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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...
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…
References
Robinson, J. (2011). Hospitals respond to Medicare payment shortfalls by both shifting costs and cutting them, based on market concentration. Health Affairs. Vol. 30 (7) 1265-1271.
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