Making Facilities Have Variable Pricing Can Reduce the Cost of Healthcare

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Variable Rates and Off-hours Usage are a Solution

The increasing cost of healthcare is one of the biggest issues facing Americans. It’s an issue that has indirectly led to the recent government shutdown, as Congress and the President battle over the Affordable Care Act. American University Professor Peter Chinloy believes by making more efficient use of healthcare facilities through variable rates and using the facility during off-peak periods, costs can be reduced.

The situation is enhanced by two developments in healthcare. One is that the proportion of surgical procedures not requiring an overnight stay and outside hospitals is rising, to more than two-thirds. The other is that the system is highly capital-intensive, so that most costs are fixed.

“When young doctors are residents, they work in the hospital for 80 hours a week, such as in [the TV show] Grey’s Anatomy,” Chinloy said. “Yet when they start practicing, they work 9 to 5, Monday to Friday. The system is built around a schedule that’s not using space or equipment effectively.”

The idea is a straightforward one. Many medical facilities are set up so that they are only open during normal business hours. Expensive equipment and buildings go unused for long periods of time. Those periods could be filled by patients and the incentive for patients to use those facilities would be lower expenses. But how would you get doctors to work during those odd hours?

Professor Chinloy’s response to that challenge is that healthcare charges have separate components for provider and facility fees. Provider fees could increase even while facility charges fell, while total bills decline. The system could attract younger doctors with high student debt and used to working long hours as medical residents.

And why would patients want to have a procedure done during off-hours? The system offers lower copayments and deductibles, and even a lower bottom-line charge to avoid sending a claim to an insurer.

“With the Affordable Care Act on everyone’s minds, here is an idea that is far less contentious to implement, and one that everyone might agree upon,” says Chinloy.

Chinloy has been studying ways to make healthcare in the United States more efficient for the past seven years. In 2007, he published his research on the subject in the article “Hospitals: The Market for Health Care Facilities” in the journal Real Estate Economics.

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Rick Todd
American University
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