../../../MY_DOC%7E1/MY_DOC%7E1/ECONNEWS/South-Western%20College%20Publishing%20-%20Economics  
What's Up? Docs Leaving
Subject Comparative statics
Topic Labor markets
Key Words Equity capital, profit, revenues, payment, incomes, costs
News Story

Increasingly, physicians are deserting traditional hospitals to set up specialty centers focusing on services such as cardiac care and orthopedic surgery. This continues the trend that began with doctor-owned, same-day, surgery centers, which now number about 3,000. Generally, doctors come up with 49 percent of the equity capital needed to launch a hospital or a center, and hope to see a profit within two to three years.

The rationales for the migration of doctors are that traditional hospitals tend to be slow to get operating rooms ready, delay surgeries for emergency cases, and take a large share of the revenues that the physicians generate. When added to the effect of managed care, doctors' incomes are being restricted. In contrast, specialty centers owned by doctors operate according to rules and priorities set by the doctors, so they see more patients. Patients are treated better, in hotel-like accommodations, which ensures a steady flow of customers. Doctors receive a higher payment for their services, and are able to share in the profits. As a result, their incomes can be 20 to 100 percent greater.

Opponents argue that traditional hospitals lose their lucrative services, making it more difficult to handle the sick and the poor. Medical costs are also said to increase due to wasteful duplication.

The authorities also have to consider the implications of market dominance for competition. In the Caribbean, Royal and Princess might argue that, together, they would provide more effective competition for Carnival. However, some are concerned that the two companies would then have nearly 80 percent of the market, and consumers could be harmed.


(Updated May 6, 2002)

Questions
1. Draw a wage-employment diagram of the labor market for physicians in traditional hospitals. Mark the initial equilibrium wage and employment level. Explain which determinant of labor demand or supply changed and illustrate the consequences on your diagram of:
a) managed care
b) inefficient scheduling
c) patients choosing specialty centers over traditional hospitals
Why do you think that doctors were reluctant to continue working in traditional hospitals?
2. Explain which determinant of traditional hospital labor demand or supply changed and illustrate the consequences on your diagram of:
a) higher rewards at specialty centers
b) preferences for working in doctor-owned facilities
3. On a diagram of the labor market for physicians in doctor-owned specialty centers, explain and show the effect of:
a) efficient scheduling
b) patients choosing specialty centers over traditional hospitals
c) lower rewards at traditional hospitals
d) preferences for working in doctor-owned facilities
Source Julie Appleby, "Doctors try new specialty: Hospital entrepreneurship", USA Today, March 18, 2002..

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