Health Care as a Fixed-Cost Industry: Implications for Delivery

Abstract

Most health-care costs are fixed and sunk. Fixed costs do not vary with the level of patient activity, and once sunk they cannot be easily reversed. We must rethink how we manage the expensive investments in our health care infrastructure, which is where most costs lie. The conventional approaches to rationing care have failed. Physicians have been told to lower the cost of care by rationing resources. This rationing includes reducing the length of patients’ hospital stays but this does not work as intended. A new paradigm advocates making more and better use of existing assets and by pursuing improvements incrementally and at the bedside. Elements include flexing intensive care unit beds, improving operating room efficiencies, and rationalizing health care capacity.