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Health Care

The problem is that not enough physicians accept patients using Medicare as payment. In essence, many such physicians feel that the Medicare payouts are insufficient either for them to cover their costs, or to turn a reasonable profit on the transaction. Robinson (2011) notes that public payer in general pay out at lower rates. The public payers are able to deliver volume to health care providers, and this gives them bargaining power, as one of the most significant payers, that allows them to lower their payouts. The problem for many providers is that servicing these clients essentially means a high-volume, low-margin business model. Not all health care providers can, or wish to, operate with this business model. As in any business, this model requires a high level of discipline, and it requires driving down costs throughout the business. Many physicians find the operating model incompatible with what they want in a career, and thus reject this business.

The problem for the government and consumers is that this restricts their access to health care, potentially creating a capacity problem in some jurisdictions. For private payers, Robinson (2011) notes that there may be some revenue shifting, where health care providers charge more to private payers to make up the margins that they lose on public payers.

The proposal is to utilize economic models to understand the different ways that health care providers cover their costs -- or earn profits, for those that have a for-profit model. Economic theories exist in all industries to understand how businesses earn sufficient revenue to cover their costs. This study will look at basic competitive models such as Porter's generic strategies to see how these might be applied to health care organizations. There will also be an examination of basic microeconomic theory, as it seems that there are trade-offs made by many health care providers. One set of trade-offs is that between private payer and public payer. Another set of trade-offs involves the utility of incremental new business (from public payers) versus other quality of life measures, to examine if there is genuinely a connection between physician quality of life and refusal to treat Medicare patients, or if the problem is strictly economic in nature.

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Payment is typically after the service. This is because a VA hospital usually will have the government as the payer, and they pay after the service has been delivered. The payer mix heavily emphasizes the Department of Veteran's Affairs, Medicaid, Medicare, with a smaller portion of private payer. The payer mix might change a little bit. It seems that the Affordable Care Act is getting more people onto private insurance plans, and that is helping reduce the dependence on government programs to pay for emergency care. But still as a veteran's hospital, there is an emphasis on government payer. The ideal payer mix should be more private payer, or at least something with higher payouts so that there is money left over for investments.