Roemer's Law

We need to have a conversation with the American people (particularly with people in the Greater Baltimore area at this moment in time) about the main drivers of our costly healthcare system. There are many reasons why the American system is so expensive and wasteful. I remember learning about one of them when I was at the School of Public Health at the University of Michigan in the mid 1980s. One of my professors taught me about Roemer’s Law.

Milton Roemer, M.D. was a researcher and professor who spent a lifetime (he died in 2001) studying and advocating for health systems around the world. He was involved in creating the World Health Organization in 1951 and was a public health official in upstate New York in the 1960s.

After World War II, federal legislation was passed to make it easier to get government funding to open new hospitals.  With the baby boom, there was a need for hospitals to deliver babies, and with the burgeoning new technologies that gave medical professionals the ability to cure more people, many communities wanted a hospital.

The Hill-Burton Act, also known as the The Hospital Survey and Construction Act, was passed by Congress in 1946 providing grants and loans designed to make it easier to fund not-for-profit hospitals.  Money was designated to states to achieve a ratio of 4.5 beds per 1,000 people. There was a community in upstate New York that had a hospital that was operating at 70 percent of capacity.  But people in the region had a sense that they needed a new hospital. Hospitals were seen as good things, and there was a community groundswell of enthusiasm and a movement to build a second hospital.

Roemer believed a second hospital wasn’t necessary since 30 percent of the beds in the existing hospital were empty.  But the groundswell of support took off and the community received funding to build the second hospital.  Roemer expected the second hospital to be empty. He was astounded to find a few months after the second hospital opened that both hospitals were now operating at about 70 percent occupancy.  So there had been a significant number of beds added to the community and they were being used.

He wondered how this could be - was there a new influx of people?, had there been some new epidemic of disease?, had there been some major health catastrophe? -  but he couldn’t find any such new need for hospital beds. He wrote a paper suggesting that the demand for healthcare services in the United States was directly related to the availability or capacity to provide those services.  Rather than there being a supply and demand curve where the supply increased to meet the demand, he showed a new curve where increasing the supply actually was creating an increased demand for healthcare services.

It makes sense for consumer products like automobiles or swimming pools where the availability of something new and never seen before creates a new demand, but in healthcare services, before Roemer’s time, it was felt that it was illness burden in the population that was the only driver of the use of services. Since Roemer’s paper, we know differently.

Roemer’s Law holds true across the United States. Healthcare economists, in the United State and abroad have known that the availability of hospital beds and technology alone was driving up the cost of care. For many years, we accepted the added cost of more capacity because we believed that we Americans were better off because of it.

Now because we can no longer afford our system and because we are losing American jobs to other countries in large part because of our healthcare costs, we are taking a closer look. Studies are now being reported on in the national press almost on a daily basis highlighting the areas where consumption of healthcare services is not leading to better health. We citizens need to demand a greater focus on getting the care that will really help us and shedding the care that doesn’t.

Roemer’s Law of a direct correlation between hospital capacity and utilization of that hospital capacity still operates today, although in the 1980s the federal government through Medicare dampened that a bit by starting to bundle payments to hospitals for an entire hospital admission rather than paying by the day and for individual services. However, it still is true that the more services are available, the more they are used. Therefore communities with excess capacity have more costly and wasteful care and put burdens on small business and industry because they have to pick up the costs of extra capacity that the community doesn’t really need.

Smart people in the greater Baltimore area should think about how many hospital beds and high tech services we need in our community and in our region. We have the best trained physicians, nurses, and therapists in the world. We need to deploy them in strong, vibrant healthcare systems that use evidence-based medicine to help people and add value to our community. We need better health, better care, and lower cost but do we really need all of the hospital beds that we have now? Would we be better off if we closed some of them?

What are your thoughts on Roemer’s Law and the drain on our economy of hospital beds and healthcare services that are really not adding to health?  Please share your thoughts below.