Who should pay in uncertain conditions?
by jerry on January 24, 2021
Kaiser Health News published an piece about nurses in California complaining that they are being asked to shoulder more burden of care than legally allowed. These are unusual circumstances, and so many might be quick offer hospitals some sort of exemption. However, nurses point out that hospital management is to blame for laying off nurses and not properly preparing for the recent surge. Given that many hospitals suffered tremendous loss of revenue in 2020 and that the pandemic numbers seemed under control in the summer, this criticism raises an interesting policy question of who should pay for preparing for the possibility that a fall (or winter) surge could catch hospitals by surprise?
In a normal consumer market, suppliers who correctly anticipate a surge in demand can be handsomely rewarded for their stockpiling (think of the small-time entrepreneurs who guess which toys will be in high demand and will sell out just before Christmas). At the same time, suppliers who guess incorrectly end up losing (in the previous example, perhaps ending up with stockpiles of unwanted toys that they can't sell profitably). Some suppliers might take the risk of stockpiling toys because they think that if they guess correctly, the price will be high enough to cover a few mistakes.
In health care, however, the price of treatment is relatively fixed for a given procedure within a year. So, a hospital administrator looking at pandemic numbers in the summer might be unwilling to extend the hospital's losses by re-hiring nursing staff in preparation for a winter surge that might or might not take place. After all, if the hospital administrator decided to ramp up hiring and the surge never materializes, the hospital could be in for even steeper losses. On the other hand, if the surge does materialize, the upside for the hospital might not be high enough to warrant the financial risk of staffing up. So, the uncertainty around whether the surge will happen has a cost -- who should bear that cost?
Even though many hospitals are non-profit, it seems unreasonable that they should shoulder the cost, especially given that many operate on tight margins and have already suffered severe financial losses. The current situation is that nurses essentially bear the cost of the uncertainty by having to work extra; that too seems like a wrong result. If government could have moved fast enough earlier on, perhaps the best result would have been for the government to have subsidized preparation for the surge; after all, it is a public health matter and the government has subsidized other industries such as movie theaters and airlines.