While waiting very briefly for a radiation treatment, a fellow cancer patient next to me in the waiting room commented, Boy, they really click us through here. He certainly was right. I was called right at my appointed time and, 21 minutes later, was back in the lobby, dosed with my daily 200 centigrays of radiation.
The treatment included immobilizing me on the table for the linear accelerator, the machine that actually produces the radiation to zap my tumor. This requires positioning me down to the millimeter, checking against reference marks on the mask that immobilizes my head and on my shoulders and chest. They then have to take a check scan that is compared with a reference one in the computer to be sure the tumor is really where it is supposed to be. Then there is the irradiation itself. So getting me in and out in 21 minutes means that the techs have to move as a finely trained team.
In other words, the clinic really is efficient. And, of course, efficiency is something economists value a lot, so observing it naturally brings questions to our minds. Why is this place so efficient? What economic incentives are driving this?
One explanation seems obvious: Their fixed costs must be enormous. Fixed costs are ones that do not vary with output and have to be paid even when output is zero, unless the firm is shut down. For a radiation clinic, start with an expensive building since the walls of the rooms housing the linear accelerators need to be 6 feet thick, with foundations to match. And the linacs themselves each cost several million dollars.
Amortizing $1 million at 6 percent interest over 10 years comes to about $550 per weekday. So a clinic like this has thousands of dollars per day in overhead before it even opens in the morning. Keeping per-unit costs down is crucial to making a profit. And to keep per-patient costs down, you have to click as many of them through the machines each day as you can. Hence the very time-efficient staff, leading the next patient in while I am still walking out.
That one explanation is taken right out of Week 6 of freshman microeconomics.
But other factors enter in. Like many people, I like to get the unpleasant out of the way first thing, so I like my 7:45 a.m. slot. And the very competent lead tech says she is busy all morning. But there are plenty of open time slots in the afternoons.
This suggests an explanation from a later chapter in the micro textbook, that dealing with monopolistic competition. This refers to an industry structure that is very competitive, but not meeting all the stipulations for perfect competition, including the product being a homogeneous commodity, like No. 2 yellow corn.
Most businesses that households deal with on a day-to-day basis function in monopolistic competition if only because they have branded products. A McDonalds hamburger is at least slightly different from one at Burger King. Shopping at Albertsons is different from Fred Meyer, at least to some people. And getting irradiated at my clinic may be a different experience than being irradiated at one of the several competing clinics in the metro area. At least the clinic managers hope it is different by being better in some way.
Yes, some consumer choice here is limited many peoples insurance policies dictate which providers they may use, or this is governed by physician-hospital-clinic links. But within large networks there may still be considerable choice, and some remaining fortunates like me have coverage that allow us to choose from many providers. So, at the margin, satisfying patients and, indirectly, their primary physicians, is important.
One feature of monopolistic competition is apparent excess capacity. This is shown in supermarkets with 16 checkout lanes even if only four are staffed most of the time, or gas stations with 12 pumps even though there are not more than three cars actually getting gas at any one time for most of the day. And a clinic may have more treatment slots available than total patients needing them. But why is this true?
The answer is that it is better for a business to sink money into extra checkout lanes or gas pumps because it doesnt want to lose customers by making them wait unnecessarily during busy periods. If you go to gas up and cant find an open pump, it may be easy to go down the street a couple of blocks. If supermarket A gets a reputation for long lines, the public will gravitate toward supermarket B. And the same is true for medical clinics.
True, not all stores open up additional registers when lines develop. But having the additional lanes at least allows for that and for payday or pre-holiday stocking-up rushes
I realize getting radiation treatments is something one does much less often than gasing up or getting a loaf of bread and a gallon of milk. So it is not an issue of getting immediate repeat business from the same person. Nor is it a case of elastic demand, where buyers are very sensitive to price. If the price were lower, I would not buy an extra 10 treatments beyond the 35 the doctor tells me I need. Indeed, life-saving medical treatments as a whole have extremely inelastic demand, in part because of their necessity and in part because third parties pay for most of them.
Word about good or bad treatment experiences does get around in the general public. And patients do relate their experiences, including any dissatisfactions, back to their personal physicians. Too many tales of poor organization or scorn for patients comfort and time at clinic A will cause primary care doctors to start referring patients to clinic B. So patient satisfaction is deemed very important.
Certainly, there are myriad inefficiencies in the delivery of health care in this country, and these have been written about at length. And certainly, some patients have earned a right to complain. But sometimes a cancer-afflicted economist in a clinic waiting room can appreciate efficiency in real life.
Ed Lotterman is an economist who teaches and writes in St. Paul, Minn. Write at email@example.com.