Supply Bottlenecks and Health Care
My colleague here at Outside The Beltway, Dave Schuler, has often commented that one of the problems with health care are supply bottlenecks that drive up prices. This article on the shortage of nurses in Michigan suggests that Dave is right on target.
Michigan’s 53 nursing schools reportedly are turning away about half of their applicants due to faculty and money shortages. The money and staff problems only add to the looming overall nurse shortage experts say is looming within the next few years, The Detroit News reported Monday.
Nursing school applications in Michigan have risen to about 16,000 in the past three years, but there are only enough facilities for roughly half of them.
[S]tate officials are worried about the shortage of 18,000 nurses predicted by 2015.
“If you’re short 18,000, that’s an absolute crisis,” said Jeanette Klemczak, the state’s first chief nurse executive. “If we don’t have those nurses, we’re going be in a dire situation. We’ll find ourselves with closed operating rooms and less hospital beds available to patients. It will slow down the whole delivery of the health care process.”
But is this a problem nationwide? The answer is obviously Yes. If other states and the colleges/universities in those states were graduating plenty of nurses, then the increased wages in Michigan would lure nurses to Michigan, thus solving the problem of the shortage. For further evidence there is also this article:
The problem is nationwide, but the crunch is acute in Metro Detroit. Wayne County Community College has 933 students on waiting lists, while Oakland Community College turned away 300. At Henry Ford Community College, 7,000 students list nursing as majors but the school can only admit 340 per year.
Sarah Nolff, 25, of Monroe said she waited two years before winning a spot last fall at Henry Ford. Like many students, she was attracted by the jobs that pay an average $60,000 a year in southeast Michigan and offer good benefits, flexible hours — and security because of the anticipated shortage.
Nationwide, shortages of 400,000 and up to as many as 1 million nurses are forecast by 2020, mainly because aging baby boomers are expected to place unprecedented stress on the nation’s health care system at the very time when many nurses plan to retire, according to a recent PriceWaterhouseCoopers report.
What a great way to apply some basic economic theory.
What do we have here? A shortage. So hospitals and other employers of nurses are offering $60,000/year, which in Michigan is quite a bit of money. So, on the demand side we have lots of people applying to nursing programs to get in on this good money. Problem is that the nursing schools are limited in terms of space, so many of the applicants are either rejected or wait listed. So why aren’t there new nursing schools being built and existing programs being expanded? Beats me, but I’d be willing to guess that there are a couple of organizations hard at work to prevent these things. After all, if you can block entry into the market, as well as expansion by existing market participants, you can reduce supply and basic supply and demand theory tells us that in this case prices will increase to clear markets. Basically, I wouldn’t be at all surprised to find out that there is some good old fashioned rent seeking going on here.
As for the claims about schools not having money, frankly I don’t see the problem here, unless it is perhaps an institutional block. Why not raise the tuition for nursing programs? After all, the money, if you graduate as a trained nurse, is pretty good. So increase the tuition and people should still be willing to pony up the money. Then use the money to expand the nursing program.
What does this mean for health care in general? Higher costs, which means higher employer costs for benefits which will almost surely translate into less benefits and lower wages. Basically a wealth transfer from those who are not in nursing to those who are in nursing.