One of the characteristics of pricing that makes it so fascinating is its application to a wide variety of issues. So let’s mix things up a bit; the next few blogs are going to focus on issues other than boosting profits and growth.
Vanessa Fuhrmans wrote an interesting article in the Wall Street Journal about the surgeon shortage at hospitals (“Surgeon Shortage Pushes Hospitals to Hire Temps”). Over the last 25 years, the number of surgeons per capita has decreased by 25%. As a result, the phenomena of “temporary surgeons” is popping up. By temporary surgeons, I mean those who don’t have their own practice and instead hit the road to temporarily work at an array of disparate hospitals. For example, a typical month for one interviewed surgeon included a weekend in Springfield, Oregon followed by two weeks at a rural Kentucky or New Hampshire hospital. Critics contend that this growing practice compromises patient care because traveling surgeons may not be familiar with a hospital’s staff or with surgical patients coming in for follow-up visits. It’s estimated that 1 out of 20 surgeons make their living in this fashion.
So what’s causing this temporary surgeon movement? Price…of course. The Federal Medicare program is cutting back on the price it pays general surgeons for common procedures and private insurers are following suit. For example, the $574 a surgeon pocketed for a complex hemorrhoid removal in 1997 has dropped to $390 in 2008. The problem is that smaller towns cannot keep surgeons fully booked and with revenue per procedure dropping, private practices are bleeding red. The result: “have scalpel and willing to travel” surgeons.
There are definitely commercial drawbacks to living in less populated areas. For example, when I lived in upstate New York, the local airport only had three daily flights. So while we could eventually get to our destination, it usually was a Herculean adventure. In contrast, living in Boston allows me to catch non-stop flights to most major cities. The bottom line of capitalism is the bigger the market, the better the service.
The key social question is should the service level of Medicare (and private insurance companies) be dependent on market size? When President Johnson enacted the Medicare health care bill in 1965 to protect seniors, there wasn’t asterisked fine print noting that seniors in Boston will get better treatment compared to those living in upstate New York.
So how can price level the health care quality playing field? It’s really quite simple: index medical payments by community size. Doctors in smaller cities get higher payments (to keep them in business) compared to those in bigger cities (who make up the difference by performing more procedures).
So what do you think? Should Medicare (and private insurance) payments be indexed to maintain a high health care quality standards in smaller cities?