My Local Hospital

Most people don’t think much of congress, but think better of their own representatives.  When people read newspaper articles about events they know personally, they are surprised to see how wrong such articles can be.  These illustrate the importance of checking your general beliefs against specific cases you come across.  In this spirit, I take special notice of a Washington Post column about my local hospital.  It seems regulation has restricted entry, driving up prices and profits of local hospitals, and so the columnist thinks governments should subsidize those hospitals’ efforts to attract rich patients from around the world. 

One of the most successful businesses in the Washington area [is] … a not-for-profit named Inova Health System. Over the past 40 years, what started out as a loose affiliation of three community hospitals in Fairfax County has transformed itself into the dominant provider of hospital and medical services in one of the richest and fastest growing regions of the country. And Inova’s Fairfax facility has become the best hospital in the Washington region, with nationally ranked programs in treatment of cancer and digestive disorders, endocrinology, gynecology and heart surgery.

Much of the credit for Inova’s success goes to Knox Singleton, … one of the toughest, shrewdest and most ambitious business executives in the region.  As chief executive over the past 23 years, he’s bought up local competitors and cleverly used the legal, regulatory and political machinery to deny national hospital chains entry into the market. Now Singleton has visions of competing with the likes of the Mayo, Scripps or Cleveland clinics in attracting wealthy or interesting patients from all around the world. … Inova’s handicap, however, is that unlike other "destination" medical centers, it doesn’t have a world-class research program or a full-blown medical education program that usually goes with it. …

So far, Singleton has failed to convince any of the major medical schools in the region to set up a full-fledged program at Inova’s Fairfax campus. … In the case of Inova’s most likely partner, Virginia Commonwealth University, politics also comes into play: With the state facing a budget deficit, getting downstate legislators to finance a new medical school in Northern Virginia looks like a non-starter to VCU President Eugene Trani.  This is the sort of short-sighted approach to public investment and economic development we have come to expect from Virginia and its legislators.   

This sure seems more about signaling regional pride than about helping sick people cope with rising medical costs. 

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  • Tom

    More research to back up the Hansonian perspective:

  • Tom, that study considered only two patients; I want to hear about a lot more patients before I’ll get intrigued. 🙂

  • josh

    “This sure seems more about signaling regional pride than about helping sick people cope with rising medical costs. ”

    I can’t see how this could be read any other way.

  • billswift

    “cleverly used the legal, regulatory and political machinery to deny national hospital chains entry into the market.”

    Selfish, dishonest, thieving greed.

  • Floccina

    Off topic but look at this:
    “Overall, a $1 increase in prescription drug spending is associated with a $2.06 reduction in Medicare spending.”

    If true does that mean that to the average Medicare recipient (rich and poor alike) the benefit of the drugs was not worth the cost? If they had to pay for the drugs, and evidently doubly so for the procedures, they would not buy them. Doesn’t that mean that the net benefits were not worth the cost to them! Based on this evidence would the rational thing be to cut the drug and procedures? And if you feel too bad about that, give them the cash and let them do with as they please.

  • Doug S.

    Floccina: You’re getting it backwards; the paper was saying that for every $1.00 paid out in prescription drug benefits, other expenses dropped by $2.06. Therefore, subsidizing the prescription drugs has resulted in less Medicare spending.

  • Douglas Knight

    Robin Hanson,
    What happened to the plan of the first paragraph? What conclusions do you draw from your local knowledge that we cannot draw from just the article?

  • Floccina

    Doug S I understood what you said but perhaps my assumptions are wrong.

    My assumptions:
    1.Before Medicare started paying for the drugs the patients, who would have had to pay for the drugs themselves, chose not buy them.
    2.They did not buy the drugs for themselves because they did not think that the benefits yielded by the drugs was worth the cost of the drugs. Here is my assumption may be wrong, I assume that in there cost benefit annalists they were not reducing the value of the drugs because if they got the disease that drugs prevent that Medicare would cover a procedure to fix it anyway. This is I guess a weak assumption.

  • Doug S.

    All that’s available without shelling out cash is a short abstract that’s a little bit confusing.

    The introduction of Medicare Part D has generated interest in the cost of providing drug coverage to the elderly. Of paramount importance — often unaccounted for in budget estimates — are the salutary effects that increased prescription drug use might have on other Medicare spending. This paper uses longitudinal data from the Medicare Current Beneficiary Survey (MCBS) to estimate how prescription drug benefits affect Medicare spending. We compare spending and service use for Medigap enrollees with and without drug coverage. Because of concerns about selection, we use variation in supply-side regulations of the individual insurance market — including guaranteed issue and community rating — as instruments for prescription drug coverage. We employ a discrete factor model to control for individual-level heterogeneity that might induce bias in the effects of drug coverage. Medigap prescription drug coverage increases drug spending by $170 or 22%, and reduces Medicare Part A spending by $350 or 13% (in 2000 dollars). Medigap prescription drug coverage reduces Medicare Part B spending, but the estimates are not statistically significant. Overall, a $1 increase in prescription drug spending is associated with a $2.06 reduction in Medicare spending. Furthermore, the substitution effect decreases as income rises, and thus provides support for the low-income assistance program of Medicare Part D.

    I’m not quite sure what they’re saying.