Study says "For Profit" hospitals cost more than non-profits

[Asher]

Originally posted by Aeson
You misinterpreted my intent. I'd even be willing to take that upon myself as the writer. Circumstance definitely had something to do with it, I can see how you'd misinterpret my response to Spiffor. I'm not familiar with Spiffor's standing on this (or any) issue.

I then plainly stated my intent, which you then proceeded to say doesn't matter. So first you say intent matters, then it doesn't. Lovely!

I'm saying I don't care what your real intent was, because I was responding to the comment in the context that you posted it. I find it hard to believe you didn't know Spiffor was a communist.

What happened since was I was defending my comment, and you've got all pissed off because you thought it was misinterpreted. And what I'm telling you is, the way you posted it in the context you did, the issue wasn't someone misinterpreting it, it was how you said it.

[Spiffor]

Ah, Asher, always bent on introducing people in the fabulous world of the OT, eh?

Your demonstration is bollocks. Yes, costs of production are variable, but they remain closely related with the minimal costs for a service.

In the case of a hospital, you won't be able to very strongly reduce costs without also reducing the quality of service. Nurses, doctors, sterilization, extremely high-tech hardware and its maintenance, etc. This has a cost that won't magically melt when the hospital becomes profit driven.

The only arguable aspect of cost-efficiency, when it comes to the comparison of for-profit with non-profit organisms, is whether the waste usually attributed to non-profit's bureaucracy outweights the extra cost inherent to satisfying the shareholders of a profit driven organism.

Since there is not so much room for efficiency rises in the hospital, the answer is "non-profit wins". And the study only confirms the obvious.

[Dinner]

U.S. hospitals owned by investors with the aim of making money are less cost-efficient than nonprofits, Canadian researchers said.

Except the for profit hospitals aren't going out of business like the not for profit hospitals. Yeah, some proceedures cost more but they aren't drownding in red ink either.

[Asher]

dp

[Asher]

Originally posted by Spiffor
Ah, Asher, always bent on introducing people in the fabulous world of the OT, eh?

Your demonstration is bollocks. Yes, costs of production are variable, but they remain closely related with the minimal costs for a service.

In the case of a hospital, you won't be able to very strongly reduce costs without also reducing the quality of service. Nurses, doctors, sterilization, extremely high-tech hardware and its maintenance, etc. This has a cost that won't magically melt when the hospital becomes profit driven.

I'm not picking a side, I'm saying the formulas don't necessarily hold true.

In theory, a private market introduces competition. When you do not have competition, you become complacent with costs. Beurocracy increases, innovation decreases, etc.

So the formulas he used wold be incorrect in the sense of saying that one will always be lower than the other.

[Harry Tuttle]

Originally posted by notyoueither
Good talking to you, Harry.

Now we'll have to see who can wear out the other. I've never seen Asher stop, but then again Aeson has some stick-with-itness that needs to be seen to be believed as well.

Ditto. Good discussion. I went to bed last night, so sorry for the late reply.

[Adam Smith]

In a previous life I did antitrust analysis of hospital mergers. In my current job I come across many of these cost issues as applied to transportation. While I appreciate any effort to get facts into economic debates, I very much doubt that this study is done correctly. The basic approach, divide costs by output, is correct. But the implementation is very likely wrong for two reasons.

First, what are the relevant costs? US hospital markets are usually not very because of the information problems associated with medical markets and because of government-imposed restrictions on entry. (If one hospital was earning monopoly profits, another hospital would need a government-approved “Certificate of Need” in order to expand facilities or enter the market.) If you simple divide revenues earned by for profit hospitals by their output you overstate the actual cost of care, because some of the revenues are not costs but monopoly profits. What you need to do is find out how much capital they use, and apply a market interest rate to that capital.

Not-for profit hospitals have a similar problem. If they fund their capital needs through revenues, or even if they get grants, that does not mean that the capital they use is free from society’s point of view. Suppose that a non-profit hospital used a billion dollars in capital to perform one operation. Do you think they would get many more grants? Again what you need to do is find out how much capital they use, and apply a market interest rate to that capital

The second problem is what is the relevant output? Its easy to say “divide costs by output”, but hospitals do many things: appendectomies, child birth, heart transplants, etc. Output is a vector, not a scalar. How do you compare output for a hospital that has 3 appendectomies, 4 births, and 5 transplants, with one that has 6 app, 8 births, and 10 transplants? The change in cost with respect to a change in scale of output is known as economies of scale. How do you compare output for a hospital that has 3 appendectomies, 4 births, and 5 transplants, with one that has 5 app, 4 births, and 3 transplants? The change in cost with respect to the change in the composition of output is known as economies of scope.

It is possible to address these issues, but it requires some fairly sophisticated economics and econometrics, which I suspect the authors, apparently not being economists, have not done. A quick search turned up an econometric study of Ontario hospitals which addressed these issues. The study found that Ontario hospitals tend to be too large and not exhibit economies of scope. Evidence supports the contention that non-profit hospitals have higher costs.

Abstract:

We estimate a translog multi-input/output model of variable costs for a sample of 187 acute care hospitals in Ontario. We rely on a unique data source--Resource Intensity Weights (RIW) developed by the Hospital Medical Records Institute--to account for variations in the case-mix across hospitals. Under the Ontario single payer system, the average hospital has too many beds and there are no scope economies between inpatient, out-patient and long-term care. [my emphasis] While nursing costs account for the largest proportion of variable costs, there is little substitutability between nursing and other inputs which reduces the options for reducing overall hospital costs.

COPY OF STUDY

edit: fixed url

[Sava]

Originally posted by Oerdin

U.S. hospitals owned by investors with the aim of making money are less cost-efficient than nonprofits, Canadian researchers said.

Except the for profit hospitals aren't going out of business like the not for profit hospitals. Yeah, some proceedures cost more but they aren't drownding in red ink either.

It didn't say for-profits weren't profitable... it said that they weren't as cost-effective as the non-profits. Certainly you would prefer higher efficiency to lower efficiency?

[pchang]

He prefers low efficiency to non-existant.

[Docfeelgood]

BULL****!!!!!!!!!!!!!!!!!!!!

[Sava]

Originally posted by pchang
He prefers low efficiency to non-existant.

what do you mean by "non-existent"? Don't tell me your a free-marketeer blinded by ideology? I hope I'm misunderstanding you.

[Docfeelgood]

Most of the American public donot have insurance.
The for profit hospitals have to swollow the free care provided to the indegent that show up in the er with massive trauma.

I am a nurse and work in a hospital
The person who wrote that article is so full of **** I bet there eyes are brown.

[Kuciwalker]

Ok, I need clarification on the cost-efficiency thing again: are they saying it costs the hospital less money to perform an operation, or that the patient is charged less for an operation? If the latter, then the point is meaningless, considering that the non-profit hospitals spoken of in the article seem to be receiving outside money. Obviously if you're subsidized you don't have to charge as much to stay out of the red.

[Sava]

are they saying it costs the hospital less money to perform an operation, or that the patient is charged less for an operation?

Both... the expenses are less... and it costs the patients less.

[Kuciwalker]

The two aren't one and the same - how do you know it meant both?