This segment marks our transition into a discussion of hospitals. You should now be familiar with the major economic issues relating to both insurance and physicians. In this segment, I will provide you with a general overview of hospitals in the US, as a basis for understanding their characteristics and organization. According to the American Hospital Association, there are more than 5,500 hospitals in the US. Most of them are short-term, general community hospitals. These hospitals span over 780,000 inpatient beds, admit over 33 million patients every year, and account for over $850 billion in annual spending. More than 60% of these community hospitals are in urban areas, and two-thirds of them are part of a multi-hospital health care system. A multi-hospital system is two or more hospitals owned, leased, sponsored, or contract managed by a central organization. Hospitals also differ by ownership type. Roughly 60% of community hospitals are private non-profit, 20% are private for-profit, and 20% are owned by the government and typically operated by a state, a county, or a city. The modern hospital serves as a place where the sick and injured are treated, but it is also in many cases, a research facility, an educational institution, and a major employer within the community. But things were very different when hospitals emerged back in the middle of the 18th century. During the 18th century, the seaport cities of Philadelphia, New York, and Boston were the largest cities in the nation. While medical care in those days was predominately delivered at home, sailors suffering from various contagious diseases were put in hospitals, which served as quarantine stations to segregate the sick and prevent the spread of disease. Because these facilities were not intended to be used by the local citizens, hospitals were associated with horrible conditions, poorly kept rooms, and barely trained personnel. This is not surprising, as all of this early hospital care was focused on the ill-fated low-income populations, who suffered physical and mental illness. It it important to note that while the quality of care was dreadful, these hospitals helped establish the concept of charity care and public responsiblity in the U.S., an issue that still take front and center in health care debates. Things did improve when physicians as opposes to city officials began running hospitals. The first three hospitals in the US were Pennsylvania Hospital in Philadelphia, New York Hospital in New York City, and Mass General in Boston. All were founded by physicians as charitable hospitals. On the demand side, with urbanization and growth of the middle class, it became difficult to afford house visits, as well as effectively provide treatment in small city apartments. On the supply side, with the discovery of anesthesia, the x-ray, the need for sterile environments for surgeries, and many other technological developments, tools became more expensive, and care became more expensive to provide in the home. So hospitals became the central location for medical care. Pennsylvania Hospital was founded in 1751. 120 years later in 1873, there were 178 hospitals in the U.S., and only 3.5 decades later, in 1909, the number of hospitals in the US was 4,359, almost 25 times the number of hospitals in 1873, and surprisingly, not all that different than the number of hospitals today. But many of these hospitals were small, proprietary hospitals, not the messy facilities we see today. One of the biggest contributions of the growth and expansions of hospital was the Hill-Burton Act of 1946. The act was passed by Congress, following the Great Depression and World War II, to address concerns that there wasn't insufficient number of hospital beds available, especially in rural and poor communities. Researchers have concluded that 344,000 new beds in the US, about 40% of beds today, can be attributable to the Hill-Burton Act. The act gave preferential allocation of funds to hospitals that would be built in rural areas or serve low income communities, and required funded hospitals to provide free or low-cost care to poor patients. The number of hospitals peaked in the late 70s and has been declining ever since. The same is true for hospital beds. Why is that? Consider the following equality. Number of beds in a hospital times the occupancy rate in this hospital always equals the average length of stay times the number of daily admissions to this hospital. The left hand side of the equation is called bed days, that is, how many beds are filled on a given day. The right hand side of the equation is called patient days, that is, how many patients fill these beds on a given day. Since this equality has to hold by definition, it helps identify the dimensions that can support a decrease in the number of bed. It could be an increased occupancy, it could be a decreased length of stay, and it could be a decrease in demand, that is, a reduction in the number of inpatient admissions. To determine which of these elements contributed to the decline in hospital beds, we need to inspect each scenario separately. We will do that in the next segment.
