Question

In: Economics

What would you expect to be the effect of a set of regulations limiting hospital revenues...

What would you expect to be the effect of a set of regulations limiting hospital revenues to an increase of 1 percent a year on the following?

Number of nurses hired

Number of doctors

Quality of care

Advertising budgets

Emergency room staffing

New construction

Depreciation

Would there be a difference if the regulation applied to just one hospital rather than to all hospitals? Would there be a difference between short-run and long-run effects?

Expert Solution

Solution

Number of nurses hired - Will decrease.In Fact,the number of nurses will be decreased to cutail the operating and other costs which are bound to increase by more than 1 percent.

Number of doctors - will decrease for the very same reason.

Quality of care - will decrease

Advertising budgets - Will decrease

Emergency room staffing - Will decrease .

New construction - Decrease because new construction will lead to new capacity addition which will lead to rise in revenue by more than 1 percent but the staff cannot be increased to support the increased expansion

Depreciation - will decrease.Since the life time / time duration for which the equipment will be used will increase. (as they do not have money to purchase new equipment) so the depreciation amount will reduce.

Yes if the regulation is applied to only one hospital then then only that particular hospital suffers and the rest of the other hospitalswill see a boom as patients from this hospital will shift to others (it's peers) for all the reasons discussed above.

In the short-run initially,this particular hospitals will see a tremendous reduction in number of patients but after some time it may see some patient additions (particularly the low income ones) because there is very (or) almost no rise in the prices for treatment in the regulated hospital.

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Rahul Sunny answered 1 year ago

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