Short Circuited Surge Capacity: Lessons from the Blizzard for Public Health

Bad weather recently caused massive failures at Heathrow Airport, and brought chaos to air travel in the New York area. Both scenarios suggest an intriguing set of dilemmas in health law and policy. We should be doing much more to prepare for sudden, disruptive events in both the transportation and health sectors. But economic short-termism rules the roost, undercutting the infrastructural investments that a more enlightened America would make.

Stuart Altman has wisely compared hospitals and airlines, and worried that many of the former would suffer the fate of legacy carriers:

By 2025 the need for general hospitals to cross-subsidize [i.e., use payments from the well-insured to pay for others' care] will greatly increase, but their ability to do so will be diminished. U.S. hospitals could begin to resemble U.S. airlines: severely cutting costs, eliminating services, and suffering financial instability. . . .

There are numerous similarities between the airline and hospital industries. Both comprise companies that built a complex infrastructure and provided cross-subsidized services. Both were protected by a lack of price transparency and limited competition. In the recently deregulated airline industry, price competition and specialized airlines have emerged that do not have to serve all cities and can focus on the most profitable routes. They need not charge higher prices for these routes to make up for losses incurred elsewhere. Similarly, in the hospital industry, specialty hospitals have emerged that can focus on the most profitable patients and do not have to treat the uninsured or provide money-losing services.

The new specialty hospitals, like the new low-cost carriers, are not saddled with fixed costs from old plant and equipment and do not have to contend with excess capacity that resulted from historical changes in demand.* Both use their inherent cost advantages to compete for more price-sensitive consumers. Legacy airlines cannot raise fares to cover costs because price-sensitive customers can now obtain transparent price information on the Internet and shop for the lowest fares. California is now requiring, and many advocacy organizations are encouraging, hospitals to post their prices on the Internet. Hospital patients, facing increased copayments, deductibles, and other out-of-pocket costs, could begin to behave more like airline passengers. . . .

Because of increased price transparency and specialized competition, legacy airlines could not raise prices sufficiently to cover their costs. Between 1 October 2001 and 31 December 2003, they cut costs by $12.1 billion. They stopped serving some locales and reduced seat capacity. They cut labor costs, services, and amenities. Nevertheless, from 2001 through 2003, the legacy airlines lost $24.3 billion, while the low-cost carriers reported profits of $1.3 billion.

The past few years have witnessed a recovery for many airlines pushed to the brink after 9/11. They filled more seats in each plane (leading to higher “load factors”) and otherwise “cut the fat” (sometimes endangering passengers in the process). Nate Silver observes that filling up planes has some positive effects on prices and the environment, but also sets in motion dynamics that few fully consider until the unexpected strikes:

[L]oad factors have been rising steadily. A decade ago, they were closer to 70 percent, which permitted quite a bit more slack in the event of cancellations. At a 70 percent load factor, there are 2.3 passengers for every available seat, which means, roughly speaking, that one day’s worth of cancellations might take two days to clear through the system. At an 82 percent load factor, on the other hand, there are 4.6 passengers for every seat — roughly twice as many — so one day’s worth of cancellations might require four or five days to get everyone home.

The societal trade-offs here are tough, and airlines need flexibility in determining how far they should go to crowd planes and maximize profits. But in the realm of healthcare, I am much more concerned that a long series of hospital closures will leave the system disastrously overwhelmed in case of an infectious disease outbreak, terrorist attack, or extreme weather event. Like airlines, hospitals have been cutting their surge capacity in order to improve the bottom line. As I noted over four years ago, the asymmetry between projected demand and supply for something as fundamental as ventilators is shocking. A 2006 estimate suggested that only 5,000 spare ventilators would be available to as many as 742,500 people in need in the case of a serious pandemic.

In a 2005 article in the Journal of Contemporary Health Law and Policy, Lance Gable et al. discuss surge capacity as “the number of critical casualties arriving per unit of time that can be managed without compromising the level of care,” and propose ways of increasing “the availability of skilled health professionals to supplement the existing health workforce.” I applaud their approach and attention to the problem (astonishingly, it is the only article in the Westlaw JLR database with “surge capacity” in the title). But I also worry that scarce physical space is going to cause as large a problem at hospitals as personnel shortages. Like its airports, New York’s community hospitals are fraying:

In New York’s many community hospitals, which provide an essential first line of defense in the effort to safeguard public health, the danger of failure is particularly acute. Combine growing costs, decreasing revenues, and high debt loads, and you can’t dig out. Then what happens? “If you’ve accumulated any reserve over time,” an executive at a major local hospital says, “the first thing you do is eat it up. Then you cut costs on staffing and support services, sometimes below levels you know are safe. Then you stop spending money to keep your physical plant and equipment up to date. The condition of the physical plants of many New York City hospitals is staggering. Then, when there’s nothing else you can do, you declare bankruptcy. That’s the life cycle of a New York hospital.”

Given all these strains, hospitals may have to choose between community service and solvency in the wake of a major outbreak of illness. Vickie J. Williams’s article “Fluconomics” presciently examined the bad financial incentives that hospitals would face in case of a serious outbreak of infectious disease:

[W]e currently have no means of ensuring that hospitals acting as isolation, quarantine, and treatment centers in a pandemic will survive the loss of revenue that they will experience in protecting the public’s health. Our hospitals depend on a fragmented financing system that presumes the hospital’s ability to shift costs from low-paying public payors to higher-paying private payors, and from less lucrative cases to more lucrative, often elective, procedures.

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Health Care and Productivity, a National Cost

Having just returned from my family physician (who stayed open past hours to see me), perhaps you will forgive me if, not feeling well myself, I dwell for a moment upon the cost of illness and inefficiency. Not as a matter of out of pocket cost, per se, but as a matter of macroeconomic cost–a roughshod (I am sick) calculus based upon diminished productivity and national opportunity cost: simply put, if I am busy being sick, I may well have to forego the productivity of work–or I may perform that work at a lesser level ( I suppose this post will tell).

In addition, if my family physician and his staff of two are grudgingly forced to devote numerous hours to a maddening array of paperwork and phone calls (”it gets worse every year”) in an attempt to navigate the various streams of insurance authorizations and payments (”some of it seems designed solely to frustrate and slow or prevent payment”) –he will not be seeing patients. Tomorrow, he will not be seeing patients; he will be trying to catch up on paperwork–as will his staff.

Perhaps then, when we consider that Health Care costs amount to 16% of the GDP, we might also consider that this number does not take into account the difficult to guage loss of national productivity. And although the sickness of one can be the work of another, the exchange does not seem to be an even one as it relates to national production: the doctor functioning, in a sense, as a support and enabler to the productivity of others. Having said that, if that doctor is unavailable (through lack of insurance or remoteness) to remedy the ills of the now unproductive (or the less productive) the nation suffers for it. If the doctor is needlessly enmeshed in tasks, inefficient and ancillary to patient treatment, the nation suffers for it.

One of the first national health lessons this country received came on the heels of World War I.

“With the United States’ entry into the battle, hundreds of thousands of military personnel were drafted and trained for combat. After the war was fought and won, statistics were released from the draft with disturbing data regarding fitness levels. It was found that one out of every three drafted individuals was unfit for combat and many of those drafted were highly unfit prior to military training. Government legislation was passed that ordered the improvement of physical education programs within the public schools.”

“During the period from September 1917 through November 1918, records show that 2,801,635 men were inducted into the Army. Out of the approximately 10,000,000 registered men, roughly 2,510,000 were examined by local draft boards. During the first 4 months of mobilization, roughly one in three men were rejected on physical grounds, but the rejection rate dropped to one in four during the following 8 months.” (p. 149)

Having put forth the effort to remedy such, we were better physically prepared when it came time to fight World War II. We will be fortunate if some cataclysmic event does not lead us now to some statistical reckoning of our “unfit” and “extremely unfit” as regards our national productivity.

I do not point this out as a means of suggesting that we need to actively prepare ourselves for some form of larger global military conflict. But perhaps in some ways the “event” has already occurred, and only the reckoning remains. In his inaugural address President Barack Obama entreated us:

“Let it be told to the future world … that in the depth of winter, when nothing but hope and virtue could survive…that the city and the country, alarmed at one common danger, came forth to meet (it).”

“America, in the face of our common dangers, in this winter of our hardship, let us remember these timeless words. With hope and virtue, let us brave once more the icy currents, and endure what storms may come. Let it be said by our children’s children that when we were tested we refused to let this journey end, that we did not turn back nor did we falter; and with eyes fixed on the horizon and God’s grace upon us, we carried forth that great gift of freedom and delivered it safely to future generations.”

He’s right. We must “come forth to meet it.” We cannot turn back and we cannot falter as we struggle to deliver this hard won gift of freedom to future generations. And it would be best if– as we brave these icy currents in this winter of our hardship– we were not sick. And if we were sick, that we all had doctors. And if we all had doctors, that they were not too busy filling out paperwork designed to frustrate them. As we learned through World War I, as a nation, we simply cannot afford to squander our physical and intellectual capital.