Hospitals: The Market for Health Care Facilities

By Benjamin, John D.; Chinloy, Peter et al. | Real Estate Economics, Spring 2007 | Go to article overview

Hospitals: The Market for Health Care Facilities


Benjamin, John D., Chinloy, Peter, Megbolugbe, Isaac F., Real Estate Economics


Health care facilities include hospitals and nursing homes. Demand for beds and occupancy depends on income, prices and insurer restrictions. The supply of beds is limited by regulatory certificates of need. The implied equilibrium vacancy leads to a trade-off with rate increases. Rate increases establish an asset price for a hospital bed. If prices of health care rise faster than income and nonhealth prices, patients demand less bed availability and occupancy. Rising vacancy and rising prices occur, consistent with the empirical observations for U.S. health care facilities. For 1980-2001, the equilibrium vacancy rate for U.S. hospitals is between 27% and 36% depending on capacity adjustments, bed availability and price expectations. Equilibrium vacancy is near the actual rate after 2000, but that rate is 11 percentage points higher than in the early 1980s when the number of beds was nearly one-third higher. Usually rent regulation leads to excess demand. But in a general equilibrium model with income, relative prices, expectations, supply and capital markets, price regulation can coexist with excess supply.

**********

  Medical care should be no different than hotels. On the back of my
  hotel room door in San Francisco was a sign that said the price of the
  room was $449. My actual bill was $130 instead of $449 because the
  government had negotiated special prices. With hotels I have the
  ability to ask what the rate is or go online, and they will actually
  search and tell me what various hotels are charging. None of that is
  available in health care.
  Michael Leavitt, U.S. Secretary of Health and Human Services.

The health care system has two types of real estate. Hospitals are short-stay, while nursing homes are long-stay facilities. Hospitals in the United States have every incentive to respond to price and revenue signals, as more than three-quarters are owned by nongovernment entities. (1)

While hospitals are motivated to generate profit or at least revenue, they act as price-takers. Prices by procedure are negotiated by insurers or preset by Medicare and Medicaid, the public carriers that pay half of all U.S. health care spending. (2) With prices predetermined and operators motivated for revenue, it appears that hospitals would suffer the classic conditions of a rent-controlled market. Excess demand occurs with waiting lines and times for elective procedures. While this is the situation in single-payer systems, it is not the case with health care facilities in the United States. Instead, there is the paradoxical observation of rising vacancy despite price and, effectively, rent regulation.

In the United States, community hospitals provide access to all-comers. (3) In 1980 the nation had 1.31 million beds in community hospitals according to Hospital Statistics of the American Hospital Association (AHA; 2005), with a vacancy rate of 23.3%. In 2001 the total had declined to 925,000 beds, but the vacancy rate had risen to 33.3%. Since 1995 the hospital bed vacancy rate has exceeded 30% even as capacity has been reduced.

The decline in capacity is even greater on a per capita basis because the population was rising as the bed count was falling. The number of beds per thousand people in the United States was 6.05 in 1980, but it had declined to 3.29 by 2001, a drop of 45%. That per capita bed count puts the United States in the bottom quartile in health care real estate facilities among developed countries (Anderson et al. 2005). Despite this relatively low availability, in 20 years vacancy increased from one in every four beds on an average night to one in three.

Hospitals have another vacancy-related issue related to peak-load demand. The system is aware of the weekend effect and the July phenomenon (Weissman 2005). (4) Vacancy falls below 10% in suburban areas during Monday-Thursday nights. Outside these peak hours and during the summer months the hospital vacancy rate can exceed 50%.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Hospitals: The Market for Health Care Facilities
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.