A commenter asked why so many rural hospitals in Georgia are closing. It is a good question, and a decent chunk of the explanation is PPACA via the asshole Chief Justice et al and the remainder of the explanation is the economics of running a hospital or a Vegas hotel.
Let’s start with the Vegas hotel. I mentioned in September that hospitals have very high costs to open up the doors.
Time Magazine in August had a good piece on Las Vegas’s hotel and gambling industry that has an interesting nugget of explanation for hospital pricing:
A 5,000-room casino hotel that runs 24/7 has high operating costs, and it’s the gambling action that has covered them. The magic of a casino hotel is that once the costs are covered, profit mounts prodigiously–in accounting jargon, this is a business with very high operating leverage.
Hospitals and most other medical practices are the same way. Just opening the doors is extremely expensive as the fixed costs are very high. However, the marginal cost of treating the next patient for most situations (high end drug treatments excluded) are not that high. Hospitals with high census or heads in beds counts are able to use the high usage of their facilities to cover fixed costs and then operating costs.
A recent article on a hospital in Georgia closing illustrates this point:
Lower Oconee Community Hospital in southeast Georgia has closed due to financial problems, becoming the state’s fourth rural hospital to do so in the past two years.
The 25-bed “critical access” hospital in Glenwood, in Wheeler County, is looking to restructure, its CEO said in a statement….
The Wheeler County area had a 23 percent uninsured rate, and 10 percent of citizens are unemployed, according to the County Health Rankings from the University of Wisconsin and the Robert Wood Johnson Foundation.
Forty-one percent of the county’s children live in poverty.
“We just did not have sufficient volume to support the expenses,” O’Neal told WMAZ. “It’s a terrible situation, and it’s tragic, the loss of jobs and the economic impact.”
So how did this hospital survive so long despite serving a very poor and underinsured area?
Rural Hospitals, DSH payments, and Vegas hotelsPost + Comments (36)