Why Is There So Little Reserve Capacity?

As I suggested in the previous post, in this post I’m going to remark on why we don’t have more reserve capacity in hospital beds. I’m open to other suggestions but I suspect one of the causes is the growth of hospital chains. It’s a pretty common story. A hospital chain acquires local hospitals, consolidates facilities, and reduces the total number of beds to reduce cost and increase occupancy. The number of hospital beds relative to the population has been declining for 40 years or more. That does not seem to have had the effect of reducing costs.

You probably won’t be surprised to learn that three of the states with the lowest number of hospital beds per 1,000 population are California, Oregon, and Washington. New York and Illinois are about in the middle of the pack. More here. I haven’t been able to determine the number of beds per 1,000 population in major cities yet. I’ll keep trying. I suspect we’ll learn that New York City and Los Angeles are in worse shape than Chicago but that’s just an instinct.

Another possible factor is the transition from in-patient to out-patient care. That’s a complicated subject, far beyond the scope of a blog post. Sometimes the distinction isn’t that great. I once went to a hospital for outpatient surgery which unbeknownst to me or my wife was revised to inpatient surgery while I was on the table. When I came to I got out of the bed in which I was recovering and went home, to my surgeon’s horror as I later learned.

As with strategic manufacturing I don’t think that the public at large should be underwriting the risks being taken by large companies. A hospital chain with 15 hospitals, cf. here, whether for profit or nonprofit is a big business—revenues of $1 billion or more. Community capacity requirements should be determined and, while one of these big companies should be free to close or consolidate operations, when the capacity falls below the predetermined requirements, they should be taxed for the privilege, the proceeds to be used to maintain capacity outside those systems. We’re presently learning what some of those capacity requirements are.

9 comments… add one
  • Andy Link

    It does not look perfect, as it appears that city-level data is not available. It looks like they use MSA’s instead, but this might be useful to you:


  • TarsTarkas Link

    Certificate of Need Laws. Various versions of which are on the books in 36 states. That allow existing hospitals and chains to effectively form a cartel to restrict competition. Why should my competition be allowed to dictate whether or not I can sell a product? But they can in most states when it comes to medical care facilities. And screw the market or any other measure of want or need in the name of ‘unbridled corporate greed’ or whatever pejorative name you want to use.

  • I have complained about CONs for as long as I’ve been blogging. While I think they’re probably a factor I doubt they’re the only factor because the decrease in beds in places without CONs isn’t much different from the decrease in places with them.


    Thank you. As you can see that indicates that Seattle and Los Angeles have MANY fewer beds than NYC or Chicago. It still leaves me wondering about the scope of NYC’s problem. Could it be an artifact?

  • PD Shaw Link

    In 1967, New York became the first state to enact a certificate-of-need program, followed shortly thereafter by Rhode Island, Maryland, and California. The National Health Planning and Resources Development Act of 1974 required states to enact certificate-of-need laws to receive funds through the Public Health Service Act. State programs, and degree of compliance, appear to have varied though the feds never implemented any sanctions. In 1986, Congress repealed the mandate and some states repealed these programs and others continued.

    This 2009 studyfound that certificate-of-need laws have reduced the number of hospital beds by about 10% and have reduced healthcare expenditures by almost 2%. In states that have had the most stringent certificate-of-need laws, the reduction in number of beds is 20%. Stringent states are: Connecticut, Georgia, Maine, Missouri, New Jersey, New York, South Carolina, Vermont, and West Virginia. Kind of an odd assortment of states, but with the exception of Missouri, all are Eastern states, and with the exception of Vermont, part of the original 13 colonies.

    In the early 70s, the federal government mandated that states enact certificate-of-need laws to slow the increase in the number of hospital beds in order to

  • PD Shaw Link

    While I was writing that up, the issue was brought up. One point from the study to consider:

    “Nevertheless, it is impossible to rule out factors such as the growth of highly integrated health systems in specific states that may have led to a reduction in hospital bed supply relative to states without such developments. Yet, our inclusion of the proportion of persons enrolled in a health maintenance organization to some extent reflects changes in the growth of managed care across states and its effect on hospital bed supply.”

    I think there would be a causation question, certificates of need are barriers that would help facilitate integration and reduce competition.

  • Digging in a little bit more it’s clear that CONs are not dispositive. New York State requires them but Pennsylvania does not. Philadelphia’s beds per 1,000 is a tiny bit better than NYC’s but not a lot. Both Philadelphia and New York City have more beds per 1,000 than Seattle (Washington has CONs).

    Bottom line: I oppose CONs but I don’t think they alone explain the differences at the state or city level.

  • steve Link

    “Certificate of Need Laws.” Nonsense. We don’t have CONs and have about the same number of beds as everyone else.

    The reasons we have fewer beds follows.

    1) We don’t need them. Almost every surgical procedure you can think of requires a shorter inpatient stay than in the past, or none at all. Cataracts use to require a one week stay in hospital. Now they go home in 15 minutes, on a slow day. Cholecystectomy. Home same day instead of 4-5 days in the past. Total knee. Home the same day or next 2 days. Over a week in the past.

    2) Outpatient care- Many surgeries, studies, procedures that were only done as an inpatient are now done in outpatient centers. We now have infusion centers and visiting nurses. When I was an intern, hundreds of years ago, a pt with SBE staying in the hospital for 6 weeks of IV antibiotics. Now they go home as soon as they are stable and get IV drugs at an infusion center or a nurse visits.

    3) Costs- Inpatient beds cost a lot. That has helped drive the change to outpatient care. It also means that no cost conscious hospital is going to keep open a lot of beds “just in case”. Are we willing to support thousands of extra beds, ventilators and everything so that we can be prepared for the once in 50 years pandemic? I doubt it.


  • Andy Link

    I don’t think we can support a steady-state of beds/readiness in existing hospitals for rare pandemics.

    Instead, we need surge capacity, the ability to create new beds quickly. To me, it doesn’t sound at all dissimilar to military contingency planning. We have prepositioned supplies and equipment, facilities ready for quick conversion, units and staff identified, and required training. We do that instead of keeping 1/2 million soldiers in SE Asia.

    The same thing can be done for medical contingencies. A lot of the work and preparation can be done by the States while the feds do coordination plus the acquisition and maintenance of the strategic reserve of supplies. And we already have that, our problem seems to be our planning and strategic reserve of medical supplies is grossly insufficient for this level of pandemic.

  • steve Link

    “our problem seems to be our planning and strategic reserve of medical supplies is grossly insufficient for this level of pandemic.”

    Yes. I think that should include the plans to surge production of needed stuff. Imagine if we had started seriously planning for this 2 months ago. I think it was Ford that said it would take a month to start making new ventilators. They would be on the way.


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