals and objectives are mostly directed at preserving health and wellness.  In this case, they would prefer to see a larger number of hospital beds spread out geographically across the country.  A sick patient, especially one in a rural community, may also prefer the smaller hospital to stay in business. Patient needs may vary  depending on their income level, geographic presence and insurance access.

The net effect is that we have policies attempting to achieve both groups goals at the same time.  Some federal and state policies have sought to change payment structures to create incentives for scale and size.  Many states have implemented certificate of need programs that impose strict regulations on the number of beds allowed in regions and communities.

At the same time, since the 1950's, rural and smaller hospitals have been paid to stay in business through federal grant programs and enhanced payments for rural critical access hospitals. These policies seek to expand access to hospital beds and services.  Thus, US policy is fragmented on this basis question of the interdependence of hospital bed buyers and users.

By using an interdependence framework, we can examine the perspective of various groups and their welfare interests rather than trying to impose an economic efficiency criterion.  Various rules, and in this case the various sets of rules at all levels of government, can be examined from the perspective of  different stakeholder interests.