70-9632
SARKAR, Shyamalendu, 1941THE COPPER COUNTRY MEDICAL INDUSTRY
OF MICHIGAN AS IT SERVES RURAL PEOPLE.
Michigan State University, Ph.D., 1969
Economics, agricultural

University Microfilms, Inc., Ann Arbor, Michigan

n o s COPPER COUNTRY MEDICAL INDUSTRY OP MICHIGAN
AS IT SERVES RURAL PEOPLE

By
Shyam alendu S a rk a r

A THESIS

S ubm itted t o
M ichigan S t a t e U n iv e rs ity
i n p a r t i a l f u l f i l l m e n t o f th e re o u lre m e n ts
f o r t h e d e g re e o f

DOCTOR OP PHILOSOPHY

D epartm ent o f A g r i c u l t u r a l Economics

1969

PLEASE NOTE:
Not original copy. Several pages
have indistinct print* Filmed as
received.
UNIVERSITY MICROFILMS

ABSTRACT
THE COPPER COUNTRY MEDICAL INDUSTRY Of’ MICHIGAN
a s ’ i t serves rural people

■ ■

By
Shyamalendu Sarkar
1

N

The Copper C ountry, w hich com prises fo u r c o u n tie s in th e
W estern Upper P e n in su la o f M ichigan (H oughton, Keweenaw, B araga
anci O ntonagon), i s a m e d ic a lly In d ig e n t r e g io n .

Four* m ajor

problem s o f th e a re a m o stly r e s p o n s ib le f o r t h i s s i t u a t i o n a r e :
(1 ) h ig h p ro p o rtio n o f aged r e s i d e n t s ; (2) h ig h m o rb id ity and
m o r ta lity r a t e due t o c h ro n ic I l l n e s s ;

(3) a d e c lin in g i n d u s t r i a l

b a se and -low income o jjp o r tu n ltle s , and

(it) a d e c lin in g young

p o p u la tio n .

T hese problem s i n d ic a t e t h a t th e r u r a l people o f th e

Copper’ Country' need much m ed ica l c a r e b u t t h a t t h e i r a b i l i t y to
o b ta in and pay f o r i t I s lim ite d .
S ince th e r e s e a rc h was aimed a t e s tim a tin g th e a d d itio n a l
m ed ical f a c i l i t i e s n eed ed , t h e so u rc e s o f f in a n c e and th e p la n
re q u ire d ', th e i n v e s ti g a t i o n c o n c e n tra te d on four* f e a tu r e s : (1)
s tu d y in g th e l e v e ls and d i s t r i b u t i o n o f medical, c a re e x p e n d itu re s
In th e Copper C ountry by ty p e s o f s e r v i c e s : (2) e s tim a tin g th e
p o s s ib le sa v in g s o f m ed ical d o l l a r s i n th e Copper C ountry w hich
would r e s u l t from e lim in a tin g th e o p e r a tio n a l I n e f f i c i e n c i e s o f

Shyamalendu S a rk a r
th e h o s p i t a l s , "h ig h " incom es i n th e m ed ical p ro fe s s io n and "h ig h "
p r o f i t s o f th e drug and m e d ic a l equipm ent i n d u s t r i e s ; (3) s tu d y in g
th e r o l e o f v o lu n ta ry h e a l th in s u ra n c e i n In c re a s in g th e c o s t o f
m ed ical c a r e ; (*4) i n v e s t i g a t i n g t h e p o s s ib le so u rc e s o f f in a n c in g
th e m ed ica l needs o f th e Copper C o u n try .
I n 1967 th e t o t a l m e d ic a l e x p e n d itu re i n th e Copper C ountry
v.as

m i l l i o n , which i s a b o u t seven p e rc e n t o f th e g ro s s incom e

o f th e r e g io n .

Of t h i s t o t a l , t h e h o s p i t a l s re c e iv e d about 37

p e r c e n t, th e p h y s ic ia n s 20 p e r c e n t , d e n t i s t s n in e p e r c e n t, d r u g g i s t s
1*4 p e r c e n t, n u rs in g homes 10 p e r c e n t , w h ile eye g l a s s e s , n e t In s u ra n c e
c o s t s , e t c . accounted f o r t h e r e s t .
On th e a v e ra g e , th e n e t incom e o f p h y s ic ia n s was $*42,000, w hich
i s a b o u t 60 p e rc e n t more th a n t h e a v e ra g e n e t income o f d e n t i s t s .
O n ly .ab o u t 17-p e rc e n t o f t h i s d i f f e r e n c e co u ld be e x p la in e d by lo n g e r
and c o s t l i e r 1 t r a i n i n g i n m e d ic in e , and th e rem ainder may be a t t r i b u t e d
t o th e d i f f i c u l t y o f e n tr y i n t o t h e p r o f e s s io n .

T h is " u n e x p la in a b le "

income d if f e r e n c e o f a p h y s ic ia n and d e n t i s t i s ab o u t $11,000.

For

a l l th e p h y s ic ia n s i n t h e Copper C o u n try , th e t o t a l d i f f e r e n c e i s
ab o u t $300,000.
The d ru g m a n u fa c tu re rs and r e t a i l e r s earned a h ig h r a t e o f p r o f i t .
T h e ir t o t a l u n a d ju ste d (a c c o u n tin g ) and a d ju s te d " u n e x p la in a b le "
p r o f i t 's , v:ere about $*46,000 and $118,000, r e s p e c t iv e ly .

The u n a d ju s te d

(a c c o u n tin g ) r a t e s o f " u n e x p la in a b le p r o f l t - d i f f e r e n c e " o f t h e d ru g
n a n u fa c tu re r s and drug r e t a i l e r s were computed by d e d u c tin g a v e ra g e
p i 'o f i t r a t e s o f a l l m a n u fa c tu re rs and a l l r e t a i l e r s from p r o f i t r a t e s

Shyam alendu S a rk a r
o f d ru g m a n u fa c tu re rs and d ru g r e t a i l e r s r e s p e c t i v e l y .

And t h e i r

a d ju s te d r a t e s o f " u n e x p la in a b le p r o f i t - d i f f e r e n c e " w ere computed
by d e d u c tin g a "norm al" r a t e o f i n t e r e s t f o r i n d u s t r i a l c a p i t a l
from t h e a d ju s te d p r o f i t r a t e on e q u ity ( a d ju s te d f o r i n t a n g i b l e s ,
r o y a ltie s

and a d v e r t is in g ) o f th e d ru g m a n u fa c tu re rs and d ru g

re ta ile rs .
The " u n e x p la in a b le " u n a d ju ste d and a d ju s te d p r o f i t s i n th e
m ed ic a l equipm ent I n d u s tr y v:ere about $*1,000 and $1*1,000, r e s p e c t iv e ly .
The m ethod o f co m p u tatio n i n t h i s c a se was th e same a s i n t h e d ru g
in d u s t r y .
E x ce p t f o r one h o s p i t a l , D_, a l l h o s p i t a l s i n t h e Copper C ountry
s
d id shov: some amount o f o p e ra tio n a l i n e f f i c i e n c y .

The t o t a l " lo s s "

due t o t h i s was a b o u t $510,000 which i s about 13 p e r c e n t o f th e t o t a l
c o s ts o f o p e r a tin g a l l h o s p i t a l s i n th e a r e a .
The in s u ra n c e com panies p a id about o n e - th ir d o f t h e t o t a l m ed ica l
e x p e n d itu r e .

In s u re d p e rs o n s used more m ed ical c a r e th a n th e u n in s u re d .

However, t h i s d id n o t n e c e s s a r ily mean t h a t v o lu n ta r y h e a l t h in su ra n c e
has c a u s e d a n in c r e a s e i n th e p r ic e o f th e m e d ic a l c a r e .
F o r a d e q u a te h e a l t h c a re th e Copper C ountry n e e d s , a t l e a s t , an
a d d i t i o n a l . 1*10 lo n g -te rm b e d s , 13 p h y s ic ia n s , seven d e n t i s t s , **5
lic e n s e d p r a c t i c a l n u r s e s , *10 r e g i s t e r e d n u rs e s and n in e la b o r a to r y
te c h n ic ia n s .

T hese f a c i l i t i e s and p e rs o n n e l would c o s t ab o u t $2 .1 7

m il l io n p e r year*.

The a lle g e d sa v in g s from e li m in a ti o n o f o p e r a tio n a l

I n e f f i c i e n c i e s , and th e " u n e x p la in a b le " h ig h Incom es and p r o f i t s In th e
m e d ic a l I n d u s tr y amount t o about $850,000 t o $950,000 p e r y e a r .

It

Shyamalendu S arkar’
would b e d i f f i c u l t t o r a i s e th e re m a in d e r w ith in th e a r e a , b ecause
th e c o u n tie s a lre a d y spend ab o u t 38 p e rc e n t o f t h e i r t o t a l revenue
( I n c lu d in g s t a t e a id ) on lie a lth and m ed ical a s s i s t a n c e .

The

c h an ces o f any s u b s t a n t i a l s t a t e fund a r e a l s o s lim , b e cau se s t a t e
a id a lre a d y , a c c o u n ts f o r a b o u t 58 p e rc e n t o f t o t a l rev en u e o f th e
a re a .

And t h i s i s v e ry h ig h c o n s id e rin g th e s t a t e ' s s h a r e o f

o n ly 37 p e rc e n t f o r th e r e s t o f th e c o u n tie s i n M ich ig an .

I t is

e v id e n t t h a t to g e th e r w ith l o c a l and s t a t e p a r t i c i p a t i o n , more
f e d e r a l a id th ro u g h u s u a l c h a n n e ls (m e d ic a id , m e d ic a re , o ld age
a s s i s t a n c e , e t c . ) i s needed t o in c r e a s e m e d ic a l f a c i l i t i e s i n t h e
Copper1 C o u n try .

However, p r e s e n t needs f o r e x te r n a l a id and m ed ic a l

f a c i l i t i e s a r e l i k e l y t o be te m p o ra ry , b e cau se th e p o p u la tio n o f th e
C opper Country, i s d e c lin in g and incomes o f f a m i li e s a r e g ra d u a lly
r i s i n g . , Before, any perm anent c o n s tr u c tio n i s u n d e rta k e n i t m ust be
d e term in ed w h eth er p r e s e n t need s a re l i k e l y t o c o n tin u e ; f o r which
a d d i t i o n a l s tu d i e s a re needed on dem ographic t r e n d and c o m p o sitio n ,
tr e n d o f m o rb id ity and m o r ta lity r a t e and f u t u r e Income and employ­
ment p o s s i b i l i t i e s in th e Copper C ountry.
F u r th e r , f o r a more com prehensive and p r a c t i c a l p la n to p ro v id e
a d e q u a te m ed ical c a re I n t h e Copper C o u n try , a d d it i o n a l r e s e a r c h needs
t o b e d o n e.o n such th in g s a s optimum lo c a tio n o f m ed ical f a c i l i t i e s ,
in c e n tiv e p la n s t o a t t r a c t t r a i n e d manpower, a l t e r n a t i v e m ethods o f
d e li v e r i n g m ed ical s e r v i c e s , ways t o t a p p o s s ib le s a v in g s I n th e system
and t h e i r r e d i s t r i b u t i o n t o th o s e who need them m o st, and above a l l ,
s p e c i f i c m o d ific a tio n s needed i n th e s t a t e and f e d e r a l program s f o r more
e f f e c t i v e fin a n c in g o f m ed ica l c a r e .

ACKNOWLEDGMENTS

The a u t h o r 's d e b ts a r e f a r to o numerous t o p e rm it him t o
p r e s e n t a com plete l i s t .

He i s p a r t i c u l a r l y in d e b te d t o th e

f o llo w in g p e o p le :
D r. G lenn L. Johnson f o r s e rv in g a s m ajor p r o f e s s o r and
p r o v id in g c o n s tr u c tiv e c r i t i c i s m and c o n s ta n t g u id a n c e i n t h e
p re p a ra tio n o f t h i s th e s is .
M r. R alph Noble f o r c o o r d in a tin g and s u p e r v is in g f i e l d work
d u rin g th e d a ta c o l l e c t i o n p h a se o f t h i s s tu d y , an d f o r h i s
p e r c e p tiv e comments f o r im p ro v in g p r e s e n ta tio n o f t h i s t h e s i s .
D r. V ernon S o ren so n , D r. R i t a Zemach, Mr. N e il B ra c h t and D r. Jo h n
G i l l , who se rv e d a s members o f t h e g u id an c e c o m m ittee , f o r re a d in g
a d r a f t o f th e t h e s i s and g i v in g p e r c e p tiv e comments and v a lu a b le
s u g g e s tio n s i n th e f i n a l p r e s e n t a t i o n o f t h i s t h e s i s .
D r. Lawrence L. B oger, Chairm an o f th e D epartm ent o f A g ri­
c u l t u r a l Econom ics, f o r f i n a n c i a l a s s i s t a n c e w hich e n ab led me t o
do t h i s r e s e a r c h .
Mr. N e v ille D oherty f o r h i s v a lu a b le a s s i s t a n c e i n lo c a tin g
r e l e v a n t l i t e r a t u r e i n th e b e g in n in g and s e v e r a l u s e f u l d is c u s s io n s
and ccm nents a t d i f f e r e n t s t a g e s o f t h e p r e p a r a t i o n o f t h i s t h e s i s .

11

iii

H r. .James G ooch, D r. Hoy Guirmerson and o t h e r s o f th e Michifran
S t a t e U n iv e rs ity C o o p e ra tiv e E xten sio n C enter1 a t M arquette*
D r. Kenneth C. Powe, M essrs. Gordon S m ith, D ale H in ik , Kenneth M.
B ra y , L arry J J a i j a l a , Jam es O 'B rie n , th e a d m i n i s t r a t o r s o f th e
h o s p i t a l s and n u r s in g homes o f th e Copper C ountry and s e v e ra l
o th e r's f o r t h e i r h e l p i n d a ta c o l l e c t i o n .
However, th e a u th o r i s s o le ly r e s p o n s ib le f o r th e e r r o r s and
o m issio n s i n t h i s t h e s i s .

i

table o p comtewts

C h a p te r
i

Page
i n t r o d u c t i o n .................................................................................................. 1
O b j e c t i v e s ....................................................
5
P la n o f V / o r k ......................................................................................... 7

II

A DESCRIPTION OP THE COPPER COUNTRY..............................................9
P o p u l a t i o n ...........................................
9
F a m ilie s . ........................................................................................... 11
E d u c a t i o n ................................................................................................11
I n c o m e s .................................................................................................... 12
O c c u p a t i o n ............................................................................................13
M edical C are F a c i l i t i e s .............................................................. 14
F a c i l i t i e s ....................................................................................... 15
H e a lth M a n p o w e r .......................................................................... 18

111

METHODS OP ESTIMATION AND REVIEV? OP LITIilRATURi;......................20
rIh e Nature* o f D i f f i c u l t i e s i n M easuring Monopoly . . 22
The A ccounting R ate o f P r o f i t ........................................... 24
The A djusted R ate o f P r o f i t ................................................ 24
Incomes o f D o c t o r s .......................................................................... 29
Methods o f E stim a tin g D o c to r's I n c o m e s ...............................29
I h e Drug I n d u s t r y .............................................................................. 32
E s tim a tio n o f th e D iffe re n c e i n th e P r o f i t R a te s
o f th e Drug I n d u s tr y and A ll M anu factu rin g
I n d u s t r i e s ....................................................................................... 32
The H o s p ita l Equipment I n d u s t r y ................................................ 34
E s tim a tio n o f t h e O p e ratin g I n e f f i c i e n c i e s o f t h e
H o s p i t a l s ................................................................................................36
H o s p ita l In su ra n c e ....................................................................... 42
F in a n c in g M edical C are Heeds ............................................. 44
A lte r n a tiv e Methods o f F in a n c in g .................................... 47

IV

DISTRIBUTION OF THE MEDICAL DOLLAR

.............................. 50

N a tio n a l A ggregates ....................................................................... 50
H ie Copper Country H ealth E x p e n d itu re s ............................ 52
C om position o f th e M edical D o lla r * ............................................54

iv

TAELE OP COmENfS (continued)

C hapter’
V

VI

V II

V III

Pape

DOCTORS......................................................................................................

58

I n c o m e s .................................................................................................
T a x ..........................................................................................................
E s tim a tio n o f t h e "U n ex p lain ab le" D iffe re n c e i n th e
Incomes o f P h y s ic ia n s and D e n tis ts . . . . . . . .
Tax on "U n ex p la in ab le" Income o f P h y s ic ia n s and
O utflow o f M o n e y .......................................................................

60
61
61
65

THE DRUG INDUSTRY...............................................................................

67

P r o f i t i n th e Drug I n d u s try .....................................................
E s tim a tio n o f " P r o f i t - d i f f e r e n c e " ....................................

68
72

TiiE HOSPITAL EQUIPMENT INDUSTRY................................................

76

E s tim a tio n o f th e D iffe re n c e i n t h e P r o f i t R ate o f
t h e M edical Equipment In d u s tr y and A ll M an u fac tu rin g
I n d u s t r i e s ........................................................................................

77

HOSPITAL EFFICIENCY...........................................................................

82

E s tim a tio n o f th e O p e ra tio n a l I n e f f i c i e n c y o f th e
H o s p ita ls Based on T h e ir O p e ra tin g R a t i o s .......................

84

IX

HEALTH INSURANCE.................................................................................... 100

X

FINANCING MEDICAL CARE N E E D S .......................................................... 109
Problem s i n th e Copper* C ountry . . . . . . . . . . .
M edical Needs o f th e Copper C ountry
............................
A lte r n a tiv e Methods o f F in a n c in g th e M edical Needs .
U ndiscussed I s s u e s .......................................................................

XI

109
Ill
117
124

SUMMARY AND CONCLUSIONS....................................................................... 129
S u m n a ry .......................................................................................................129
C o n c lu s io n s ..............................................................................................137

LIST OF REFERENCES.................................................................................................. 139
APPENDIX A .............................................................................................
APPENDIX B ....................................................................................................................156

v

145

LIST OP TABU'S

T ab le
2 .1
2 .2

Page
P o p u la tio n , by Age, R esidence and County I n th e
Copper C ountry I n 1967 .........................................................................

10

T rend o f P o p u la tio n , 65 an d Over I n th e Copper
C o u n try , 1940-70 ....................................................................................

10

2 .3

E d u c a tio n o f th e Heads o f th e F a m ilie s i n th e Copper
C o u n t r y .......................................................................................................... 12

2 .4

F a m ilie s by Income C a te g o rie s i n th e Copper C ountry
i n 1967 .....................................................................................................

12

Employment by O c c u p a tio n a l C a te g o rie s i n th e Copper
C ountry in 1967

13

2 .5
2 .6

Employment and A ggregate Income by County i n t h e
Copper C o u n t r y ............................................................................................. 1*4

2 .7

U t i l i z a t i o n and In v e n to ry o f Acute C are H o s p ita ls i n
t h e Copper C ountry i n 1967 ..............................................................

16

U t i l i z a t i o n and In v e n to ry o f Long-term C are U n its in
t h e Copper C ountry i n 3967 ..............................................................

17

The R a tio s o f P h y s ic ia n s and D e n tis ts to P o p u la tio n
by County i n th e Copper C ountry i n 1967

19

2 .8
2 .9

2 .1 0 Ilu rs in g P e rso n n e l I n th e Copper C ountry I n 1967
3 .1
4 .1
4 .2

. . . .

19

H e a lth Use and E x p e n d itu re o f In s u re d and U ninsured
P e rso n s i n th e U n ited S t a t e s I n 1963 ........................................

43

A ggregate and P e r C a p ita E x p e n d itu re s f o r H e a lth and
M edical Care i n th e U n ite d S t a t e s , 1959-60 t o 1967-68

,

51

P r i v a te E x p e n d itu re f o r H e a lth S e r v ic e s by Types o f
E x p e n d itu re s i n S e le c te d Y ears frcm 1961-67 i n th e
U n ite d S t a te s ........................................................................................

53

vi

vii
LIST OP TABLES (continued)

T ab le

Page

4 .3

C om position o f th e T o ta l O p e ra tin g C o sts o f H o s p ita ls ,
N u rsin g Homes and S e rv ic e P ro v id in g A gencies i n th e
55
Copper C ountry i n 1967 ..............................................................

4 .4

D i s t r i b u t i o n o f t h e Consumer’s M edical C are D o lla rs
i n th e Copper C ountry i n 1967

56

A Com parison o f t h e C om position o f th e M edical Dol­
l a r s i n t h e Copper C ountry and U n ited S t a t e s i n 1967

57

Incomes o f P h y s ic ia n s and D e n tis ts i n t h e Copper
C ountry i n 1967

60

Net Income (b e fo re and a f t e r t a x ) and Income Tax o f
P h y s ic ia n s and D e n tis ts I n th e Copper C ountry I n 1967

62

The T o ta l "U n e x p la in ab le" H ig h er Income o f P h y si­
c ia n s Compared t o T h at o f D e n tis ts i n t h e Copper
C ountry i n 1967 ...........................................................................

64

R a te s o f R e tu rn o f 12 L eading F irm s I n S e le c te d
I n d u s t r i e s i n 1966 .......................................................................

69

R a te s o f R e tu rn o f Drug M a n u fa c tu re rs and A ll Manu­
f a c t u r in g I n d u s t r i e s , 1956-67 .................- ........................

70

T o ta l "U n e x p la in ab le" P r o f i t s o f Drug M a n u fa c tu re rs
and Drug R e t a i l e r s .......................................................................

73

P r o f i t o f H o s p ita l Equipm ent and A ll M a n u factu rin g
I n d u s t r i e s i n 1 9 6 3 - 6 7 ..............................................................

78

T o ta l "L oss" o f C onsum er's M edical D o lla rs Due t o
"A d ju sted " and "U n ad ju sted " P r o f i t D iffe re n c e o f th e
M edical Equipment I n d u s tr y I n t h e Copper C ountry I n
1967 ......................................................................................................

81

I n d i c a t o r s o f O p e ra tio n a l E f f i c ie n c y , A cute C are and
Long-Term F a c i l i t i e s i n M ichigan and i n t h e U n ited
S t a t e s .................................................................................................

86

I n d i c a to r s o f O p e ra tio n a l E f f i c ie n c y , A cute C are and
Long-Term F a c i l i t i e s i n t h e Copper C ountry i n 1967 .

87

4 .5
5 .1
5 .2
5 .3

6 .1
6 .2
6 .3
7 .1
7 .2

8 .1

8 .2

viii
LIST OP TABLES (continued)

T ab le
8 .3
8.JJ
8 .5

Page
A d ju sted p e r P a t ie n t Day C ost a t H o s p ita ls i n th e
Copper C ountry i n 1967 ..............................................................

9°

A d ju sted R ate o f Occupancy o f th e Copper C ountry
H o s p ita ls i n 1967 .................................................................

93

•

Number and T o ta l M aintenance C o sts o f U noccupied Beds
In H o s p ita ls i n th e Copper C ountry i n 1967 ..................

9 .1

9 .2

9 .3

96

H e a lth E xpenses p e r P e rso n p e r Y ear by Type o f
Expense and H o s p ita l In s u ra n c e Coverages i n th e
U n ited S t a t e s , July-D ecem ber 1962

103

I n - H o s p ita l S u r g ic a l P ro c e d u re p e r 100 P e rso n s p e r
Year by Age, Sex and S u r g ic a l In s u ra n c e S t a t u s ,
Twelve Month P e rio d i n t h e U n ited S t a t e s , 1957-58 ’

10^

E x p e n d itu re s and H o s p ita l U t i l i z a t i o n o f In s u re d and
U ninsured P eo p le i n t h e U n ited S t a te s i n 1963 • • •

105

*

9 .4

Fam ily In s u ra n c e Coverage i n th e Copper C ountry and
th e U n ited S t a t e s ........................................................................... 107

1 0 .1

M edical C are F a c i l i t i e s i n t h e Copper C ountry and
I n t h e U nited S t a te s i n 1967 ........................................................H 2

1 0 .2

A d d itio n a l Needs o f B eds, Manpower and Funds I n th e
Copper C ountry i n 1 9 6 7 .................................................................. 116

1 0 .3

The "L oss" o f Consumer’s M edical D o lla rs Due t o
O p e ra tio n a l I n e f f i c i e n c y and th e "U n ex p lain ab le"
Incomes and P r o f i t s I n t h e Copper C ountry M edical
In d u s try i n 1967 ...........................................................................

119

T o ta l Revenue, C ost and E x p e n d itu re on H e a lth , Wel­
f a r e and M edical A s s is ta n c e by C o u n tie s i n 1966 . .

121

10.*1

/

CHAPTER I
INTRODUCTION
I n th e l o s t q u a r t e r o f a c e n tu ry m e d ic a l s c ie n c e h as d evelop ed
sp e c ta c u la rly .

Modem m e d ic a l c a r e I s a b e t t e r and more s c i e n t i f i c

p ro d u c t th a n e v e r b e f o r e .

A b e t t e r inform ed Am erican p u b l ic , w ith

a h ig h e r s ta n d a rd o f l i v i n g , I s demanding and r e c e iv in g a g r e a t e r
q u a n ti t y an d a h ig h e r q u a l i t y o f m e d ic a l c a r e th a n i n th e p a s t .
f a c t , m e d ic a l c a r e to d a y
n e c e s s i t i e s o f human l i f e .

In

i s c o n s id e re d t o b e one o f th e b a s ic
An a v e ra g e Am erican spends a b o u t s i x

p e r c e n t o f h i s d is p o s a b le in c a n e on m ed ica l c a r e .

About tw o d e ca d es

a g o , i t was h a l f o f t h i s , and a t t h e p a ce m e d ic a l c a r e c o s ts a r e
i n c r e a s in g , e x p e n d itu r e s may d o u b le i n th e n e x t two d e c a d e s.

In

f a c t , t h e r i s e i n p r i c e o f m e d ic a l c a r e d u rin g t h e l a s t decade h as
been more th a n f o r m ost o th e r consum er c c m n o d itie s .
T hese c o n d itio n s have r a i s e d th e problem o f fin a n c in g m e d ic a l
n eed s o f a g e d , d i s a b l e d , low -inccm e and unemployed p e o p le .

A

s i g n i f i c a n t p r o p o r tio n o f t h e s e p e o p le can n e i t h e r p u rc h a se p r e ­
p a id p r o t e c ti o n a t a d e q u a te l e v e l s , n o r pay a t t h e tim e o f i l l n e s s .
P eo p le o f t h e Copper C o u n try ( i n t h e W estern Upper P e n in s u la
o f M ich ig an , th e a r e a o f t h e p r e s e n t s tu d y ) a r e fa c e d w ith s i m i l a r
p ro b lem s.

V/ith I t s u n iq u e s o c i a l , econom ic, and m ed ic a l p ro b le m s, th e

1

2
Copper C ountry i s t y p i c a l o f m e d ic a lly in d ig e n t r e g io n s .
f a c t o r s a r e r e s p o n s ib le f o r t h i s s i t u a t i o n .

Four

(1) The p r o p o r tio n

o f aged r e s i d e n t s i s h ig h e r th a n th e s t a t e a v e ra g e .

About 15

p e rc e n t o f th e p o p u la tio n i s above 64 y e a r s , w hereas f o r th e s t a t e
i t i s o n ly 8 .5 p e r c e n t.

(2 ) The r a t e s o f m o rb id ity and m o r ta li t y

caused by c h ro n ic i l l n e s s a r e h ig h e r th a n f o r t h e r e s t o f t h e s t a t e .
(3 ) The income o p p o r t u n it i e s a r e lo w e r.

About 35 p e rc e n t o f a l l

f a m ilie s and 71 p e rc e n t o f f a m i li e s w ith aged fa m ily heads have
an a n n u a l income o f l e s s th a n $ 3 ,0 0 0 .

(4) The p o p u la tio n o f t h i s

a r e a i s g r a d u a lly d e c lin in g due m ain ly t o
p e o p le and d e a th o f h ig h

m ig ra tio n o f young

p r o p o r tio n o f ag ed .

A ll th e s e problem s i n d i c a t e t h a t p e o p le o f t h e Copper C ountry
need much m e d ic a l c a r e b u t t h e i r a b i l i t y t o o b t a i n and pay f o r
i t i s l im i te d .

The p r e s e n t m e d ic a l f a c i l i t i e s i n t h e Copper

C ountry a r e in a d e q u a te b o th i n q u a n ti t y and q u a l i t y .

We b e lie v e

t h a t some a l t e r n a t i v e a rra n g e m e n ts , b e s id e s v o lu n ta r y h e a l th
in s u r a n c e , m ust be made t o p ro v id e needed a d d i t i o n a l m e d ic a l c a r e
fa c ilitie s .

They c a n be p ro v id e d i n two ways:

Cl) by g e t t i n g

more fu n d s from p r i v a t e , c o u n ty , s t a t e and f e d e r a l s o u r c e s , and
(2 ) by re d u c in g p r e s e n t c o s t s o f m e d ic a l c a r e .
F o r t h e fo rm e r, we need t o stu d y l o c a l s o u rc e s o f fu n d s and
th e p r e s e n t e x p e n d itu re p a t t e r n o f co u n ty g o v e rrm e n t.

The p r e s e n t

s t a t e and f e d e r a l a i d t o t h e a r e a and f u t u r e p o s s i b i l i t y o f a d d i t i o n a l
fu n d s m ust be exam ined a l s o .

3
Ftor t h e l a t t e r , we need t o m easure p o s s ib le o p e r a tio n a l
i n e f f i c i e n c i e s o f h o s p i t a l s and n u rs in g hem es, d i f f e r e n c e s
i n incom es o f p h y s ic ia n s and o t h e r com parable p r o f e s s i o n a l s ,
and d if f e r e n c e s i n p r o f i t r a t e s o f th e d ru g and m ed ical e q u ip ­
m ent i n d u s t r i e s from t h e a v e ra g e p r o f i t r a t e o f a l l th e manu­
f a c t u r in g i n d u s t r i e s .

We a ls o need t o know w h e th e r v o lu n ta ry

h e a l t h in s u ra n c e i s a c t i n g a s a b a rg a in in g a g e n t f o r h o s p i t a l s
and p h y s ic ia n s , an d c a u sin g p r i c e r i s e s by en co u rag in g in s u re d
p e o p le t o o v e ru se and m isu se m e d ic a l c a r e f a c i l i t i e s .
The s h a r e o f h o s p i t a l s i n t h e consum er’s m e d ic a l d o l l a r h a s
b een in c i,e a s ln g c o n tin u o u s ly d u rin g th e l a s t d e c a d e .
r i s e i n h o s p i t a l c o s t s may be one re a s o n f o r t h i s .

The phenomenal
The in d ex

o f h o s p i t a l c o s ts in c r e a s e d from 100 i n 1957-59 t o 200 i n 1967,
w h e re a s■g e n e r a l p r i c e l e v e l s in c r e a s e d t o o n ly 116 p o i n ts d u rin g
t h e same p e r io d .

The re a s o n s f o r t h i s c o u ld b e many, h u t we a r e

i n t e r e s t e d i n knowing i f o p e r a tio n a l i n e f f i c i e n c i e s o f h o s p i t a l s
a r e p a r t l y r e s p o n s ib le .

Under t h e p r e s e n t i n s t i t u t i o n a l payment

sy ste m , n o n p r o f it s t a t u s o f h o s p i t a l s may n o t p ro v id e enough
in c e n tiv e f o r an e f f i c i e n t o p e r a tio n .

I f t h i s i s s o , th e n th e r e

i s some sc o p e f o r re d u c in g m e d ic a l c o s t s o f t h e consumer by
in c r e a s in g o p e r a tio n a l e f f i c i e n c y o f h o s p i t a l s .
The g e n e r a l c o n cen su s i s t h a t p h y s ic ia n s a r e i n s h o r t su p p ly ,
and t h e i r incom es a r e in c r e a s in g f a s t e r th a n t h e i r num ber.

Many

b e lie v e t h a t t h i s i s due t o r e s t r i c t i o n s on th e su p p ly o f p h y s ic ia n s
acco m p lish ed by r e s t r i c t i n g a d m issio n i n m e d ic a l s c h o o ls and
l ic e n s e s f o r p r o f e s s i o n a l p r a c t i c e . 1

A few r e l e v a n t q u e s tio n s a r e :

1 See Appendix A f o r s p e c i f i c c i t a t i o n s .

How d o incomes o f p h y s ic ia n s compare w ith th o s e o f o t h e r com parable
p r o f e s s io n a ls ?

A re e a rn in g s o f p h y s ic ia n s h ig h e r th a n th o s e o f

d e n t i s t s by a w id e r m argin th a n c an be e x p la in e d by f a c t o r s
r e s p o n s ib le f o r d e te rm in in g d if f e r e n c e s i n incom es i n d i f f e r e n t
p r o fe s s io n s ?

I f t h i s i s t r u e , e lim in a tio n o f " u n e x p la in a b le " h ig h e r

income o f p h y s ic ia n s w i l l re d u c e m ed ica l e x p e n d itu re s o f consum ers.
On s e v e r a l o c c a s io n s d ru g m a n u fa c tu re rs have b een c r i t i c i z e d
in c o n g re s s io n a l h e a r in g s .

They a r e acc u sed o f r ig g in g p r i c e s ,

m onopolizing m a rk e ts by g e t t i n g p a te n t r i g h t s , and c r e a t i n g s e r io u s
b a r r i e r s t o e n tr y by e x tr a o r d in a r y s a le s p rom otion and a d v e r t is in g
o f bran ded drugs t o re a p e x o r b i t a n t l y h ig h p r o f i t s f o r many y e a r s .

2

The opponents o f t h i s view f e e l t h a t p a te n t p r i v i l e g e s t o drug
com panies a r e e s s e n t i a l t o t h e i r c o n tin u in g e f f o r t s I n d ru g r e s e a r c h
and developm ent o f new d r u g s .
drug in d u s try i s v e ry " r i s k y " .
r i s k premium.

They a s s e r t t h a t in v e stm e n t i n t h e
The h ig h p r o f i t r a t e s a r e a s o r t o f

I t I s im p o rta n t t o stu d y th e r e a l s i t u a t i o n , p a r t i c u l a r l y

f o r t h e Copper C o u n try , b e c a u se t h e r e i s no d ru g company I n t h i s re g io n ;
a l l d ru g s a r e b o u g h t from o u t s i d e .

So p r o f i t s o f d ru g m a n u fa c tu re rs

would be a d r a in on th e r e s o u r c e s o f th e a r e a .

A com parison o f p r o f i t

r a t e o f th e drug I n d u s tr y w ith t h a t o f a l l m a n u fa c tu rin g i n d u s t r i e s
would show w h eth er p r o f i t r a t e o f th e d ru g I n d u s tr y I s m ore o r l e s s
th a n th e average p r o f i t r a t e o f a l l o th e r m a n u fa c tu rin g i n d u s t r i e s .
I f p r o f i t r a t e o f t h e fo rm er I s c o n s i s t e n t l y h ig h e r t h a n o f t h e
l a t t e r , th e n s a v in g s can b e made i n d ru g s i f t h i s p r o f i t d if f e r e n c e

2

See Appendix A f o r s p e c i f i c exam ples.

5
i s e lim in a te d .

F o r s i m i l a r re a s o n s we need t o stu d y t h e m ed ica l

equipm ent In d u s tr y which now a c c o u n ts f o r a s i z a b l e p ro p o r tio n
o f th e consum er’s m ed ical e x p e n d itu re s .
The s o a r in g burden o f m e d ic a l e x p e n d itu re s i s s h o u ld e re d t o
a g r e a t e x te n t by h e a lth in s u r a n c e com panies—and th e y a r e assum ing
g r e a t e r r o l e s e v e ry day.

As m e d ic a l c o s ts have I n c re a s e d i n r e c e n t

y e a r s , s o have h e a l t h In s u ra n c e prem ium s.

Many f e e l t h a t v o lu n ta ry

h e a l th in s u ra n c e system s h av e encouraged o v e ru se and m isu se o f m e d ic a l
f a c i l i t i e s and su p p o rte d h ig h p r i c e s o f d o c to rs and h o s p i t a l s .
T h is i s one o f t h e m ajor c a u s e s o f th e phenom enal r i s e i n m e d ic a l
c o s ts .

■5

A c o n tr a r y view i s t h a t h ig h premiums a r e i n f a c t an

e f f e c t o f h ig h m e d ic a l c o s t , and in s u r e d p e o p le u s e m ore m e d ic a l
f a c i l i t i e s b e ca u se h e a l th in s u ra n c e p ro v id e s th a n th e o p p o r tu n ity t o
buy needed m e d ic a l c a r e .
The above I s s u e s need t o be g iv e n p ro p e r c o n s id e r a tio n b e ca u se
a l a r g e p r o p o r tio n o f p e o p le i n t h e Copper C ountry can n e i t h e r
a f f o r d h e a l th in s u ra n c e n o r pay a t t h e tim e o f i l l n e s s .

O b je c tiv e s
I n view o f t h e above problem s and i s s u e s o b j e c ti v e s o f t h i s
t h e s i s a r e g e a re d t o two p rim a ry q u e s tio n s :
m e d ic a l needs o f t h e Copper C ountry?

(1) What a r e th e p r e s e n t

(2 ) How c an th e y be fin a n c e d ?

More s p e c i f i c a l l y , t h e o b je c tiv e s o f t h i s t h e s i s a r e :

■3

See C h ap ter I I I and Appendix A f o r s p e c i f i c c i t a t i o n s .

6
(1 )

To s tu d y t h e l e v e l s and d i s t r i b u t i o n o f m e d ic a l c a r e expen •

d i t u r e s lri t h e Copper C ountry by ty p e s o f s e r v i c e s .
(2 )

To e s tim a te t h e t o t a l p o s s ib le " s a v in g s " o f m e d ic a l d o l l a r s

by e lim in a tin g p o s s ib l e o p e r a tio n a l i n e f f i c i e n c i e s o f h o s p i t a l s ,
u n e x p la in a b le h ig h e r in c a n e s o f p h y s ic ia n s c an p ared t o o t h e r p r o ­
f e s s i o n s , and t h e u n e x p la in a b le h ig h e r p r o f i t s o f th e d ru g and
m ed ica l equipm ent i n d u s t r i e s compared t o t h a t o f a l l m a n u fa c tu rin g
i n d u s t r i e s and th e norm al r a t e o f i n t e r e s t on i n d u s t r i a l c a p i t a l .
(3 )

To s tu d y t h e r o l e o f v o lu n ta ry h e a l th in s u ra n c e i n i n c r e a s ­

in g th e c o s t o f m e d ic a l c a r e .
(lj)

To i n v e s t i g a t e p o s s ib l e s o u rc e s o f fin a n c in g th e m e d ic a l

c a r e needs o f t h e Copper C o untry.
T h us, t h i s t h e s i s fo c u s e s on th e m e d ic a l needs and f i n a n c i a l
problem s o f a p r im a r ily r u r a l a r e a w ith a d e c lin in g p o p u la tio n , i n ­
a d eq u a te m e d ic a l f a c i l i t i e s , low income f a m i l i e s , a h ig h p r o p o r tio n
o f o ld p e o p le , and a h ig h in c id e n c e o f c h ro n ic i l l n e s s .

A nother Ph.D .

t h e s i s w ith s i m i l a r o b j e c ti v e s and approach i s b e in g p re p a re d by
2i
N e v ille D o h erty .
He i s s tu d y in g t h e T ra v e rs e C ity a r e a o f M ic h ig a n ,
which i s p r im a r ily an u rb a n a r e a , w ith a n in c r e a s in g p o p u la tio n ,
ad e q u a te m e d ic a l f a c i l i t i e s (among t h e b e s t i n t h e n a t i o n ) , and
f a m ilie s h a v in g r e l a t i v e l y h ig h incom e.

I n o th e r w ords, t h e s i t u a t i o n s

in . th e Copper C ountry and T ra v e rs e C ity a re a a r e d i a m e t r i c a ll y o p p o s ite .
T hese two t h e s e s , when c o n p le te d , w i l l p ro v id e i n s i g h t i n t o s p e c i f i c
problem s o f two ty p e s o f c o m n u n ltie s, and th e p o s s ib l e d i r e c t i o n o f
4

N e v ille D oherty i s p r e s e n t l y w orking w ith t h e U .S .D .A ., b u t i s
e n r o lle d f o r h i s Ph.D. a t M ichigan S t a t e U n iv e r s ity .

7
e f f o r t s needed t o h a n d le problem s I n t h e s e two d i f f e r e n t s i t u a t i o n s .
A c o m p a rativ e stu d y o f t h e s e two r e g io n s may y i e l d u s e f u l r e s u l t s
o f w id e r a p p l i c a b i l i t y f o r th e n a tio n a s a w hole.

P la n o f Work
C h a p te r I p r e s e n t s t h e problem s o f t h e Copper C ountry and o u t­
l i n e s th e o b j e c ti v e s g e a re d t o th e p ro b lem s.

C h a p te r IX p r e s e n ts a

b r i e f d e s c r i p t i o n o f th e g e n e r a l c h a r a c t e r i s t i c s (p o p u la tio n , e d u c a tio n ,
incom es, em ploym ent, e t c . ) o f th e Copper C ountry and i t s m ed ic a l
In d u s tr y ( h o s p i t a l s , n u rs in g hemes, p h y s i c ia n s , e t c . ) .

C h a p te r I I I

d is c u s s e s th e s o u rc e s o f d a ta and m ethods o f e s t im a t i o n , and p ro v id e s
an overviev; o f t h e r e l e v a n t l i t e r a t u r e .

The t o t a l m e d ic a l e x p e n d itu re s

o f t h e Copper C ountry and th e t o t a l p o s s ib l e sa v in g s frcm
e lim in a tio n o f o p e r a t io n a l I n e f f i c i e n c i e s o f h o s p i t a l s , u n e x p la in e d
in c o m e -d iffe re n c e betw een p h y s ic ia n s and d e n t i s t s , and u n e x p la in e d p r o f i t d i f f e r e n c e o f th e d ru g and th e equipm ent I n d u s t r i e s from a l l manu­
f a c tu r in g I n d u s t r i e s a r e exam ined I n C h a p te r IV th ro u g h IX.

More

s p e c i f i c a l l y C h a p te r IV p r e s e n ts and com pares th e l e v e l and d i s t r i b u t i o n
o f m ed ic a l c a r e d o l l a r s i n t h e Copper C ountry and t h e U n ited S t a t e s .
C h ap ter V com pares th e incom es o f p h y s ic ia n s and t h a t o f d e n t i s t s t o
d ete rm in e t h e t o t a l amount o f u n e x p la in e d h ig h e r Incom es o f p h y s ic ia n s .
C h a p te r VI and V II e s tim a te th e d i f f e r e n c e s I n th e p r o f i t r a t e s o f
drug and m e d ic a l equipm ent i n d u s t r i e s from t h a t o f a l l m a n u fa c tu rin g
in d u s trie s .

The amount o f consum ers' m e d ic a l d o l l a r s " l o s t " due t o

8
o p e r a tio n a l i n e f f i c i e n c i e s o f h o s p i t a l s i s e s tim a te d i n C h a p te r
V III.

The g e n e r a l e x p e n d itu re and m ed ica l u s e p a t t e r n s f o r

in s u re d and u n in su re d p e o p le a r e d is c u s s e d i n C h ap ter IX t o se e i f
in s u ra n c e I s a s s o c ia te d w ith r i s i n g c o s t s and m e d ic a l c a r e .
C h ap ter X p r e s e n ts e s tim a te s o f m e d ic a l need s i n th e Copper C ountry
and e x p lo re s p o s s ib le ways o f o b ta in in g funds t o fin a n c e th e s e
n eed s.

C h a p te r XI su m n arlzes a l l t h e c h a p te r s and p r e s e n ts

c o n c lu s io n s .

CHAPTER I I
A DESCRIPTION OF THE COPPER COUNTRY

The Copper C ountry i s i n th e Viest e r n Upper P e n in s u la o f M ichigan.
I t i s bounded on th e e a s t by M arq u ette and Lake S u p e r io r ; on th e w est
by G ogebic C ounty; on t h e n o rth by Lake S u p e rio r , and on t h e so u th by
Iro n C ounty.

The Copper Country I s com prised o f f o u r c o u n tie s :

Houghton, Keweenaw, B araga and Ontonagon.

The fo llo w in g pages d e s c r ib e

th e g e n e r a l c h a r a c t e r i s t i c s and h e a lth c a r e f a c i l i t i e s o f t h i s a r e a .

P o p u la tio n
T h ere i s a d e c lin in g tr e n d i n th e p o p u la tio n o f th e Copper C o u n try .
Vlhile th e s t a t e p o p u la tio n has in c re a s e d from 2 ,8 1 0 ,1 7 3 i n 1910 t o
8,5 8 ^,0 0 0 i n 1967, th e Copper C ountry p o p u la tio n lia s d e c re a se d from
110,031 to 51>4lO d u rin g th e same p e r i o d .'1' T able 2 .1 shows t h a t th e
Copper C ountry i s p r im a r ily a r u r a l a r e a .

Except f o r H oughton, t h e r e

i s no r e a l l y u rb a n p o p u la tio n I n t h i s r e g io n .
A lthough

t h e r e h a s been a g e n e ra l d e c lin in g t r e n d i n th e t o t a l

p o p u la tio n o f t h i s a r e a , th e p e rc e n ta g e o f p eo p le o f age 65 and o v e r
has b een in c r e a s in g c o n tin u o u s ly (se e T ab le 2 .2 ) .

2

Adapted from Gordon S m ith, p . 4 . An e s tim a te by Thaden shows t h a t
the p o p u la tio n o f t h e Copper C ountry w i l l d e c re a s e t o 49,520 by 1970.
John F . Thaden, e t _ a l . , The Need f o r a R e tire m e n t Home i n a T w enty-seven
County Area o f M ichigan and V /lsconsin, M ichigan S t a t e U n iv e rs ity . C ite d
by Gordon S m ith, p . 5.
9

10
TABLE 2 .1 —P o p u la tio n , by Age, R e sid en c e and County i n th e C opper C ountry
i n 1967

County

: T o ta la :

Age
65 and o v e r

:
:

Urban

:
:

Farm

R u ra l
: Nonfarm

#
»

s
Houghton
Keweenaw
Baraga
Ontonagon
Copper C ountry
M ichigan

-------- n u m b e r---------------- ---3 2 , *106
2,081
6,577
1 0 , 3*16
51,*110
8,58*1,000

*1,981
32*1
8*11
1,186
7,332
729,6*10

«
*

p e rc e n t ----- 3 2 .2
0 .0
0 .0
0 .0
20.2
73.*1

5 .6
5 .0
5 \
5 -°b
5-<£
5 .6

6 2 .2
9 5 .0
9*1.6
9*1.0
7*1.2
2 1 .0

£

The f i g u r e s for- 1967 w ere computed by s t r a i g h t l i n e p r o j e c t i o n s o f
I960 f ig u r e s g iv e n by Gordon Sm ith and 1970 f i g u r e s g iv e n by Thaden. See
Gordon S m ith, p p . *1-5.
^ " V o c a tio n a l T e c h n ic a l E d u c a tio n S tu d y ," G ogebic-O ntonagon, I n te r m e d ia te
School D i s t r i c t S t u d i e s , mimeo. (Ju n e , 1 9 6 7 ), T ab le 1 , p . 10.
G " T re n d s," S ta te D ata and S ta te R anking i n H e a lth , E d u c a tio n and
W elfare, P a r t 2 ( 196O-6 7 ),

TABLE 2 .2 —T rend o f P o p u la tio n , 65 and Over i n th e Copper C o u n try , 19*10-70

Year

: P o p u la tio n o f Age 65 and Over

P e rc e n t o f T o ta l P o p u la tio n
----------- p e rc e n t ------------------

19*10
1950
I960
1970

5,653
7,2 5 8 .
7»38H
7,310
S ource:

7 .8 1
11.89
13.23
1*1.70

Gordon S h iith , " M u ltip le F a c to r s A s so c ia te d w ith C hronic
D is e a s e s and A ging i n t h e Copper C ountry o f M ic h ig a n ,"
(1965)> mimeo, p . 8.

11
T h is s i t u a t i o n i s p r im a r ily due t o

m ig r a tio n o f young p e o p le

t o th e m e tr o p o lita n a r e a s i n p u r s u i t o f b e t t e r - j o b s an d e a r n in g s .

The

r i s i n g number o f o ld e r p e o p le h a s an im p o rta n t s i g n i f ic a n c e i n o u r
s tu d y ; th e y need more m e d ic a l c a r e th a n younger p e o p le , b u t th e y
p ro v id e l e s s ta x money and have l e s s inccme t o pay f o r m e d ic a l ex p en se s.

F a m ilie s
I n th e y e a r i 960 , t h e t o t a l number o f f a m ilie s was 1^,05^
th e a v e ra g e number o f p e rs o n s p e r fa m ily was ab o u t 3 .9 7 .
a v e ra g e fa m ily s i z e d e c re a se d t o 2 .5

■3

2

and

I n 1965

w hich was a b o u t 1 .2 p e rs o n s p e r

fa m ily l e s s th a n t h e s t a t e f i g u r e i n th e same y e a r .

The m edian age

o f fa m ily h e ad s i n t h i s a r e a i s a la rm in g ly h ig h —ab o u t 20 y e a r s more
th a n f o r t h e a v e ra g e fa m ily head i n th e s t a t e .

E d u ca tio n
E d u c a tio n a l l e v e l s i n t h i s a r e a a r e low .

The m edian e d u c a tio n o f

th e h e ad s o f t h e f a m i li e s i s o n ly n in e and o n e -h a lf y e a r s .
p eo p le i n g e n e r a l a r e l e s s e d u c a te d .

The o l d e r

As a t t i t u d e tow ard h e a l t h c a r e

i s in f lu e n c e d by l e v e l o f e d u c a tio n , t h i s f a c t o r may have a n im p o rta n t
b e a rin g i n o u r s tu d y .

H ie fo llo w in g t a b l e shows t h e p e rc e n ta g e o f

p eo p le w ith d i f f e r e n t l e v e l s o f e d u c a tio n .

2

U .S. D epartm ent o f Commerce, Bureau o f th e C en su s, County and C ity
D ata Book ( 1967) , p p . 172-181.
^ Gordon S m ith , p . 16. U n lik e th e Bureau o f C en su s, t h e d e f i n i t i o n
o f fa m ily in c lu d e s th e s i n g l e unm arried p e rs o n . So t h e s i z e o f fa m ily h e ie
i s s m a lle r and number o f f a m i l i e s i s l a r g e r (20,56*1) th a n w ould have been
a c c o rd in g t o cen su s d e f i n i t i o n .

12
TABLE 2 .3 —E d u ca tio n o f th e Heads o f F a m ilie s
i n th e Copper Country.

Y ears i n School

:

P e rc e n ta g e
p e rc e n t
0 .4
8 .4
32.3
1 6 .0
2 7 .7
4 .8
3 .2
1 .2

no e d u c a tio n
5-6 g ra d e s
7 -8 g ra d e s
9-10 g ra d e s
11-12 g ra d e s
1-2 y e a r s c o lle g e
3-4 y e a r s c o lle g e
more th a n 4 y e a rs c o lle g e
S o u rc e:

Gordon 3 n i t h , p . 19.

Incomes
The Copper C ountry i s an e co n o m ic a lly d e p re s s e d a r e a .

About 35

p e rc e n t o f a l l f a m i li e s and a b o u t 7 1 .6 p e rc e n t o f f a m ilie s w ith head
o f th e fa m ily 65 and o v e r r e c e iv e l e s s th a n $3,000 p e r annum.

T able

2 .4 shows p e rc e n ta g e o f p e o p le i n eac h in c a n e g ro u p .
TABLE 2 .4 — F a m ilie s by Income C a te g o rie s i n th e Copper C ountry i n 1967

Income

: Houghton

Keweenaw

d o lla rs
$ 2 ,0 0 0 -2 ,4 9 9
2 ,5 0 0 -3 ,9 9 9
4 ,0 0 0 -6 ,9 9 9
7 ,0 0 0 -9 ,9 9 9
10,000 & o v er
S o u rce:

B araga : Ontonagon

M ichigan

- p e rc e n t
3 4 .9
2 3 .8
2 7 .2
8 .1
6 .0

3 7 .7
2 9 .3
2 5 .2
5 .3
2 .5

35.7
23.1
2 6 .9
9 .1
5 .2

3 0 .6
2 0 .7
3 4 .4
8 .7
5 .6

1 7 .5
14.3
33.4
15.7
1 9 .1

Gordon S m ith , p . 26.

Only m onetary incom es from a l l s o u rc e s a r e in c lu d e d . E xcluded a r e
incomes i n k in d and v a lu e s o f o t h e r income p ro d u cin g p o t e n t i a l s .

13
Ad m edical c a r e i s c o s t l y , income l e v e ls In f lu e n c e e f f e c t i v e
demand f o r m ed ic a l s e r v i c e s .

Prom t h i s p o in t o f view , Copper C ountry

p eo p le a r e i n a n u n fa v o ra b le s i t u a t i o n .

P ro b ab ly a s i g n i f i c a n t

p ro p o r tio n o f p e o p le a re n o t a b le t o m eet t h e i r minimum m ed ica l
n eed s.

T h is pointy i s e la b o r a te d more f u l l y i n C h a p te r X.

O ccupation
Pour m a jo r em ployers i n th e Copper C ountry a re :

g o v ern m en t,

lum ber and wood p r o d u c ts , m ining and w h o le sa le and r e t a i l t r a d e s .

These

a r e fo llo w ed by fo o d , t e x t i l e , fa rm in g , c o n s tr u c tio n , c a im u n ic a tio n and
t r a n s p o r t a ti o n .

S e rv ic e s In c lu d in g h e a lth c a r e , a c c o u n t f o r o n ly s i x

p e rc e n t o f employment.

H ie fo llo w in g t a b l e shows t h i s .

TABLE 2 .5 —Employment by O c c u p a tio n a l C a te g o rie s
i n th e Copper C ountry i n 1967

P la c e s o f Unployment

P e rc e n ta g e
of to ta l
p e rc e n t

W holesale and R e t a i l T rade
Goverrment
M ining
Lumber and Wood P ro d u c ts
Food, T e x t il e a n d Farming
C o n s tru c tio n , Communication and
T r a n s p o r ta tio n
S e rv ic e s in c lu d in g H e a lth S e rv ic e s
M etal P ro d u cts
F in a n c e , Real E s t a t e and In su ra n c e
P ap er and P aper P ro d u c ts
O th er
T o ta l

17
15
14
14
12
11
6
3
1
1
6
100

S o u rce:

A dapted frcm Gordon S m ith , p . 39*

14
Out o f t h e f o u r c o u n tie s I n t h e Copper C o u n try , Houghton g e n e r a te s
th e m ost Incom e, fo llo w e d by B arag a, O ntonagon and Keweenaw I n t h a t o r d e r .
The fo llo w in g t a b l e p r e s e n t s th e employment p o t e n t i a l and Income
o f each c o u n ty .
TABLE 2.6—Employment and A g g reg ate Income by County i n t h e Copper C ountry

County

:

Number B nployeda

A ggregate Inccmeb

number

( m illio n d o l l a r s )

Houghton
Keweenaw
B araga
Ontonagon

10,241
615
1 ,8 6 2
3,145

86
4
27
24

T b ta l

15,863

l4 l

a F ig u r e s a r e f o r t h e y e a r i 9 60.
F ig u re s a r e f o r t h e y e a r 1967 and w ere o b ta in e d by p r o j e c ti n g
f i g u r e s o f 1958 and 1963. The t r e n d betw een 1958-63 and 1963-67 was
assumed t o be th e same.
S o u rce:

u . S . D epartm ent o f Commerce, B ureau o f C ensus,
County and C ity D ata Book (1967) p p . 172-181.

M edical C are F a c i l i t i e s

15

H e alth c a r e f a c i l i t i e s i n t h e Copper C ountry a r e in a d e q u a te b o th i n
te rm s o f q u a n ti t y and q u a l i t y .

The s i t u a t i o n i s a g g ra v a te d due t o la c k

o f a d e q u a te t r a n s p o r t a t i o n and com m unication f a c i l i t i e s .
5

F o r m ore d e t a i l e d d e s c r i p t i o n o f m e d ic a l c a r e f a c i l i t i e s , se e
Gordon S m ith , p p . 52-102 an d Leo R e ic h , p p . 1 2 -4 6 .

15
F a c ilitie s
The Copper C ountry h a s f i v e a c u te - c a r e h o s p i t a l s , f i v e lo n g -te rm
c a re u n i ts and t h r e e s e r v ic e - p r o v id in g u n i t s .
a.

A c u te -c a re H o s p ita ls
1)
2)
3)
JJ)
5)

b.

They a r e :

Calum et P u b lic H o s p ita l i n Laurlum
S t . - J o s e p h 's H o s p ita l, Hancock
B arag a County M em orial H o s p it a l, L 'A nse
Ontonagon M emorial H o s p ita l, Ontonagon
La C ro ix H o s p ita l, W hite P in e

L ong-term C are U n its
1) M aresh N u rsin g Heme, Ontonagon
2 ) W in k le r’s N u rsin g Home, B araga
3 ) Houghton County M edical C are F a c i l i t y , Houghton
Lady o f Mercy N u rsin g Home, Houghton
5) L ong-term C are U n it o f S t . J o s e p h 's H o s p it a l, Hancock

c.

S e r v ic e -P ro v id in g U n its
1) W estern Upper P e n in s u la D i s t r i c t H e a lth D epartm ent
2) W estern Upper P e n in s u la H e a lth S e r v ic e C o u n c il, I n c .
3) R ice M em orial C lin ic

B esid es t h e s e , M ichigan T e c h n o lo g ic a l U n iv e rs ity h as one F i r s t A id
U n it; how ever, i t s s e r v i c e s a r e l im i te d t o th e U n iv e rs ity o n ly .

A b rie f

d e s c r ip tio n o f u t i l i z a t i o n and in v e n to ry o f th e s e f a c i l i t i e s i s p r e s e n te d
i n T able 2 .7 and T ab le 2 .8 .
The s e r v ic e - p r o v id in g a g e n c ie s f u r n i s h v a rio u s k in d s o f s e r v ic e s
r e l a te d t o h e a l t h .

The W estern Upper P e n in s u la D i s t r i c t H e a lth D epartm ent

p ro v id e s many s e r v i c e s such a s :

s a n i t a r y i n s p e c t io n o f t r a i l e r p a r k s ,

k itc h e n , food h a n d le r s , n u rs in g homes, m ilk p r o c e s s in g p l a n t s , d r in k in g
w a te r, e t c .
The W estern Upper P e n in s u la H e a lth S e rv ic e C o u n c il, I n c . p r e s e n t l y
h as th r e e m ain p r o j e c t s :

h e a r t , c a n c e r and s t r o k e ; a lc o h o lis m ; and

TABLE 2 .7 —U ti li z a t io n and In ventory o f Acute Care H o sp ita ls i n th e Copper Country i n 1967
p

Item s
*

Beds, number
No. o f p a tie n t days
new b o m days
No. o f adm issions
R ate o f occupancy (p e rc e n t)
Average le n g th o f s ta y (days)
new b o m (days)
No. o f p a tie n ts d isch arg ed ;
o f th e county
n o t o f th e county, b u t from
Copper Country
o u ts id e Copper Country
T o ta l n o . o f p e rso n n e l
No. o f p e rso n n el p e r bed
No. o f p h y sic ia n s on s t a f f
No. o f r e g is te r e d n u rse s on s t a f f
No. o f lic e n s e d p r a c t i c a l n u rse s
No. o f m ajor s u r g ic a l procedures
No. o f m inor s u r g ic a l p roced ures
O ther s e rv ic e s

As

**
•■

B
S

H o sp ita ls
:
C
•

s

:
•

D
s

80
25,138
1,166
223
86.0
13-7
5 .3

!55^
51,102°
1,650
330
87.9
11.4
5.0

70
20,930
683
170
82.0
9 .0
4 .0

37
16,041
336
67
95.8
8 .8
5 .0

1,5*10
(83.18)
280
(1 5 .1 )
31
(1 .7 )
125
1.56
6
17
12
217
436
2

2,867
(92.6)
145
(4 .6 )
88
(3 .0 )
225f
1 .4 r
13
28
10
854
426
4

1,638
(7 5 .4 )
501
(2 3 .1 )
33

1,563
(96.1)
13
( .8 )
50
(3 .1 )
65
1.75
3
10
6
162
659
1

1 .7 6
4g
13
6
357
806
2

#
m

E
s
20
2,067
—

36
28.3
4.0
-

20
(100.0)
0
(0 .0 )
0
(0 .0 )
23
1.15
2
6
4 h
n .a .
n .a .
1

in c lu d e s 45 long-term beds
~ in c lu d e s 1 p a rt-tim e worker
jj in c lu d e s 15,813 long-term p a tie n t days
does n o t in clu d e th e n u rsin g stu d e n ts
d f ig u r e s under p a re n th e se s a r e p ercen tag es o f t o t a l
? does n o t in c lu d e 12 c o n s u lta n ts
in c lu d e s 45 peart-tim e w orkers
n .a . = n o t a v a ila b le
Source: H o sp ita l A udit R eports o f r e s p e c tiv e h o s p i t a l s , supplemented by Leo R e ic h 's stu d y .
Note: The names o f th e h o s p ita ls have been re p la c e d by code names (A , B , C , D , E )
t o av o id i d e n t i f i c a t i o n .
s

17
TABLE 2 .8 — U t i l i z a t i o n and I n v e n to r y o f L o n g -term C are U n its i n th e Copper
Country i n 1967-

Ite m s

*
'I•

No. o f beds
No. o f p a t i e n t days
Occupancy r a t e , p e rc e n t
No. o f p a t i e n t s d is c h a rg e d
o f t h e cou n ty
not o f t h e co u n ty b u t
from Copper C ountry

L ong-term C are
*L

:•

:•

\

•

bL

26

124

42

26

9 ,4 0 0

4 3 ,0 3 0

1 5 ,2 1 5

9,491

9 9 .0

9 5 .0

9 9 .0

99.0

20.

(77.o r

99
( 8 0 .0 )

34
( 8 0 .0 )

20
(8 0 .0 )

6
( 2 3 .0 )

21
( 1 7 .0 )

7
(1 7 .0 )

5
(1 7 .0 )

4
( 3 .0 )

1
( 3 .0 )

1
(3 .0 )

o u ts id e Copper C ountry
No. o f s t a f f - t o t a l

14

82

39

16

No. o f s t a f f p e r bed

.54

.66

.92

.62

No. o f R.N. on s t a f f

2

10

2

-

No. o f L .P .N . on s t a f f

1

3

2

1

a L ong-term c a r e u n i t
a c u te c a r e u n i t .

o f S t . J o s e p h 's h o s p i t a l I s in c lu d e d i n th e

F ig u re s i n t h e p a re n th e s e s a r e p e rc e n ta g e s o f t o t a l .
S o u rce:

C o lle c te d from N u rsin g Homes.

18
a g in g .

The C o u n c il a t Houghton c o v ers t h e w hole o f th e Copper C ountry

a r e a and Gogebic C ounty.
The R ice M em orial C lin ic p ro v id e s d ia g n o s tic tre a tm e n t and con­
s u l t a t i o n s e r v i c e f o r p s y c h i a t r i c problem s o f c h il d r e n , and c o o p e ra te s
w ith o th e r s t a t e an d l o c a l a g e n c ie s .

The m e n ta lly i l l p a t i e n t s a re

u s u a lly r e f e r r e d t o Newberry S t a t e H o s p ita l f o r tr e a tm e n t b e ca u se
t h e r e i s no i n - p a t i e n t s e r v ic e a v a i la b l e i n t h e Copper C o u n try .
H e a lth Manpower
The r a t i o s o f p h y s ic ia n s and d e n t i s t s t o p o p u la tio n a r e much lo w er
i n t h e Copper C ountry th a n f o r th e s t a t e and t h e n a tio n .

The r a t i o o f

p h y s ic ia n s t o p o p u la tio n i n t h e Copper C ountry i s ab o u t 1 :1 7 7 3 , w hereas
f o r t h e s t a t e and t h e n a tio n , i t i s 1:814 and 1 :7 8 0 , r e s p e c t i v e l y .
d e n t i s t s a r e a l s o i n s h o r t s u p p ly .

The

F o r each 10,000 p e rs o n s t h e r e a r e

only 3*6 d e n t i s t s i n H oughton, 2 .8 i n B araga an d 1 .9 i n O ntonagon.
n a ti o n a l f i g u r e i s 5*^ d e n t i s t s p e r 10,000 p e rs o n s .

The

T ab le 2 ,9 shows

th e s e r a t i o s .
I t I s r e l a t i v e l y more d i f f i c u l t t o g iv e e x a c t f i g u r e s f o r
n u rs in g p e rs o n n e l

by number and ty p e , b e c a u se th e y change c o n ti n u a l l y .

Many o f th e n u rs e s p r e s e n t l y employed a r e w ives o f u n i v e r s it y
s tu d e n ts o r a irm e n s t a t i o n e d a t th e r a d a r b a se i n Keweenaw C o u n ty .'
Due t o la c k o f com petent g ra d u a te n u rs e s l e s s q u a l i f i e d p e rs o n s som etim es
a re employed t o do th e work o f g ra d u a te n u r s e s .
number o f n u rs in g s t a f f i n 1967.

7

Gordon S m ith , p . 50.

T able 2 .1 0 shows

19
TABIii 2 .9 —H ie R a tio s o f P h y s ic ia n s and D e n tis ts t o P o p u la tio n
by County i n t h e Copper C ountry i n 1967
*
•

County

P h y s ic ia n s 11
MD an d DO

P h y s ic ia n s : D e n tis ts
R a tio t o :
P o p u la tio n :

D e n tis ts
R a tio t o
P o p u la tio n

•
•

number

number

ra tio

21*

1/1642

12

1/2874

B araga

4

1/1644

2

1/3289

Ontonagon

4

1/2587

2*5

1/4138

29

1/1773

16*5

1 /3 H 6

■■

Houghton
an d
Keweenaw

Copper C ountry

ra tio .

# Two p h y s ic ia n s a r e employed by th e governm ent, one i s
s p e c i a li z e d i n t u b e r c u lo s is and t h e o t h e r i s a p s y c h i a t r i s t .

S o u rce:
'1 ‘

Leo R e ic h , p p . 3 6 -3 8 , supplem ented by p e rs o n a l
in v e s tig a tio n .

TABLE 2 ,io —N u rsin g P e rs o n n e l i n th e Copper C ountry i n 1967

County

: P ra c tic in g
: R e g is te re d
;
N urses

P ra c tic in g
:
L icen sed
:
P r a c t i c a l N urses :

P r iv a te
N urses

Houghton and
Keweenaw
B araga
Ontonagon

124
23
27

22
7
9

10
1
1

T o ta l

174

38

12

S o u rce: Leo R e ic h , T ab le s 51-53.
N ote: l h e above f i g u r e s do n o t in c lu d e n u rs in g s tu d e n ts
o r v o lu n ta ry n u rs e s .

CHAPTER i n
METHODS OP ESTIMATION AND REVIEW OP LITERATURE

The p r e s e h t s tu d y i s f o r t h e y e a r 1967 and i s lim ite d t o th e
Copper C ountry a r e a o f Upper M ich ig an , which i s com prised o f
f o u r c o u n tie s :

H oughton, Keweenaw, Baraga and O ntonagon.

The

d a ta f o r a l l h o s p i t a l s , n u r s in g hemes and r e l a t e d f a c i l i t i e s
have b een g a th e re d from h o s p i t a l an d n u rs in g heme a d m i n i s t r a t o r s ,
p h y s ic ia n s and o t h e r know ledgeable p e rs o n s .

A d d itio n a l se co n d ary

d a ta o n t h e f a c i l i t i e s were o b ta in e d frcm t h r e e s t u d i e s by Gordon
1
2
3
sm ith , Leo R eich , and W illiam s an d Works . D ata on demand
and su p p ly o f d o c t o r s , p r o f i t s on d ru g s and m e d ic a l eq u ip m en t,
h e a l th in s u r a n c e , and on many o t h e r r e l a t e d t o p i c s have b een
o b ta in e d frcm v a rio u s seco n d ary s o u rc e s .

^ S m ith , G ordon, " M u ltip le F a c to r s A s so c ia te d w ith C hronic
D ise a se an d Aging i n t h e Copper C ountry o f M ic h ig a n ," (mimeo, 196 5 ).
-2
R e ic h , Leo, " In v e n to ry o f H e a lth S e rv ic e s and F a c i l i t i e s i n
M ic h ig a n 's W estern Upper P e n in s u la ," e d . John S . H ib lo c k , Copper
C ountry H e a lth and W elfare C o u n c il, I n c . , Hancock, M ichigan,
(mimeo, Septem ber 1967)*
W illiam s and W orks, "The Economy o f Houghton C ounty, M ic h ig a n ,
E n g in e ers - S u rv ey o rs - P lan n ers"(m im eo , March 1 9 6 7 ).

20

21
V/e have u se d seco n d a ry d a ta and I n some c a s e s secondary te c h ­
n iq u e s i n e s tim a tin g t h e m agnitude o f p o s s ib l e sa v in g s due t o
e lim in a tio n o f t h e " h ig h e r" incom es o f p h y s ic ia n s o v e r t h a t o f
d e n t i s t s ( a com parable p r o f e s s i o n ) , and th e " h ig h e r" p r o f i t r a t e s
o f t h e d ru g and th e m e d ic a l equipm ent i n d u s t r i e s o v e r t h a t o f a l l
m a n u fa c tu rin g i n d u s t r i e s .

The se co n d a ry d a ta have b een u p d a te d

and m o d ifie d t o s u i t th e n e ed .

However, many l i m i t a t i o n s i n

d a ta and e s tim a tio n te c h n iq u e s s t i l l rem a in .

Due t o th e s e l i m i t a ­

t i o n s , we do n o t c laim t o have made p r e c i s e e s tim a te s o f " lo s s "
o f co n sum ers’ m e d ic a l d o l l a r s .

I n many c a s e s a l t e r n a t i v e e s tim a te s

(lo w er and u p p e r bounds) have b een p r e s e n te d .

T hese e s tim a te s a r e ,

how ever, a d e q u a te f o r th e p u rp o se o f t h i s t h e s i s .
I t i s d i f f i c u l t t o m easure t h e monopoly power o f any i n d u s t r y ,
• *

and we have made no a tte m p t t o m easure th e d e g re e o f i t i n t h e
m ed ica l p r o f e s s i o n , o r i n t h e d ru g o r equipm ent I n d u s t r i e s .

The

e s tim a te s o f t h e " u n e x p la in a b le " ^ h ig h e r incom es o f p h y s ic ia n s and
th e " u n e x p la in a b le " h ig h p r o f i t s o f th e d ru g and m e d ic a l equipm ent
i n d u s t r i e s may i n d i c a t e t h e p o s s ib l e p re s e n c e o f monopoly e le m e n ts,
ij

The word " u n e x p la in a b le " u se d i n t h e c a se o f t h e incom es o f
p h y s ic ia n s and th e p r o f i t s o f t h e d ru g and equipm ent in d u s tr y i s
synonymous w ith " ln c o m e -d iffe re n c e " and " p r o f i t - d i f f e r e n c e ." I n
o th e r w ords, t h e d i f f e r e n c e betw een t h e incom es o f p h y s ic ia n s and
d e n t i s t s t h a t cannot be e x p la in e d by n o n -p e c u n la ry a d v a n ta g e s , v a r i ­
a b i l i t y o f Income and lo n g e r an d c o s t l i e r t r a i n i n g I n m ed icin e was
term ed a s " u n e x p la in a b le " h ig h e r income o f p h y s ic ia n s . S im ila r ly ,
th e d i f f e r e n c e I n th e p r o f i t r a t e s o f t h e d ru g in d u s tr y and a l l manu­
f a c t u r in g in d u s tr y was term ed a s " u n e x p la in a b le " h ig h e r o r o f i t s o f
th e d ru g I n d u s t r y . The words " u n e x p la in a b le Incom es" and " u n e x p la in a b le
p r o f i t s " have b een In te rc h a n g e a b ly u se d w ith t h e words " in c c m e -d iffe re n c e " and " p r o f i t - d i f f e r e n c e " and have t h e same m eaning th ro u g h o u t
th e t h e s i s .

22
b u t a v a li d e s tim a te o f t h e d e g re e o f monopoly i n them would r e q u i r e
more th o ro u g h a n a l y s i s .

The fo llo w in g s e c t i o n p r e s e n ts san e o f

th e m ajo r d i f f i c u l t i e s i n m ea su rin g m onopoly.

The N a tu re o f D i f f i c u l t i e s i n M easuring Monopoly

5

I t i s v e ry d i f f i c u l t , i f n o t Im p o s s ib le , t o m easure p r e c i s e l y
t h e d e g re e o f monopoly power o f a n in d u s tr y .

To be a b le t o m easure

monopoly power we m ust know a l l th e c a u s a l f a c t o r s , and e f f e c t s o f
m onopoly.

F u r t h e r , th e s e c a u se s and e f f e c t s m ust be n u m e ric a lly

d e s c r i b a b le .

Machulp n i c e ly sum m arizes th e b a s i c d i f f i c u l t i e s i n

m easu rin g m onopoly.
Any m easurem ent o f monopoly depends t h u s , f i r s t o f a l l ,
on w h eth er we a r e s a t i s f i e d t h a t o u r t h e o r i e s a r e v a l i d ;
se co n d , on w h eth er th e y a re c o m p le te ; t h i r d , on w h eth er
th e phenomena s e l e c te d a s th e r e l e v a n t ones can b e d i s ­
c ern ed i n r e a l i t y ; f o u r t h , on w h e th er th e y le n d them­
s e lv e s t o n u m erica l d e s c r i p t i o n ; and f i f t h , w h e th er such
n u m erica l d e s c r i p t io n s o f a l l r e l e v a n t phenomena a r e
a c tu a lly a v a ila b le .
(Assuming t h a t th e s e c o n d itio n s a r e f u l f i l l e d )
T here would s t i l l rem ain two d i f f i c u l t i e s t h a t c an n o t be
overcom e: i n th e f i r s t p la c e , we can n e v e r know w h eth er
a l l t h e monopoly power was u se d o r w h eth er much more power
s t i l l e x i s t s th a n was u se d ; s e c o n d ly , t h e phenomena s e l e c te d
a s a f f e c t e d o r c o n d itio n e d by monopoly may p o s s ib ly be a ls o
a f f e c t e d o r c o n d itio n e d by o t h e r f a c t o r s and i t may n o t be
f e a s i b l e t o s e p a r a te t h e e f f e c t s o f th e e x e r c i s e o f monopoly
power from t h e e f f e c t s o f o th e r f o r c e s .6
5

I n th e d is c u s s io n o f t h i s s e c t l o n j l hav e h e a v ily borrow ed from
M achulp' s a n a l y s i s o f th e d i f f i c u l t i e s i n m easu rin g m onopoly. F r i t z
M achulp, The P o l i t i c a l Economy o f Monopoly (B altim o re: John Hopkins
P r e s s , 1952) p p . 469-528.
® F r i t z M achulp, The P o l i t i c a l Economy o f M onopoly. (B a ltim o re :
Jo h n Hopkins P r e s s , 1 9 5 2 ), p p . 47 2 -7 3 .

23

.

T h ree m ajo r f a c t o r s t h a t may cause monopoly a r e :

c o ll u s i o n ,

c o n c e n tr a tio n and b a r r i e r t o e n t r y .
The b a r r i e r t o e n tr y and c o llu s io n can ta k e d i f f e r e n t fo rm s,
and th ough t h e i r e f f e c t s can b e p e rc e iv e d , t h e i r e x p re s s io n i n
n u m e ric a l term s i s v e ry d i f f i c u l t ,
t h i s r e s p e c t i s much e a s i e r .

lh e stu d y o f c o n c e n tr a tio n i n

I t can be n u m e ric a lly e x p re s s e d , b u t

th e problem s h e re a r e o f a d i f f e r e n t n a tu r e .

The m ag n itu d e o f

c o n c e n tr a tio n r a t i o depends upon th e m ethods o f c o m p u tatio n and
g e o g ra p h ic d i f f e r e n t i a t i o n ( c o n c e n tr a tio n i n t h e l o c a l m a rk e ts may
be d i f f e r e n t from t h a t i n t h e n a ti o n a l m a rk e t) .

F u r t h e r , th e h ig h

c o n c e n tr a tio n f i g u r e s may n o t h a v e much m eaning i f t h e r e i s com­
p e t i t i o n from f o r e i g n m a rk e ts , o r i f c lo s e s u b s t i t u t e s a r e a v a l l a b le .
.

1.1

Two o f th e m a jo r e f f e c t s o f monopoly a r e :
and h ig h r a t e o f p r o f i t .

p ric e i n f l e x i b i l i t y

The p r i c e s m ust be c o n t r o l l e d t o keep

them from f l u c t u a t i n g , and an in d u s tr y h a v in g c o n tr o l on p r i c e s m ust
have some monopoly pow er.
P r o f i t r a t e i s by f a r t h e b e s t and m ost u se d c r i t e r i o n f o r
m easu rin g th e d e g re e o f m onopoly, b u t t h e r e a r e some b a s i c d i f f i c u l t i e s
i n e s tim a tin g p r o f i t r a t e s .

The m agnitude o f p r o f i t r a t e depends upon

how i t i s m easured — th e s h o r t - r u n p r o f i t s may be d i f f e r e n t frcm
lo n g -ru n p r o f i t s ; p r o f i t s computed on th e book v a lu e o f a s s e t s may be
d i f f e r e n t from th o s e c a l c u l a t e d on th e econom ic v a lu e o f n e c e ssa ry
a s s e ts .

I f t h e book v a lu e o f t h e a s s e t s I s m ore th a n t h e rep lacem en t

c o s t s o f th e s e a s s e t s , and i f t h e r e a re i d l e a s s e t s an d unused c a p a c ity ,

2H

t h e computed p r o f i t r a t e may seem t o b e v e ry low .

S i m i la r ly , i f

p r o f i t r a t e s a r e computed o n ly on t h e n e c e ssa ry e a rn in g a s s e t s ,
t h e f i g u r e s may be v e ry h ig h .

Many o th e r s i m i l a r f a c t o r s may

d i s t o r t th e p r o f it p ic tu re .
**

The A ccounting R a te o f P r o f i t
The a c c o u n tin g r a t e o f p r o f i t i s a p o o r i n d i c a t o r o f t h e d e g re e
o f m onopoly.

I n th e s h o r t ru n , a s demand i n c r e a s e s , p r o f i t s go u p ,

and may re m a in h ig h u n t i l more p r o d u c tiv e r e s o u r c e s flow i n , and
su p p ly a d j u s t s t o demand.

So h ig h p r o f i t r a t e may b e J u s t s c a r c i t y

r e n t r a t h e r th a n monopoly p r o f i t .

Even a c o m p e titiv e in d u s tr y may

h av e h ig h p r o f i t r a t e s u n d e r r a p i d l y in c r e a s in g demand, e s p e c i a l l y
i f th e v a lu e s o f th e a s s e t s a r e n o t a d ju s te d upward a c c o rd in g ly .

As

t h e a s s e t s a r e o n ly re v a lu e d a f t e r a c o n s id e r a b le la p s e o f tim e ,
p r o f i t r a t e s may seem h ig h e r th a n th e y a c t u a l l y a r e .

S i m i la r ly , a

m o n o p o lis tic in d u s tr y may show o n ly a slJm p r o f i t r a t e ,

Such an

in d u s tr y may have e x c e s s iv e o u tla y s t o m a in ta in monopoly p o s i t i o n ,
o r th e a s s e t s may have been v a lu e d so h ig h t h a t th e t o t a l d e p le tio n
and d e p r e c ia tio n ite m s m ight have b e e n e x a g g e ra te d .

The A d ju ste d R a te o f P r o f i t
The above d is c u s s io n s show t h a t t h e a c c o u n tin g p r o f i t r a t e can n o t
be a r e l i a b l e i n d i c a t o r o f th e d e g re e o f monopoly.

Seme a d ju s tm e n ts

have to b e made f o r th e ite m s t h a t a f f e c t i t s m ag n itu d e.

B ain s u g g e s ts

25
t h a t a " t h e o r e t i c a l p r o f i t r a t e " th e n can be compared w ith com­
p e ti t iv e p r o f it r a te ( i n te r e s t r a t e f o r in d u s tr ia l c a p ita l) to
7

d e te rm in e th e a c t u a l r a t e o f e x c e s s p r o f i t . '

To a d ju s t th e a c c o u n tin g p r o f i t r a t e one
. . . . w ould have t o exam ine re v e n u e s , o p e ra tin g e x p e n se s,
f ix e d c h a r g e s , d e p r e c i a t i o n , t h e ty p e and amount o f a s s e t s
r e a l l y n e c e s s a ry f o r t h e p ro d u c tio n o f th e a c t u a l o u tp u t
volum e, and th e v a lu a ti o n o f th e s e r e q u ir e d a s s e t s a t a
• r e p l a c e m e n t - c o s t - o f - s e r v ic e - v a l u e '. The e x am in a tio n
w ould be a f r i g h t f u l l y la b o r io u s t a s k and th e a d ju s tm e n t,
even i f w e ll- d e f in e d p r i n c i p l e s w ere a g re e d upon, would
le a v e a n e m b a rra s s in g ly w ide leew ay t o t h e Judgment and
t h e Im a g in a tio n o f t h e i n v e s t i g a t o r .
A lthough th e a d ju s te d r a t e o f p r o f i t , a d m itte d ly , p ro v id e s a
much more r e l i a b l e p i c t u r e o f p r o f i t , i t i s n o t w ith o u t some l i m i t a ­
tio n s .

I t does n o t i n d i c a t e w h e th er t h e p r o f i t s a r e h ig h due t o

monopoly o r monopsony p o s i t i o n o f t h e f ir m s .

F u rth e r, th e p r o f i t r a te s

o f" a n i n d u s t r y , w ith e x c e s s iv e a s s e t s , may be low b u t i t i s d i f f i c u l t
t o sa y w hether e x c e s s iv e a s s e t s a r e th e r e s u l t s o f f r e e e n tr y i n t o
in d u s tr y (w ith p ro d u c t d i f f e r e n t i a t i o n ) , o r a d e v ic e t o b lo c k e n t r y .
When e n tr y i n t o an in d u s tr y i s e a sy more new firm s may e n t e r .

A

p a r t o f t h e i r a s s e t s may rem ain i d l e i n t h e b e g in n in g , and a ls o a p a r t
o f t h e a s s e t s o f th e o l d e r firm s may be re n d e re d i d l e due t o
encroachm ents o f th e new firm s on t h e i r (o ld firm s ) b u s in e s s .

On th e

o t h e r hand, th e o ld e r f ir m s may in c r e a s e t h e i r a s s e t s t o c r e a te b a r r i e r s
t o e n tr y .

H ie a d ju s te d r a t e o f p r o f i t can n o t b e used t o d i f f e r e n t i a t e

betw een th e two s i t u a t i o n s .

7

J o e S . B a in , "The P r o f i t R a te a s a M easure o f Monopoly Pow er,"
Q u a rte rly J o u r n a l o f E conom ics. V o l. LV, (1 9 ^ 1 ), 290.
a M achulp, p p . 4 9 5 -^96.

26
L e r a e r 's In d ex p ro v id e s a n o th e r good m easure o f th e d e g re e
o f m onopoly.

Abba L e m e r s u g g e s ts t h a t t h e r e l a t i v e gap between

p r ic e (P) and m a rg in a l c o s t (MC) g iv e s a m easure o f t h e d e g re e
o f m onopoly.

H is in d ex was a r a t i o o f p r i c e t o th e d i f f e r e n c e
P ** MC
betw een p r i c e and m a rg in a l c o s t , i . e . , — ^----- . I n p e r f e c t com­

p e titio n

(P *= MC), t h i s in d e x i s e q u a l t o z e ro b e c a u se th e

nu m erato r (P - MC) becomes z e r o , and i f p r i c e i s i n f i n i t y t h e
in d ex becomes e q u a l t o o n e.

The v a lu e s betw een z e ro and one
q
i n d i c a t e th e d i f f e r e n t d e g re e s o f m onopoly.
I t i s d i f f i c u l t t o u se t h i s m ethod b e cau se t h e co m p u tatio n o f
t h e m a rg in a l c o s t o f an in d u s tr y i s n o t alw ays e a s y .

T h is i s f u r t h e r

c o m p lic a te d by t h e d i f f e r e n c e i n th e s h o r t - r u n and lo n g -r u n m a rg in a l
c o s ts .

Enough d a ta a re n o t a v a i la b l e on th e s e t o make any m ea n in g fu l

Arn-.

e s tim a te o f t h e d e g re e o f m onopoly.
The above d is c u s s io n s I n d i c a te t h a t any p r e c i s e m easurement
o f t h e d eg ree o f monopoly i s a v e ry d i f f i c u l t t a s k .

However, an

ap p ro x im ate e s tim a te c an be m ade, b u t i t m ust be l n t e r p r e t a t e d i n
th e l i g h t o f t h e l i m i t a t i o n s o f such m easurem ents.
Kamerschen u se d a d ju s te d p r o f i t r a t e s i n e s tim a tin g "w e lfa re
lo s s e s " from monopoly i n th e Am erican economy.

H is e s tim a te s were

b ased on I n t e r n a l R e v en u e 's S t a t i s t i c s o f Income d a ta f o r c o r p o r a tio n s ,
p a r t n e r s h i p s , and s o le p r o p r i e t o r s h i p s f o r th e e n t i r e economy.
schen a d ju s te d t h e a c c o u n tin g p r o f i t f i g u r e s f o r r o y a l t i e s ,
q

Kamer­

in ta n g ib le

P. L e m e r, "The Concept o f Monopoly and th e M easurement o f
Monopoly Pow er," Review o f Economic S t u d i e s « V o l. 1 (193*0 pp. 1 5 7 -7 5 .

27
a s s e t s , and a d v e r t i s i n g e x p e n d itu r e s .

F u r th e r , he computed r a t e s

o f r e t u r n on t o t a l c a p i t a l and e q u ity u s in g incom es b o th b e fo r e and
a f t e r t a x , t h e n combined t h e above r e s u l t s t o o b t a i n a v e ra g e p r o f i t
r a t e s f o r a l l b u s in e s s e s ta b lis h m e n ts ." 1'0
Kamerschen a ls o u se d L e m e r 's In d ex t o m easure d e g re e o f
«s

monopoly.

As m a rg in a l c o s t (MC) I s d i f f i c u l t t o m e a su re , he assumed

c o n s ta n t c o s t i n d u s tr y (AC « MC).

I n su ch c a s e s , t h e r a t i o o f monopoly

p r o f i t s t o t o t a l rev e n u e ( s a l e s ) c o in c id e s w ith t h e L e m e r* s In d e x .

L a ta

o f t h i s k in d w ere e a s i e r t o s e c u r e .

D avid R. Kam erschen, "An E s tim a tio n o f t h e 'W e lfa re L o s s e s ' from
Monopoly i n t h e A m erican Economy,11 U npublished Ph.D . t h e s i s , M ichigan
S t a te U n iv e r s ity , 1964. He b a sed h i s w ork on H a rb e rg e r*s s tu d y , w hich
e s tim a te d t h e lo s s due t o monopoly i n t h e m a n u fa c tu rin g i n d u s t r y , and
found t h a t i t was o n ly o n e -te n th o f one p e rc e n t o f t h e n a t i o n a l incom es.
A rnold Ci H a rb e rg e r, "Monopoly and R eso u rces A l l o c a ti o n ," P ro c e e d in g s o f
American Economic Review (May 1 9 5 4 ), p p . 7 7 -8 7 ; "The M easurement o f W aste ,"
P ro ceed in g s o f A m erican Economic Review (May 1 9 6 4 ). S t i g l e r c r i t i c i s e d
H a rb e rg e r's s tu d y on t h r e e g ro u n d s: T l) I t (H a rb erg e r* s stu d y ) was b a s e d
on o n ly m a n u fa c tu rin g c o r p o r a tio n s , t h a t to o o n ly f o r t h e p e r io d o f
1924-28. (2 ) Many o f t h e a ssu m p tio n s w ere r a t h e r " h e r o ic " . (3 ) The
s t a t i s t i c a l p ro c e d u re s w ere d u b io u s. G eorge J . S t i g l e r , "The S t a t i s t i c s
o f Monopoly an d M e rg er," J . o f P o l i t i c a l Economy (F e b . 1 9 5 6 ), p p . 3 3 -4 0 ;
W a lte r Adams, "Consumer Needs and Consumer S o v e re ig n ty i n t h e Am erican
Economy," J . o f B u sin e ss (J u ly 1 9 6 2 ), p p . 264-277.
A few o t h e r q u a n t i t a t i v e s t u d i e s on monopoly a r e : D avid Schw artzm an,
"The E f f e c t o f Monopoly on P r i c e , " J . o f P o l i t i c a l Economy (Aug. 1 9 5 9 ),
pp. 352-362; "The B urden o f M onopoly," J . o f P o l i t i c a l Economy (Dec. I9 6 0 )
pp. 627-630. A.H.D. K ap lan , B ig E n te r p r is e i n a C o m p e titiv e System ,
(W ashington: B rookings I n s t i t u t i o n , 1 9 5 4 ). J . F re d W eston, The R ole o f
M ergers i n t h e Growth o f L arge F irm s , (B e rk e le y , U n iv e r s ity o f C a l i f o r n i a
P r e s s , 1953).

28
Kamerschen c o n s id e re d t h e p e rio d o f 1956-57 t o 1960-61 a s
re a s o n a b ly c lo s e t o " lo n g -ru n e q u ilib r iu m ," a n d computed e x c e ss
p r o f i t by ta k in g d e v ia tio n s o f th e a d ju s te d and u n a d ju s te d
p r o f i t s from t h e lo n g -ru n a v e ra g e p r o f i t r a t e .
t h i s would p ro v id e a r e l i a b l e e s tim a te o f l o s s due t o
monopoly.

As B ain s a i d ,

. . . . th e o n ly s o r t o f e x c e ss p r o f i t , w hich m ight be e x p e c te d
t o be r e f l e c t e d i n lo n g -te rm a v erag e e x c e s s p r o f i t s o f
e n t i r e i n d u s t r i e s , a r e m o n o p o lis tic e x c e ss p r o f i t s . A ll
o t h e r ty p e s o f e x c e s s p r o f i t s a r e l i k e l y t o o c c u r s p o r a d ic a lly
and i r r e g u l a r l y , o r t o b e c o n fin e d t o o n ly p a r t o f t h e firm
o f a n i n d u s t r y . . . C hronic e x c e ss p r o f i t s a r e a t l e a s t p rlm a
f a c i e s u s p e c t o f r e s u l t i n g frcm sim p le m o n o p o lis tic r e s t r i c ­
t i o n s , and i f s o , a r e u n d e s i r a b l e .11
I have .used b o th t h e a c c o u n tin g p r o f i t r a t e s and t h e a d ju s te d
12
p r o f i t r a t e s i n com puting th e " p r o f i t - d i f f e r e n c e "
o f t h e d ru g and
■iequipment i n d u s t r i e s .

To e s tim a te t h e r a t e o f " p r o f i t - d i f f e r e n c e " ,

th e a c c o u n tin g p r o f i t r a t e s o f th e d ru g and equipm ent i n d u s t r i e s
were compared w ith th e a v e ra g e a c c o u n tin g (u n a d ju s te d ) p r o f i t r a t e s
o f a l l m an u fa c tu rin g i n d u s t r i e s , and t h e a d ju s te d p r o f i t r a t e s w ere
compared w ith th e c o m p e titiv e p r o f i t r a t e ( i n t e r e s t r a t e f o r
in d u s tria l c a p ita l) .

The fo rm er p ro v id e d th e lo w er bounds o f

t o t a l e x c e s s p r o f i t s and t h e l a t t e r t h e u p p er bound.

A ll p r o f i t

co m p u tatio n s w ere b a sed on d a ta a f t e r t a x e s .

11 B a in , p p . 377-378.
12
The word " p r o f i t - d i f f e r e n c e " h a s been u se d i n d e n o tin g th e
d i f f e r e n c e i n t h e p r o f i t r a t e s i n d ru g and equipm ent i n d u s t r i e s frcm
t h a t o f a l l m a n u fa c tu rin g i n d u s t r i e s an d from t h e "norm al" i n t e r e s t
r a t e f o r i n d u s t r i a l c a p i t a l w h ic h , a c c o rd in g t o o u r a ssu m p tio n , i s
e q u a l t o th e c o m p e titiv e r a t e o f p r o f i t . H e n c e fo rth , t h e word w i l l
be u sed w ith t h e same m eaning; b u t w i l l i n d i c a t e t h a t t h e " p r o f i t d if f e r e n c e " i s i n fa v o r o f th e d ru g and th e equipm ent i n d u s t r i e s .

29
Incomes o f D o c to rs.
T h e , r i s i n g income o f p h y s ic ia n s h a s alw ays been a c o n tr o v e r s i a l
issu e .

Men i n o th e r p r o f e s s io n s have b een c r i t i c a l about

changing r e l a t i v e , f i n a n c i a l s i t u a t i o n i n fa v o r o f m e d ic a l p r a c t i t i o n e r s .
T h e ir f i n a n c i a l su c c e ss h a s been a t t r i b u t e d t o t h e i r s h o r t su p p ly .

M ethods o f E s tim a tin g D o c to rs ' Incomes
The g r o s s incomes o f p h y s ic ia n s and d e n t i s t s w ere computed by
adding t h e i r incom es frcm d i f f e r e n t s o u rc e s su ch a s :

p a tie n t

v i s i t s , s u rg e ry , s a l e s o f goods, and o t h e r p r o f e s s io n a l and cons u itin g fe e s.

1^

B u sin e ss expenses o f p h y s ic ia n s and d e n t i s t s a re

about 41 and 49 p e rc e n t o f t h e i r r e s p e c t iv e incom es.

T hese

' • ' ■ I " 1 c:

expenses in c lu d e m a t e r i a ls and s u p p l i e s , m erch an d ise p u rc h a se d ,
c o st o f l a b o r , s a l a r i e s and wages p a id , d e p r e c i a ti o n , r e n t , t a x e s ,
14
r e p a i r s , i n t e r e s t , in s u ra n c e c o s t , e t c .

1*3

An a l t e r n a t i v e approach would b e t o g e t d a ta on t o t a l amount
p a id by consum ers o f Copper C ountry t o d o c to rs a s v i s i t i n g f e e s . To
t h i s sh o u ld b e added amount p a id by in s u ra n c e com panies on b e h a lf
o f in d iv id u a ls and h o s p i t a l s . The t o t a l f i g u r e d iv id e d by th e
number o f p h y s ic ia n s w i l l g iv e g r o s s income p e r p h y s ic ia n .
• iii
We e x p e c t t h a t d e d u c tib le income may be g r o s s ly i n f l a t e d . A
m ajor f a c t o r i n th e u n d e rs ta te m e n t o f p h y s ic ia n s ’ n e t income i s th e
p o s s i b i l i t y o f c h a rg in g t o o n -b u s in e s s ex p en ses c e r t a i n typeB o f con­
sum ption e x p e n d itu r e s . See V/. Lee H ansen, "S h o rta g e s and In v estm en t
in H ealth Manpower," i n Economics o f H e a lth and M edical C a re , Ann A rb o r,
M ichigan, B ureau o f P u b lic H e alth Economics and D epartm ent o f Economics
(U n iv e rs ity o f M ich ig an , 1964) p . 8 5 .

30
The co m p u tatio n o f t h e "u n e x p la in a b le " h ig h e r incom es o f
p h y s ic ia n s compared t o a s i m il a r p r o f e s s io n i s a d i f f i c u l t t a s k .
H ardly any e s tim a te c a n b e s a t i s f a c t o r y enough t o be a c c e p ta b le w ith o u t
c ritic is m .

O ur e s tim a te o f th e " in c c m e -d iffe re n c e " o f p h y s ic ia n s i s

b ased on a s tu d y by F ried m an and K u zn ets.

T hey c a r e f u l l y compared

th e incomes o f p h y s ic ia n s and d e n t i s t s (th o u g h i n seme c a s e s w ith l im i te d
d a ta ) w ith r e s p e c t t o d i f f e r e n t f a c t o r s (su c h a s c o s t a n d le n g th o f
t r a i n i n g , v a r i a b i l i t y o f incom e, n o n -p e c u n ia ry a d v a n tag e s and d i s ­
a d v a n ta g e s, e t c . ) t h a t c o u ld e x p la in th e d i f f e r e n c e s i n incom es i n
th e s e two p r o f e s s io n s .

They co n clu d ed t h a t 17 p e rc e n t o f th e h ig h e r .

incomes o f p h y s ic ia n s c o u ld be e x p la in e d due t o lo n g e r and c o s t l i e r
t r a i n i n g i n m e d ic in e .

They a t t r i b u t e d th e re m a in d e r o f t h e d i f f e r e n c e

t o r e s t r i c t i o n o f e n tr y i n t o th e m e d ic a l p r o f e s s i o n .

15

I t can b e

c r i t i c i z e d on t h e gro u n d s t h a t a p r o g r e s s iv e incom e t a x f a l l s h e a v ily
on f l u c t u a t i n g incom es, s o p h y s ic ia n s g e n e r a l l y w ith a g r e a t e r v a r i a b i l i t y
o f income w ould pay m ore ta x e s th a n d e n t i s t s w ith r e l a t i v e l y s te a d y
income.

However, t h i s i s p ro b ab ly b a la n c e d o u t by g r e a t e r n o n -p e c u n ia ry

advantages o f p h y s ic ia n s (and th u s more u n ta x e d a d v a n ta g e s) th a n t h a t
o f th e d e n t i s t s .
The e s tim a te s o f F riedm an and K uznets a r e s t i l l r e l e v a n t , b e c a u se
th e c o n d itio n s s u rro u n d in g th e s e tw o p r o f e s s io n s have changed v e ry l i t t l e

15

■Milton Friedm an an d Simon K u zn ets, Incom e frcm In d ep en d en t
P r o f e s s io n a ls P r a c t i c e , N a tio n a l B ureau o f Economic R e se arch (New
York, 19*15), p . 395.

31
(th o s e w hich c o u ld e x p la in t h e ’'in c c m e -d iffe re n c e ’1 o f p h y s i c ia n s ) ,
e x ce p t t h e income gap betw een p h y s ic ia n s and d e n t i s t s h a s r a t h e r
widened i n th e r e c e n t y e a r s .

F u r th e r , th e e d u c a tio n a l c o s t s o f

m ed ic a l s tu d e n ts a r e now s u b s id iz e d , so th e c o s t o f e d u c a tio n f o r
th e i n d iv i d u a l p h y s ic ia n s c o u ld not have in c r e a s e d more th a n t h a t
of d e n tis ts .

T h e r e fo r e , t o e s tim a te t h e t o t a l " u n e x p la in a b le "

Incomes o f p h y s ic ia n s , we f i r s t compute t h e p e rc e n ta g e d i f f e r e n c e
I n t h e a v e ra g e Incom es o f p h y s ic ia n s and d e n t i s t s i n t h e Copper
C o u n try , th e n d e d u c t 17 p e rc e n t o f th e income t o a llo w f o r
c o s t l i e r and lo n g e r t r a i n i n g o f th e p h y s ic ia n s .

The r e s t o f th e

d i f f e r e n c e c o u ld n o t b e e x p la in e d by o t h e r f a c t o r s and may be
a t t r i b u t e d t o t h e d i f f i c u l t y o f e n tr y I n t o th e m e d ic a l p r o f e s s io n .
The t o t a l amount o f t h e " u n e x p la in a b le " Income o f t h e p h y s ic ia n s
may be v i s u a l i z e d a s a " lo s s " t o th e consum ers, and th e amount o f
a d d i t i o n a l t a x on th e s e "u n ex p la in e d " incom es, t h a t flo w s o u t o f
th e a r e a , i s a l o s s t o th e community.

To e s tim a te th e t o t a l ta x

on th e " u n e x p la in a b le " Incom e, we computed th e amount o f t a x e s on
th e t o t a l Incomes o f p h y s ic ia n s w ith o u t " u n e x p la in a b le " In c a n e , and
w ith " u n e x p la in a b le " incom e.

The d i f f e r e n c e betw een th e two I s

t o t a l amount o f t a x on th e " u n e x p la in a b le " Incom e.

Herman M iles Somers and Anne Ramsay Som ers, D o c to rs . P a t i e n t s
and H e a lth In s u ra n c e (W ashington, D. C ., I h e B rookings I n s t i t u t i o n ,
1961), p p . 200-205.

32
The Drug I n d u s try
E x p e n d itu re s on d ru g s a c c o u n t f o r a s i g n i f i c a n t p r o p o r tio n o f
t h e m ed ica l b i l l s o f consum ers, and t h i s p r o p o r tio n h a s been r i s i n g
s te a d ily .

The g e n e r a l b e l i e f i s t h a t t h e d ru g in d u s tr y h a s ,h ig h
s

p r o f i t r a t e s , h ig h c o n c e n tr a tio n and m ark et pow er, and h ig h s p u rio u s
p ro d u c t d i f f e r e n t i a t i o n due t o in te n s i v e a d v e rtis e m e n t and s a l e s
17
p ro m o tion. T hus, t h i s Im p lie s s e r io u s m o n o p o lis tic t r e n d .
These g e n e r a l b e l i e f s may o r may n o t be t r u e .

Even i f t r u e ,

th e y may o r may n o t hav e much s i g n i f ic a n c e f o r th e Copper C ountry
m ed ical i n d u s t r y .

I n C h a p te r VI we have e s tim a te d t h e e x te n t o f

th e p o s s ib le s a v in g s t o th e consum ers o f th e Copper C ountry i f
p r o f i t r a t e o f t h e d ru g in d u s tr y w ere th e same a s a l l manu­
f a c tu r in g i n d u s t r i e s .

The p ro c e d u re s fo llo w e d i n g e t t i n g th e s e

e s tim a te s a r e e x p la in e d below .
E stim a tio n o f th e d if f e r e n c e i n t h e p r o f i t r a t e s o f d ru g in d u s tr y
and a l l m a n u fa c tu rin g i n d u s t r i e s :
The Copper C ountry does n o t have any d ru g company.

The d ru g

s t o r e s , h o s p i t a l s and d o c to rs buy t h e i r d ru g s from o u t s i d e .

To

compute t o t a l d ru g e x p e n d itu re s o f t h i s r e g i o n , we have added up
18
th e s a l e s f i g u r e s o f d ru g s t o r e s , h o s p i t a l s and o t h e r s .
The t o t a l
amount was re d u c e d by th e markup o f h o s p i t a l s and d ru g s t o r e s t o g e t
t o t a l s a l e s f i g u r e s f o r drug com panies t o t h i s ccnm unity.
17

T h is

F o r a d e t a i l e d re v ie w o f l i t e r a t u r e on th e s t r u c t u r e , conduct
and perform ance o f t h e in d u s tr y s e e Appendix A.
18
x H o s p ita ls buy 95 p e rc e n t o f t h e i r d ru g s f r a n o u ts id e an d o n ly
f i v e p e rc e n t frcm l o c a l d ru g s t o r e s . So t o g e t t h e t o t a l f i g u r e we
added 95 p e r c e n t o f t h e s a l e s o f h o s p i t a l s t o t h e s a l e s o f t h e d ru g s t o r e s .

33
f i g u r e m u ltip lie d by th e " p r o f i t - d i f f e r e n c e " o f th e d ru g in d u s tr y from
t h a t o f a l l m an u fa c tu rin g i n d u s t r i e s g iv e s th e amount o f money t l i a t
flo w s o u t o f th e com rjunlty, b u t f o r which no d ru g s a r e r e c e iv e d .

In

o th e r w o rd s, t h i s a d d i t i o n a l amount goes t o t h e drug in d u s tr y due
t o i t s c o n p a r a tiv e ly h ig h e r p r o f i t r a t e s .

S i m i la r ly , t o compute

th e lo s s o f consum er d o l l a r s due t o h ig h e r p r o f i t s o f t h e d ru g
r e t a i l e r s , com pared t o o th e r r e t a i l e r s , we m u ltip lie d t h e t o t a l
s a l e s o f t h e d ru g r e t a i l e r s by t h e i r r a t e o f " p r o f i t - d i f f e r e n c e . "
We have computed two ty p e s o f " p r o f i t - d i f f e r e n c e " f o r b o th
m a n u fa c tu re rs and d ru g r e t a i l e r s , a c c o u n tin g " p r o f i t - d i f f e r e n c e "
and a d ju s te d t h e o r e t i c a l " p r o f i t - d i f f e r e n c e . "

To co n p u te th e fo rm er

we have s u b tr a c te d t h e a c c o u n tin g p r o f i t r a t e s (on e q u ity ) o f a l l
m a n u fa c tu re rs from t h e a c c o u n tin g p r o f i t r a t e s o f d ru g m a n u fa c tu re rs
and t h e a c c o u n tin g p r o f i t r a t e o f a l l r e t a i l e r s from t h a t o f d ru g
re ta ile rs .

To g e t o u r a d ju s te d " p r o f i t - d i f f e r e n c e " we have f i r s t

a d ju s te d t h e a c c o u n tin g p r o f i t r a t e s on e q u ity f o r i n t a n g i b l e s ,
ig
r o y a l t i e s and a d v e r tis e m e n ts ,
th e n from t h i s we d ed u cted a
norm al i n t e r e s t r a t e o f sev en p e r c e n t.

I t i s assumed h e re t h a t

lo n g -ru n c o n p e t i t i v e p r o f i t r a t e o f a n in d u s tr y should b e e q u a l t o
th e "norm al" r a t e o f I n t e r e s t on t h e I n d u s t r i a l c a p i t a l .

The t o t a l

s a le s o f d ru g m a n u fa c tu re rs and o f d ru g r e t a i l e r s a re m u ltip lie d by
th e r a t e o f " p r o f i t - d i f f e r e n c e " on s a l e s (com puted on e q u ity th e n

19

We conputed th e a d ju s te d p r o f i t s b a sed on e s tim a te s by
Kamerschen (s e e h i s method e x p la in e d i n e a r l i e r p a g e s ). The "u n ex p la in e d "
p r o f i t i s t h e d i f f e r e n c e betw een p r e s e n t p r o f i t r a t e o f th e in d u s tr y
and lo n g -ru n a v e ra g e p r o f i t r a t e (c o m p e titiv e r a t e ) o f a l l o th e r i n d u s t r i e s .

34
c o n v e rte d t o a p e rc e n t o f s a l e s ) t o g e t th e e s tim a te s o f
t o t a l amount o f " lo s s " o f consum ers d o l l a r s i n buying d ru g s .
But t h e amount " l o s t " due t o t h e h ig h e r p r o f i t o f t h e d ru g
m a n u fa c tu re rs i s a p u re d r a i n on th e com m unity's r e s o u r c e s ,
b ecau se i t flo w s o u t o f t h e a r e a .

20

*s

The H o s p ita l Equipm ent I n d u s tr y
T e c h n o lo g ic a l developm ent i n h o s p i t a l equipm ent h a s con­
trib u te d

much t o th e p r o d u c t i v it y o f h o s p i t a l s and d o c to r s .

But th e p r i c e s o f th e s e h ig h ly s o p h i s t i c a t e d in s tru m e n ts a r e a ls o
v ery h ig h .

W hether t h i s i s a r e s u l t o f a n o n c o m p e titiv e s i t u a t i o n

i n th e equipm ent m a n u fa c tu rin g in d u s tr y o r a l e g i t im a t e p r i c e
r i s e i s n o t c le a r ly e s ta b lis h e d .
To d e te rm in e w h eth er t h e r e i s any d e g re e o f monopoly i n
th e m e d ic a l equipm ent in d u s tr y o r n o t , we need t o stu d y th e
d e g re e o f c o n c e n tr a tio n , b a r r i e r t o e n t r y , r a t e o f p r o f i t and
o th e r perfo rm an ce and s t r u c t u r a l c h a r a c t e r i s t i c s o f t h e in d u s tr y .
However, no a tte m p t h a s been made t o do any th o ro u g h m arket
a n a ly s is n e c e s s a ry t o d e te rm in e th e d e g re e o f m onopoly.

F u rth e r,

such an a n a l y s i s i s much more d i f f i c u l t i n t h i s in d u s tr y th a n i n
many o th e r s b e c a u se m e d ic a l equipm ent in c lu d e s a v a r i e t y o f
th in g s from b i g c o s t l y C o b alt and X -ray m achines t o s m a ll,

20

The " h ig h e r" p r o f i t s o f th e d ru g r e t a i l e r s rem a in i n th e
a r e a so i t i s n o t a " lo s s " f o r t h e community a s a w hole.

35
in e x p e n siv e s u r g i c a l t o o l s .

And t h e s e th in g s a r e m an u factu red by

a number o f d i f f e r e n t m an u fa c tu rin g i n d u s t r i e s .

F u r th e r , each

o f th e s e i n d u s t r i e s m ight b e making a m u ltitu d e o f o th e r t h i n g s .
The p r o f i t r a t e s re p o r te d by F e d e ra l T rade Ccmmission a r e g e n e r a lly
v ery

b ro ad c a t e g o r i e s o f i n d u s t r i e s su c h a s f o r s c i e n t i f i c

in s tru m e n ts and r e l a t e d p ro d u c ts (SIC Code 3 8 ) , w hich t o g e t h e r
w ith many k in d s o f h o s p i t a l equipm ent ( s u r g i c a l , o rth o p e d ic ,
p r o s t h e t i c , o p h th a lm ic , d e n t a l e q u ip m en t, e t c . ) In c lu d e many o th e r
k in d s o f equipm ent

(e n g in e e rin g , o p t i c a l , w a tc h e s, c lo c k s , p h o to ­

g ra p h ic in s tr u m e n ts , e t c . ) .

So t o g e t m ea n in g fu l e s tim a te s o f

p r o f i t r a t e s o f t h i s in d u s tr y we to o k a r e p r e s e n ta t iv e sam ple o f
th r e e firm s

e x c lu s iv e ly p ro d u cin g a l l k in d s o f h o s p i t a l equipm en t.

These firm s a c c o u n t f o r a b o u t 19 p e r c e n t o f t h e t o t a l s a l e s .

We

to o k a f i v e y e a r a v e ra g e ( 1963- 67) o f th e r a t e o f p r o f i t on e q u ity .
To e s tim a te t h e a c c o u n tin g " p r o f i t - d i f f e r e n c e " o f th e s e f i r m s , we
d educted from t h e i r a v e ra g e p r o f i t r a t e s a f i v e - y e a r a v e ra g e p r o f i t
r a t e on e q u ity o f a l l m a n u fa c tu rin g I n d u s t r i e s .

To g e t o u r a d ju s te d

t h e o r e t i c a l p r o f i t - d i f f e r e n c e (a s I n t h e c a se o f d ru g i n d u s t r y ) , we
made a d ju s tm e n ts i n th e a c c o u n tin g p r o f i t r a t e s , f o r i n t a n g i b l e s ,

PI

r o y a l t i e s and a d v e r t i s i n g ,
op
im puted r a t e o f i n t e r e s t .

21

and d e d u c te d frcm t h i s a se v e n p e r c e n t
To e s tim a te th e t o t a l o u t-flo w o f money

I n f a c t , we d id n o t have any p r e c i s e d a ta f o r t h e s e a d ju s tm e n ts ,
e x c lu s iv e ly f o r h o s p i t a l equipm ent. So we u se d K am erschen1s a d ju stm e n t
f o r in s tru m e n t and r e l a t e d p ro d u c ts (SIC Code 3 8 ) , w hich In c lu d e s m ost
o f th e s u r g i c a l , m e d ic a l and d e n ta l eq u ip m en t.
22
We assum ed t h a t th e lo n g -ru n p r o f i t r a t e on e q u ity sh o u ld be
e q u al t o th e "norm al" I n t e r e s t r a t e f o r th e I n d u s t r i a l c a p i t a l .

36
frcm t h e Copper C o u n try , due t o t h e " u n e x p la in a b le " h ig h e r p r o f i t
i n t h i s in d u s tr y compared t o t h a t o f a l l m a n u fa c tu rin g by
ra te o f " p r o fit-d iffe re n c e " o f th e in d u s try .

To t h i s we a l s o added

th e r e s u l t i n g payment o f a d d i t i o n a l i n t e r e s t on in v estm en t
i n equipm ent.
The f i g u r e s f o r t o t a l e x p e n d itu re on equipm ent i n th e
Copper C ountry m e d ic a l i n d u s t r y , f o r th e y e a r 1967, were com puted
a s below :
T o t a l e x p en ses on equipm ent ° Amount o f consum able equipm ent
b o u ^ it i n 1967*
p lu s t o t a l amount o f d e p r e c i a ti o n
( f o r t h e y e a r 1967) o f t h e d u ra b le
equipm ent p u rch ased i n 1967,
p lu s t o t a l amount o f d e p r e c i a ti o n
( f o r t h e y e a r 1967) o f t h e d u ra b le
equipm ent p u rch ased e a r l i e r ,
p lu s t o t a l amount o f ln p u te d i n t e r ­
e s t on t h e above in v e s tm e n ts .

E s tim a tio n o f th e O p e ra tin g I n e f f i c i e n c i e s o f th e H o s p ita ls
H o s p ita ls to d a y a r e draw ing m ore a t t e n t i o n th a n any o t h e r a s p e c t
o f th e m e d ic a l i n d u s t r y .

I n t h e l a s t d ecad e th e demand f o r h o s p i t a l

s e r v ic e s h as in c r e a s e d much more th a n th e su p p ly o f such f a c i l i t i e s .
T h is i s due t o b o th th e ten d e n cy o f p h y s ic ia n s t o c o n c e n tr a te t h e i r
a c t i v i t i e s i n t h e h o s p i t a l s , and p r e f e r e n c e o f p a t i e n t s t o u t i l i z e
more h o s p i t a l s e r v i c e s .

I n s p i t e o f t h i s p r e s s u r e , h o s p i t a l s today

a re p ro v id in g m ore s e r v ic e s o f b e t t e r q u a l i t y .

T h is , t o g e t h e r w ith

37
many o t h e r r e a s o n s , le d t o a phenom enal r i s e i n t h e p r i c e o f
h o s p ita l s e rv ic e s .

The in d ex o f p r i c e s r o s e from 100 i n 1958-59

t o 2 0 0 .1 i n t h e y e a r 1967.
o th e r com m odities.

T h is r i s e i s more th a n f o r m ost

The stu p en d o u s r i s e i n p r i c e s may t o a

c e r t a i n e x te n t seem f i c t i t i o u s , when we c o n s id e r th e q u a l i t y
o f p ro d u c t p r e s e n t h o s p i t a l s p ro v id e .

As i t i s n o t p o s s ib le

t o m easure w ith any p r e c i s i o n t h e p ro d u c t o f a h o s p i t a l , we
do n o t knew how much th e r i s e o f p r i c e i s a f f e c t e d by a n Im proved
p ro d u c t o v e r tim e .
I n th e Copper C o u n try , t h e h o s p i t a l s g e t t h e l a r g e s t s h a re
o f th e consum ers' m e d ic a l d o l l a r .

So any amount o f i n e f f i c i e n c y

i n th e o p e r a tio n o f th e s e h o s p i t a l s would mean a s i g n i f i c a n t l o s s
t o th e consum ers.

The h o s p i t a l s i n t h i s r e g io n may o r may n o t

be o p e ra tin g a t t h e optimum o p e r a t io n a l e f f i c i e n c y , b u t t h e non­
p r o f i t s t a t u s o f th e s e h o s p i t a l s , and th e p r e s e n t i n s t i t u t i o n a l
payment arran g em e n ts do n o t hav e any b u i l t - i n in c e n tiv e f o r
e f f i c i e n t o p e r a tio n o f th e s e h o s p i t a l s .
R e c e n tly , a number o f s t u d i e s have b een m ade, on d i f f e r e n t a s p e c ts
o f h o s p i t a l e f f i c i e n c y by F e l d s t e i n , D e eb le , H ayes, Long and R o se n th a l.* ^
27
J M. S. F e l d s t e i n , Economic A n a ly sis f o r H e a lth S e rv ic e E f f ic ie n c y
(N orth H olland P u b lis h in g Co: Amsterdam, 1967); "S tu d y in g H o s p ita l
C o s t l i n e s s ,” H o s p ita l S e r v ic e s F in a n c e s , 1965; " O p e ra tio n a l R esearch
and E f f ic ie n c y I n t h e H e a lth S e r v i c e ,” The L a n c e t, 1963.
J . S. D e e b le , "An Economic A n a ly sis o f H o s p ita l C o s t s ,”
M edical C are. 1965.
J . H. Hayes ( e d .) F a c to r s A ffe c tin g th e C ost o f H o s p ita l C a r e .
(New York: B la k is to n , 195471
F. Long, " E f f i c i e n t Use o f H o s p i t a l s ,” I n S . J . A xelrod ( e d ) ,
The Economics o f H e a lth and M edical C a re , Ann A rb o r, M ich ig an : 1964.
G. D. R o s e n th a l, "A C r i t i c a l C a im en t,” A stu d y o f s e l e c te d
v a r ia b le s on h o s p i t a l u t i l i z a t i o n , H o s p ita l Management, (O c t. 19 6 4 ).

38
A rev iew o f th e s e s t u d i e s p ro v id e s an i n s i g h t i n t o c h a r a c t e r i s t i c s
o f an e f f i c i e n t h o s p i t a l .

From th e s e and o t h e r s , we have g lea n ed

o u t f i v e c r i t e r i a f o r m easu rin g r e l a t i v e e f f i c i e n c y o f d i f f e r e n t
h o s p i t a l s based on o p e ra tin g r a t i o s .

T hese a r e :

(1 )

L ength o f s ta y : th e s h o r t e r th e s ta y t h e more
e f f i c i e n t th e h o s p i t a l .

(2)

C ost p e r p a t i e n t day: th e low er t h e c o s t p e r
p a t i e n t d a y , th e more e f f i c i e n t th e h o s p i t a l .

(3 ) C ost p e r bed: th e low er th e c o s t
more e f f i c i e n t th e h o s p i t a l .

p e r b e d , th e

(4)

R a te o f occupancy: th e h ig h e r t h e r a t e o f
o ccupancy, th e more e f f i c i e n t th e h o s p i t a l .

(5)

Number o f p e rs o n n e l p e r bed:
th e low er th e
number o f p e rs o n n e l p e r b e d , th e more e f f i c i e n t
th e h o s p ita l.

I t i s obvious t h a t th e s e i n d i c a t o r s a r e in te r d e p e n d e n t, so
th e y .m u st be c o n s id e re d to g e t h e r i n Ju d g in g th e o p e r a tio n a l
e f f i c ie n c y o f h o s p i t a l s .

Two o th e r im p o rta n t f a c t o r s t h a t we

must ta k e i n t o c o n s id e r a tio n b e fo re we can say som ething mean­
in g f u l ab o u t o p e r a tio n a l e f f i c i e n c y a r e e q u a l it y o f c a re and
ty p e s o f c a s e s (c a s e m ix ).
To e lu c id a t e t h e n a tu re o f th e problem in v o lv e d I n i n t e r ­
h o s p i t a l co m p ariso n s o f o p e r a tin g e f f i c i e n c y , l e t u s assum e t h a t
’a* and ’b ’ a r e two h o s p i t a l s .
of

A h ig h e r p e r p a t i e n t day c o s t

' a ' i n com parison t o fb ? may n o t mean t h a t ' a f I s l e s s e f f i c i e n t

t h a n 'b '.

Ih e h o s p i t a l ' a ' may have a s h o r t e r le n g th o f s t a y , b e t t e r

q u a li t y o f c a re o r m ight have t r e a t e d more d i f f i c u l t c a s e s .

A gain,

39
f r a n t h e s h o r t e r le n g th o f s ta y I n ' a 1 th a n I n ’b 1 we can h a rd ly
say t h a t ' a ' I s more e f f i c i e n t t h a n ’b 1.

The s h o r t e r le n g th o f

s t a y i n .’a ' may b e due t o more p e rs o n n e l p e r bed and more in te n s i v e
c a r e , w hich may b e r e f l e c t e d i n h ig h e r c o s t p e r day.

S i m i la r ly ,

h ig h e r o r low er c o s t p e r b e d , o r m ore o r l e s s p e rs o n n e l p e r bed
c an n o t t e l l us a n y th in g about o p e r a t io n a l e f f i c i e n c y .

The r a t e

o f o ccupancy, i n t h i s r e s p e c t , i s a s l i g h t l y b e t t e r i n d i c a t o r —b u t
by no means a n a b s o lu te c r i t e r i a .

I f th e r e i s u n f u l f i l l e d

e f f e c t i v e demand f o r m e d ic a l c a r e , a low r a t e o f occupancy may
show d e la y on th e p a r t o f th e h o s p i t a l management t o o rg a n iz e and
p ro c e s s p a t i e n t s th ro u g h th e u s u a l t e s t s b e f o r e a d m issio n .
h o s p i t a l knows t h a t a n unoccupied b ed a ls o c o s t s money.

Every

T hat i s

why th e y a r e som etim es c r i t i c i z e d f o r k eep in g p a t i e n t s lo n g e r
th a n re q u ire d *

The c o s t o f an e x t r a one o r tw o days i s p a id by

t h e in s u ra n c e com panies.

T h is i s a to p ic o f o u r n e x t s e c t i o n , so

we w i l l n o t d e v elo p i t h e re .
I n t e r and i n t r a - r e g i o n a l com parisons o f th e s e h o s p i t a l s and
n u rs in g hemes w ould g iv e u s seme I d e a o f t h e m agnitude o f t h e i r
o p e r a tio n a l e f f i c i e n c i e s .

The com parison o f t h e Copper C ountry

h o s p i t a l s w ith t h e a v e ra g e h o s p i t a l o f th e s t a t e o r U n ited
S t a te s may y i e l d o n ly a low er e s tim a te o f t h e " l o s s " .

T h is i s

b e cau se p r e s e n t e x te n s iv e in s u ra n c e coverage f o r h o s p i t a l c o s t s
a llo w s th e a v e ra g e h o s p i t a l t o k e ep c e r t a i n amounts o f o p e r a tio n a l
in e ffic ie n c y .

So any i n t e r h o s p i t a l co m p ariso n s, i n f a c t , may b e a

com parison o f one i n e f f i c i e n t h o s p i t a l w ith a n o th e r i n e f f i c i e n t one.

Ijo
So i n some c a s e s , i t may be more m eaningful f o r u s t o s e l e c t
r e l a t i v e l y e f f i c i e n t h o s p i t a l s t o d evelop s ta n d a rd s o f perform ance
fo r.m a k in g com parisons.
c a lc u la tio n s :

Two o th e r c o n s id e r a tio n s may v i t i a t e o u r

( 1 ) th e c o s t o f p ro v id in g m e d ic a l s e r v ic e s i n

Copper C ountry may be low er due t o low er s a l a r i e s o f p e rs o n n e l
( s a l a r i e s account f o r about 60 t o 70 p e rc e n t o f t o t a l h o s p i t a l
c o s t s ) and (2 ) th e q u a li t y o f c a re and th e ty p e s o f c a se s may
d i f f e r w id ely i n o t h e r p a r t s o f th e n a tio n .

Because o f t h e s e two

r e a s o n s , t h e low er c o s t s o f Copper Country h o s p i t a l s compared t o
av erag e h o s p i t a l s i n th e U n ited S t a t e s may n o t n e c e s s a r il y mean
t h a t th e form er a r e v e ry e f f i c i e n t h o s p i t a l s .
The " lo s s e s " due t o o p e r a tio n a l i n e f f i c i e n c y , a re e s tim a te d
s e p a r a te ly f o r each a c u te c a re h o s p i t a l i n th e Copper C ountry.
o r O'
We know t h a t i n a h o s p i t a l , th e le n g th o f s t a y , c o s t p e r bed and
th e r a t e o f occupancy a r e in te rd e p e n d e n t.

More i n te n s iv e c a re

in c r e a s e s th e c o s t p e r b e d , b u t re d u c e s th e le n g th o f s ta y and
th e r a t e o f occupancy, and v ic e v e r s a .

As t h e r a t e o f occupancy

i s a b e t t e r i n d i c a t o r o f o p e r a tio n a l e f f ic ie n c y and easy t o
q u a n tif y , we have c o n v e rte d a l l th e a c h iin is tr a tiv e i n e f f i c i e n c i e s
i n th e h o s p i t a l s i n term s o f r a t e o f occupancy.

We have computed

a d ju s te d r a t e o f occupancy by keep in g th e le n g th o f s ta y o f th e
Copper C ountry h o s p i t a l s e q u a l t o t h e s t a t e and n a tio n a l a v e ra g e .
I n o t h e r w ords, w hat would be th e r a t e o f occupancy i n th e Copper
Country h o s p i t a l s , i f t h e i r a v erag e le n g th o f s ta y had a c t u a l l y been
e q u a l t o t h a t o f s t a t e and n a tio n a l average?

Hi
A d ju ste d R a te o f Occupancy (A .R .O .)
T o ta l p a t i e n t d ay s x Average le n g th o f s ta y x 100
c
f o r s t a t e and n a tio n _________
No. o f b e d s x 365 x P re s e n t le n g th o f s ta y

_
,
,
_
* P r e s e n t r a t e o f occupancy x

Average le n g th o f Btay f o r
th e s t a t e and n a tio n
—
- ■■■—— —— ----------P re s e n t le n g th o f s t a y I n th e
Copper C ountry h o s p i t a l s

T h is A.R.O. I s th e n compared w ith t h e " e f f i c i e n t "

Oil

ra te of

occupancy w hich i s th e a v e ra g e o f t h e occupancy r a t e o f r e l a t i v e l y
e ffic ie n t h o s p ita ls .

The d if f e r e n c e betw een t h e two r a t e s g iv e s

a n e s tim a te o f how much t h e r a t e o f occupancy i s low ered due t o
th e o p e r a t io n a l i n e f f i c i e n c i e s o f t h e h o s p i t a l s .

A lo w er r a t e

o f occupancy means t h a t seme beds a r e l e f t u n o ccu p ied .

The number

o f u noccupied b e d s was computed by m u ltip ly in g t h e p e rc e n ta g e
d i f f e r e n c e betw een t h e " a d ju s te d " and t h e " e f f i c i e n t " r a t e o f
occupancy by t h e number o f beds i n each h o s p i t a l .

Hie number o f

unoccupied beds m u lt i p li e d by th e c o s t o f m a in ta in in g a n unoccupied
bed g iv e s th e t o t a l in c r e a s e i n h o s p i t a l c o s ts due t o m ain ten an ce
o f u n n e c e sss a ry b e d s .

I n o t h e r w ords, t h e h o s p i t a l s e r v ic e s c o u ld

be p ro v id e d t h a t much c h e a p e r , i f th e s e u n n e c e ssa ry c o s ts w ere
e lim in a te d ,

Oil

An a v e ra g e r a t e o f occupancy o f a l l th e com parable h o s p i t a l s
was term ed a s " e f f i c i e n t " occupancy r a t e . T h is i s n o t n e c e s s a r il y
th e r a t e w hich w ould p ro v id e m e d ic a l c a r e a t t h e l e a s t coB t.

H o s p ita l In s u ra n c e
H e a lth in s u ra n c e o r g a n iz a tio n s p la y a n Im p o rta n t r o l e i n
f in a n c in g o f p r e s e n t h ig h c o s t o f m e d ic a l c a r e .

I n th e fa c e o f

r i s i n g m e d ic a l c o s t s t h e i r r o l e I n th e f u t u r e w i l l be s t i l l
g re a te r.
' V o lu n ta ry h e a l th in s u ra n c e o f t e n h a s b een c r i t i c i z e d on th e
ground t h a t i t h a s h e lp e d i n t h e r i s e o f m e d ic a l c o s t s , su p p o rte d
monopoly income o f d o c to rs and h ig h c o s t o f i n e f f i c i e n t h o s p i t a l s ,
PR
and encouraged o v e ru se and m isu se o f m ed ic a l c a r e f a c i l i t i e s . ^
I t I s v e ry d i f f i c u l t t o sa y t h a t p r i v a t e h e a l th In su ra n c e haB
cau sed a r i s e I n m ed ic a l c o s t s .

P e rh ap s i t i s more a p p r o p r ia te

t o say t h a t i t h a s h e lp e d p e r p e tu a te su ch s i t u a t i o n s .

I t Is

u s u a lly t r u e t h a t in s u re d p e o p le u se more m e d ic a l c a r e th a n
u n in s u re d , b u t i t does n o t n e c e s s a r il y mean t h e fo rm er o v e ru se
m e d ic a l c a r e f a c i l i t i e s .
A stu d y o f t h e e f f e c t s o f s e l e c te d v a r i a b le s on h o s p i t a l
u t i l i z a t i o n by D urbin and Antelm an shows s tr o n g p o s i t i v e c o r r e l a t i o n
betw een le n g th o f s t a y and p r o p o r tio n o f p e o p le co v ered by h e a l th
in s u r a n c e .

26

The number o f a d m issio n s was a l s o found t o be p o s i ­

t i v e l y c o r r e l a t e d w ith t h e p r o p o r tio n o f p e o p le co v ered by h e a l th
In s u ra n c e .

25

27

F o r more c i t a t i o n s , s e e Appendix A.

26

T h is , how ever, doeB n o t p ro v e t h a t v o lu n ta ry h e a l th In su ra n c e
in c r e a s e s th e le n g th o f s t a y .
R. L. D urbin and G. Antelm an (1964) "A S tudy o f t h e E f f e c t s o f
S e le c te d V a r ia b le s on H o s p ita l U t i l i z a t i o n , " H o s p ita l Management
(A ugust, 1 9 6 4 ), p . 5 7 .

*13
A nother s tu d y by R onald A nderson and Odin W. A nderson shows
t h a t u n in su re d p e o p le sp e n t l e s s and u se d l e s s m e d ic a l c a r e th a n
I n s u re d p e o p le .

The number o f a d m issio n s p e r 100 p e rs o n s p e r y e a r

was a l s o h ig h e r f o r in s u re d p e rs o n s .

A lthough mean le n g th o f

s t a y was h ig h e r f o r u n in su re d p e rs o n s , t o t a l h o s p i t a l days p e r 100
p e rs o n s p e r y e a r w ere h ig h e r f o r in s u r e d p e rs o n s .

From t h e f i g u r e s

i n T a b le 3 .1 b elo w one may b e tem pted t o co n clu d e t h a t d i f f e r e n c e s
TABLE 3 .1 —H e a lth Use and E x p e n d itu re o f In s u re d and U ninsured
P ersons i n th e U n ite d S t a t e s i n 1963

Ite m s
I n - h o s p i t a l s u r g i c a l p ro c e d u re
p e r 100 p e rs o n s p e r y e a r , n o s .

:

In s u re d : U ninsured

6

3

15

9

7 .0

8 .8

H o s p ita l days p e r 100 p e rs o n s p e r y e a r , days 101

84

A dm ission p e r 100 p e rso n s p e r y e a r , n o s .
Mean le n g th o f s t a y p e r a d m iss io n , days

Mean e x p e n d itu re p e r fa m ily , d o l l a r s

429

201

Mean e x p e n d itu re p e r i n d i v i d u a l , d o l l a r s

133

67

S o u rce:

R o n ald and Odin W. A nderson, A Decade o f H e a lth
S e r v i c e s , a d a p te d from T a b le s 67» 68, 72 and 7 3 .

betw een e x p e n d itu re s o f in s u r e d and u n in s u re d p e rs o n s g iv e s t h e
e x te n t o f c o n tr i b u ti o n o f v o lu n ta ry h e a l t h in s u ra n c e i n I n c r e a s in g
c o s ts .

I t c e r t a i n l y would b e n a iv e t o co n clu d e t h i s w ith o u t con­

s i d e r in g many o t h e r r e l a t e d t h in g s .
I f we assume t h a t u n in s u re d p e o p le a r e a b le t o buy m inim al
amounts o f m e d ic a l c a r e n e c e s s a ry t o keep them h e a l th y , th e n i t i s

c l e a r t h a t In s u re d p e o p le a re u s in g more m ed ical c a r e f a c i l i t i e s th a n
n e ce ssa ry , o r i n o th e r w o rd s, ta k in g e x t r a p r e c a u tio n (which may o r
may’ n o t be n e c e s s a ry ) a t no im m ediate e x tr a c o s t , b u t f u t u r e premiums
a r e l i k e l y t o be l a r g e r .

A c o n tra ry argum ent may b e t h a t e x tr a

p r e c a u tio n e n a b le s e a r ly d e te c tio n and c u re o f i l l n e s s w hich, i f
d e la y e d , may prove v ery c o s t l y .
f u t u r e m e d ic a l c o s t s .

So e x t r a p r e c a u tio n red u c e s h ig h

High c o s ts o f in s u re d p e o p le now, t h u s , may

be evened o u t by low c o s t s i n f u tu r e .
I t i s p o s s ib le t h a t t h e p re s e n t v o lu n ta ry in s u ra n c e system h as
h e lp e d I n c re a s e th e income o f d o c to rs and h o s p i t a l s and o v e r a l l
p r i c e o f m ed ica l c a r e , b u t i t i s a ls o p o s s ib le t h a t t h i s h as saved
many f a m ilie s from b e in g f i n a n c i a l l y c rip p le d and many h o s p i t a l s from
b e in g I n s o lv e n t.

T his i s s u e i s to o clouded f o r us t o make any mean­

in g f u l e s tim a te o f th e c o n tr ib u tio n o f h e a l th In su ra n c e i n in c r e a s in g
m ed ical c o s t .

However, m ost o f t h e e f f e c t s o f v o lu n ta ry h e a lth In su ra n c e

i n r a i s i n g m ed ica l c o s t s , I f a n y , would be p ick e d up i n o u r a n a ly s is o f
th e incomes o f d o c to rs a n d c o s ts o f h o s p i t a l s .
F in an cin g m ed ic a l c are n e e d s :
A s i g n i f i c a n t p r o p o rtio n o f t h e p o p u la tio n I n th e Copper Country
e i t h e r g e ts no m ed ical s e r v ic e s o r g e ts o n ly in a d e q u a te s e r v i c e s .

With

I t s high in c id e n c e o f c h ro n ic i l l n e s s , abnorm ally h ig h p e rc e n ta g e o f
o ld e r p e o p le and v ery low p e r c a p i ta incom es, th e Copper Country fa c e s
a unique s i t u a t i o n o f a m e d ic a lly in d ig e n t r e g io n .

T here i s c o n s id e ra b le

need f o r m ed ica l c a r e , w ith very l i t t l e money t o buy i t .

Ih e need f o r

m ed ica l c a r e o f a p a r t i c u l a r re g io n depends on th e in c id e n c e o f
i l l n e s s , g e n e r a l h e a l t h s t a t u s o f th e p e o p le , age c o m p o s itio n ,
on th e l e v e l o f c a r e th e s o c i e t y c o n s id e r s t o be optimum and
many o th e r a s s o c ia te d f a c t o r s .
d i f f ic u lt ta s k .

So t h e e s tim a tio n o f need i s a

F u r t h e r , need must b e d e fin e d i n m ore s p e c i f i c

term s such a s by k in d s o f c a r e :

m e n ta l, t u b e r c u l o s i s , c h ro n ic
nQ

d is e a s e s , o r a c u te i l l n e s s , e t c .
The P u b lic H e a lth S e rv ic e s e s tim a te s t h a t " th e p o p u la tio n
w i l l need ab o u t 1200-1300 days o f s e r v i c e i n h o s p i t a l s equipped
and s t a f f e d f o r th e p r o v is io n o f d ia g n o s is and m e d ic a l tr e a tm e n t,
and an a d d i t i o n a l 700-800 days o f c a r e p e r 1000 p o p u la tio n i n
f a c i l i t i e s d e sig n e d t o p ro v id e n u rs in g c a r e , b u t l i t t l e a c t i v e
29
m ed ical t r e a tm e n t." * The above e s tim a te s a r e b e lie v e d t o b e
c o n s e r v a tiv e .

They i n d ic a t e t h e p r e s e n t need f o r g e n e r a l beds

t o be a b o u t *1.5 beds p e r 1000 p o p u la tio n .
l e e and Jo n e s e s tim a te t h e need f o r p h y s ic ia n s t o be about
13*1*7 p e r 100,000 p o p u la tio n .

The e s tim a te o f need f o r p h y s ic ia n s

was b ased on a concensus o f e x p e r t o p in io n on th e number o f
pO
C ro n in , Reed and Baney, " H o s p ita l Beds i n t h e U n ited S t a t e s ,
1950," P u b lic H e alth R e p o rts . LXV, No. *15 (November 1 0 , 1 9 5 0 ).
Quoted by Seymour E. H a r r is , The Economics o f Am erican M edicine
(M acm illan Company, New York, 19 6 4 ), p . 170.
29
L. S . R eed.and H. H o llin g s w o rth , "How Many G e n era l Beds Are
Needed," P u b lic H e a lth S e rv ic e (Septem ber 1 9 6 3 )J o f P ro c e e d in g s o f
N a tio n a l H e a lth C onference (1 9 3 8 ), p p . 4*i-M5*

1J6
p h y s ic ia n h o u rs r e q u ir e d t o p r e v e n t, d ia g n o s e , and t r e a t s p e c i f i c
d is e a s e s and h e a l th c o n d itio n s .

30

T h is s tu d y was done some 35

y e a r s a g o ; i t i s now h a za rd o u s t o r e l y on su ch e s t im a t e s , b e c a u se
s in c e th e n t h e r e h a s been phenom enal developm ent i n a l l a s p e c ts
o f m e d ic a l s c ie n c e .
The P r e s i d e n t ’s Commission on t h e h e a l t h needs o f th e n a tio n
made s i x e s tim a te s o f p h y s ic ia n re q u ire m e n ts b a se d on a I 960 p ro ­
j e c t e d p o p u la tio n o f 171.2 m i l l i o n .

H ie e s tim a te s were p r im a r ily
31
b ased on e x i s t i n g p h y s ic ia n - p o p u la tio n r a t i o a s t h e s ta n d a rd .
H ie Copper C ountry i s n o t a t y p i c a l r e g io n i n th e U n ited S t a t e s ,
so i t s m e d ic a l need s may n o t b e com parable t o a v e ra g e needs f o r th e
r e s t o f th e n a tio n .

Any e s tim a te o f need i n t h e Copper C ountry m ust

ta k e i n t o c o n s id e r a tio n t h e ab n o rm ally h ig h in c id e n c e o f c h ro n ic
Cl

L>4 4 .

♦

i l l n e s s and t h e h ig h p r o p o r tio n o f o l d e r p e o p le i n t h i s r e g i o n .

So

we have e s tim a te d th e need f o r a d d i t i o n a l m e d ic a l c a r e i n t h i s
re g io n by o u r su rv e y o f t h e a r e a .

T h is was supplem ented by in f o rm a tio n

on f a c i l i t i e s a v a ila b le i n o t h e r p a r t s o f t h e s t a t e and n a ti o n .
We f e e l t h a t th e c r e a t i o n o f t h e needed m ed ic a l f a c i l i t i e s
by i t s e l f does n o t g u a ra n te e t h a t t h e s e r v i c e s w i l l b e bought by
th e p e o p le .

The e f f e c t i v e demand f o r m e d ic a l c a re depends on th e

30

Roger' I . Lee and Lewis W. J o n e s , The Fundam entals o f Good
M edical C a re . (U n iv e r s ity o f Chicago P r e s s , 1 9 3 3 ), p . 115.
B u ild in g A m e ric a 's H e a lth . V ol. I I , "A m e ric a 's H e a lth S t a t u s ,
Needs and R e s o u rc e s ," (U .S . Government P r i n t i n g O f f ic e , 1 9 5 3 ),
pp. 183-85. C ite d by R ash i F e in , The D o cto r S h o rta g e (The B rookings
I n s t i t u t i o n , W ashington, D. C. 1 9 6 7 ), p . 9 .

a t t i t u d e o f th e p e o p le to w ard s u se o f m e d ic a l c a r e , p r i c e s o f
m e d ic a l s e r v i c e s , f in a n c in g m ethods, incom es, age d i s t r i b u t i o n
o f th e p o p u la tio n ,, e t c .

The p e o p le o f th e Copper C ountry a r e

i n a v e ry u n fa v o ra b le s i t u a t i o n from th e s e p o in ts o f view .
g r e a t e s t stu m b lin g b lo c k i s t h e la c k o f fu n d s .

The

V o lu n tary h e a l t h

in s u ra n c e i s n o t a s o l u t i o n , b e ca u se m ost o f th e p e o p le can n o t
pay f o r t h e h ig h c o s t o f in s u r a n c e , and th o s e who have such
p r o t e c ti o n f i n d i t d i f f i c u l t t o m a in ta in t h e p r e s e n t l e v e l o f
p ro te c tio n .

Some a l t e r n a t i v e ways o f f in a n c in g m ust be so u g h t

o u ts id e t h e d is p o s a b le incom es o f t h e p e o p le .
A lte r n a tiv e m ethods o f f in a n c in g :
F in a n c e s f o r p ro v id in g a d d i t i o n a l m e d ic a l c a r e t o th e p e o p le
o f th e C opper C ountry may be o b ta in e d i n two ways:

(1) by re d u c in g

th e c o s t o f m ediical c a r e th ro u g h e lim in a tio n o f e x i s t i n g
o p e r a tio n a l i n e f f i c i e n c i e s o f t h e h o s p i t a l s , " u n e x p la in a b le " h ig h e r
incom es o f p h y s ic ia n s compared t o t h a t o f d e n t i s t s , and
" u n e x p la in a b le " h ig h e r p r o f i t r a t e s o f th e d ru g and t h e m e d ic a l
equipm ent i n d u s t r i e s compared t o t h a t o f a l l m an u fa c tu rin g i n d u s t r i e s ,
and ( 2 ) by g e t t i n g more fu n d s th ro u g h c o u n ty , s t a t e and f e d e r a l
so u rc es.
To e s tim a te t h e t o t a l fu n d s needed t o fin a n c e a d d i t i o n a l
f a c i l i t i e s , we have m u lt i p li e d t h e number o f a d d i t i o n a l b e d s ,
p h y s ic ia n s , d e n t i s t s , and n u rs e s by t h e e x i s t i n g p e r u n i t c o s t o f
th e s e f a c i l i t i e s i n th e Copper C o u n try .

More e x p l i c i t l y , t h e t o t a l

1J8
number o f beds have b een m u lt i p li e d by t h e a v e ra g e c o s t p e r bed
i n th e a r e a , and th e number o f p h y s ic ia n s , d e n t i s t s and n u rs e s
have b een m u ltip lie d by t h e i r r e s p e c t iv e incom es p e r annum i n
th e y e a r 1967.

A ll added to g e th e r p ro v id e th e e s tim a te o f

a d d itio n a l fu n d s needed p e r y e a r a t t h e l e v e l o f c o s ts e x i s t i n g
i n 1967.
V/e have

th e n a n a ly z e d w h eth er t h e e lim in a tio n o f o p e r a tio n a l

h o s p i t a l i n e f f i c i e n c i e s o f th e h o s p i t a l s , " u n e x p la in a b le " h ig h
incomes and " u n e x p la in a b le " h ig h p r o f i t s i n t h e m ed ic a l p r o f e s s i o n ,
drug and m e d ic a l equipm ent i n d u s t r i e s p ro v id e enough fu n d s
(th ro u gh s a v in g s ) t o m eet th e needs o f t h e Copper C o u n try .

We have

n o t a d d re sse d h e re th e q u e s tio n o f how o p e r a tio n a l i n e f f i c i e n c i e s and
"u n e x p la in a b le " p r o f i t s and incom es c an b e rem oved; n o r have we
su g g ested how c an th e a lle g e d s a v in g s b e d i s t r i b u t e d t o th o s e who
need them m o st.

More r e s e a r c h i s needed t o sa y a n y th in g m e a n in g fu l

on th e s e a s p e c ts o f t h e problem .
We have th e n a n a ly z e d t h e p o s s i b i l i t y o f g e t t i n g a d d it i o n a l
funds f r a u t h e c o u n ty , s t a t e and f e d e r a l s o u rc e s .

To know w h e th er

enough fu n d s c an b e r a i s e d i n t h e c o u n tie s i n t e r n a l l y th ro u g h
ta x a tio n o r o th e r m eans, we have a n a ly z e d p r e s e n t re v e n u e s , expend­
i t u r e s and th e p e r c e n t o f rev e n u e a l l o c a t e d t o h e a l th c a r e and o t h e r
programs o f th e c o u n tie s .

The p o s s i b i l i t y o f r a i s i n g more fu n d s and

t r a n s f e r r i n g fu n d s f r a n t h e c o u n ti e s ’ o t h e r program s t o h e a l th c a r e
i s a ls o I n v e s t ig a te d .

We have a l s o a n a ly z e d t h e s t a t e 's s h a re i n

t o t a l revenue o f t h e s e c o u n tie s i n th e Copper C ountry compared t o

49
o th e r c o u n tie s

in M ichigan.

T h is g iv e s us an id e a o f w h eth er

a s u b s t a n t i a l amount o f s t a t e a id can be expected o r Federal,
a id would be n e c e ssa ry .

We have made no a tte m p t t o d is c u s s

th e w e lfa re i n p l i c a t i o n s o f th e s e r e d i s t r i b u t i o n s o f income.

CHAPTER IV
DISTRIBUTION OP MEDICAL DOLLAR
The m e d ic a l c a r e system o f t h e Copper C o u n try , t o r e i t e r a t e ,
in c lu d e s ( i n th e sunnier o f 1967) f i v e a c u te - c a r e u n i t s , f i v e
lo n g -te rm c a r e u n i t s ( in c lu d in g th e one a t S t . Jo se p h H o s p it a l) ,
th r e e s e r v ic e - p r o v id in g a g e n c ie s , 29 p h y s ic ia n s , 16 d e n t i s t s , 17*1
r e g i s t e r e d n u rs e s and 38 p r a c t i c a l n u r s e s .

B ehind th e s e p r o ­

v id e r s o f s e r v i c e s s ta n d th e d ru g s u p p l i e r s , m e d ic a l equipm ent
m a n u fa c tu re rs and many o th e r d i r e c t l y and i n d i r e c t l y r e l a t e d
b u s in e s s e s —a l l o f which makeB com plete m e d ic a l c a r e p o s s ib l e ,
o

j jThis c h a p te r p r e s e n t s t h e t o t a l e x p e n d itu re s needed t o
su p p o rt t h e m e d ic a l c a re system o f th e Copper C o u n try , corrpares
th e s e e x p e n d itu re s w ith t h e n a ti o n a l f i g u r e s and f i n a l l y , a n a ly z e s
th e d i s t r i b u t i o n o f m e d ic a l d o l l a r s .

N a tio n a l A ggregates
The t o t a l n a t i o n a l p u b lic and p r i v a t e e x p e n d itu re s f o r h e a l th
and m ed ic a l c a r e re a c h e d a n e s tim a te d $47.3 b i l l i o n i n th e f i n a n c i a l
y e a r 1967 o r a b o u t 6 .2 p e rc e n t o f th e g ro s s n a t i o n a l p ro d u c t.
T able 4 .1 c l e a r l y shows t h a t th e t o t a l and p e r c a p i t a m e d ic a l
e x p e n d itu re s have been r i s i n g s t e a d i l y .

50

The r i s e may have been

TABLE 4.1—Aggregate and P er C apita E xpenditures f o r H ealth and M edical Care i n th e U nited S ta te s
1959-1960 t o 1967-1968

Year

:

T otal*

:

P o p u latio n

:

Average p e r
C ap ita
E xpenditure

:
:
:

M edical E xpenditure
a s Percentage o f
G.N.P.
/

m illio n
d o lla r s

m illio n

1959-60

26,660

179.4

148.61

5.4

1960-61

28,635

182.3

157.08

5 .7

1961-62

30,699

185.3

165.67

5 .7

1962-63

33,070

188.2

175-72

5 .8

1963-64

35,594

190.9

186.45

5 .8

1964-65

38,441

193.5

198.66

5 .9

1967-68

47,266

197.9

238.83

6 .2

d o lla r s

p e rc e n t

* In c lu d e s b o th p r iv a te and p u b lic ex p en d itu res
Source:

For th e y e a rs 1959-60 t o 1964-65 se e "M edical Care F inancing and U t i li z a t io n ,"
H ealth Economic S e r ie s , No. 1-A (1967), T .2 , p . 5For th e y e a r 1967-68, se e "T rends," H e alth , E ducation and W elfare, (1967-68), P a r t I .

52
caused by co m b in atio n s o f in c r e a s e s i n t h r e e t h i n g s :
p er c a p i t a demand and p r i c e s o f m ed ical c a r e .

p o p u la tio n ,

The o v e r a l l p e rc e n ta g e

r i s e i n e x p e n d itu re s has b e e n more th a n t h e r a t e o f grow th o f th e n a ti o n a l
p ro d u ct.

M edical c a re e x p e n d itu re s made up o n ly 5*4 p e rc e n t o f

G.N.P. i n 1959^60, b u t r o s e t o 6 .2 p e r c e n t i n 1967-68.

T h is

In d ic a te s th e grow ing im p o rtan ce o f m e d ic a l e x p e n d itu re s i n th e
economy.

The in d e x o f m ed ical c a r e p r ic e s h a s been I n c r e a s in g f a s t e r
than any o t h e r coannodity.

I n th e y e a r 1967, t h e m e d ic a l c a r e

p ric e in d ex w ent up t o 136.7 p o in ts (1957-59 = 1 0 0 ).
in c re a s e was i n h o s p i t a l c h a rg e s (2 0 0 .1 ) .

The g r e a t e s t

As a r e s u l t th e s h a re

o f h o s p i t a l s i n th e co n su m er's m edical d o l l a r h a s b e en in c r e a s in g
over tim e (s e e T ab le 4 .2 ) .

The Copper Country Health Expenditures

The c o m p o sitio n o f o p e ra tin g c o s t s o f h o s p i t a l s , n u rs in g homes
and s e r v ic e -p r o v id in g a g e n c ie s show t h a t s a l a r i e s a cc o u n t f o r about
tw o -th ird s o f a l l c o s t s .

I n h o s p ita ls i t i s a b o u t 61 p e r c e n t; i n

n u rsin g hones 72 p e rc e n t and i n s e r v ic e - p r o v id in g a g e n c ie s 70 p e rc e n t
o f th e t o t a l o p e ra tin g c o s t s .

O ther m a jo r com ponents o f c o s t s i n

h o s p ita ls a r e equipm ent ( 6 ,3 p e r c e n t) , fo o d ( 5*5 p e r c e n t ) , d ru g s
(4.2 p e r c e n t ) , s u p p lie s (5*5 p e rc e n t) and d e p r e c i a ti o n and i n t e r e s t
(4.6 p e r c e n t ) .

I n n u rs in g homes, food i s th e n e x t m ajo r c o s t and

accounts f o r 7 .8 p e rc e n t o f th e t o t a l o p e ra tin g c o s t s .

B esides

TABLE 4.2— Private Expenditure for Health Services by Types of Expenditures in Selected Years from 1961-67 in the United States

Types of Expenditures

1961
Total : Per: Per Capita
Expend- : centage : Expend- "
iture : to Total : lture

Total
Expend­
iture

1964
Per: Per Capita
centage : Expend­
to Total :
iture

1967*
Total : / Per: Per Capita
Expend­ : centage : Expenditure : to Total : iture
•

million
dollars

percent

dollars

million
dollars

percent

dollars

million
dollars

percent

dollars

19,978

100.0

110.25

24,842

100.0

131.18

29,706

100.0

150.11

Hospital Care

5,743

28.7

31.69

7,552

30.4

39.88

9,361

31.5

47.30

Physicians Services

5,472

27.4

30.20

6,775

27.3

35.78

8,078

27.2

40.82

Dentists Services

2,048

10.3

11.30

2,341

9.4

12.36

2,634

8.9

13.31

809

4.0

4.46

850

3.4

4.49

871

3.0

4.50

3,750

18.8

20.69

4,341

17.5

22.92

4,932

16.6

24.92

Eyeglasses and Appliances

783

3.9

4.32

1,043

4.2

5.51

1,303

4.4

6.58

Nursing Home Care

395

2.0

2.18

789

3.2

4.17

1,183

4.0

5.98

Net Cost of Insurance

978

4.9

5.40

1,151

4.6

6.80

1,324

4.4

6.69

Total

Other Professional Services
Drug and Drug Sundries

Source: For Che year 1961-64* Social Security Administration, Social Security Bulletin. "National Health Expenditures, 1950-64,"
(January, 1966), Tables 11-12.
* Obtained by linear projection of 1961 and 1964 figures.

54
s a l a r i e s , t h e m ajo r components o f c o s ts i n s e r v ic e - p r o v id in g a g e n c ie s
a re :

s u p p lie s ( 6 .2 p e r c e n t ) , d e p r e c ia tio n and i n t e r e s t ( 4 .1 p e r c e n t ) ,

and o th e r s w hich in c lu d e r e n t , t r a v e l i n g and o th e r m is c e lla n e o u s
expenses (1 1 .5 p e r c e n t ) .

F o r d e t a i l s on c o s t se e T ab le 4,3*

C om position o f th e M edical D o lla r
The n a ti o n a l t r e n d i n t h e d i s t r i b u t i o n o f th e c o n su m er's m e d ic a l
d o l l a r i n d i c a t e s t h a t th e s h a re s o f h o s p i t a l s and n u rs in g homes have
been s t e a d i l y i n c r e a s in g .

T h is i s m o stly due t o two r e a s o n s :

( 1 ) th e

u se o f h o s p i t a l s and n u rs in g hemes has in c r e a s e d trem en d o u sly d u rin g
th e l a s t d e c a d e , and ( 2 ) t h e in d ex o f p r i c e s ( e s p e c i a l ly t h a t o f
h o s p i t a l s e r v i c e s ) have in c r e a s e d more th a n m ost o f t h e c o n m o d itie s .
I n th e Copper C o u n try , h o s p i t a l s g e t th e l a r g e s t s h a r e o f t h e
consum er's m e d ic a l d o l l a r — ab o u t 37 p e r c e n t— fo llo w e d by p h y s ic ia n s
w ith 20 p e r c e n t, d ru g s w ith 14 p e r c e n t , n u rs in g hemes w ith 10 p e rc e n t
and d e n t i s t s w ith 9 p e r c e n t.

The r e s t , 10 p e r c e n t , i s a c c o u n te d f o r by

such item s a s eye g l a s s e s and th e n e t c o s t o f in s u ra n c e .

T ab le 4 .4

p r e s e n ts t h e s e d e t a i l s .
I n com parison t o n a ti o n a l f i g u r e s , t h e s h a re s o f th e h o s p i t a l s
and n u rsin g homes i n th e Copper C ountry a r e s u b s t a n t i a l l y l a r g e r , b u t
th e p h y s i c ia n 's s h a r e i s s u b s t a n t i a l l y lo w e r.

The s h a re s o f d ru g s

(14 p e rc e n t) and n e t In s u ra n c e c o s t s and g la s s e s (6 p e r c e n t) a r e low er
th a n th e n a ti o n a l f i g u r e s .
same.

But th e s h a re o f d e n t i s t s i s a b o u t th e

T ab le 4 .5 shows t h e s e co m p ariso n s.

..• .-■.U.n. ■■!»l£i!:'z-±r.:&££9Xatsr*iisa ttiasta*SHmr*mrmad

TABLE b.3—Composi t io n o f th e T o ta l O perating C osts o f H o s p ita ls , N ursing Homes and S e rv ice P roviding Agencies in th e Copper Country i n 1967
V'
Types o f E xpenditures

H o sp ita ls

:

N ursing Hemes

:
*

S erv ice-P ro v id in g
Agencies

p e rc en t

d o lla r s

p e rc e n t

d o lla r s

p e rc en t

2,373,051

61.43

680,666

71.70

204,430

70.13

242,826

6.29

36,513

3.85

6,825

2.34

84,796

2.20

—

Pood

212,914

5.51

74,387

7.83

Drugs

161,643

4.18

16,485

1.74

8,000

2.74

U tilitie s

95,376

2.47

35,783

3.77

5,799

1.99

Laundry

35,641

0.92

12,333

1.30

100

0.03

R ep air and M aintenance

73,008

1.89

10,020

1.05

2,669

0.92

S u p p lies

212,536

5.50

26,874

2.83

18,022

6.18

D e p rec ia tio n and
In te re s t

179,194

4.64

11,363

1.20

12,046

4.13

O thers

192,079

4.97

44,945

4.73

33,645

11.54

3,863,064

100.00

949,369

100.00

291,536

100.00

d o lla r s
S a la r ie s and Wages
Equipment
M edical and P ro fe ss­
io n a l Fees

T o ta l
Source:

—

—

—

-

-

Computed from h o s p ita l re c o rd s . For com position o f th e t o t a l o p e ra tin g c o sts o f
in d iv id u a l h e a lth c a re u n i t s , see Appendix B.

TABLE 4 .4 — Distribution of the Consumer's Medical Care Dollar in the Copper Country in 1967

I

Types of Expenditures

:

Total

:

Per Capita
Expenditure

: Average Family
:
Expenditure3

-•---- dollars

Percentage
of Total
' percent

Hospital*5

3,517,932

68.43

171.07

37.30

Physicians

1,894,725

36.86

92.14

20.10

847,110

16.48

41.19

8.98

1,306,328

25.41

63.53

13.85

Nursing Hemes

973,732

18.94

47.35

10.32

Other Professional Services

338,301

6.58

16.45

3.59

Other1

552,687

10.75

26.88

5.86

9,430,805

183.45

458.61

100.00

Dentists
Drugsc

Grand Total

a The t o t a l number o f fa m ilie s i s 20,564 (average s iz e o f th e fam ily i s 2 .5
. and p o p u la tio n i s 51*410).
T o ta l amount o f drugs s o ld by h o s p ita ls have been deducted b e fo re com putation.
d In clu d e s th e t o t a l drugs so ld by h o s p i t a l s , d o c to rs and d ru g s to re s .
In clu d e s th e n e t in su ra n ce c o s t (3-86 p e rc e n t) and e y e g la s se s, e t c . (2 p e r c e n t) .
Source:

Computed from collected data.

57
TABLE 4 .5 — A Com parison o f t h e C om position o f th e M ed ical D o lla is
i n th e Copper C ountry and i n th e -U n ite d S t a t e s i n 1967
I

I

I

I

Types o f E x p e n d itu re

:

Copper C ountry

:

U n ited S t a t e s

p e rc e n t -----------------H o s p ita l

37.30

31.50

P h y s ic ia n

20.10

27.20

8.98

8.90

Drug

13.85

16.60

N u rsin g Heme

10.32

4.00

O th e r P r o f e s s io n a l S e rv ic e s

3.59

3.00

O ther#

5.86

8.80

100.00

100.00

D e n tis t

T o ta l

* In c lu d e s s h a r e s o f e y e g la s s e s and n e t c o s t o f I n s u ra n c e .
S o u rce:

T a b le 4 .2 and 4 .4 o f t h i s c h a p te r .

CHAPTER V
DOCTORS
s

P h y s ic ia n s p la y a v i t a l r o l e i n th e t o t a l m e d ic a l c a re sy s te m .
They a c t i v a t e a lm o st a l l p e rs o n n e l and a l l h o s p i t a l s and
n u rs in g heme f a c i l i t i e s , so i t i s q u i t e n a t u r a l t o c o n c e n tr a te more
on them i n any stu d y o f t h e m e d ic a l i n d u s t r y .

B e sid e s t h i s ,

p h y s ic ia n s a c c o u n t f o r ab o u t o n e -f o u r th o f t h e t o t a l e x p e n d itu re
on m ed ica l c a r e .

I n f a c t , i f th e p r e s e n t t r e n d o f r i s i n g demand

and p r i c e s o f t h e i r s e r v i c e s c o n tin u e s , t h e i r s h a re i n th e consu m ers'
m ed ic a l d o l l a r s w i l l f u r t h e r in c r e a s e i n t h e f u t u r e .

The in d e x

o f :p r i 6e s f o r p h y s ic ia n s ' s e r v i c e s in c r e a s e d from 100 i n 1957-59 t o
137.6 i n 1967; w hereas d u rin g th e same p e rio d th e g e n e r a l p r i c e
in d ex r o s e t o o nly 1 1 6 .3 p o i n t s .

The p r o d u c tiv ity o f p h y s ic ia n s

h as a ls o in c re a s e d trem en d o u sly due t o b e t t e r t r a n s p o r t a t i o n and
c cm n u n icatio n f a c i l i t i e s , re d u c e d heme c a l l s , b e t t e r h o s p i t a l
f a c i li t ie s , e tc .

B ut th e g e n e r a l concensus i s t h a t t h e demand f o r

p h y s ic ia n s h a s in c re a s e d f a s t e r th a n th e p r o d u c t i v it y and t h e
number o f p h y s i c ia n s , and t h e number has f a i l e d t o I n c r e a s e f a s t
enough due t o r e s t r i c t i o n o f e n tr y i n t o th e p r o f e s s i o n . 1 As a r e s u l t
p h y s ic ia n s a r e a lle g e d to e a r n more th a n w hat would b e J u s t i f i e d by
th e f r e e w orking o f demand and su p p ly o f t h e i r s e r v i c e s .

1 Friedm an and K u z n ets, p . 395.
58

If

th is

59

is true, the situation in the Copper Country would be rather
worse, because the ratio of physicians to population is about
half the national average.
be raised at this point:

However, some real questions can
whether an unrestricted supply of

physicians would not Jeopardize the quality of care; or whether
it would be "better" for the people to have more physicians
of inferior quality or less of superior quality; or whether
there is any optimum combination of quality and number of
physicians; or whether it is at all possible to reach a decision
on such a combination.

Most of these questions Eire pedantic

in nature and not essential to our inmediate interest in this
chapter.
The Copper Country needs more medical facilities and more
funds to finance these facilities.

The funds can be obtained

either by getting more money from the local, state or federal
sources, or by reducing the cost of medical care.

One of the

possible Items of savings could be in physicians' bills.

The

services of physicians account for about one-fourth of the total
medical bill.

We need to know if this is due to "unexplainable"

high incomes of physicians or due to some other reasons.

We are

also interested in knowing the total out-flow of money in income
tax on such "unexplainable" incomes because this is a pure drain
on the comnunity's resources.

2

The word "unexplainable" is defined in Chapter III and also
later in this chapter.

60
T h is c h a p t e r , f i r s t , e s tim a te s th e g ro s s incom e, in v e s tm e n ts ,
and th e " u n e x p la in a b le " h ig h e r in c a n e s o f th e p h y s ic ia n s (com pared
t o t h a t o f d e n t i s t s ) i n t h e Copper C o u n try , th e n com putes th e
amount o f income ta x on su ch incom es t h a t flo w s o u t o f th e a r e a .
The d e t a i l s o f e s tim a tio n te c h n iq u e s a r e p r e s e n te d i n C h ap ter I I I .

Incanes

The y e a r ly a v e ra g e g r o s s incom es o f p h y s ic ia n s and d e n t i s t s I n
th e Copper C ountry a r e a b o u t $70,000 t o $ 5 1 ,0 0 0 , r e s p e c t i v e l y .

A f te r

a llo w in g f o r t h e i r b u s in e s s e x p e n se s, th e n e t Incomes o f p h y s ic ia n s
and d e n t i s t s (b e fo r e income ta x ) a r e ab o u t $*12,000 a n d $2 6 , 000 ,
r e s p e c t iv e ly (s e e T ab le 5 . 1 ) .
TABLE 5 .1 —Incomes o f P h y s ic ia n s and D e n tis ts i n t h e Copper

C ountry i n 1967

Incomes & Expenses

:

Physicians

Dentists

--------- dollars
Gross Incomes3,

70,175

51,340

Business Expenses*3

28,533

25,259

Net Income

41,642

26,081

. F o r d e t a i l s o f c o n p u ta tio n s se e Appendix B.
U .S. T re a su ry D ep artm en t, I n t e r n a l Revenue S e r v ic e ,
S t a t i s t i c s o f Incom e. 1964, p . 31.
N ote:

T o ta l d e d u c tib le b u s in e s s ex p en ses o f th e
p h y s ic ia n s and d e n t i s t s w ere about 4 0 .6 6
and 4 9 .2 0 p e rc e n t o f g ro ss r e c e i p t s , r e s p e c t i v e l y .

P h y s ic ia n s som etim es u n d e r- r e p o r t t h e i r incom es and o v e r s t a t e
th e ir c o s ts .

A m a jo r f a c t o r i n th e o v e rs ta te m e n t o f p h y s i c ia n s ’

c o s ts i s th e p o s s i b i l i t y o f chan g in g o f f a s b u s in e s s e x p en ses
c e r t a i n ty p e s ' o f consum ption e x p e n d itu r e s .^

The d a ta com piled

from an a u d it o f i n t e r n a l t a x r e t u r n s by t h e I n t e r n a l Revenue
S e rv ic e show t h a t p h y s ic ia n s u n d e r- r e p o r t income by ab o u t e ig h t
p e rc e n t o f t h e i r n e t incom ej o t h e r in d e p e n d e n t p r o f e s s i o n a l s w ere
a l s o found t o u n d e r - r e p o r t incom es more o r l e s s t o th e same e x t e n t .
I n o th e r w ords, p h y s ic ia n s and d e n t i s t s pay ta x e s o n ly on 92 p e rc e n t
o f t h e i r n e t incom es.

Average income ta x e s (com puted) p a id by

each p h y s ic ia n and d e n t i s t a r e about $11,000 and $5 , 000, r e s p e c t i v e l y .
Net incom e, a f t e r ta x e s , f o r p h y s ic ia n s i s a b o u t $31,000 and t h a t
o f d e n t i s t s i s a b o u t $21,000 ( s e e T able 5 .2 ) .
E s tim a tio n o f t h e " u n e x p la in a b le "

d i f f e r e n c e i n th e incom es o f

p h y s ic ia n s and d e n t i s t s :
We have d e fin e d " u n e x p la in a b le ” h ig h e r incom es o f p h y s ic ia n s
o v e r t h a t o f d e n t i s t s ( a com parable p r o f e s s io n ) a s th e amount o f
income t h a t can n o t be e x p la in e d due t o v a r i a b i l i t y o f in co m es,
3

W. Lee H ansen, "S h o rta g e s and In v e s tm e n ts i n H e a lth Manpower,"
The Economics o f H e a lth and M ed ical C a re, B ureau o f P u b lic H e a lth
Economics and D epartm ent o f Economics (The U n iv e rs ity o f M ich ig an ,
Ann A rbor, M ichigan, 196*0, P* 85.
^ M arius F a r i o l e t t i , "Some Income A djustm ent R e s u lts from t h e 19**9
A udit C o n tro l Program ," An A p p ra is a l o f t h e 1950 Census Income D a ta ,
V ol. 23, S tu d ie s i n Income and W ealth, ( P r in c e to n , N. J . , P rin c e to n
U n iv e rs ity P r e s s ) , p . 258.

62

TABLE 5*2— Net In ca n e (b e fo re and a f t e r t a x ) and Income Tax o f
P h y s ic ia n s and D e n t is ts i n t h e Copper C ountry i n 1967
•
«

:N et Income
: (b e fo re
:
ta x )
•

Names

U ntaxed : T o ta l
Income : T axable
Income

Income : Net Income .
Tax
; ( a f te r ta x )

•
*

*<.

*

d o lla rs
P h y s ic ia n s

41,642

5 ,1 3 1

36,511

10,670

30,972

D e n tis ts

26,081

3,886

22,195

5 ,0 8 2

20,999

a In c lu d e s u n d e r-re p o rte d Incom es—e ig h t p e r c e n t o f n e t
income (b e fo re ta x e s ) and t a x exem ptions f o r t h r e e
p e rs o n s ($ 1 ,8 0 0 ).
b
In c lu d e s u n tax e d incom es.
n o n -p e c u n ia ry a d v a n ta g e s and d is a d v a n ta g e s , c o n d itio n s o f demand, and
le n g th and c o s t o f t r a i n i n g , e t c . i n t h e tw o p r o f e s s io n s .

Of c o u rs e ,

i t i s n o t e a sy t o a s s e s s th e q u a n t i t a t i v e im p o rtan c e o f each o f th e
above f a c t o r s r e s p o n s ib le f o r t h e d i f f e r e n c e i n a v e ra g e I n c a n e s .
some c a s e s , t h e e f f e c t s o f d i f f e r e n t f a c t o r s a r e m erged, and I n
o t h e r s o n ly a s u b j e c t iv e e v a lu a tio n i s p o s s ib l e .
I n com puting th e " u n e x p la in a b le " incom e d i f f e r e n c e betw een
p h y s ic ia n s and th e d e n t i s t s , I have made no a tte m p t t o c o l l e c t and
a n a ly z e th e d a ta on th e above in c a n e d e te rm in in g f a c t o r s , p a r t l y
b e cau se i t I s a v e ry te d io u s and tim e consum ing p ro c e s s and m ain ly
5
b e cau se an e x c e l l e n t s tu d y by F riedm an and K u z n ets, d e a lin g p a r ­
t i c u l a r l y w ith t h i s a s p e c t, i s a v a i l a b l e .
5

Friedm an and K u zn ets, p . 394-95.

In

63
Friedm an and K uznets compare th e income i n m ed icin e and
d e n t i s t r y and c o n clu d e t h a t , a t m o st, 17 p e rc e n t o f t h e
a d d i t i o n a l incom es i n m ed icin e c an be e x p la in e d by th e lo n g e r
and c o s t l i e r t r a i n i n g needed t o g e t i n t o t h i s p r o f e s s io n .
The in f lu e n c e o f re m a in in g f a c t o r s su c h a s :

g re a te r v a ria b ility

o f income i n m ed icin e th a n i n d e n t i s t r y ; n o n -p e c u n la ry a d v an tag e s
and d is a d v a n ta g e s o f th e two p r o f e s s i o n s ; c o n d itio n s o f demand
f o r s e r v i c e s , e t c . , go i n f a v o r o f m e d ic in e .

I n o th e r w ords,

th e s e f a c t o r s p a r t l y c o u n te rb a la n c e t h e e x t r a c o s t o f p h y s i c ia n ’s
tra in in g .
Friedm an and K uznets found t h a t p h y s i c ia n s ’ a v erag e incom es
( a r ith m e tic mean) w ere 32 p e rc e n t more th a n t h a t o f d e n t i s t s '.
T h is d i f f e r e n c e I n inccme e v id e n tly I s n o t a tem p o rary a b e r r a t i o n .
The d i f f e r e n c e i n incom es h a s p e r s i s t e d f o r a lo n g tim e a n d , i n
f a c t , w idened i n th e r e c e n t y e a r s I n fa v o r o f p h y s ic ia n s .

The

d i f f e r e n c e i n t h e c o s ts and le n g th o f t r a i n i n g i n t h e two p r o f e s s io n s
h as rem ained more o r l e s s t h e sam e.
e d u c a tio n I s h e a v ily s u b s id iz e d .

I n f a c t , to d a y , m e d ic a l

So I t seems r e l e v a n t t o u se

Friedm an and K u z n ets' e s tim a te o f t h e e x p la in a b le d i f f e r e n c e
betw een th e incom es o f p h y s ic ia n s and d e n t i s t s .
F ried m an ’s o r i g i n a l a n a l y s i s n e g le c te d t h e e f f e c t s o f in d iv i d u a l
income t a x .

A p r o g r e s s iv e income t a x c o l l e c t s more f r a n f l u c t u a t i n g

incom es, and p h y s i c ia n s ' incom es a r e more f l u c t u a t i n g th a n d e n t i s t s ' , ^

^ W illiam J . S h u ltz and C. L ow ell H a r r i s , Am erican P u b lic F in a n c e ,
7 th e d . (Englewood C l i f f s , N. J . , P r e n tic e H a l l , 1959)* P* 220.

64
But t h i s i s more o r l e s s com pensated bv th e g r e a t e r n o n -p ecu n iary
a d v a n ta g e s o f p h y s ic ia n s w hich a r e n o t ta x e d .
A nother c r i t i c i s m may be t h a t p h y s ic ia n s work lo n g e r hours
p e r week th a n o th e r p r o f e s s i o n a l s , so th e mean a n n u al in c a n e of
7
p h y s ic ia n s may n o t be a good m easure.
B ased on Friedm an and K u zn ets1 e s tim a te s we have computed
" u n e x p la in a b le " h ig h e r incom es o f p h y s ic ia n s o v e r t h a t o f d e n t i s t s
i n t h e Copper C ountry i n T ab le 5 .3 .
TABLE 5 .3 —The T o ta l "U n ex p lain ab le" H ig h er In c a n e s o f
P h y s ic ia n s Compared t o T hat o f D e n tis ts
i n t h e Copper C ountry i n 1967

Ite m s

:

Amount
d o lla rs

1 . Net Income (b e fo re ta x e s )
a ) P h y s ic ia n s
b) D e n tis ts
2 . D iffe re n c e ( l a - lb )
3. " E x p la in a b le " D iffe re n c e
[17 p e rc e n t x $2 6 , 081]
4 . "U n ex p lain ab le" D iffe re n c e
[ 2 - 3 3
5 . T o ta l "U n e x p la in a b le " Incomes o f
P h y s ic ia n s
[27 (number o f p h y s ic ia n s ) x 11,127]

41,642
26,081
15,561
(5 9 .6 6 )*
4,434
( 17. 00)
11,127
(4 2 .6 6 )
300,429

F ig u r e s u n d er p a r e n th e s e s show p e rc e n ta g e s o f
d e n t i s t 's incom e.

7

F or o t h e r c r i t i c i s m s , se e H e rb e rt E. K laim an, The Economics
o f H ealth ,(C o lu m b ia U n iv e rs ity P r e s s , New York and London, 1965).
pp. 9 2 -9 3 .

65
T able 5*3 shows p h y s ic ia n s i n th e Copper C ountry e a rn e d
a b o u t 60 p e rc e n t more th a n d e n t i s t s , and a b o u t 43 p e rc e n t o f
th e d if f e r e n c e ($ 11, 127) can n o t b e e x p la in e d by t h e f a c t o r s
enum erated b e f o r e .

There a r e 27 in d e p e n d e n t p h y s ic ia n s i n t h e

Copper C o u n try , so th e t o t a l "u n e x p la in e d " in c a n e o f th e
p h y s ic ia n s i s e q u a l t o 27 x $11,127 = $300,429.

T h is i s t h e

amount th e consum ers " l o s e " , w hich th e y w ould n o t have i f
in c a n e o f p h y s ic ia n s were com parable t o t h a t o f d e n t i s t s , i . e . ,
i f t h e p h y s ic ia n s e a rn in g s w ere o n ly 17 p e r c e n t h ig h e r th a n
d e n tis ts .
Tax on " u n e x p la in a b le " incom es o f p h y s ic ia n s and o u t-flo w o f money
A p o r tio n o f th e "u n e x p la in e d " Income o f p h y s ic ia n s flo w s
o u t o f th e community i n income t a x .

T h is c a n be v i s u a li z e d a s a

p u re d r a in on t h e com m unity's r e s o u r c e s .

T o ta l ta x on th e

" u n ex p la in e d " income p e r p h y s ic ia n i s ab o u t $4,200 and f o r t h e
whole Copper C o u n try , w ith 27 p r i v a t e p h y s ic ia n s , t h e amount i s
o
a b o u t $113,000.
Prom o u r p re v io u s c a l c u l a t i o n s we know t h a t th e
t o t a l "u n ex p la in e d " incomes o f t h e p h y s ic ia n s were ab o u t $3 00, 0 0 0 .
So ab out 38 p e rc e n t o f t h e i r "u n e x p la in e d " incom es i s ta x e d by
governm ent and n e v e r becomes d i r e c t l y a v a i la b l e t o them o r t o th e
ccnm unity.

The com putations o f t a x on t h e "u n ex p la in e d " in c a n e

a r e a s fo llo w s:
Q
The t o t a l o u t-flo w o f money a c t u a l l y may be l e s s th a n $113,000
b ecau se a p a r t o f t h e m e d ic a l e x p e n d itu re o f th e p e o p le ( p a t i e n t s ) i s
n o t s u b je c t t o t a x , so i f t h i s amount had s ta y e d w ith p a t i e n t s , th e y
would have p a id h ig h e r t a x e s . I n f a c t , t h i s w i l l happen o n ly i f
p a t i e n t s ' s a v in g s i n p h y s ic ia n s ' b i l l p u t them i n h ig h e r income b r a c k e t s .

66
Amount
Net Income (b e fo re t a x ) p e r P h y s ic ia n
a ) w ith " u n e x p la in a b le " in c a n e
b) w ith o u t " u n e x p la in a b le " in c a n e

4 l,6 4 2 q
30,515

Tax on (a )

10,670

Tax on (b )

6,479

Tax P a id p e r P h y s ic ia n on "U n ex p lain ab le"
In can e

4,191

T o ta l Tax on "U n ex p lain ab le" Income o f
P h y s ic ia n s (27 x $4,191)

113,157

^ $26,081 ( d e n t i s t 's income) + 17 p e rc e n t o f $26,081 = $30,515.
The r e s t i s computed a s I n T able 5 .2 .

CHAPTER VI
THE DRUG INDUSTRY

Drug manufacturers have always been criticized for having
serious monopolistic trends exhibited by collusion, price
fixing, intense advertising, misuse of patent privileges and
high profit rates.^

The opponents of this view argue that

high profit rates in the drug industry are Justified because of
the high risk of Investment In the industry.

Further, patent

privileges are essential for the continuing research programs
of the drug companies.

The pros and cons of these arguments are

presented briefly in Appendix A.
This chapter compares the profit rate of the drug industry
with that of all manufacturing industries and the "normal" interest
rate for industrial capital, which by our assumption is equal to
the competitive rate of profit.

This comparison provides an

estimate of the magnitude of the "unexplainable" higher profits
in the drug industry compared to that of other industries.

The

higher the profit of the drug industry the higher the prices
drugs are likely to be, and as there is no drug conpany in the
Copper Country, the higher the out-flow of money frcm this area
would be.

For specific citations see Appendix A.

67

68
In o t h e r w ords, i f th e p r o f i t r a t e o f th e d ru g in d u s tr y were
th e same a s t h a t o f a l l m a n u fa c tu rin g i n d u s t r i e s o r e q u a l t o th e
"norm a]" r a t e o f i n t e r e s t f o r i n d u s t r i a l c a p i t a l th e dru g s would
have been c h e a p e r and p e o p le would have saved money on d ru g s.
E stim a tin g th e s e p o s s ib le sa v in g s i s th e m ain o b je c tiv e o f t h i s
•N

c h a p te r.
T h is a n a ly s is i s c a r r i e d o u t a t two l e v e l s :
and r e t a i l e r s .

m a n u fa c tu re rs

The h ig h p r o f i t s o f th e d ru g m a n u fa c tu re rs and

drug r e t a i l e r s have d i f f e r e n t e f f e c t s on t h e re s o u rc e s o f th e
people and th e economy o f th e Copper C ountry.
t o th e consum er.

Both a r e a " lo s s "

They a r e p a y in g more f o r th e d ru g s th a n th e y

would have i f th e p r i c e s were l e s s , b u t t h e h ig h p r o f i t s o f
drug r e t a i l e r s lo c a te d i n th e a r e a a re n o t a lo s s t o th e cormiunity
except f o r th e Incane ta x on such p r o f i t s w hich flow s o u t o f th e
a re a ; w hereas th e h ig h p r o f i t o f t h e drug m a n u fa c tu re rs , s in c e
th ey Eire n o t lo c a te d i n th e a r e a , I s a p u re lo s s t o th e canm unity.
The m agnitudes o f th e s e a r e e s tim a te d I n t h e fo llo w in g p a g e s.

P r o f i t s i n t h e Drug I n d u s tr y
The p r o f i t r a t e s o f th e le a d in g drug m a n u fa c tu re rs have been
much h ig h e r th a n th e le a d in g firm s i n o t h e r i n d u s t r i e s .

T ab le 6 .1

shows th e p r o f i t r a t e s o f 22 i n d u s t r i e s (12 firm s i n each) i n t h e
y e ar 1966.

The r a t e o f r e t u r n on s to c k h o ld e r ’s in v estm en t i n th e

drug in d u s tr y was d o u b le t h a t o f about o n e - t h i r d o f a l l I n d u s t r i e s ,

TABLE 6 .1 — R ates o f R e tu rn o f 12 L eading F irm s
I n S e le c te d I n d u s t r i e s , 1966

In d u s tr y

R ate o r
R e tu rn
p e rc e n t

s

Drug and M edicine
P e r i o d ic a l s
R adio and T e le v is io n Equipment
M otor V e h ic le s
Computing M achines
G la ss C o n ta in e rs
A irc ra ft
N o n ferro u s M e tals
M otor V e h ic le P a r ts
C i g a r e tt e s
B aking P ro d u c ts
P e tro le u m R e fin in g
D a iry P ro d u c ts
M alt L iq u o rs
Pulp Paper
K n it A pparel
D i s t i l l e d L iq u o rs
S te e l
Plum bing F ix tu r e s
Cement
Meat P ro d u c ts
S o u rc e :

2 1 .1
2 0 .1
1 9 .8
1 7 .1
1 6 .3
1 4 .7
1 4 .6
1 4 .4
1 4 .1
1 3 .9
1 3 .5
1 2 .2
1 2 .0
1 1 .5
1 0 .6
1 0 .5
9 .1
8 .5
8 .4
6 .1
5 .3

F e d e ra l T rade Commission - R a te s
o f R e tu rn f o r I d e n t i c a l Companies
i n S e le c te d M an u fac tu rin g I n d u s t r i e s , 1957-1966.

I f we compare th e p r o f i t r a t e s o f th e d ru g com panies w ith a l l
th e m an u fa c tu rin g com panies, we f i n d s i m i l a r d i f f e r e n c e s .

E xcept

fo r t h e y e a r 1956 and 1966, t h e p r o f i t r a t e s o f d ru g In d u s tr y w ere
th e h ig h e s t among th e 26 le a d in g I n d u s t r i e s ( s e e T ab le 6 .2 ) .

70
TABLE 6 .2 — R a te s o f R e tu rn o f Drug M a n u fa c tu re rs and A ll
M a n u fac tu rin g I n d u s t r i e s , 1956-67
: P r o f i t R ates A f te r T axes a s a P e r : c e n t o f S to c k h o ld e r s ' E q u ity
:
A ll
A ll Drug
: M a n u fac tu re rs
:
M a n u fa c tu re rs

Year

D e rc e n t ------------------ 17.6
18.6
17.7
1 7 .8
1 6 .8
16.7
1 6 .8
16.8
1 8 .2
20.3
2 0 .3
18.7

1956
1957
1958
1959
I960
1961
1962
1963
1964
1965
1966
1967

12.3
11.0
8 .6
10.4
9 .2
8 .8
9 .8
10.3
1 1 .6
13.0
1 3 .5
11.7

P r o f i t Rank o f th e Drug
I n d u s tr y Among A ll Manu­
f a c t u r i n g I n d u s tr ie s *
ra n k
2
1
1
1
1
1
1
1
1
1
2
1

* Rank among th e 26 i n d u s t r i e s f o r w hich p r o f i t s a r e r e p o r te d
s e p a r a t e l y i n th e Q u a rte r ly F in a n c ia l R e p o rts .
S o u rce:

F e d e ra l T rad e Commission and S e c u r i t i e s and Exchange
Com mission, Q u a r te rly F in a n c i a l R e p o rt. 1967.

A few r e s e a r c h e r s a rg u e t h a t due t o th e h ig h r i s k o f in v e stm e n t i n
th e d ru g i n d u s t r y , th e h ig h r a t e o f p r o f i t I s J u s t i f i e d i n t h i s I n d u s tr y .
Conrad and P lo tk in a tte m p t t o t e s t t h e h y p o th e s is t h a t t h e l e v e l o f an
in d u s tr y ’s p r o f i t r a t e i s p o s i t i v e l y c o r r e l a t e d w ith t h e d e g re e o f r i s k
faced by firm s w ith in t h e I n d u s tr y .

I n o th e r w o rd s, th e more r i s k y an
2
in d u s tr y , th e h ig h e r i t s a v e ra g e p r o f i t .

2

U. S. C ongress S e n a te , C o m p etitiv e Problem s i n t h e Drug I n d u s t r y ,
H earin g s, b e fo re t h e subcom m ittee on Monopoly o f th e S e le c t C cm nittee on
Email B u s in e s s , a r e p o r t by Gordon R. Conrad and I r v in g H, P l o t k i n , 9 0 th
C ongress, 1 s t and 2nd S e s s io n , P a r t 5 , 1967-68, p p . 1747-1748.

71
I t i s t r u e t h a t th e d ru g in d u s tr y i s n o t r i s k - f r e e , and r i s k
does p la y a p a r t in th e h ig h p r o f i t s o f th e d ru g i n d u s t r y .
r i s k premiums f o r d ru g s a r e low .

But

I n 1959-1964 d ru g com panies

earned an a v e ra g e r e t u r n o f 18.32 p e r c e n t .
a t t r i b u t e 1.68 p e rc e n t o f t h i s t o r i s k .

F is h e r and H a ll
M u lle r a n a ly z e s th e

r e p o r t o f Conrad and P lo tk in and c o n c lu d e s t h a t though t h e v a r i ­
a b i l i t y o f p r o f i t i n t h e d ru g in d u s tr y i s more th a n i n o t h e r s , i t
does n o t mean t h a t th e chance o f lo s s e s i n th e d ru g in d u s tr y i s
more, o r th e i n c e n ti v e t o in v e s t t h e r e I s l e s s .

M u lle r compared

p r o f i t r a t e s o f th e aluminum I n d u s try ( r e l a t i v e l y r i s k - f r e e ) w ith
th a t o f th e d ru g I n d u s tr y ( s o - c a l l e d h i g h - r i s k i n d u s tr y ) and found
t h a t th e a v e ra g e p r o f i t r a t e o f th e fo im e r i s 7 .8 p e r c e n t w ith a
sta n d a rd d e v ia tio n o f 1 .3 p e rc e n t w hereas th e a v erag e r a t e o f th e
latter* was 1 7 .5 p e rc e n t w ith a s ta n d a rd d e v ia ti o n o f 8 .6 p e r c e n t.
I h i s means t h a t tw o - th ir d s o f th e tim e , aluminum company p r o f i t s
f e l l i n th e ra n g e o f 6 .5 and 9 .1 p e rc e n t and t h a t o f t h e drug
In d u stry was betw een 8 .9 and 2 6 ,1 p e r c e n t.

T h is c l e a r l y shows t h a t

chances o f m aking h ig h p r o f i t I n t h e d ru g in d u s tr y a r e more th a n i n
th e aluminum in d u s tr y i n s p i t e o f la r g e v a r i a b i l i t y i n t h e drug
i n d u s tr y .

M u lle r a f t e r f u r t h e r a n a l y s i s c o n c lu d e s t h a t 11. . . . th e

C o n rad -P lo tk in m easure o f r i s k tu r n s o u t t o be a b e t t e r proxy o f
3

I r v in g N. F is h e r and George R. H a l l, R isk and C o rp o ra te R a te o f
R e tu rn s. a p a p e r p r e s e n te d b e fo re th e E conom etric S o c ie ty (December 2 9 ,
1967). C ite d by W illa rd F . M u lle r, S e n a te H earin g s on Monopoly o f t h e
S e le c t Committee on a n a l l B u s in e s s , 9 0 th C o n g re ss, 1 s t and 2nd S e s s io n s ,
1967-68, p . 1835-

72

„ii
r e l a t i v e m ark et power them o f r i s k . "

I n o th e r w o rd s, h ig h con­

c e n t r a t i o n , h ig h e n tr y b a r r i e r s and a h ig h d e g re e o f p ro d u c t d i f ­
f e r e n t i a t i o n a r e th e im p o rta n t f a c t o r s t h a t a r e b e h in d t h e p e r s i s t e n t
h ig h p r o f i t s i n th e d ru g in d u s tr y .
E stim a tio n o f " p r o f it- d if f e r e n c e " '*
From th e above e v id e n c e and d is c u s s io n i t i s c l e a r t h a t c a n pared t o o t h e r i n d u s t r i e s , th e d ru g in d u s tr y u s u a lly e a rn s a
h ig h e r r a t e o f p r o f i t .

The re a s o n s f o r t h i s can n o t b e f u l l y a s c r ib e d

to in v e stm e n t r i s k i n t h i s in d u s tr y .

We have a n a ly z e d s e p a r a te ly

th e e f f e c t s o f h ig h e r p r o f i t s o f th e d ru g r e t a i l e r s and drug manu­
f a c tu r e r s on th e r e s o u rc e s o f th e in d iv id u a ls and t h e community.

We

have computed i n T able 6 .3 th e d i f f e r e n c e betw een th e p r o f i t r a t e s o f
drug m a n u fa c tu re rs and a l l m a n u fa c tu re rs , and betw een d ru g r e t a i l e r s
and a l l r e t a i l e r s .

As m entioned e a r l i e r i n C h a p te r I I I , two ty p e s o f

" p r o f i t - d i f f e r e n c e " have been co nputed:

a c c o u n tin g (u n a d ju s te d )

" p r o f i t - d i f f e r e n c e " , and a d ju s te d " p r o f i t - d i f f e r e n c e " .
The co m p u tatio n s i n T ab le 6 .3 show t h a t th e r a t e o f "u n e x p la in a b le "
h ig h e r p r o f i t r a t e o f t h e drug m a n u fa c tu re rs was ab o u t 6.8*1 p e rc e n t o f
e q u ity .

As t h e t o t a l a v e ra g e e q u ity (1963-67) o f th e d ru g in d u s tr y

was about $3,906 m i l l i o n , th e t o t a l p r o f i t i n a b s o lu te d o l l a r s was ab o u t
$267 m il l io n ($3*906 m i l l i o n x 6.8*1 = $267.17 m i l l i o n ) , which e x p re s s e d -

U. S . C o n g ress, S e n a te , C o m p etitiv e Problem s i n t h e Drug I n d u s t r y ,
H earin g s, b e fo r e th e su b c o n m ltte e on Monopoly o f t h e S e le c t Committee on
Small B u s in e s s , a s ta te m e n t by W illa rd F . M u e lle r, 9 0 th C o n g re ss, 1 s t and
2nd S e s s io n s , P a r t 5, 1967-68, p p . 1829-18*13.
5
The te rm " p r o f i t - d i f f e r e n c e " i s e x p la in e d i n C h a p te r I I I .

73
TABLE 6 .3 —T o ta l "U n ex p la in ab le" P r o f i t s o f Drug
M a n u fac tu re rs and Drug R e t a i l e r s

M a n u fa c tu re rs and R e t a i l e r s
:

P r o f i t s on
E q u ity
p e rc e n t

Drug M a n u fac tu re rs
A ll M a n u factu rers
D iffe re n c e

18.84
12.00
6.b*l

Drug R e t a i l e r s
A ll R e t a i l e r s
D iffe re n c e

36.36*;
19.19
17.17

a S o u rce: F .T .C ., Q u a rte rly F i n a n c i a l R ep o rt
o f m an u fa c tu rin g c o r p o r a tio n s , 1963-1967• The
computed p r o f i t r a t e s ( a f t e r ta x e s ) a r e a v e ra g e s
o f f i v e y e a rs (1 9 6 3 -1 9 6 7 ).
S o u rce: O rin E. B u rle y , A lb e rt B. F i s h e r , J r ,
and R obert G. C os, Drug S to re O p e ra tin g C o sts and
P r o f i t s , (McGraw-Hill Book Company, I n c . , N. Y.
1956) t a b l e s 1 6 .1 and 1 7 .1 , pp. 221, 2*12.
cS o u rce: I n t e r n a l Revenue S e r v i c e , S t a t i s t i c s
o f Incom e, 1965, p . 32.
N ote: See C h a p te r I I I and Appendix B .5 f o r a
d e t a i l e d d is c u s s io n on t h e methods o f e s tim a tin g
t h e p r o f i t r a t e s o f d ru g r e t a i l e r s an d a l l r e t a i l e r s .
as a p e rc e n ta g e o f t o t a l s a l e s ($6,407 m illio n ) can es t o 4.17 p e r c e n t .
As only th e f i g u r e s f o r t h e s a l e s o f drugs a r e a v a i la b l e I n th e
Copper C o u n try , e x p re s s in g t h e " p r o f i t - d i f f e r e n c e " i n te rm s o f s a l e s
(though computed on e q u ity ) w i l l f a c i l i t a t e o u r co m p u tatio n o f th e
flow o f money from th e Copper C o u n try , and t h e " lo s s " o f consum ers'
m edical d o l l a r s due t o t h e " u n e x p la in a b le " h ig h e r p r o f i t s o f th e d ru g
In d u s try .

M u ltip ly in g t h e t o t a l d ru g s a le s o f $712,657 by th e r a t e

o f p r o f i t - d i f f e r e n c e o f 4 .1 7 p e r c e n t, we g e t $29 ,7 1 8 a s th e " u n e x p la in a b le "

h ig h p r o f i t s o f t h e d ru g m a n u fa c tu re rs from th e Copper C ountry.
S im ila r ly we have computed t h i s f o r th e d ru g r e t a i l e r s .
The t o t a l " u n e x p la in a b le " p r o f i t - d i f f e r e n c e o f th e d ru g
r e t a i l e r s was 17.17 p e rc e n t (s e e T ab le 6 .3 ) o f e q u it y .

'Hie

t o t a l u n e x p la in e d p r o f i t i n a b s o lu te d o l l a r s was a b o u t $20,829
«*

[ e q u ity ($121, 425) x .1717]%

The f i g u r e $20,829 when e x p re ss e d

a s a p e rc e n ta g e o f th e t o t a l s a l e s ($505,936) comes t o 4.12
p e rc e n t.

The m ark-up o f d ru g r e t a i l e r s on p r e s c r i p t i o n and p ro ­

p r i e t a r y d ru g s was ab o u t 43 p e r c e n t o f t o t a l s a l e s , and t h i s i s
a b o u t $ 3 93,816.

The t o t a l m ark-up ($393,816 x t h e r a t e o f

" u n e x p la in e d p r o f i t - d i f f e r e n c e " ) i s $1 6 ,2 2 5 .

As i n t h e c a s e o f

d ru g m a n u fa c tu re rs , t h i s amount c o u ld be sav ed by th e consum ers
o f d ru g s, i f th e p r o f i t r a t e s o f d ru g r e t a i l e r s were e q u a l t o
th a t of a l l r e t a il e r s .

So th e t o t a l p o s s ib le s a v in g s i n d ru g s

would be a minimum o f a b o u t $46,000 i f t h e " p r o f i t - d i f f e r e n c e "
o f th e d ru g m a n u fa c tu re rs and r e t a i l e r s w ere e lim in a te d .
The a d ju s te d t h e o r e t i c a l " p r o f i t - d i f f e r e n c e " o f t h e d ru g
in d u s try was a ls o computed i n t h e above way, e x c e p t t h a t th e
a cc o u n tin g p r o f i t r a t e o f th e in d u s tr y was a d ju s te d f o r i n t a n g i b l e s ,
ro y a ltie s

and a d v e r t i s i n g (b e c a u se th e s e a r e n o t t o be e x p e c te d

i n a p e r f e c t l y c o m p e titiv e i n d u s tr y ) and th e n was ccm pared w ith
6
th e "norm al" r a t e o f i n t e r e s t f o r i n d u s t r i a l c a p ita l*
The

^ A ccording t o o u r a ssu m p tio n c o m p e titiv e r a t e o f p r o f i t
should be e q u a l t o "norm al" i n t e r e s t r a t e f o r I n d u s t r i a l c a p i t a l .

75
a d ju stm e n ts r a i s e d th e p r o f i t r a t e by 5-76 p e r c e n t,

so th e

a d ju s te d p r o f i t r a t e o f t h e drug in d u s tr y in c re a s e d t o 24
p e rc e n t.

D educting a c o m p e titiv e r a t e o f p r o f i t o f 7 p e r c e n t,

which by o u r assum ption i s e q u a l t o t h e "norm al" r a t e o f
i n t e r e s t , we g e t 17 p e rc e n t a s th e " u n e x p la in a b le " h ig h e r p r o f i t
N,

r a t e o f t h e d ru g in d u s t r y .

The a v e ra g e (1963-67) t o t a l e q u ity

o f th e d ru g in d u s tr y was a b o u t $3,906 m il l io n so th e t o t a l amount
o f " u n e x p la in a b le " p r o f i t was about $687.46 m i l l i o n s , w hich i s
about 1 0 .6 3 p e rc e n t of, t h e t o t a l s a l e s ($6,467 m i l l i o n ) .

The

t o t a l v a lu e o f d ru g s s o ld by h o s p i t a l s (v a lu e d a t c o s t p r i c e ) and
drug s t o r e s i s $ 1 ,1 0 6 ,4 7 3 , so th e t o t a l " u n e x p la in a b le " h ig h e r
p r o f i t s o f th e d ru g in d u s tr y from t h e Copper C ountry i s $ 1 ,1 0 6 ,4 7 3 x
g

.1036 = $117,618 maximum.

T his i s t h e

amount t h a t th e consum ers

could sa v e i f th e p r o f i t r a t e o f t h e d ru g in d u s tr y were e q u a l t o
our assumed c o m p e titiv e r a t e o f p r o f i t .

7

Computed by Kamerschen f o r C hem ical and A llie d P ro d u c ts . We
have used t h i s f i g u r e f o r d ru g i n d u s tr y b e c a u se d ru g s i n in d u s tr y
come i n th e same i n d u s t r i a l g ro u p in g , and o t h e r b e t t e r e s tim a te s f o r
drug i n d u s t r i e s were n o t a v a i l a b l e . See Kam erschen, p . 153.
g

We have assumed h e re t h a t t h e r a t i o o f e q u ity t o s a l e s i n d ru g
s to r e s i s t h e same a s t h a t o f d ru g m a n u fa c tu re rs . T h is may n o t b e a
very r e a l i s t i c a ssu m p tio n , b u t vie do n o t e x p e c t th e m arg in o f e r r o r t o
be l a r g e , b ecau se th e r a t e o f p r o f i t on s a l e s and h ig h p r o f i t r a t e s a r e
alm ost t h e same f o r b o th d ru g m a n u fa c tu re rs and d ru g s t o r e s .

CHAPITSR V II
THE HOSPITAL EQUIFMENf INDUSTRY
The te c h n o lo g ic a l p ro g re s s I n m e d ic a l equipm ent h a s c o n tr ib u te d
much t o th e developm ent o f m e d ic a l s c ie n c e .

S o p h is tic a te d equipm ent

has in c r e a s e d th e p r o d u c t i v it y o f d o c to r s and e n a b le d h o s p i t a l s to
p ro v id e many more s e r v i c e s o f b e t t e r q u a l i t y .

P r ic e s and needs f o r

t h i s equipm ent have been in c r e a s in g f a s t , and now equipm ent c o n s t i t u t e s
a m ajo r ite m o f th e c o s t o f m e d ic a l c a r e .

I n th e Copper C ountry,

equipm ent a c c o u n ts f o r a b o u t 6 .2 9 p e rc e n t (second m ajo r c o s t) o f
t o t a l h o s p i t a l c o s t s , and 3 .8 5 p e rc e n t ( f o u r th m ajo r c o s t) o f th e
to ta ] c o s ts o f n u rs in g homes.
V.fe a r e I n t e r e s t e d i n knowing w h eth er th e p r i c e s o f equipm ent
co u ld be low er w ith o u t lo w e rin g t h e p r o f i t r a t e o f m e d ic a l e q u ip ­
ment in d u s try below com parable i n d u s t r i e s .
As we have m entioned e a r l i e r , t h e Copper C ountry needs more
m edical c a re o f b e t t e r q u a l i t y , b u t th e a b i l i t y o f p e o p le t o pay
f o r t h i s s e r v ic e i s v e ry l im i te d .

T h e re fo re , i f th e m ed ical e q u ip ­

ment in d u s tr y r e a l l y e a rn s a v e ry h ig h p r o f i t , t h i s would n o t only
J e o p a rd iz e th e q u a l i t y and k in d o f s e r v ic e s p ro v id e d , b u t a ls o
f u r t h e r l i m i t th e a lr e a d y d e f i c i e n t r e s o u r c e s .
T h is c h a p te r e s tim a te s th e m agnitude o f "u n e x p la in a b le "
h ig h e r p r o f i t r a t e o f th e m e d ic a l equipm ent I n d u s tr y compared t o a l l
m an u factu rin g i n d u s t r i e s .

T h is w i l l p ro v id e a m easure o f t h e p o s s ib le

77
sa v in g s o f t h e consum ers' m ed ica l d o l l a r s th ro u g h e lim in a tio n o f
th e " u n e x p la in a b le " h ig h e r p r o f i t r a t e .

The p ro c e d u re s f o r

e s tim a tin g t h i s p r o f i t a r e o u tlin e d i n C h a p te r i l l .
H o s p ita l equipm ent i s m an u factu red by s e v e r a l m a n u fa c tu rin g
in d u s trie s .

I n m ost o f them , such equipm ent a c c o u n ts f o r o n ly an

i n s i g n i f i c a n t p r o p o r tio n o f th e t o t a l p ro d u c tio n , so i t i s v e ry
d i f f i c u l t t o compute p r o f i t r a t e s s e p a r a t e l y .

C h a p te r I I I d e s c r ib e s

in d e t a i l t h e c o m p u ta tio n a l d i f f i c u l t i e s and o u r e s tim a tio n t e c h ­
niq u es i n c a l c u l a t i n g th e p r o f i t r a t e o f t h e h o s p i t a l equipm ent
in d u s tr y .

E s tim a tio n o f t h e D iffe re n c e i n t h e P r o f i t R a te o f t h e
M edical Equipment In d u s tr y and A ll M an u factu rin g I n d u s t r i e s
The co m p u tatio n o f " p r o f i t - d i f f e r e n c e " i n th e equipm ent in d u s tr y
i s based on a sam ple o f t h r e e f iim s e x c lu s iv e ly p ro d u cin g a l l k in d s
o f h o s p i t a l equ ipm ent.

T o g e th e r th e y acco u n t f o r ab o u t 18.7 p e rc e n t

o f th e t o t a l s a l e s o f m ed ic a l equipm ent.

T a b le 7 .1 g iv e s a com­

p a r a tiv e p i c t u r e o f th e n e t p r o f i t s o f th e equipm ent in d u s tr y and
a l l m a n u fa ctu rin g in d u s tr y .
T ab le 7 .1 shows t h a t t h e a v e ra g e r a t e s o f p r o f i t s ( a f t e r ta x e s )
on e q u ity I n th e l a s t f i v e y e a rs (1963-67) w ere 15 and 12 p e rc e n t f o r
th e equipm ent in d u s tr y and a l l m an u fa c tu rin g i n d u s t r i e s , r e s p e c t i v e l y .
T h e re fo re , i f we ta k e th e p r o f i t r a t e s o f a l l m an u fa c tu rin g i n d u s t r i e s
as a s ta n d a rd f o r o u r com parison we f in d t h a t th e r a t e o f " p r o f i t d if f e r e n c e " i s o n ly t h r e e p e rc e n t I n th e equipm ent i n d u s t r y .

E x p ressed

78
TABLE 7 .1 — P r o f i t o f H o s p ita l Equipment and A ll M a n u fac tu rin g
I n d u s t r i e s , 1963-67.

: T o ta l e q u ity : Net P r o f i t : T o ta l e q u ity
: o f h o s p ita l : ( a f te r
:
of a ll
.
:
equipm ent :
ta x e s )
: m a n u fa c tu rin g

Year

: Net P r o f i t
: (a fte r
.
:
ta x e s )

1963

72.42

8 .3 6

189,678

19 ,4 8 3

1964

82.13

10.41

199,764

23 ,2 1 1

1965

91.38

13.59

211,717

27 ,5 2 1

1966

100.76

16.64

230,281

30,937

1967

112.87

19.96

247,584

29,008

T o ta l

459.56

68 .9 6 r
( 15. 00)

1,079,024

130,160
(1 2 .00)

a

O btained from th e r e c o r d s o f I n d iv id u a l f i r m s , I am
in d e b te d t o N e v ille D o herty f o r p ro v id in g t h i s in fo rm a tio n
and a d v is in g me on t h e c o m p u tatio n o f th e r a t e o f " p r o f i t d if f e r e n c e " .
S ource: F e d e ra l T rad e Com mission, Q u a rte rly F in a n c ia l
R e p o rt„ 1963-1967.

Q

F ig u re s i n p a r e n t h e s is a r e p e rc e n ta g e s o f t o t a l s .

in d o l l a r s , t h i s t h r e e p e r c e n t p r o f i t r a t e i s e q u a l t o $2 .7 6 m i l l i o n
[3% ( r a t e o f p r o f i t - d i f f e r e n c e ) x 9 1 .9 1 m il l io n (a v e ra g e e q u ity from
1963- 67) = $2.76 m i l l i o n ] w hich i s ab o u t 1.04 p e r c e n t o f t h e a v e ra g e
s a l e s ($265 m illio n ) o f th e i n d u s t r y .

The t o t a l e x p e n d itu re on

equipm ent i n th e y e a r 1967 was $28 6 ,1 6 4 ,

M u ltip ly in g t h i s f i g u r e by

1.04 p e r c e n t, we g e t t h e amount o f " u n e x p la in a b le " p r o f i t s o f $3,176

i n th e equipm ent i n d u s t r y .

79
The c o s t o f m e d ic a l c a r e i n th e Copper

C ountry w ould have b een lo w er by t h i s amount i f t h e r a t e o f p r o f i t
i n th e m e d ic a l equipm ent in d u s tr y w ere e q u a l t o t h a t o f a l l manu­
f a c tu r in g i n d u s t r i e s .
I t w ould p ro b a b ly be i n s t r u c t i v e t o lo o k i n t o th e a d ju s te d
t h e o r e t i c a l " p r o f i t - d i f f e r e n c e " o f t h e m e d ic a l equipm ent in d u s t r y .
The p ro c e d u re o f e s tim a tin g t h i s i s o u tlin e d i n C h a p te r I I I and i s
th e same a s u se d i n th e c a s e o f t h e drug I n d u s tr y .
The a v e ra g e p r o f i t r a t e ( a f t e r ta x e s ) o f th e equipm ent in d u s tr y
from 1963-67 was 15 p e rc e n t o f th e t o t a l e q u it y .
p ro fit r a te fo r ro y a ltie s ,

A d ju s tin g t h i s

i n ta n g i b le s and a d v e r tis e m e n t, we g e t a

p r o f i t r a t e o f 1 9 .4 0 p e rc e n t o f th e t o t a l e q u ity .^

As we d e fin e d

e a r l i e r , t h e a d ju s te d " p r o f i t - d i f f e r e n c e " i s th e d i f f e r e n c e betw een
th e r a t e o f r e t u r n on e q u ity and th e i n t e r e s t r a t e on i n d u s t r i a l
c a p ita l.

The I n t e r e s t r a t e used i n t h i s c a s e i s se v e n p e r c e n t.

So

th e a d ju s te d t h e o r e t i c a l p r o f i t - d i f f e r e n c e i s 12,40 p e rc e n t o f t h e
t o t a l e q u it y .

C o n v e rtin g t h i s i n t o th e t o t a l amount o f p r o f i t I n

d o l la r s i t i s $11.4 m i l l i o n [.1240 x 91*91 (a v e ra g e e q u ity ) «= $11.39
m illio n , w hich i s 4 .3 0 p e r c e n t o f t h e a v erag e s a l e s ($265 m il l io n ) .

1 Kamerschen e s tim a te d t h a t p r o f i t r a t e in c r e a s e d by a b o u t 4.40
p e rc e n t when a d ju s te d f o r r o y a l t i e s , I n ta n g ib le s and a d v e rtis e m e n t.
The f ig u r e 4 .4 0 p e rc e n t I s a c t u a l l y f o r - p r o f e s s i o n a l , s c i e n t i f i c and
c o n t r o l l i n g in s tr u m e n ts , p h o to g ra p h ic and o p t i c a l g o o d s, w atches and
c lo c k s , e t c . But m ost o f t h e m ajo r h o s p i t a l equipm ent can es u n d e r t h i s
i n d u s t r i a l g ro u p . T h e r e f o r e , we do n o t e x p e c t t h e e r r o r t o be s i g n i f i ­
c a n t. See K am erschen, p . 153.
2
We have c o n v e rte d t h e p r o f i t r a t e on e q u ity a s a p e rc e n t o f s a l e
because t h i s f a c i l i t a t e s o u r c o m p u tatio n o f th e t o t a l " lo s s " o f Copper1
Country due t o h ig h p r o f i t s o f t h i s in d u s t r y .

80
I n t h e whole Copper C ountry m e d ic a l I n d u s t r y , t h e t o t a l
e x p e n d itu re s on equipm ent I n th e y e a r 1967 was $286,164.
M u ltip ly in g t h i s f i g u r e by 4 .3 0 p e r c e n t , we g e t th e amount
o f ’'u n e x p la in a b le 11 h ig h e r p r o f i t s i n th e equipm ent in d u s t r y .
I n o th e r w o rd s, t h i s i s th e amount t h e Copper C ountry h as
" l o s t " due t o th e h ig h e r p r o f i t o f t h i s in d u s tr y compared t o
th e c o m p e titiv e p r o f i t r a t e .

Adding t h e t o t a l i n t e r e s t p a id

on t h i s amount g iv e s th e t o t a l o u tflo w o f money from t h e com­
m unity f o r which no e q u iv a le n t amount o f equipm ent was re c e iv e d
(s e e T ab le 7 .2 ) .
Prom t h e r e s u l t s o f T ab le 7 .2 , i t seems t h a t th e o u tflo w o f
money due t o th e " p r o f i t - d i f f e r e n c e " i n t h e equipm ent in d u s tr y
is not s u b s ta n tia l.

Of c o u rs e , i n e v a lu a tin g th e s e r e s u l t s we

must keep i n mind t h a t o u r e s tim a te o f p r o f i t was b ased on a
sam ple o f o n ly t h r e e firm s which a cc o u n te d f o r 19 p e rc e n t o f
to ta l s a le s .

However, we can s a f e l y c o n clu d e t h a t t h e " lo s s "

o f consum ers' m e d ic a l d o l l a r s and t h e d r a i n on th e re s o u r c e s o f
th e Copper C o u n try , due t o th e " u n e x p la in a b le " " p r o f i t - d i f f e r e n c e "
in th e equipm ent I n d u s tr y ,

a r e n o t v e ry s i g n i f i c a n t .

TABLE 7 .2 —T o ta l "Loss" o f Consumers' M edical D o lla rs Due t o "A djusted" and "U nadjusted"
P ro fit-D iffe re n c e o f th e M edical Equipment In d u stry i n th e Copper
Country i n 1967

Types o f
:
P ro fit-D iffe re n c e :

R ate o f
P ro fit-D iffe re n c e
p e rc en t

T o ta l
:
"U nexplainable" :
P r o f its
:

T o ta l
In te re s t
p a id

"Loss" t o
Consumers

d o lla r s

d o lla r s

d o lla r s

A djusted

4.30

12,305

1,476

13,781

Unadjusted

1.04

3,176

384

3,560

CHAPTER V II I
HOSPITAL EFFICIENCY

H o s p ita ls , to d a y , a r e th e c e n te r o f most m ed ica l a c t i v i t i e s .
Both p h y s ic ia n s and p a t i e n t s have te n d e d t o u se them more ex­
te n s iv e ly i n r e c e n t y e a rs .

The form er f in d them s u i t a b l e f o r

t h e i r p r o f e s s io n a l work, and th e l a t t e r u se th a n f o r b e t t e r
tre a tm e n t and t o be e l i g i b l e f o r i n s t i t u t i o n a l i z e d paym ents.

A lso

th e re have been e x tr a o r d in a r y p r i c e in c r e a s e s f o r h o s p i t a l
s e r v ic e s i n t h e l a s t d ecad e.

The index o f p r ic e s o f h o s p i t a l

s e r v ic e s in c re a s e d from 100 i n 1958-59 t o 200 i n th e y e a r 1967;
whereas i n th e same p e rio d t h e g e n e r a l p r i c e l e v e l w ent up t o
only 116.

I n f a c t , th e r i s e I n th e p r i c e s o f h o s p i t a l s e r v ic e s

was more th a n f o r most o th e r consum er com m odities.

Ih e p o s s ib le

reaso n s f o r t h i s co u ld be many, b u t a few o f th e Im p o rta n t ones
a re g e n e ra l e x p an sio n i n th e s e r v ic e s o f f e r e d by h o s p i t a l s , g e n e ra l
i n f l a t i o n , in c r e a s e i n p o p u la tio n and in c r e a s e i n th e In d iv id u a l
demand f o r h o s p i t a l s e r v i c e s .
H o s p ita ls to d ay a re m o stly n o rv -p ro fit e n te r p r is e s and r e c e iv e
most o f t h e i r paym ents th ro u g h h e a lth in s u ra n c e o r g a n iz a tio n s
and th e governm ent.

The n o n - p r o f it s t a t u s o f h o s p i t a l s u nder

p re s e n t i n s t i t u t i o n a l i z e d payment system (in s u ra n c e , goverrm ent
paym ents, e t c . ) does n o t p ro v id e th e n e c e ssa ry in c e n tiv e f o r an

82

83
e f f i c i e n t o p e r a tio n .

A lso th e la c k o f i n t e r - and i n t r a - h o s p i t a l

c o o rd in a tio n among a d m i n i s t r a t o r s , p h y s ic ia n s and t r u s t e e s r e s u l t s
i n un o ccupied b e d s , unused equipm ent and g e n e r a l e x c e s s c a p a c ity
in th e h o s p ita ls .
I n a p la c e l i k e t h e Copper C o u n try , w here 35 p e r c e n t o f t h e
f a m ilie s a r e below t h e p o v e rty l i n e , and w here a s i g n i f i c a n t p ro ­
p o r tio n o f t h e p e o p le r e c e iv e o nly in a d e q u a te m e d ic a l c a r e , any
e x i s t i n g i n e f f i c i e n c i e s i n t h e o p e ra tio n o f m ed ica l f a c i l i t i e s
become a m a tte r o f g r e a t c o n c e rn .

The h o s p i t a l s and th e n u r s in g

homes r e c e iv e ab o u t 48 p e rc e n t o f th e t o t a l m ed ic a l e x p e n d itu re
i n th e Copper C o u n try , and t h i s i s s i g n i f i c a n t l y h ig h e r th a n t h e
n a tio n a l f i g u r e o f 36 p e r c e n t.

T h e re fo re , any o p e r a tio n a l

i n e f f i c i e n c y i n t h e s e f a c i l i t i e s would mean a s u b s t a n t i a l " l o s s "
o f consum ers' m e d ic a l d o l l a r s .

I n view o f t h e e x te n s iv e m e d ic a l

needs o f th e p e o p le , w ith v e ry lim ite d fu n d s to buy them , i t i s
im p e ra tiv e t h a t t h e e x i s t i n g o p e r a tio n a l I n e f f i c i e n c i e s be
e lim in a te d from t h e sy stem .
The m ain o b j e c ti v e o f t h i s c h a p te r i s t o e s tim a te th e amount
o f o p e r a tio n a l i n e f f i c i e n c y i n th e Copper C ountry h o s p i t a l s and
n u rsin g homes.

T h is w i l l e n a b le us t o compute th e amount o f money

th a t can be t h e o r e t i c a l l y sa v ed and made a v a ila b le f o r f in a n c in g
th e m ed ica l needs o f t h e p e o p le o f t h i s a r e a .

8*t
E s tim a tio n o f t h e O p e ra tio n a l I n e f f i c i e n c y o f th e
H o s p ita ls Based on T h e ir O p e ra tin g R a tio s
The term " e f f ic ie n c y " used i n t h i s c h a p te r does n o t conform
t o th e d e f i n i t i o n o f m arket e f f i c i e n c y .

F o r t h a t r e a s o n "a

h o s p i t a l i s e f f i c i e n t " does n o t mean t h a t th e h o s p i t a l i s o f
optimum s i z e and th e m e d ic a l c a r e i s p ro v id e d a t th e minimum
p o s s ib le c o s t .

I n f a c t , we have made no a tte m p t t o do any m arket

a n a ly s is o f t h e h o s p i t a l s and m e d ic a l c a r e .

A ll m easure­

m ents o f e f f i c i e n c y a r e s t r i c t l y b a se d on o p e ra tin g r a t i o s o f
th e h o s p i t a l s , and t h e word " o p e r a tin g e f f i c ie n c y " h a s been used
m o stly i n th e r e l a t i v e s e n s e .

F iv e c r i t e r i a have b een s e l e c te d

t o m easure th e o p e ra tin g e f f i c i e n c i e s o f th e h o s p i t a l s .

They a re :

1) le n g th o f s ta y
2) c o s t p e r p a t i e n t day
3) c o s t p e r bed
*J) number o f p e rs o n n e l p e r bed
5) r a t e o f occupancy
A ccording t o o u r a ssu m p tio n s , f o r a g iv e n q u a l i t y o f c a re and
ty p e o f p a t i e n t , a h o s p i t a l i s a more e f f i c i e n t o p e r a tio n I f i t has
h ig h e r r a t e o f occupancy, low er c o s t p e r p a t i e n t d a y , s h o r t e r le n g th
o f s t a y , low er c o s t p e r b e d , and few er p e rs o n n e l p e r b e d .

T hese

in d ic a t o r s a r e In te rd e p e n d e n t, and th e m agnitude o f one o f them ,
w ith o u t r e f e r e n c e t o th e m agnitude o f th e o t h e r s , t e l l s v e ry l i t t l e
about th e l e v e l o f t h e o p e r a tio n a l e f f i c i e n c y .

I n o t h e r w ords, high

p e r p a t i e n t day c o s t i n a p a r t i c u l a r h o s p i t a l by i t s e l f does not

85
mean t h a t t h a t h o s p i t a l i s i n e f f i c i e n t .

The le n g th o f s ta y may
1
be s h o rt enough t o compensate f o r th e h ig h c o s t .
A com parison
o f th e m agnitude o f th e i n d ic a t o r s i n th e Copper Country h o s p i t a l s

w ith t h a t o f th e S t a te and N a tio n a l av erag es would g iv e u s a
b e t t e r id e a o f t h e i r r e l a t i v e e f f i c ie n c y (se e T ab les 8 . 1 , 8 .2
and 8 ,3 ) .
These t a b l e s , 8 .1 and 8 .2 , show t h a t th e number o f p e rs o n n e l
p e r b ed , on an a v e ra g e , i s l e s s i n t h e Copper Country th a n i n t h e
r e s t o f th e s t a t e (2 .5 6 ) and n a tio n ( 1 .8 7 ) .

I n t e n s i t y o f c a re

i n any h o s p i t a l t o a g r e a t e x te n t depends on t h e number o f p e rs o n n e l
p e r bed.

I h e more in te n s iv e th e c a re c e t e r i s p a r ib u s , t h e s h o r t e r

th e av erage le n g th o f s t a y .

T h is may be one o f th e re a s o n s f o r

more th a n average le n g th o f s ta y and l e s s th a n average p e r p a t i e n t
day c o st f o r th e s e h o s p i t a l s .
h o s p ita l E

s

P e rso n n e l p e r bed i s th e lo w est i n

(1 .1 5 ) ; h u t i t may n o t mean E

S

h a s th e g r e a t e s t o p e ra -

t i o n a l e f f i c ie n c y , because th e r a t e o f occupancy i n t h i s h o s p i t a l i s
th e lo w e st, which n e c e s s a r ily means a low req u ire m e n t f o r p e rs o n n e l.
I n h o s p ita l Bs p e rso n n e l p e r bed i s o nly 1.115.
u n d e re stim a tio n o f th e r e a l s i t u a t i o n .

T his i s a c t u a l l y an

F i r s t , because i t does n o t

In clu d e th e s e r v ic e s re c e iv e d from B tudent n u r s e s ,^ and seco n d ,
because i t in c lu d e s beds and p e rs o n n e l o f i t s lo n g -te rm u n i t .

In

o th e r w ords, 1.115 p e rs o n n e l p e r bed i s a combined f ig u r e o f b o th

1 See C hapter I I I f o r d e t a i l e d d is c u s s io n .
2
T here a r e 65 n u rse s each w orking minimum o f 16 h o u rs p e r week.
T h is i s e q u iv a le n t t o 26 f u l l - t i m e n u rs e s .

TABLE 8.1— Indicators of Operational Efficiency, Acute Care and Long-term Facilities in Michigan and in the United States

S ta te o r
United S ta te s

: i n Acute Care : Acute Care : Long-term
days

Michigan
United S ta te s

Personnel r e r Bed
Acute Care : Long-term

d o lla rs

f e te o f Occupancy
Acute Care : Long-term

Cost p er Bed
Acute Care : Long-term

percent

d o lla rs

rubber

8.10c

t7.50d

22.3*>d

2.56f

7.50a

1*8.28^

21. 89k

1.87b

n .a .J
0.98b

79.^

82.O*1

13,^

5,921*

76.0b

85.0b

I I j SIT3

2,586s

a

Hie fig u res f a r 1967 were obtained by stra lg frtlln e p ro je c tio n o f figures o f 19*15-60 in "Medical Care Financing and
U tiliz a tio n ," Health Economic S e rie s, No. 1 (Washington, D. C ., 1962) pp. 126, 160.
Hie fig u res f a r 1967 were obtained by a s tra ig h t lin e p ro je c tio n o f th e tren d frcn 1961-65 In "Medical Care Financing
and U tiliz a tio n ," Health Econcmlc S e rie s. No. 1-A (Washington, D. C ., 1967) pp. 60-6l.
Source: Michigan S ta te Plan. 1967-68 f o r H ospital and Medical F a c ilitie s Construction, Michigan Department o f Public
, H ealth, pp. tUW-85Source: "Health Manpower," Social S ecurity B u lle tin , (September 1968), pp. 5-9.
f Computed frc n c and d above.
Source: Leo Reich, Inventory o f Health F a c il it i e s , p . 26.
® Computed by dividing t o ta l cost by r ic h e r o f beds as (

* 2,586).

h Source:

" Ite sin g H tre U tiliz a tio n and Costs in Selected S ta te s ," Health Econanlcs S e rie s. No. 8 (Washington, D. C ., 1968) p . 17

1

»» <no.Cg tfajs

^ n .a . *= not av a ilab le .

-5 .9 a ).

TABLE 8.2—In d ic a to rs o f O p eratio n al E ffic ie n c y , Acute Care and Long-term F a c i l i t i e s i n
th e Copper Country i n 1967
•
*

•
•

Names

•
«

:
Cost p e r
:
Average
: Length o f Stay : P a tie n t Day
•
•

P erso n n e l: Rate o f : Cost
p e r Bed : Occupancy : p e r Bed
•
•

*

days

•
•

d o lla r s

*
•

/

number

p e rc e n t

d o lla r s

ACUTE CARE
H o sp ita l A
b

13.7

31.03

1.55

86.0

9,751

H o s p ita l Bs

ll.il

29.58c

l.il5 a

87.9

9,752°

H o sp ita l Cg

9.0

36.10

1.76

81.9

10,781

H o sp ita l Dg

8 .0

32.07

1.75

95.9

13,883

H o s p ita l Eg

H.O

1116.58

1.15

28.3

15,150

TABLE 8.2— (Continued)

Names

:
Average
:
Cost p e r
: Length o f Stay : P a tie n t Day

P ersonnel: R ate o f : Cost
p e r Bed : Occupancy : p e r Bed
*

days

d o lla r s

number

p e rc e n t

d o lla r s

LONG-TERM
/
N ursing Hone A^

_b

6.94

.54

99

2,509

N ursing Hone

- ■

14.91

.66

95

5,175

N ursing Home C^

-

10.00

.92

99

3,862

N ursing Hone

-

8.45

.62

99

3,085

Q

In clu d e s long-term p e rso n n el and b ed s.
13 C a lc u la tio n o f average le n g th o f s ta y i n long-term c a re i s n o t v ery m ean in g fu l,
because most o f th e p a ti e n t s a re r e s id e n ts o f th e n u rsin g hones.
c T h is i s , i n f a c t , an average c o s t f o r long-term and a c u te c a re p a ti e n t s .
Note:

Excluded frcm our a n a ly s is a r e : R ice Memorial C lin ic , W.U.P.H.S.C. and W estern
U.P. D i s t r i c t H ealth S e rv ic e . T his i s because th ey do n o t p ro v id e d i r e c t m edical
s e rv ic e s and a r e not comparable w ith o th e rs . A lso th e names o f th e h o s p ita ls
have been re p la ce d by l e t t e r s t o avoid i d e n t i f i c a t i o n . Hie s u b s c r ip ts s and L
d e sig n a te sh o rt-te rm and lo n g -te rm , re s p e c tiv e ly .

lo n g -te rm and a c u te c a re u n i t s .

As th e re q u ire m e n t o f p e rs o n n e l

p e r bed f o r lo n g -te rm c a r e i s l e s s th a n f o r a c u te c a r e , th e
e s tim a te o f 1 .^ 5 p e rs o n n e l p e r bed i s a c t u a l l y an u n d e re s tim a tio n .
Except f o r h o s p i t a l s E ($15,150) and D ($1 3 * 8 8 3 ), th e c o s t
s
s
p e r bed i n th e Copper C o u n try , on an a v erag e i s low er th a n th e s t a t e
($13,397) o r n a ti o n a l ($11,817) a v e ra g e s .

High c o s ts p e r bed f o r Es

and D may n o t n e c e s s a r il y mean i n e f f i c i e n c y i n th e o p e r a tio n o f
th e s e h o s p i t a l s , b e c a u se t h e number o f beds i s much l e s s th a n i n
o th e r s .

And, a s n e c e s s a ry o v e rh e ad c o s ts do n o t d e c re a s e p ro ­

p o r tio n a te ly w ith d e c re a s e s i n th e number o f b e d s , th e low er th e
number o f b e d s , th e h ig h e r t h e c o s t p e r bed i s l i k e l y t o b e .

B e sid e s

t h i s , v a r i a b l e c o s t p e r bed i n t h e above two h o s p i t a l s i s a l s o more,
which a g a in may n o t mean o p e r a tio n a l i n e f f i c i e n c y b e cau se c a r e
i n th e s e two h o s p i t a l s may be more i n te n s iv e th a n i n o t h e r s .

T h is

i s p a r t l y e v id e n c e d by t h e i r s h o r t le n g th o f s ta y p e r p a t i e n t .
Average le n g th o f s ta y f o r M ichigan and U n ited S t a t e s h o s p i t a l s
i s s h o r t e r th a n f o r a l l h o s p i t a l s i n th e Copper C ountry e x c e p t h o s p i t a l s
Ds and Es , b u t th e r e v e r s e seems t o be t r u e f o r th e c o s t p e r p a t i e n t
d ay .

L ength o f s ta y and c o s t p e r p a t i e n t day a r e in te r d e p e n d e n t.

B oth

a r e in f lu e n c e d by ty p e s o f c a s e s , i n t e n s i t y o f c a r e and q u a l i t y o f
s e r v ic e s .

More i n te n s i v e c a re o f b e t t e r q u a l i t y in c r e a s e s th e c o s t

p e r p a t i e n t d a y , b u t re d u c e s t h e a v erag e le n g th o f s t a y .
c a s e s a re l i k e l y t o in c r e a s e b o th c o s t and le n g th o f s t a y .

Complex
So a l l

o th e r f a c t o r s m ust be c o n sid e re d t o g e th e r b e fo re a n y th in g can be s a i d

3 See T a b le 8 .2 .

90

ab o u t t h e r e l a t i v e o p e r a tio n a l e f f i c i e n c y o f t h e h o s p i t a l s .

In

o u r i n i t i a l a n a l y s i s , we would assume t h a t th e q u a l i t y o f s e r v i c e ,
i n t e n s i t y o f c a r e and ty p e s o f c a s e s ( s e v e r i t y o f i l l n e s s ) a r e
th e same i n th e Copper C ountry and i n th e U n ite d S t a te s h o s p i t a l s -

4

To make th e Copper C ountry c o s t f i g u r e s com parable t o t h a t o f
s t a t e and n a t i o n a l f i g u r e s , we a d ju s te d th e p e r p a t i e n t day c o s t
f ig u r e s 6 f th e Copper C ountry h o s p i t a l s , b ased on e ig h t days a s
th e a v e ra g e le n g th o f s t a y w hich i s ab o u t th e a v e ra g e f o r th e s t a t e
and th e n a tio n .

The fo llo w in g c o m p u tatio n s w i l l make i t c l e a r .

TABLE 8 .3 —A d ju ste d p e r P a t i e n t Day C ost a t H o s p ita ls
i n th e Copper C ountry i n 1967

H o s p ita l

L ength o f S ta y
: P r e s e n t : S ta n d a rd
*
«

P re s e n t

■
•
----

------

:

A d ju ste d

•
•

d a v s --------

-------- d o l l a r s --------

As

1 3.7

8 .0

31.03

47.30

Bs

ll.ll

8 .0

29.58

38.86

9 .0

8 .0

36.10

39.33

8 .0

8 .0

32.07

32.07

4 .0

8 .0

1*16.58

90.50

Cs
Ds
Es

A d ju sted p e r p a te n t day c o s t **
p re s e n t le n g th o f s ta y x p r e s e n t p e r p a t i e n t day c o s t
s ta n d a r d le n g th o f s ta y

+
-

Y

T h is e v id e n tly i s n o t t r u e , b u t t h i s w i l l e n a b le us t o know w hich
h o s p ita ls i n th e Copper C o u n try , even u n d er su c h h e ro ic a ssu m p tio n s , show
s i g n i f i c a n t i n e f f i c i e n c y . We w i l l l a t e r r e l a x t h i s a ssu m p tio n .

91
VJhere X = d e c re a s e o r In c re a s e I n p e r p a t i e n t day c o s t due
t o r e l e a s e o r occupancy o f few b ed s.

I f le n g th o f s ta y i n th e

h o s p ita ls d e c re a s e s t o e ig h t d a y s, a fev; beds w i l l rem ain
unoccupied, and unoccupied beds c o s t o n ly 74 p e rc e n t o f an
occupied b e d .

So t o t a l c o s t w i l l d e c re a s e .

F o r th e same re a s o n ,

c o st w i l l in c r e a s e f o r h o s p i t a l s w ith le n g th o f s ta y l e s s th a n
e ig h t d a y s.
T h is means i f le n g th o f s ta y i n h o s p i t a l A was e ig h t days
s
in s te a d o f 13.7 d a y s , p e r p a t i e n t day c o s t would be $47*30
in s te a d o f $31.03* and s im ila r ly f o r t h e o th e r s .

From th e above

computed f i g u r e s , i t i s c le a r t h a t h o s p i t a l s A and E a r e p ro s
s
v id in g c a r e a t a r e l a t i v e l y h ig h e r c o s t th a n o t h e r h o s p i t a l s i n
th e a re a and Ds seems t o be th e most e f f i c i e n t o n e .

V/e may no te

h ere t h a t q u a l i t y d if f e r e n c e s and o t h e r r e l a t e d m a tte r s have n o t
been c o n sid e re d a t t h i s p o in t.
From th e above c o m p u ta tio n s, a d ju s te d p e r p a t i e n t day c o s ts
in As i s about e q u a l, and in E_s about $43 ( 9 0 .5 0 - 47.50 = 43.00 )
more th a n t h e s t a t e a v e ra g e .

The t o t a l number o f p a ti e n t days i n

E_O i s 2067 d a y s , so th e t o t a l lo s s due t o o p e r a tio n a l in e f f i c i e n c y
i s 2067 x $43 = $88,881.
In com parison w ith th e r e s t o f th e s t a t e and n a tio n , th e
q u a lity o f c a r e i n th e Copper Country h o s p i t a l s i s g e n e r a lly p o o re r
and p a t i e n t tre a tm e n t th e r e i s o f a r e l a t i v e l y s im p le r ty p e .

We

a re ju d g in g q u a li t y based on e x is tin g te c h n ic a l manpower, and o th e r

92

f a c i l i t i e s i n th e h o s p i t a l .

The number o f p h y s ic ia n s , d e n t i s t s

and n u rs e s p e r 100,000 p o p u la tio n i s much lo w er i n t h e Copper
C ountry compared t o t h e r e s t o f t h e n a tio n ( s e e T a b le 1 0 .1 ) .
I n d iv id u a l d e p a rtm e n ts i n th e h o s p i t a l a ls o seem

t o be l n s u f -

f i c i e n t l y equ ip p ed w ith r e s p e c t t o s p e c i a l i s t s and equipm ent.
Due t o la c k o f th e p ro p er1 f a c i l i t i e s , co n p lex c a s e s can n o t be
tre a te d e f f e c tiv e ly .

T h is i s p a r t l y s u b s ta n t ia t e d by th e

a t t i t u d e s o f t h e p e o p le i n th e a r e a .

A stu d y done by Gordon

Sm ith shows t h a t , i n t h e c a se o f a m a jo r I l l n e s s , t h e m a jo r ity
o f th e p e o p le p r e f e r r e d t o go o u ts id e Copper C ountry t o g e t
tr e a tm e n t.^
T h is shows t h a t i f a d ju s tm e n ts c o u ld b e made re g a rd in g q u a li t y
o f c a re and ty p e s o f c a s e s , a s i g n i f i c a n t amount o f I n e f f i c i e n c i e s
could be lo c a te d i n o t h e r h o s p i t a l s , to o .

S in c e t h e p a t i e n t s

t r e a t e d i n th e Copper C ountry a r e o f a l e s s s e r io u s ty p e , and
q u a li t y o f c a r e p o o re r th a n f o r th e r e s t o f t h e n a ti o n , i t c an be
s a id s a f e l y t h a t t h e le n g th o f s ta y i n th e Copper C ountry h o s p i t a l s
i s lo n g e r th a n can be J u s t i f i e d by o th e r f a c t o r s .

U su a lly t h e r e i s

a ten d en cy on t h e p a r t o f th e h o s p i t a l s t o keep p a t i e n t s lo n g e r th a n
r e q u ir e d , i f t h e r e a r e no p a t i e n t s w a itin g t o occupy th e b e d s .
c o st o f e x t r a days i s p a id by th e in s u ra n c e companies.

7

The

I n o th e r

5

F o r d e p artm e n tw ise in fo rm a tio n on f a c i l i t i e s , se e Leo R eich ,
pp. 26-35* He g iv e s a l i s t o f t h in g s t h a t t h e Copper C ountry h o s p i t a l s
do and do n o t h av e.
^ Gordon Ertiith, p . 37*
^ M ilto n I . Roemer, and Max S h a ln ," H o s p ita l U t i l i z a t i o n Under
In s u r a n c e ,11Am erican H o s p ita l A s s o c ia tio n , H o s p ita l Monograph S e r ie s 6 .

93
w ords, th e p r e s e n t r a t e o f occupancy i s n o t a s h ig h a s i t seems
to be.

An a d ju s te d r a t e o f occupancy w ould g iv e a b e t t e r i n d ic a t i o n

o f th e number o f unoccupied b e d s .
The a v erag e le n g th o f s t a y i n th e h o s p i t a l f o r th e s t a t e and
th e n a tio n i s ab o u t e ig h t d a y s , b u t t h e le n g th o f s t a y i n m ost o f
th e h o s p i t a l s i n th e Copper C ountry i s more th a n t h i s .

Based on

e ig h t days a s a s ta n d a r d le n g th o f s t a y , we have computed
a d ju s te d r a t e o f occupancy f o r a l l h o s p i t a l s (se e T ab le 8 .4 ) .

TABLE 8 .4 —A d ju ste d R ate o f Occupancy o f Copper C ountry
H o s p ita ls i n 1967
H o s p ita l i
:

Beds

I P a t ie n t :
:
Days :

L ength o f S ta y
i A d ju sted
P r e s e n t : S ta n d a rd : R a te o f

number
As
Bs
Cg
Ds
Es

80
110
70
37
20

25,138
35,289
20,930
16,041
2,067

13.7
11.4
9 .0
8 .0
4 .0

--------

n e rc e n t

8 .0
8 .0
8 .0
8 .0
8 .0

50.27
61 .6 8
7 2 .8 2
9 5 .8 0
56.63

A d ju sted r a t e o f occupancy (A .R .O .) was computed a s fo llo w s :
. Rn

e T o ta l p a t i e n t days x S ta n d a rd le n g th o f s ta y x 100
No. o f b ed s x 365 x P re s e n t le n g th o f s ta y
or

R a tio o f s ta n d a rd le n g th o f s ta v
A.R.O. = P re s e n t r a t e o f occupancy x t o p reS e n t le n g th o f s ta y
R ate o f occupancy i s , a s we have in d ic a te d b e f o r e , a good r e l a t i v e
i n d ic a to r o f h o s p i t a l e f f i c i e n c y .

A low r a t e o f occupancy c e r t a i n l y

in d ic a te s i n e f f i c i e n c y o f o p e ra tio n .

The u n a d ju s te d occupancy r a t e

9*<
i n th e Copper C ountry h o s p i t a l s i s g e n e r a lly h ig h e x c e p t f o r
h o s p i t a l E w here i t i s o nly 2 8 .3 p e r c e n t .
s

H o s p ita l D h as
s

h ig h e s t r a t e o f occupancy (9 5 .8 p e r c e n t) fo llo w e d by B_ (8 7 .9 )*
s
A_ (8 6 .0 ) a n d C (8 1 .9 )
s
s

The a v e ra g e r a t e o f occupancy i s about

85 p e r c e n t. ^We have in d ic a te d t h a t t h i s seem ingly h ig h r a t e o f
occupancy i s due t o t h e e x is te n c e o f " d is g u is e d " unoccupied
b e d s, and when a d ju s te d f o r le n g th o f s t a y , t h e r a t e o f occupancy
d ro p s to a b o u t 67 p e r c e n t .

A re v ie w o f th e r a t e o f occupancy

i n d i f f e r e n t h o s p i t a l s i n th e s t a t e and n a ti o n , i n d i c a t e s t h a t
D
av erag e r a t e o f occupancy i s ab o u t 85 p e r c e n t.
C o n sid e rin g 85
p e rc e n t a s t h e " e f f i c i e n t " r a t e o f occupancy, we have canputed
number o f b ed s t h a t a r e unoccupied i n th e Copper C ountry h o s p i t a l s .
An unoccupied bed i s n o t a f r e e b e d .

Green and Ober e s tim a te d t h a t

an unoccupied bed c o s t s about 7 3 .6 3 p e rc e n t o f t h e c o s t o f an
a
occupied b ed .
Q
In f a c t 85 p e r c e n t may be a s l i g h t u n d e re s tim a tio n f o r an
e f f i c i e n t h o s p i t a l . Long su g g e sts t h a t h o s p i t a l s can keep h ig h r a t e s
o f occupancy by in c o r p o r a tin g seme f l e x i b i l i t y i n th e h o s p i t a l sy stem .
He made t h r e e s u g g e s tio n s : 1) c o o rd in a tio n betw een h o s p i t a l s t o e n a b le
t r a n s f e r o f p a t i e n t s from one h o s p i t a l t o a n o th e r ; 2) h a v in g m u lt i ­
p urpose sw ing b e d s; 3) s h i f t i n g p a t i e n t s frcm p eak t o o f f peak p e r io d s .
I n f a c t , one o f th e h o s p i t a l s u n d e r L o n g 's s tu d y , w hich had seme o f
th e s e f l e x i b i l i t i e s , h ad th e r a t e o f occupancy a s 93 p e r c e n t. Lee
M illa rd P. L ong, " E f f i c i e n t Use o f H o s p it a ls ," The Economics o f H e alth
and M edical C are (The U n iv e rs ity o f M ichigan, Ann A rb o r, M ichigan , 196*0
pp. 211-226. A lso i n Copper C ountry h o s p i t a l D c o u ld a c h ie v e a n
occupancy r a t e o f 9 5 .8 p e rc e n t ev en a f t e r a d ju s tm e n ts w ere made f o r
le n g th o f s t a y . T here seems no r e a s o n why o t h e r h o s p i t a l s m ig h t n o t
ach iev e t h a t r a t e o f occupancy.
^ H. W. G reen and G. R, O ber, J r . , " H o s p ita ls and T h e ir Use i n
N o rth e a st, O h io ," P t. 5 ( i 960) p p . 10-13 (m im eo.). C ite d by S o o n e rs,
pp. 197-98.

9b

The c o s t o f an u n o ccu p ied bed i n th e Copper C ountry h o s p i t a l s
ran g e s frcm $7,180 t o $11,15^ p e r y e a r .

From t h i s i t i s e v id e n t

t h a t k e e p in g unoccupied beds i s a c o s t l y a f f a i r f o r h o s p i t a l s .
I h i s c o s t i s f i n a l l y p a id by t h e u s e r s o f th e s e b e d s .

T a b le 8 .5

g iv e s t h e number o f u n o ccu p ied beds i n each h o s p i t a l and t o t a l
c o s t o f m a in ta in in g t h e s e b e d s .

T h is amount can be saved by

e f f i c i e n t a d m i n i s t r a t io n and m e d ic a l c a r e c an b e p ro v id e d t o t h e
consumer a t low er p r i c e s .
H o s p ita l D does n o t a p p e a r i n T ab le 8 .5 b e ca u se i t s r a t e o f
s
occupancy i s 95*8 p e r c e n t e v en a f t e r a d ju stm e n t f o r le n g th o f s t a y
(se e T a b le 8.M ).

A ccording t o o u r s ta n d a rd s o f o p e r a tio n a l e f f i c i e n c y

h o s p i t a l Dg i s v e ry e f f i c i e n t i n th e u t i l i z a t i o n o f i t s b e d s.
f a c t , i t may be even a l i t t l e overcrow ded.

In

H o s p ita l D p ro b a b ly
s

co u ld u s e more a c u te c a r e b e d s .
T h ere seems t o b e a s i g n i f i c a n t amount o f o p e r a t io n a l i n e f f i c i e n c y
o f th e u t i l i z a t i o n o f beds I n h o s p i t a l Ag ; how ever, c e r t a i n p o i n ts
must be c l a r i f i e d h e r e .

H o s p ita l AQ does n o t have a lo n g -te rm u n i t ,
s

b u t o c c a s io n a lly some lo n g -te rm p a t i e n t s a r e a l s o a d m itte d .

T h is

might have I n f l a t e d t h e le n g th o f s t a y f i g u r e and c o n se q u e n tly o u r
e s tim a te o f u noccupied b e d s.
H o s p ita l B_ a l s o a d m its lo n g -te rm p a t i e n t s , b u t t h e r e i s a
s e p a ra te u n i t f o r i t .

So le n g th o f s t a y f o r a c u te c a r e i n t h i s

h o s p ita l i s n o t l i k e l y t o r e f l e c t t h e le n g th o f s t a y o f lo n g -te rm
p a tie n ts .

T h e re fo re , e x is te n c e o f u n o ccu p ied beds m ust b e a t t r i b u t e d

e i t h e r t o s u r p lu s a c u te c a re b e d s o r i n e f f i c i e n t o r g a n iz a tio n o f
h o s p i t a l a c t i v i t i e s —b o th i n d i c a t e i n e f f i c i e n t o p e r a tio n .

TABIE 8.5—Number and T o ta l M aintenance C osts o f Unoccupied Beds i n H o sp ita ls i n th e Copper C ountry, 1967

H o sp ita ls

E.R.O.

a

n e rc en t

A.P.R.O.
D ercent

D iffere n ce between
A.P.R.O. and E.R.O.
p e rc en t

Unoccupied
Beds

Cost p e r
Unoccupied0

number

d o lla r s

M aintenance Cost o f
Unoccupied Beds
d o lla r s
/

As
Bs
Cs

E,

85.0

50.27

34.73

27.78

7,180

199,460

85.0

61.68

23.32

25.65

7,180

184,167

85.0

72.82

12.18

8.53

7,938

67,711

85.O

56.63

28.37

5.67

11,154

63,243

T o ta l
67.63
514,581
0
_____________________________________________________________________________________________________________ cr\
a E.R.O. and A.P.R.O. d e sig n a te " e f f i c ie n t" r a t e o f occupancy and "a d ju ste d " p re s e n t r a t e o f
occupancy. Hie term " e f f i c ie n t" r a t e o f occupancy i s a c tu a lly th e average r a t e o f occupancy
o f th e comparable h o s p ita ls i n th e IM ited S ta te s .
Computed by m u ltip ly in g p ercen tag e d iffe re n c e between a d ju s te d and
occupancy by th e number o f beds i n th e h o s p i t a l .
O btained by
** O btained by

m u ltip ly in g t o t a l c o st p e r bed by
m u ltip ly in g "b" and " c ".

e ffic ie n tra te

of

73.63 — th e c o st o f m a in tain in g an

unoccupied bed.

97
The re a s o n f o r t h e p r e s e n t cen su s problem s (unoccupied b e d s )
b o th i n Ae and El can b e tr a c e d b ack t o J u l y , 1951 when B_ was
s
s
s
c o n s tr u c te d w ith H ill- B urton flu id s . The o r i g i n a l p la n was t o
make Bs a " r e g io n a l" c e n t e r and c lo s e As .
succeed f o r a number o f re a s o n s -

But th e p la n d id n o t

The r e s u l t was t h a t b o th

h o s p i t a l s e x i s t s i d e by s id e and n e i t h e r has enough demand f o r
a c u te c a r e b e d s.
The Eg h o s p i t a l i s i n a s p e c i a l s i t u a t i o n .

I t i s owned and

o p e ra te d by t h e m in in g c o rp o r a tio n o f W hite P in e .

Out o f i t s 20

beds o nly 10 a r e a v a i la b l e f o r conm unity s e r v i c e .

A c tu a lly , t h i s

h o s p ita l h as been c o n s tr u c te d f o r t h e w orkers i n t h e copper m in e s.
As th e r e a r e o n ly 20 b ed s, th e ov erh ead c o s t p e r bed i s th e h i g h e s t
o f th e h o s p i t a l s s tu d ie d .
day c o s t o f t h i s h o s p i t a l .

T h is p a r t l y e x p la in s t h e h ig h p a t i e n t
So o u r e s tim a te o f t o t a l lo s s o f

$63,243 due t o o p e r a tio n a l i n e f f i c i e n c i e s may a c t u a l l y be an u n d e r­
e s tim a tio n .
The q u a l i t y o f c a r e i n th e h o s p i t a l s o f t h e Copper C ountry c an
n o t be ta k e n t o be e q u a l.

I n f a c t , a s u b s t a n t i a l d if f e r e n c e I n

q u a lity does e x i s t i n th e s e h o s p i t a l s .

Our Judgm ent i s t h a t B0 h a s
s
th e b e s t q u a l i t y o f c a r e fo llo w ed by Ac , C , D and E . 11 The ra n k in g
S

S

5

S

i s based on f a c i l i t i e s and s e r v ic e s a v a i l a b l e i n th e s e h o s p i t a l s ^
b u t, a s m ere p re s e n c e o f f a c i l i t i e s d o e s n o t alw ays in s u r e t h e i r

10 Gordon S m ith, p . 60,
11
See Appendix B f o r o u r p ro c e d u re i n a r r i v i n g a t t h i s c o n c lu s io n .
12
J o i n t C onm lsslon on A c c r e d ita tio n a ls o ju d g e s q u a lity b a se d on
th e f a c i l i t i e s and o p e r a tio n s ta n d a r d s o f th e h o s p i t a l s .

98
e f f i c i e n t u s e , t h e r e i s san e leeway f o r argum ent.

D and E do
s
s

not meet th e s ta n d a rd s o f th e J o i n t C aim issio n on A c c r e d ita tio n
o f H o s p ita ls , p r im a r ily b ecau se o f d e f i c ie n c i e s i n o p e ra tio n
s ta n d a rd s , b u t a l s o b ecau se o f t h e i r p h y s ic a l p l a n t d e f i c i e n c i e s .
T his p a r t l y c o n firm s o u r p ro c e d u re and ra n k in g o f h o s p i t a l s
w ith r e s p e c t to th e q u a li t y o f c a re (se e Appendix B ) .
A nother v e ry s p e c i a l c h a r a c t e r i s t i c o f t h e Copper Country
which d e se rv e s c o n s id e r a tio n and h a s an im p o rta n t b e a rin g on
number o f unoccupied a c u te c a re beds i s th e g r a d u a lly d e c lin in g
p o p u la tio n o f t h i s a r e a .
beds i s n o t in c r e a s in g .

As a r e s u l t , th e demand f o r a c u te c a re
I t seems t h a t in c re a s e i n p e r c a p i t a

income i s n o t enough t o c o n p en sate f o r th e d e c re a s e i n demand due
to d e c lin e i n p o p u la tio n .

T h is may b e a n o th e r re a s o n why t h e a c u te

care h o s p i t a l s a r e a d m ittin g lo n g -te rm p a t i e n t s .

I n e v a lu a tin g

th e r e s u l t s o f T a b le 8 .5 , a l l o f th e s e l i t t l e d e t a i l s must b e ta k e n
I n to c o n s id e r a tio n b e fo re a ry m ean in g fu l c o n c lu s io n s can be drawn.
The lo n g -te rm f a c i l i t i e s i n th e Copper C ountry a r e u se d alm o st
to f u l l c a p a c ity , and t h e r e does n o t seem t o be any a d d itio n a l room
f o r more p a t i e n t s .

T here i s u s u a lly a long w a itin g l i s t .

The

q u a lity o f c a re i n th e s e lo n g -te rm u n i t s , e x c e p t f o r B. and CL seems
to be o f an I n f e r i o r ty p e , b u t q u a l i t y r e a l l y does n o t m a tte r h e re
as much a s i n a c u te c a re h o s p i t a l s .

Most o f t h e p a t i e n t s i n th e

long-term u n i t s a r e r e s i d e n t s o f th e f a c i l i t y .

They come t o s ta y h e re

as long a s th e y l i v e and many o f them a re n o t c o n fin e d to b e d .

T h is

i s e i t h e r b ecause th e y do n o t have anyone t o ta k e c a r e o f them o r

99
b e ca u se th e y g e t p a id u n d er m ed ica re and o t h e r program s o n ly
I f th e y a r e a d m itte d t o a h o s p i t a l .
A ll t h e lo n g -te rm u n i t s a r e p r i v a t e e n t e r p r i s e s (e x c e p t
f o r BjO and a r e ru n q u i t e e f f i c i e n t l y .

The lo n g -te rm u n i t

d o es have a s l i g h t l y h ig h e r c o s t p e r p a t i e n t d a y , b u t In
my judgm ent t h e q u a l i t y o f c a r e arid o th e r f a c i l i t i e s a r e good
and J u s t i f y t h e a d d it i o n a l c o s t s .

CHAPTER IX
HEALTH INSURANCE
S in c e i t s I n c e p tio n i n t h e 1 9 3 0 's , v o lu n ta ry h e a l th
in su ra n c e h a s grown v e ry f a s t .

Now a b o u t t h r e e - f o u r t h s o f

th e A m erican p u b lic h a s scxne form o f h e a l t h in s u ra n c e , and
a b o u t o n e - th ir d o f t h e t o t a l m ed ica l c o s t i s p a id th ro u g h
t h i s c h a n n e l.

H e a lth in s u ra n c e has h e lp e d t o e q u a liz e

d i s t r i b u t i o n o f m e d ic a l c o s ts among in d iv id u a ls and f a m i l i e s .
I t h as a l s o a s s u re d paym ents t o p ro v id e rs o f h e a l th c a re .
But many b e lie v e t h a t h e a l th in s u ra n c e i s no t a n e u t r a l f o r c e
in t h e m ed ic a l m arket and t h a t i t has u n d e s ir a b le s id e e f f e c t s .
H e alth in s u ra n c e u s u a l ly r a i s e s demand f o r m ed ical s e r v ic e s by
rem oving t h e f i n a n c i a l b a r r i e r and t r a n s f e r r i n g p u rc h a sin g power
from t h e w e ll t o t h e i l l . 1

The in c r e a s e i n demand f o r m ed ica l

c a re i s p o s i t i v e l y a s s o c ia te d w ith th e In c re a s e i n p r i c e o f
m ed ical c a r e which i n t u r n p u sh es up h e a l t h In su ra n c e prem iums.
U nlike a u to m o b ile an d o th e r ty p e s o f in s u ra n c e prem ium s, h e a l t h
in su ra n c e premiums a r e n o t r e g u la te d . Each company makes i t s
2
ov/n r a t e .
How th e y re a c h t h i s c o n c lu s io n I s a c lo s e l y guard ed

1 R. L. Dubin and G. A ntelm an, p . 57 and J . H. Hayes ( e d . ) ,
F acto r's A ffe c tin g t h e C ost o f H o s p ita l C a re , 195*1 •
2 Som ers, pp. 2*16-287.
100

s e c re t;.

W hether r i s i n g h e a l th in s u ra n c e e x p e n d itu re i s a

cause o r e f f e c t o f r i s i n g m ed ical c o s t s i s n o t a s e t t l e d
q u e s tio n .

But th e im p o rta n t p o in t h e re i s t h a t a la r g e

number o f u n d e rp riv ile g e d p e o p le i n t h e Copper C ountry and
e lsew h e re w ith no in s u ra n c e have s u f f e r e d d is a d v a n ta g e s o f
s p i r a l l i n g p r i c e s w ith o u t any o f t h e o f f s e t t i n g a d v a n ta g e s .
For th o s e w ith c o v e ra g e , t h e r e now a p p e a rs a fo rm id a b le blo ck
a g a in s t t h e i r in c r e a s in g o r even m a in ta in in g th e p r e s e n t l e v e l
o f p r o t e c ti o n .
The g e n e ra l concensus i s t h a t in s u re d p eo p le do use more
m ed ical f a c i l i t i e s , b u t t h i s by i t s e l f does n o t i n d i c a t e t h a t
th ey u s e u n n e ce ssa ry m e d ic a l c a r e .

C e r ta in l y , i t c a n n o t be

d en ied t h a t p re v e n tiv e c a r e does p a y o f f i n t h e f u t u r e .

Due

to th e s e c o n c e p tu a l d i f f i c u l t i e s t h i s c h a p te r does n o t a tte m p t
t o e s tim a te e f f e c t s o f v o lu n ta r y h e a l th in s u ra n c e i n in c r e a s in g
c o s t o f m ed ic a l c a r e .

I n s t e a d , i t fo c u s e s a t t e n t i o n on m ed ical

c o s ts and p a t t e r n s o f u se o f in s u re d and u n in su re d p e o p le i n
th e n a ti o n .

T h is would p ro v id e a n o tio n o f th e d if f e r e n c e s i n

a v a i l a b i l i t y o f m ed ical c a r e t o In s u re d and u n in s u re d p e o p le .
The a n a l y s i s I s c a r r ie d f u r t h e r t o s e e where p e o p le o f th e C opper
Country s ta n d i n th e n a t i o n a l h e a l th In s u ra n c e p i c t u r e .

In o t h e r

w ords, w hat p e rc e n ta g e o f p e o p le i n t h e Copper C ountry a re in s u r e d
a g a in s t I l l n e s s , and how does i t c o n p a re w ith th e n a ti o n a l f i g u r e ?
The a n a l y s i s r e v e a l s e x p e c te d f i n a n c i a l s u p p o rt f o r f u tu r e m e d ic a l
needs o f t h e a r e a , and a l s o p ro v id e s a d i r e c t i o n t o o u r next c h a p te r1

102
where a l t e r n a t i v e m ethods o f f i n a n c i a l m ed ic a l c a r e I n th e
Copper C ountry a r e e x p lo re d .
The h e a l t h in s u ra n c e premiums r e c e iv e d by a l l p r i v a t e
in s u r in g o r g a n iz a tio n s i n 1966 re a c h e d a t o t a l o f $ 1 2 .7 b i l l i o n .
The f iv e y e a r p e r io d from 1961 th ro u g h 1966 showed a 5^ p e rc e n t
in c r e a s e i n t o t a l amount o f premiums r e c e iv e d by i n s u r e r s .

In

1966, a t o t a l o f $10.2 b i l l i o n i n h e a l th in s u ra n c e b e n e f i t s were
p a id to in s u re d p e rs o n s by a l l U n ited S t a t e s p r i v a t e in s u r in g
p
o r g a n iz a tio n s , a lm o st t h r e e tim e s t h e amount f o r 1956.
The f u t u r e
r o l e o f in s u ra n c e com panies i n f in a n c in g h e a l t h c a r e i s e x p ec te d
t o be s t i l l l a r g e r .

I t a p p e a rs t h a t in s u r e d p e o p le u se more m ed ic a l

s e r v ic e s and spend more on t h e i r h e a l th them u n in s u re d p e o p le .

In

1962 h e a lth e x p en ses p e r p e rs o n p e r y e a r o f In s u re d p e o p le was $1^3
and t h a t o f u n in s u re d p e o p le $96 ( s e e T ab le 9 * 1 ).

In s u re d p eo p le

c o n s i s t e n t l y used more s e r v ic e s th a n u n in su re d p e o p le (s e e T a b le s
9 .2 and 9 - 3 ) .
The f i g u r e s i n T a b le s 9*2 and 9 .3 I n d i c a te t h a t u n in su re d
p eo p le u se l e s s m e d ic a l c a r e th a n in s u r e d p e o p le , b u t i t i s d i f f i c u l t
t o say t h a t th e fo rm er group u s e s l e s s m e d ic a l c a re b e ca u se th e y
cannot a f f o r d I t o r becau se th e y th in k i t i s u n n e c e s s a ry .

F u rth e r,

i t I s d i f f i c u t t o d i s t i n g u i s h betw een n e c e s s a ry and u n n e c e ssa ry m ed ical
e x p e n d itu re .

At p r e s e n t i n s u f f i c i e n t d a ta a r e a v a i l a b l e f o r a p r e c i s e

e s tim a te o f th e e x te n t o f o v e ru se and o v e re x p e n d itu re i n m ed ica l c a r e

2

1967 S ource Book o f H e a lth In s u ra n c e . P u b lic H e a lth In su ra n c e
In s titu te .

TABLE 9.1—H ealth Expenses p e r Person p e r Y ear, by Type o f Expense and H o sp ita l Insurance
Coverage i n th e U nited S t a te s , July-December 1962

Item s

: T o ta l :
•«
••

H o sp ita l :

Types o f Expenses
D octor : D ental
: M edicine :
*
•
•*
- d o lla r s -

S p e c ia l and O ther

A ll Persons

129

30

43

19

26

11

In su red

143

34

48

22

27

12

96

21

32

11

22

10

Uninsured
Source:

P u b lic H ealth S e rv ic e , "P ersonal H ealth E xpenses," V ita l H ealth S t a t i s t i c s ,
S e rie s 10, No. 27, (W ashington, D. C. 1966), p . 31.

TABLE 9 .2 —In -H o s p ita l S u rg ic a l Procedure Rate p e r 100 Persons p e r Year by Age, Sex, and S u rg ic a l
Insurance S ta tu s , Twelve-Month P erio d i n th e U nited S ta te s , 1957-58

Item s

:

P er 100 Person-Y ear

In su re d Persons
Years

U ninsured Persons
Years

-------------- number -------------T o ta l

5

5

4

65 Years and
O lder

7

7

7

Male

4

4

4

Female

5

6

4

Source:

I b i d , p . 65, t . 58.

105
TABLE 9*3—E x p e n d itu re s and H o s p ita l U t i l i z a t i o n o f In s u re d and
U ninsured P eo p le i n th e U n ite d S t a te s i n 1963

Item s

:
A ll F a m ilie s
: In s u re d : U ninsured
»
*

•
*

•N

Mean Fam ily E x p e n d itu re s ( d o l l a r s )

429

201

Humber o f A dm issions t o H o s p ita ls
p e r 100 p e rs o n s -y e a rs (num ber)

15

9

Mean L ength o f S ta y (d a y s)

7 .0

8 .8

Number o f H o s p ita l Days
p e r 100 p e rs o n s -y e a rs (number)

101

84

S o u rc e:

Ronald A ndersen and Odin V/. A nderson, A Decade o f
H e a lth S e r v ic e s , (The U n iv e rs ity o f Chicago P re s s
C hicago and London, 1 9 6 7 ), p p . 131, 136.

106
caused by p r e s e n t h e a l th in s u ra n c e i n s t i t u t i o n s and t h e i r pay­
ment sy ste m s.

But i t i s c e r t a i n t h a t th o s e who cannot a f f o r d

h e a lth in s u ra n c e a r e r e a l l y i n a d i f f i c u l t s i t u a t i o n b e c a u se
m edical c o s t s have gone up so h ig h t h a t any g ra v e i l l n e s s w i l l be
a f i n a n c i a l d i s a s t e r f o r them .

A s i g n i f i c a n t p r o p o r tio n o f p e o p le

in t h e Copper C ountry a r e i n such a s i t u a t i o n .

I n g e n e r a l th ey

do n o t and can n o t p u rc h a se a d eq u a te h e a lth p r o t e c ti o n w ith t h e i r
p re s e n t in c a n e w ith o u t u p s e t ti n g a p r e c a r io u s f i n a n c i a l b a la n c e .
The in s u ra n c e co v erag e o f th e Copper C ountry i s w e ll below n a ti o n a l
av erag es (s e e T ab le 9 * 4 ).
About 30.7 p e rc e n t o f th e p e o p le dropped p o l i c i e s f o r f i n a n c i a l
re a so n s and about 1 3 .8 p e rc e n t dropped f o r o th e r r e a s o n s ; th e s e
f ig u r e s f o r p e o p le above 65 were 38 p e rc e n t and 19 p e r c e n t , re s p e c ­
tiv e ly .

The la c k o f p r o p e r h e a lth in s u r a n c e , low income and h ig h e r

m edical n e ed s ( e s p e c i a l ly f o r th e o l d e r p e o p le above 65) p u ts th e
Copper C ountry i n a s p e c i a l group o f m e d ic a lly in d ig e n t r e g io n s .
As we have m entioned e a r l i e r I n C h a p te r IX, t h e Copper C ountry
has a h ig h p r o p o r tio n o f o ld e r p e o p le w ith h ig h m ed ical n e e d s so
In su ra n ce com panies som etim es a r e r e l u c t a n t t o in s u r e them w ith a
high premium r a t e .

About 71 p e rc e n t o f t h e f a m ilie s w ith fa m ily h e ad s

o f 65 y e a rs and o l d e r e a rn below $3,000 p e r annum.

T h is I s why m ost

o f them can n o t buy In s u ra n c e p r o t e c t i o n and th o s e h av in g h e a l t h In s u ra n c e
fin d i t d i f f i c u l t t o m a in ta in th e p r e s e n t l e v e l o f p r o t e c t i o n .

II’

th e p re s e n t tr e n d c o n tin u e s , i t i s in c o n c e iv a b le t h a t I n f u t u r e y e a r s

TABLE 9*4—Family Insurance Coverage i n th e Copper Country and th e U nited S ta te s
U nited S ta te s
A ll F am ilies : Family Heads
:
o v e r 65

With Insurance

69

48

78

cr\
O

W ithout
In surance

31

52

22

40

Source:

Gordon Sm ith, p . 32.

1
1

:
:
:
••

I
1

Copper Country
A ll F am ilies * Family Heads
:
over 65
*•

i
i
i

Insurance S ta tu s

108
th e y can fin a n c e t h e i r m ed ical needs w ith o u t some a l t e r n a t i v e
fin a n c in g a rra n g e m e n ts.

Some a l t e r n a t i v e p o s s i b i l i t i e s f o r

fin a n c in g m ed ic a l needs i n th e Copper C ountry a r e a n aly ze d i n
th e n e x t c h a p te r .

CHAPTER X
FINANCING MEDICAL CARE NEEDS
«s

I t i s n o t e a sy t o e s tim a te t h e need f o r m e d ic a l c a r e
o b je c tiv e ly , b ecau se i t depends on th e age d i s t r i b u t i o n o f
th e p o p u la tio n , th e economic c o n d itio n and a t t i t u d e s o f
people tow ard th e u se o f m e d ic a l c a r e , a n d , above a l l , on
in c id e n c e o f i l l n e s s and h e a l t h s t a t u s o f t h e p e o p le .

The

need f o r m ed ica l c a re i s a c t u a l l y a need f o r b e d s , p h y s ic ia n s ,
d e n t i s t s and t h e h o s t o f o th e r t h in g s t h a t make f o r com plete
m edical c a r e .

A few a tte m p ts have been made i n th e p a s t t o

e stim a te t h e needs f o r p h y s ic ia n s and b e d s .

A b r i e f rev ie w

o f them h a s b een p re s e n te d I n C h a p te r I I I ,
Problem s i n th e Copper C ountry
I n C h ap ter I I

we d is c u s s e d th e g e n e r a l c h a r a c t e r i s t i c s

o f th e Copper C ountry.

T h is c h a p te r fo c u s e s on t h e econom ic,

s o c ia l and m e d ic a l problem s o f t h e a r e a , which a r e t o a g r e a t
e x te n t r e s p o n s ib le f o r t h e la r g e number o f m e d ic a lly in d ig e n t
people I n th e Copper C o u n try .
About 15 p e rc e n t o f t h e p o p u la tio n i n th e Copper C ountry
i s 65 y e a rs o r o l d e r , w hereas i t i s o n ly 8 .5 p e rc e n t i n th e
s ta te .

F u r th e r t h e h e a l th o f t h e s e o l d e r p e o p le i s g e n e r a lly

109

110
v ery p o o r.

The in c id e n c e o f c h ro n ic i l l n e s s i n t h e Copper

Country i s much h ig h e r th a n f o r th e r e s t o f t h e s t a t e .

For

exam ple, i n th e Copper C o u n try , 918 p e r 100,000 p e rs o n s w ere
re p o rte d t o be h o s p i t a l i z e d w ith a h e a r t c o n d itio n , w hereas
th e s t a t e f i g u r e was 388 p e r 100,000 p e rs o n s .

I h e number o f

p e o p le * p er 100,000 p o p u la tio n w ith t u b e r c u l o s i s , c a n c e r and
d ia b e te s , e t c . was a l s o found t o be v e ry h ig h .

The d e a th r a t e

from a l l c a u se s i n t h e Copper C ountry i s a b o u t 15 p e r c e n t ,
w hereas i t i s l e s s th a n n in e p e rc e n t f o r t h e r e s t o f t h e s t a t e .
As a r e s u l t t h e m e d ic a l need s o f th e p e o p le a r e v e ry h ig h .

B u t,

u n f o r tu n a te ly , m ost o f th e p e o p le cannot g e t a d e q u a te m e d ic a l
c a r e , b e cau se o f t h e h ig h p r i c e s o f th e

e x is tin g f a c i l i t i e s ,

and u n a v a i l a b i l i t y o f t h e ty p e s o f c a re th e y n eed .
The Copper C ountry i s e co n o m ic ally a d e p re s s e d a r e a .

About

35 p e rc e n t o f a l l f a m i li e s a n d 71 p e rc e n t o f t h e f a m i li e s w ith
an aged fa m ily head have an a n n u a l income o f l e s s th a n $ 3 ,0 0 0 .
The m edian income o f a l l em ployed p e o p le i n t h e Copper C ountry
i s $2,730 p e r y e a r o r $270 belo w th e "p o v e rty " l e v e l .
The g e n e r a l l e v e l o f e d u c a tio n o f t h e p e o p le i s low , and
th e o l d e r p e o p le have l e s s fo rm a l e d u c a tio n th a n th e y o u n g er
ones.

An a t t i t u d e s tu d y by Gordon Sm ith shows t h a t t h e o l d e r

people i n t h i s a r e a a l s o a r e l e s s h e a l th c o n sc io u s th a n t h e
1
younger p e o p le .
More o f t h e younger p e o p le fa v o re d p r e v e n tiv e
checkups.

1 Gordon S m ith , p . 3^*

Ill
A nother u n iq u e f e a tu r e o f th e Copper Country i s i t s
d e c lin in g g e n e ra l p o p u la tio n , b u t in c r e a s in g p o p u la tio n o f
o ld e r p e o p le .

The younger p e o p le w ith g e n e r a lly h ig h e r incom es

a r e m ig ra tin g t o t h e m e tro p o lita n a r e a s .

The r e s u l t i s t h a t

ta x c o l l e c t i o n s i n t h i s a r e a a r e n o t in c r e a s in g enough t o
fin a n c e th e grow ing need f o r more m ed ic a l c a re f a c i l i t i e s .
F u r th e r , t h i s a r e a has a n a c u te problem o f a t t r a c t i n g
tr a in e d m ed ica l s p e c i a l i s t s .
a re i n s h o r t s u p p ly .

P h y s ic ia n s , d e n t i s t s and n u rse s

B esid es t h i s , th e t r a n s p o r t a t i o n and

com nunication f a c i l i t i e s a r e v e ry in a d e q u a te , and th e s i t u a t i o n
f u r t h e r d e t e r i o r a t e s i n th e s e v e re w in te r o f th e a r e a .

M edical Needs o f th e Copper C ountry
I t i s e v id e n t from th e above d is c u s s io n s t h a t th e Copper
Country i s n o t a t y p i c a l re g io n o f Am erica.

So i t seems t h a t

th e p re v io u s e s tim a te s o f t h e need f o r m ed ical c a r e f o r th e
n a tio n a s a whole (m entioned i n C h ap ter I I I ) a re n o t r e a l l y
a p p lic a b le f o r t h e Copper C ountry.

However, a com parison o f

th e r a t i o s o f bed3 and manpower t o p o p u la tio n i n t h e Copper
Country w ith t h a t o f th e U n ited S t a te s would g iv e u s seme Id e a
about th e s i t u a t i o n o f m ed ical f a c i l i t i e s i n th e Copper C ountry.
Although T ab le 10.1 i n d i c a t e s t h a t th e number o f a c u te - c a r e
beds a r e l e s s , and th e lo n g -te rm beds a r e more i n th e Copper
Country compared t o th e n a ti o n a l a v e ra g e , t h e su rv e y shows t h a t
about 1140 a d d it i o n a l lo n g -te rm b e d s a r e needed i n th e Copper

112
TABLE 1 0 .1 —M edical C are F a c i l i t i e s i n t h e Copper C ountry and
i n th e U n ited S t a t e s i n 1967

Item s

Copper C ountry

No. o f a c u te c a re beds

U n ite d S ta te s

317

1 ,6 7 1 ,1 2 5

6 .1 7

8 .4 5

No. o f lo n g -te rm beds

263

512,052

No. o f lo n g -te rm beds
p e r 1,000 p e rso n s

5 .1 2

2 .9 5

No. o f d o c to rs

2 9 .0

305,500

No. o f d o c to rs p e r
100,000 p e rs o n s

5 6 .4

154.40

No. o f d e n t i s t s

1 6 .5

113,700

Mo. o f d e n t i s t s p e r
. 100,000 p e rs o n s

3 2 .0

57.46

No. o f lic e n s e d p r a c t i c a l
n u rse s (L .P .N .)

4 5 .0

320,000

No. o f L .P .N ./1 0 0 ,0 0 0 p e rso n s

8 8 .0

161.73

No. o f r e g i s t e r e d n u rs e s (R .N .)

8 8 .0

659,000

171.0

333.06

s

No. o f a c u te c a r e b ed s p e r
p e r 1,000 p e rso n s

No. o f R .N ./1 0 0 ,0 0 0 p e rso n s
Source:

F o r a l l f ig u r e s f o r manpower se e P u b lic H e a lth
S e r v ic e , "H e a lth Manpower," V i t a l H e a lth S t a t i s t i c s ,
S e r ie s 14, No. 1 (1 9 6 8 ), p p . 4 .7 .
F o r b e d s , se e M ichigan H o s p it a l , IV , No. I I
(November 19687"!

113
C ountry, but. th e number* o f a c u te - c a r e beds i s about r i g h t .
'111!:; may be due t o th e h ig h p ro p o rtio n o f o ld and d is a b le d
p eo p le in th e a re a who need more n u rs in g th a n h o s p i t a l c a re .
H alf o f th e lo n g -te rm beds sh o u ld b e enough t o p ro v id e an
2
extended c a r e f a c i l i t y , and th e r e s t sh o u ld p ro v id e g e n e ra l
n u rsin g c a r e .

The l a t t e r ty p e may be lo c a te d i n n u r s in g ,

c o n v a le sc e n t o r p e rm it homes.
I n Keweenaw county, where th e r e i s no m ed ica l f a c i l i t y o f
any k in d , th e r e s i d e n t i a l ty p e c a re (p e rm it homes) may be
e s ta b lis h e d t o s e rv e n u rs in g needs o f th e a r e a .

E s ta b lis h in g

a f u l l - f l e d g e d extended c a re f a c i l i t y may n o t be econom ically
d e s ir a b le b e c a u se th e a r e a i s s p a r s e ly p o p u la te d .

T hese hones

may be se rv e d by m obile m ed ica l u n i t s when n eed ed , e s p e c ia lly i f
p a ti e n t s c an n o t be b ro u g h t t o th e h o s p i t a l f o r tr e a tm e n t.
The number o f a c u te - c a r e beds i s s u f f i c i e n t f o r th e p re s e n t
need s.

li

In f a c t a few h o s p i t a l s have a census problem .

But I

b e lie v e t h i s i s p a r t i c u l a r l y due t o th e p r e s e n t low incomes and

2

In an ex ten d ed c a r e f a c i l i t y , th e q u a l i t y o f c a r e
in n u rs in g , c o n v a le s c e n t o r p e rm it hom es, and o nly th o s e
ad m itte d h e re who need more s k i l l e d and in te n s iv e c a r e .
in t h e Houghton County M edical Care F a c i l i t y a r e o f t h i s

i s b e t t e r th a n
p a ti e n t s a r e
Most o f t h e beds
ty p e .

The p e rm it homes a r e in te n d e d t o p ro v id e s h e l t e r and sane n u rs in g
c a re t o th o s e who a r e d is a b le d by ag e and c h ro n ic i l l n e s s , and n eed some­
body t o ta k e c a r e o f th a n b u t do n o t need much m ed ica l a t t e n t i o n . However,
th e s e homes, due t o low er q u a li t y o f s e r v ic e s and la c k o f p ro p e r s u p e r v is io n
m y have d i f f i c u l t y i n g e t t i n g paym ents u n d e r th e m edicare program .
14

However, th e d i s t r i b u t i o n o f a c u te - c a r e beds i n th e Copper C ountry
i s n o t n e c e s s a r ily optimum. Some r e l o c a t i o n o f beds from Houghton t o
Ontonagon may be d e s ir a b le and s i m i l a r o th e r arran g em en ts a re n o t r u le d
o u t.

114
low e f f e c t i v e demands o f t h e p e o p le and once enough fu n d s a r e
made a v a ila b le th e cen su s problem s I n th e a c u te c a r e h o s p i t a l s
w i l l be s o lv e d .

A s i g n i f i c a n t p r o p o r tio n o f th e p o p u la tio n i n

th e Copper C ountry n e i t h e r can a f f o r d t o pay f o r t h e c o s t o f a
sev ere i l l n e s s th e m se lv e s, n o r c an th e y a f f o r d t o pay premiums
f o r in su ra n c e companies t o ta k e c a re o f th e s e e v e n t u a l i t i e s .
The la c k o f fin a n c e s co u p led w ith low e d u c a tio n and la c k o f h e a lth
c o n sc io u sn e ss, have red u c ed th e e f f e c t i v e demand f o r m ed ic a l c a re
in th e Copper C ountry.
The s h o rta g e o f p h y s ic ia n s , d e n t i s t s and n u rs e s i s v e ry
ev id en t i n t h e Copper C o u n try .

T able 1 0 ,1 shows t h a t t o b e e q u al

to th e n a tio n a l a v e ra g e s , th e Copper C ountry needs a n a d d it i o n a l
50 p h y s ic ia n s , 13 d e n t i s t s , 38 lic e n s e d p r a c t i c a l n u rs e s and 88
r e g is te r e d n u r s e s .

T h is amounts t o ab o u t double t h e p r e s e n t number.

But th e Copper Country i s n o t a t y p i c a l a re a o f th e U n ited S t a t e s , so
th e d if f e r e n c e i n th e number o f beds and manpower betw een th e U n ited
S ta te s and th e Copper C ountry may n o t r e f l e c t t h e needs o f th e a r e a .
The unique s i t u a t i o n s i n th e Copper C ountry must b e ta k e n i n to con­
s id e r a tio n i n e s tim a tin g th e m ed ical n e e d s. The Copper C ountry i s a
5
se m i-ru ra l a r e a w ith h ig h p r o p o rtio n o f aged p e o p le who need r e l a t i v e l y
more n u rsin g th a n d e n ta l o r h o s p i t a l c a r e .

The e s tim a te s show t h a t a n

a d d itio n a l 13 p h y s ic ia n s and se v en d e n t i s t s a r e r e q u ir e d i n t h i s a r e a .
Of th e 13 p h y s ic ia n s , t h e r e sh o u ld be two i n t e r n i s t s , two o b s t e t r i c i a n s ,

In i s o l a t e d s e m i- r u r a l a r e a s , on an a v e ra g e , t h e r e a r e 8 l p h y s ic ia n s
p er 100,000 p e rs o n s.

115
one g y n e c o lo g is t, one e y e - e a r - n o s e - th r o a t s p e c i a l i s t , one
u r o l i g i s t , one p e d i a t r i c i a n , two p s y c h i a t r i s t s , one r a d i o l o g i s t ,
and two g e n e ra l p r a c t i t i o n e r s .
More n u rs e s a r e needed t o s e rv e th e a v a i la b l e beds i n th e
Copper C ountry; th e a d d it i o n o f 1^0 lo n g -te rm beds w i l l f u r t h e r
in c re a s e th e need f o r n u rse s, p a r t i c u l a r l y t h a t o f lic e n s e d
p ra c tic a l n u rse s.

The e s tim a te s show t h a t ab o u t an a d d it i o n a l

45 lic e n s e d p r a c t i c a l n u rs e s and 40 r e g i s t e r e d n u rse s a r e needed
i n th e Copper C ountry,

B esid es t h i s t o perform th e n e c e ssa ry

la b o ra to ry p ro c e d u re s t h e a re a needs two m ed ica l t e c h n o lo g i s t s ,
one blood te c h n ic ia n , one o p e ra tin g room t e c h n ic ia n , two d i e t i t i a n s ,
one n u rse a n a e s t h e t i s t and one d e n ta l h y g i e n i s t .

F o r more e f f i c i e n t

u se , th e s e te c h n ic ia n s may have t o be sh a re d by th e h o s p i t a l s .
T able 1 0 .2 p r e s e n ts th e above e s tim a te s o f th e m ed ic a l needs
o f th e Copper C ountry and th e a d d it i o n a l fu n d s needed t o fin a n c e
th e s e needs.
B esides t h e needs shown i n T ab le 1 0 .2 a few h o s p i t a l s sh o u ld
c o n s tru c t o r expand t h e i r d i e t a r y a r e a , s to ra g e sp a c e , i n - s e r v i c e
tr a in in g and m eeting rocans, m aintenance sh o p s, d in in g room s, c a rd ia c
c a re u n i t s , o b s t e t r i c a l a re a s and v e n t i l a t e d post-m ortem room s.
However, I have made no e s tim a te o f th e funds needed f o r th e s e e x p an sio n s
because th e s e Improvements can b e d e la y ed f o r a second s ta g e o f d e v elo p ­
ment a f t e r th e n e c e s s a ry minimum f a c i l i t i e s have been expanded t o
provide th e Im m ediate n e e d s.

116
TABI£ 1 0 .2 —A d d itio n a l Needs o f B eds, Manpower, and Funds
i n t h e Copper C ountry i n 1967

Item s

: Number:
Funds
:
: per year
d o lla rs

s

P h y sic ia n s
In te rn is ts - 2
O b s te tr ic ia n s - 2
G y necologist - 1
E ye-E ar-N ose-T hroat S p e c i a l i s t - 1
U ro lo g is t - 1
P e d ia tr ic ia n s - 1
P s y c h ia tris ts - 2
R a d io lo g is t - 1
G eneral P r a c t i t i o n e r s - 2

13

$912,275

7

359,380

Nurses
R e g is te re d N urses - 40
L icensed P r a c t i c a l N urses - 45
ir.t.. . .

85

422,500

T ech n ician s
M edical T e c h n o lo g ists - 2
P h y s ic a l T h e r a p is t - 1
Blood T e c h n ic ia n - 1
D ie titia n s - 2
Nurse A n a e th e tis t - 1
D ental H y g ie n is t - 1
O p eratin g Roan T e c h n ic ia n - 1

9

45,000

Long-term Beds
Extended Care F a c i l i t y - 70
O thers (N u rsin g , C o n v alescen t
and P erm it Homes) - 70

140

431,270

D e n tis ts

T o ta l Funds Needed

$2 ,1 7 0 ,4 2 5

Mote: The funds needed w ere computed by m u ltip ly in g th e number o f
each ite m w ith t h e p r e s e n t r a t e o f e x p e n d itu re f o r th e r e s p e c t iv e ite m s .
The s a l a r i e s o f R .N ., L .P .N . and T e c h n ic ia n s w ere ta k e n t o be $5,500
$4,500, and $5,000 p e r y e a r , r e s p e c t i v e l y . The fu n d s needed f o r lo n g -te rm
beds was e s tim a te d by m u ltip ly in g th e number o f e x te n d ed c a re beds by th e
c o st o f an unoccupied bed f o r su ch c a re w hich i s $3,829 (74J6 o f th e c o s t
o f an occupied bed in Houghton County M edical C are F a c i l i t y ) , and o t h e r beds
m u ltip lie d by $2 ,3 3 2 (74?S o f t h e a v erag e c o s t o f a n o ccu p ied bed i n o th e r
ty p es o f n u rs in g hem es).

117
E s tim a tin g t h e need f o r more f a c i l i t i e s would o n ly b e a
s t a t i s t i c a l e x e r c i s e , i f p e o p le a r e n o t a b le t o buy th a n .

To

u t i l i z e th e d e s c r ib e d f a c i l i t i e s , t h e Copper C ountry p e o p le
must be w i l l i n g and a b le t o spend a n o th e r two
m illio n d o l l a r s .

and o n e - h a lf

C o n sid e rin g th e econom ic c o n d itio n s o f th e

p e o p le , t h i s e x p e n d itu re c an h a rd ly be e x p ec te d t o come e n t i r e l y
out o f t h e d is p o s a b le income o f th e p e o p le w ith o u t u p s e t ti n g a
p re c a rio u s f i n a n c i a l b a la n c e .

Seme a l t e r n a t i v e m ethods o f

fin a n c in g t h i s need m ust be so u g h t.

A lte r n a tiv e Methods o f F in a n c in g th e M edical Needs
The p o s s ib le s o u rc e s o f fu n d s f o r f in a n c in g t h e above
m entioned m ed ic a l needs a r e :

p r i v a t e , p h ila n th r o p y , sa v in g s from

th e e lim in a tio n o f t h e o p e r a tio n a l i n e f f i c i e n c i e s and " u n e x p la in a b le "
incomes and p r o f i t s i n th e m ed ic a l i n d u s t r y , c o u n ty t a x , and s t a t e
and f e d e r a l a i d .
As we have se e n a b o v e, u n d e r t h e p r e s e n t f i n a n c i a l c o n d itio n s
o f th e p e o p le , p r i v a t e .fin a n c in g does n o t seem t o b e a v e ry good
p o s s ib ility .
The r o l e o f p h ila n th ro p y has d e c re a s e d v e ry much i n r e c e n t
y e a rs.

I n t h e Copper C o u n try , a l l h o s p i t a l s t o g e t h e r g e t a n

average o f a b o u t $75»000 a y e a r .

T h is in c lu d e s im puted wages o f

v o lu n ta ry la b o r s and g i f t s from o th e r s o u r c e s .

I t 1b d i f f i c u l t to

say how much a d d it i o n a l fu n d s c o u ld be made a v a i l a b l e from t h i s
so u rc e , bu t c e r t a i n l y i t i s n o t g o in g t o b e anywhere n e a r p r e s e n t
re q u ire m e n ts.

118
The p r e v io u s c h a p te r s e s tim a te d th e amount o f s a v in g s
t h a t can b e made by e lim in a tin g t h e p r e s e n t o p e r a tio n a l
i n e f f i c i e n c i e s o f th e h o s p i t a l s , " u n e x p la in a b le " h ig h e r
in can es o f t h e p h y s ic ia n s compared t o t h a t o f t h e d e n t i s t s
and " u n e x p la in a b le " h ig h e r p r o f i t s o f th e d ru g and m e d ic a l
equipm ent I n d u s t r i e s c a n p a re d t o t h a t o f a l l m a n u fa c tu rin g
in d u s t r ie s and norm al r a t e o f I n t e r e s t on i n d u s t r i a l c a p i t a l .
T h e o r e tic a lly , t o t a l s a v in g s would b e betw een ab o u t $860,000
and $950,000 (s e e T a b le 1 0 .3 ) .
sav in g c a n be ta p p e d ,
o f th e t o t a l n e ed .

Even assum ing t h a t t h i s

i t would p ro v id e o n ly *10 t o M p e rc e n t

I t I s e v id e n t t h a t t h i s s a v in g i s a

d i f f i c u l t t a p b e c a u se i t In v o lv e s Im posing c o n tr o l on t h e d ru g
and m ed ic a l equipm ent I n d u s t r i e s , o p e n in g more m e d ic a l s c h o o ls ,
^
im proving t h e e x i s t i n g p o l i c i e s o f a d m issio n I n m e d ic a l s c h o o ls
*■-1

and lic e n s in g o f p r i v a t e p r a c t i t i o n e r s , e t c .
n o t l i k e l y t o cane i n t h e s h o r t - r u n .

T hese changes a r e

T h e re fo re , we m ust lo o k

f o r o th e r s o u rc e s o f fu n d s l i k e c o u n ty r e v e n u e s , s t a t e and
fe d e ra l a id s .
The t o t a l rev e n u e o f t h e Copper C ountry was ab o u t f i v e m i l l i o n
d o lla r s i n t h e y e a r 1966 ( t h i s in c lu d e d s t a t e a i d ) .

Out o f t h i s

amount, 37 p e rc e n t was s p e n t on h e a l t h , w e lfa r e and m e d ic a l
a s s is ta n c e .

I n t h e I n d iv id u a l c o u n tie s , o u t o f th e t o t a l expen­

d i t u r e s , th e s h a re o f h e a l t h , w e lfa re and m e d ic a l a s s i s t a n c e was

T h is t h e s i s does n o t fo c u s on how t h i s amount can be ta p p e d ,
and how t h i s w ould re d u c e t h e c o s t o f m e d ic a l c a r e t o th o s e who need
i t m ost. T h is i s one o f t h e "u n d lsc u sse d i s s u e s " l a t e r I n t h i s c h a p te r .

TABE£ 10.3—The "Loss" o f Consumer's M edical D o lla rs IXie to O peration al In e ffic ie n c y and th e
"Unexplainable" Incomes and Profits in the Copper Country Medical Industry in 1967*

Item s

:
:

Amount
Lower-bound

:
:

Amount
Upper-bound

•;

dollars
"U nexplainable" incomes o f p h y sic ia n s

300,429

300,429

45,943

117,618

3,560

13,781

O p e ratio n al in e f fic ie n c y o f h o s p ita ls and
n u rsin g homes

514,581

514,581

Total "loss"

8611,513

946,1109

"U nexplainabld' p r o f i t s o f drug in d u stry
"U nexplainable" p r o f i t s o f equipment in d u s try

* The words "unexplainable" incomes and profits have been defined in Chapter H I Hie "unexplainable" income and profit does not necessarily mean monopoly incomes or profits.

120
50 p e rc e n t

I n Houghton, 21 p e r c e n t

i n O ntonagon,

34 p e r c e n t i n

Baraga and

19 p e rc e n t In Keweenaw.

I t does n o t seem l i k e l y t h a t

a s u b s t a n t i a l amount o f fu n d s can be r a i s e d w ith in th e a r e a ,
b ecause th e Copper Country i s an eco n o m ically d e p re ss e d a r e a and
i t s p e o p le a r e g e n e r a lly p o o r.

How much a d d it i o n a l fu n d s can be

o b ta in e d from th e s t a t e i s d i f f i c u l t t o s a y , b e ca u se th e s t a t e ' s
sh a re i n t o t a l rev en u e o f t h e a r e a i s a lr e a d y h ig h ; th e s h a re i s
63 p e rc e n t

i n Houghton, 48 p e rc e n t

i n O ntonagon,

56 p e r c e n t in

Baraga and

62 p e rc e n t i n Keweenaw,

w hereas i t i s

only 37 p e rc e n t

fo r a l l c o u n tie s i n H ichigan (s e e T able 1 0 .4 ) ,
c le a r from T ab le 1 0 .4 :

Two th in g s a r e

(1) t h e c o n tr ib u tio n o f th e s t a t e t o t o t a l

revenue o f t h e Copper C ountry i s s u b s t a n t i a l l y h ig h , and (2) expen­
d i tu r e s on h e a l t h , w e lfa re and m ed ica l a s s i s t a n c e a cc o u n ts f o r a
s u b s ta n t ia l p r o p o r tio n o f t o t a l e x p e n d itu re s o f county governm ents.
So i t seems t h a t more f e d e r a l a i d must b e p ro v id e d t o fin a n c e
m edical needs o f th e a r e a .
I n 1967 th e Copper C ountry re c e iv e d about $ 1 .5 m i l l i o n o f
m edicare and m ed icaid money, w hich i s a b o u t 30 p e rc e n t o f th e t o t a l
e x p e n d itu re s o f h o s p i t a l s , n u rs in g homes and s e r v ic e - p r o v id in g
f a c i l i t i e s , b u t v/hen o th e r m e d ic a l e x p e n d itu re s (d ru g s, p h y s ic ia n s '
and d e n t i s t s ’ b i l l s , e t c . ) a r e in c lu d e d th e p e rc e n ta g e d ro p s t o
16 p e rc e n t w hich seems low e s p e c i a l l y v/hen we c o n s id e r t h e h ig h
p ro p o rtio n o f o ld and poor p e o p le i n t h i s a r e a .

F e d e ra l a id sh o u ld

cover l a r g e r p o r tio n s o f m e d ic a l e x p e n d itu re s o f t h i s a r e a by expanding
i t s program s and rem oving payment b o ttle n e c k s .

The s ta n d a rd o f

TABLE 10.4—T o ta l Revenue, Cost and E xpenditure on H e alth , W elfare and M edical A ssistan ce by C ounties
i n 1966

T o ta l Cost
o f th e County
Government

County

Share o f
th e S ta te

Totail Cost
o f th e County
Government

E xpenditures on
H e alth , W elfare
and M edical
A ssistan c e

P er C ap ita
E x p en d itu re s•on
H e a lth , W elfare and
M edical A ssistan c e
t

d o lla rs .

percent

d n lla r s

p e rc en t

d o lla r s

2,5*12,979

62.83

2,565,764

49.98

35.97

Ontonagon

1,150,056

48,45

1,007,969

21.31

20.30

Baraga

913,509

56.27

873,748

34.12

41.69

Keweenaw

409,217

62.28

371,391

18.52

28.45

5,015,761

58.29

4,818,872

38.68

25,28

452,960,217

37.04

461,686,181

37.70

22.24

Copper Country
A ll C ounties In
th e S ta te
Source:

Michigan County Goverrment F in a n c ia l R ep o rt, Department o f T rea su ry , (December
31, 1966), pp. 8 , 9 , 12, 13, IB, 19, 32, 33.

121

Houghton

122
e l i g i b i l i t y f o r r e c e iv in g paym ents u n d e r m ed icare and m ed icaid
program s may be to o h ig h f o r su p e rv is e d r e s i d e n t i a l ty p e n u rs in g
homes, n o n e th e le s s th e s e homes a r e u s e f u l i n p ro v id in g n u rs in g
care.

T h e re fo re , some chan g es i n p ro c e d u re s m ust b e made to

en ab le t h e s e homes t o g e t paym ents u n d e r m ed icare and m edicaid
program s.
However, i t vrauld b e unw ise and im p r a c tic a l t o e x p e c t th e
f e d e ra l governm ent t o s h o u ld e r t h e vjhole r e s p o n s i b i l i t y .

A

co n certed e f f o r t a t a l l l e v e l s —p r i v a t e , c o u n ty , s t a t e and
f e d e r a l—m ust be e x e r te d b e f o r e m e d ic a lly in d ig e n t p e o p le o f th e
Copper C ountry can be p ro v id e d w ith a d eq u a te m ed ic a l c a r e .
However, th e above need s f o r a d d it i o n a l m ed ica l f a c i l i t i e s and
e x te r n a l a i d a r e l i k e l y t o be tem p o rary .

T h is i s b e cau se o v e r a l l

p o p u la tio n o f th e Copper C ountry h a s been d e c lin in g c o n tin u o u s ly ,
and a lth o u g h th e number o f p e o p le above 64 y e a rs h as been in c r e a s in g
in th e l a s t fev; d e c a d e s, t h e r a t e o f I n c r e a s e has been d e c re a s in g .
In f a c t , p r o je c te d f ig u r e s show t h a t th e r e i s l i k e l y t o be a d e c lin e
7
in th e number o f o ld p e o p le from 1970.
T h u s, th e above tr e n d s i n
p o p u la tio n i n d i c a t e t h a t t h e need f o r b ed s {both a c u te - c a r e and
lo n g -te rm ), and m ed ica l p e rs o n n e l a r e l i k e l y t o d e c re a s e I n a
decade o r two.

7

Computed by Thaden e t a l .

C ite d by Gordon S m ith, p . 9 .

123
F u r th e r th e economy o f th e Copper C ountry i s rec o v erin g :
from a slum p and p e r c a p i t a income i s l i k e l y t o in c r e a s e i n th e
f u tu r e p a r t l y a s th e r e s u l t o f r e d i s t r i b u t i o n im pact o f d e a th
o f th e aged and p a r t l y a s a r e s u l t o f h ig h e r r e tir e m e n t b e n e f i t s ;
hence, th e need f o r e x t e r n a l a id may a l s o d e c re a s e .

The r e a l

a g g re g ate income o f th e a r e a has in c r e a s e d by $55 m i l l i o n betw een
1959 and 1967 and th e r e a l a v e ra g e fa m ily income a ls o h a s in c r e a s e d
0
by about $2,000 betw een 1950 and i 9 6 0 .
W ith th e p o s s ib le d e v e lo p ­
ment o f o u td o o r and r e c r e a t i o n a l f a c i l i t i e s and b e t t e r t r a n s p o r t a t i o n
and com nunlcation system s t h e incom es o f t h e Copper C ountry a r e
l i k e l y t o b e s i g n i f i c a n t l y h ig h e r i n t h e f u t u r e .
As th e above f a c ts i n d i c a t e t h a t th e need f o r m e d ic a l f a c i l i t i e s
may d e c l in e , c o n s tr u c tio n o f perm anent f a c i l i t i e s t o h a n d le tem p o rary
needs may n o t b e eco n o m ic ally so u n d .

T hese f a c i l i t i e s may become

su rp lu s i n a decade o r tw o a s h a s happened w ith a c u te - c a r e f a c i l i t i e s .
Ih u s tem porary a rran g em en ts may be an a p p r o p r ia te way t o h a n d le p r e s e n t
needs. New c o n s tr u c tio n s may be j u s t i f i e d by t h e i r lo n g -te rm n eed .
And, f o r a lo n g -te rm p r o j e c t i o n o f m e d ic a l needs o f t h e Copper C o u n try ,
i t i s recommended th a t th o ro u g h s t u d i e s be made on dem ographic t r e n d
and co m p o sitio n , tre n d o f m o rb id ity and m o r ta li t y r a t e and f u t u r e income
and employment p o t e n t i a l i t i e s o f t h e Copper C ountry,

g
See County and Cit.v D ata Book, 1958 and 1967.
3 .6 o f C h a p te r I I I .

A lso s e e T ab le

124
U ndlscu3sed Issu er.
I*’o r comp] e t e arjcl e f f e c t i v e p la n n in g o f m e d ic a l c a re i n t h e
Copper C o u n try , f u r t h e r r e s e a r c h i s needed on th e fo llo w in g
is s u e s .
1)

*■»

The need f o r b ed s and manpower have b een e s tim a te d , b u t

no re f e re n c e h a s been made a s t o t h e i r optimum l o c a ti o n .

Keweenaw

county has no r e s i d e n t p ro v id e r o f h e a l th c a r e , and th e n e a r e s t
h o s p ita l i s Calumet P u b lic H o s p ita l i n Houghton c o u n ty .

S im ila r

problems e x i s t i n th e s o u th e rn p a r t o f O ntonagon, Houghton and
Baraga c o u n tie s where t h e r e i s no h o s p i t a l o r n u rs in g home w ith in
a 20 m ile r a d i u s .

On t h e o th e r hand t h e two b ig g e s t h o s p i t a l s o f

th e Copper C ountry (Bs and A_)
s a r e w ith in 10 m ile s o f each o t h e r ,
and th e s e h o s p i t a l s have some problem s o f k eep in g a h ig h r a t e o f
occupancy w ith a c u te - c a r e p a t i e n t s .

So i t seems t h a t l o c a t i o n a l

a sp e c ts may be im p o rta n t and any f u t u r e p la n s f o r a d d it i o n a l f a c i l ­
i t i e s should ta k e t h i s a s p e c t i n to c o n s id e r a tio n ,
2)

Needed a d d it i o n a l t r a i n e d manpower would n o t be coming

a u to m a tic a lly i n t h i s r e g io n .

The Copper C ountry i s p r im a r ily a

r u r a l a re a and h o s p i t a l s a r e n o t f i r s t c l a s s .

The Copper C ountry

p ro v id es n e it h e r a t t r a c t i o n s and f a c i l i t i e s o f m e tr o p o lita n a re a s
nor any hope f o r p r o f e s s i o n a l p r o s p e c t b .

T h e r e fo re , some s o r t o f

in c e n tiv e m ust be b u i l t i n t o th e system t o a t t r a c t p r i v a t e p r a c t i ­
t io n e r s , or* more s a l a r i e d d o c to rs sh o u ld be a p p o in te d w ith r e l a t i v e l y
open s e r v ic e .

One way t o a t t r a c t p r i v a t e p r a c t i t i o n e r s may be t o

125
improve t h e i r w orking c o n d itio n s by p ro v id in g o f f i c e sp a c e ,
modern eq u ip m en t, a s s i s t a n t s and o t h e r p r o f e s s i o n a l a t t r a c t i o n s
to com pensate fo r’, d is a d v a n ta g e s o f th e a r e a .

A lso , l o c a l s t u d e n ts

concerned w ith m ed ical needs o f th e community may b e fin a n c e d
to r e c e iv e m e d ic a l e d u c a tio n and th e y m ight h o p e fu lly come b ack t o
se rv e th e community (su c h c o n d itio n s may be a tta c h e d t o t h e f i n a n c i a l
h e lp ) .

However, more stu d y needs t o be done t o d e v elo p a w orkab le

p la n f o r t h i s .
3)

E s tim a te s show t h a t s u f f i c i e n t sa v in g s c o u ld be made by

e lim in a tin g e x i s t i n g " u n e x p la in a b le " p r o f i t s and incom es and
i n e f f i c i e n c i e s i n th e m e d ic a l i n d u s tr y .
to be answ ered i n t h i s c o n n e c tio n :

Two im p o rta n t q u e s tio n s need

a ) how can th e y be e lim in a te d ,

and b ) i f th e y a re e lim in a te d , how can i t be a s s u re d t h a t t h e sa v in g s
w i l l go t o p e rs o n s who need them m ost?
To g iv e a m ean in g fu l answ er t o th e s e q u e s tio n s more r e s e a r c h i s
needed.

However, c a s u a l o b s e rv a tio n s show t h a t incom es o f p h y s ic ia n s

a re h ig h e r th a n o th e r com parable p r o f e s s io n a ls (su c h a s d e n t i s t s )
because o f t h e s h o rt sup ply o f p h y s ic ia n s w hich i s p a r t l y e v id e n ce d
by t h e i r lo n g e r w orking h o u rs .

The r e s t r i c t i o n o f e n tr y i n t o th e

p ro fe s s io n ( p a r t l y due t o r e s t r i c t i n g lic e n s in g o f f o r e i g n - t r a i n e d
p h y sic ia n s and m o stly due t o c o n tr o l o f a d m issio n i n m ed ic a l s c h o o ls )
may be one o f t h e m ajo r re a so n s f o r th e s h o rta g e o f p h y s ic ia n s .

The

supply o f p h y s ic ia n s can be augmented by e i t h e r in c r e a s in g t h e c a p a c ity
o f p re s e n t sc h o o ls o r by opening more m ed ica l s c h o o ls t o g e th e r w ith more
freedom o f e n tr y i n t o th e p r o f e s s io n .

Of c o u rs e , freedom o f e n tr y

c a r r ie d to o f a r , may have d e le te r i o u s e f f e c t s on q u a l i t y o f d o c to r s
and c o n seq u e n tly on q u a l i t y o f m e d ic a l c a r e .

However, p e o p le do n o t

1 26

alw ays need t h e h ig h e s t k in d ol* m ed ica l c a ie and some I n t e r ­
m ed iate k in d may be s u f f i c i e n t i n many c a s e s .

I n f a c t , such

c a r e e x i s t s s u c c e s s f u lly i n B r i t a i n (w ith m idw ives) an d i n
R u ss ia .

I n o t h e r w ords. I t may be b e t t e r t o have second g ra d e

m ed ical c a r e i n many c a s e s th a n none a t a l l .
•i

The p a te n t p r i v i l e g e s and i n te n s i v e a d v e rtis e m e n t and s a l e s
prom otion o f d ru g c c n p a n ie s l i m i t p r i c e c o m p e titio n a n d c r e a t e
p ro d u c t d i f f e r e n t i a t i o n —b o th r e s t r i c t th e c o m p e titiv e n a tu r e o f
t h e in d u s tr y .

So I b e lie v e t h a t r e s t r i c t i o n s on p a te n t p r i v i l e g e s

and th e e x p a n sio n o f power o f th e Pood and Drug A d m in is tra tio n t o
in s u r e f u l l y a d e q u a te drug p l a n t in s p e c tio n and c o n tr o l o f d ru g
a d v e r tis in g would h e lp t o re d u c e g r e a t l y n o n -c o m p e titiv e e le m e n ts
i n th e d ru g in d u s t r y .
I t I s a rg u e d t h a t t h e r e s t r i c t i o n on p a te n t

p r iv ile g e s

m ight s e r i o u s l y je o p a r d iz e t h e r e s e a r c h program s o f d ru g f ir m s .
E ut c o n tr a ry argum ents a re a l s o a v a i l a b l e .

" . . . . a b o u t tw o - th ir d s

o f th e c o u n tr ie s In t h e w o rld p r o h i b i t th a n ( p a te n ts ) on th e
ground o f p u b lic p o lic y . . . .

(and) i n many f o r e ig n c o u n t r i e s , d ru g

re s e a rc h h as been immensely p ro d u c tiv e I n th e ab sen ce o f d ru g
9
p a te n ts .
More r e s e a r c h i s needed t o be a b le t o say i n p r e c i s e
term s w hether a b o l i t i o n o f p a te n t p r i v i l e g e s w i l l do more harm
th a n good.

U. S. C o n g re ss, S e n a te , C o m p etitiv e Problem s i n th e Drug
I n d u s tr y , H earin g s b e fo re t h e Subcom m ittee on m onopoly, 9 0 th C o n g ress,
1 s t and 2nd s e s s io n s , 1967- 68 , p p . 1995-96.

127
I have a l s o made some o b s e r v a tio n s f o r I n c r e a s in g o p e r a tio n a l
e f f ic ie n c y i n h o s p i t a l s .

More c o o p e ra tio n i s needed among

h o s p i t a l s w ith r e s p e c t t o m ed ic a l s t a f f , d i s t r i b u t i o n o f p a t i e n t
lo a d s , u se o f more s p e c i a li z e d and s o p h i s t i c a t e d equipm ent and
s im ila r c o o p e ra tio n i s needed w ith in h o s p i t a l s among h o s p i t a l
t r u s t e e s , a d m i n i s t r a t o r s and m ed ica l s t a f f .

A ll o f them sh o u ld

j o i n i n e f f o r t s t o prom ote e a r l y r e f e r r a l o f a c u te p a t i e n t s t o
lo n g -term f a c i l i t i e s f o r t h e c a re o f c h ro n ic i l l n e s s and conva­
le s c e n c e .
However, I f e e l t h a t more work i s needed i n th e s e a re a s t o
d eterm ine t h e p o s s i b i l i t y o f th e above a d ju s tm e n ts i n t h e Copper
C ountry.

I n re g a rd

t o th e second q u e s tio n (how can sa v in g s be

d i s t r i b u t e d t o th e m ost needy p e r s o n s ? ) , i t i s c l e a r t h a t u n le s s
seme a l t e r n a t i v e arran g em en t i s made, th e a ll e g e d sa v in g s would
accru e t o th o s e who a r e c u r r e n t l y sp e n d in g more on m e d ic a l c a r e .
These p e rso n s may o r may n o t be th o s e who need th e m ost m ed ical
c a re but can n o t a f f o r d i t .
4)

I have su g g e ste d r e d i s t r i b u t i o n o f income th ro u g h t a x a t i o n

and a id s a t c o u n ty , s t a t e o r f e d e r a l l e v e l s .
out th e p r e c i s e way t h i s sh o u ld be d o n e .

But I have n o t s p e l le d

However, I have in d ic a te d

t h a t t h i s can be done th ro u g h p r e s e n t program s such a s m e d ic a re ,
m edicaid, o ld age a s s i s t a n c e , e t c .

But a g a in , no s u g g e s tio n s have

been giv en about k in d s o f a l t e r n a t i v e s o r m o d if ic a tio n s t h a t a r e
needed i n t h e above program t o g e t money t o t h e r i g h t p e rs o n and i n
th e r i g h t amount and a t t h e r i g h t tim e .

T h is i s a v e ry im p o rta n t

and r e le v a n t a r e a o f stu d y b u t due t o t h e l i m i t a t i o n s o f th e r e s e a r c h e r ,

128

t h i s a s p e c t h a s b een l e f t o u t o f t h e p r e s e n t s tu d y .

However,

i t may be i n s t r u c t i v e t o e x p re s s th e f e e l in g s o f h o s p i t a l
a u th o r itie s a t t h is p o in t.

The a u t h o r i t i e s f e e l t h a t s in c e

m edicare and m ed icaid paym ents a r e c o s t re im b u rse d , th e y do
not p ro v id e apy in c e n tiv e t o c u t th e c o s t o f p ro v id in g h o s p i t a l
s e r v ic e s .

On th e o th e r h a n d , a d m in is tr a tiv e c o s ts have gone

up due t o In c re a s e d p a p e r work needed t o g e t paym ents u n d er
th e s e program s.

F u r t h e r , th e a u t h o r i t i e s f e e l t h a t t h e proposed

cu t o f t h e p r e s e n t two p e rc e n t o v er th e c o s t o f h o s p i t a l s w i l l
make t h e i r o p e r a tio n v e ry d i f f i c u l t .

The h o s p i t a l s w i l l have

to o p e ra te i n d e b t b e c a u se paym ents f o r h o s p i t a l s e r v i c e s alw ays
lag beh in d e x p e n d itu re s needed t o p ro v id e t h e i r s e r v i c e s .
5)

Every r e d i s t r i b u t i o n o f income h a s some w e lfa re I m p lic a tio n s .

But t o keep t h i s t h e s i s t o m anageable p r o p o r tio n s , and t o b e a b le
to fo cu s on o u r m ain o b j e c ti v e w ith o u t crow ding w ith s i d e i s s u e s ,
I have avoided g e t t i n g i n t o t h e f i e l d o f w e lfa re econom ics.
6)

The p r e s e n t system o f d e li v e r i n g m ed ic a l c a r e may n o t be

th e b e s t one.
homes.

L ong-term c a re i s t r a d i t i o n a l l y p ro v id e d by n u rs in g

A new m ethod o f p ro v id in g n u rs in g c a r e by t h e V i s i t i n g

liurse A s s o c ia tio n i s p o s s ib l e .

Many o th e r p r e f e r a b le a l t e r n a t i v e s

t o p re s e n t m ethods o f m ed ica l c a r e a r e a ls o p o s s ib l e .

But th e

p re s e n t stu d y does n o t a tte m p t t o exam ine th e s e a l t e r n a t i v e s .

The

d is c u s s io n s and c o n c lu s io n s o f t h i s t h e s i s a r e p re s e n te d i n th e l i g h t
o f th e p r e s e n t system o f p ro v id in g m ed ica l c a re in t h e Copper C o u n try .

C1IAPTLK XI
SUMMARY AND CONCLUSIONS
Summary
The Copper C ountry i s i n th e w e ste rn p a r t o f th e Upper
P e n in su la o f M ichigan and co m p rises fo u r c o u n tie s :
Keweenaw, Ontonagon and B a rag a .

Houghton,

The p o p u la tio n o f t h i s a re a

i s g ra d u a lly d e c lin in g and was 51>4lO i n 1967.

A pproxim ately

14 to 15 p e rc e n t o f th e p o p u la tio n i s 65 y e a rs and o l d e r ,
which i s s u b s t a n t i a l l y h ig h e r th a n t h e 8 .5 p e rc e n t f o r th e
s ta te .

The c u r r e n t in c id e n c e o f c h ro n ic i l l n e s s and d e a th i s

much h ig h e r and t h e a v a i la b l e m ed ic a l s e r v ic e s a r e much l e s s
th an f o r th e s t a t e o r n a ti o n .

F u r th e r , a s i g n i f i c a n t p ro ­

p o rtio n o f th e p o p u la tio n can n o t buy w hatever s e r v i c e s a re
a v a i la b l e .

More f a c i l i t i e s , funds and income a r e needed i n t h i s

area t o p ro v id e a d e q u a te m e d ic a l c a r e t o th e p e o p le .
S in c e th e r e s e a r c h was aimed a t e s tim a tin g a d d it i o n a l
m edical f a c i l i t i e s needed, t h e so u rc e s o f fin a n c e and p la n
r e q u ire d , th e i n v e s t i g a t i o n c o n c e n tra te d on f o u r f e a t u r e s :
1.

Studying l e v e ls and d i s t r i b u t i o n o f m ed ic a l c a re
e x p e n d itu re s by ty p e s o f s e r v i c e s .

129

130
E s tim a tin g p o s s ib le sa v in g s o f m ed ical d o l l a r s by
e lim in a tin g t h e o p e r a tio n a l i n e f f i c i e n c i e s o f
h o s p i t a l s , " u n e x p la in a b le " h ig h income i n th e
m e d ic a l p r o f e s s io n and " u n e x p la in a b le " h ig h p r o f i t s
o f d ru g and m ed ica l eouipm ent i n d u s t r i e s .
3.

S tu d y in g e f f e c t s o f h e a l th in s u ra n c e i n in c r e a s in g
c o s ts o f m e d ic a l c a r e .

4.

I n v e s t ig a ti n g p o s s ib l e s o u rc e s f o r f in a n c in g m ed ic a l
need s o f th e Copper C ountry.

The Copper C ountry I s p r im a r ily a r u r a l a r e a ; o nly about
*

o n e -fo u rth o f th e p o p u la tio n i s u rb a n .

The p o p u la tio n i s

g ra d u a lly d e c l in i n g , b u t th e p r o p o r tio n o f p e o p le above 6h y e a rs
I s in c r e a s in g .

The a v e ra g e s i z e o f a fa m ily i s ab o u t 2 .5 p e rs o n s

and 35 p e rc e n t o f th e f a m i li e s e a rn l e s s th a n $3*000 a y e a r .

The

g e n e ra l l e v e l o f e d u c a tio n i s v e ry low and h ead s o f f a m ilie s have
only an a v e ra g e o f n in e and o n e - h a lf y e a r s o f s c h o o lin g .

The

m edical c a re f a c i l i t i e s c o n s i s t o f f i v e a c u te - c a r e h o s p i t a l s w ith
317 t e d s , f i v e lo n g -te rm c a re u n i t s w ith 263 beds and t h r e e s e r v i c e p ro v id in g a g e n c ie s .

T rain ed m e d ic a l manpower I s I n s h o r t su p p ly .

The v/hole o f t h e Copper C ountry i s se rv e d by 29 p h y s ic ia n s (two
a re governm ent e n p lo y e e s ), 16 d e n t i s t s , 45 lic e n s e d p r a c t i c a l
n u rse s and 88 r e g i s t e r e d n u r s e s .

To e q u a l t h e n a t i o n a l a v erag e

th e above s t a f f sh o u ld be ab o u t doubled (s e e T a b le 1 0 .1 ).
The t o t a l e x p e n d itu re on a l l ty p e s o f m e d ic a l c a re i n th e
Copper C ountry v;as a b o u t $9.4 m illio n i n 1967.
p e rc e n t o f t h e g ro s s Income f o r t h a t y e a r .

T h is i s about 67

Of t h e t o t a l consum ers'

131
m e d ic a l e x p e n d itu r e s , 37 p e rc e n t went t o h o s p i t a l s , 20 p e rc e n t
t o p h y s ic ia n s , n in e p e rc e n t t o d e n t i s t s , 14 p e rc e n t f o r d r u g s ,
and 10 p e rc e n t t o n u rs in g homes w h ile th e r e s t was used f o r o th e r
p r o f e s s io n a l f e e s , eye g l a s s e s , n e t in s u ra n c e c o s t s , e t c .

The

co m p o sitio n o f m e d ic a l e x p e n d itu re s i n th e U n ited S t a te s i s
s lig h tly d if f e r e n t.

The s h a re t o h o s p i t a l s was 31 p e rc e n t and

t o n u rs in g homes fo u r p e r c e n t—b o th l e s s th a n i n t h e Copper C ou n try .
But th e s h a re t o p h y s ic ia n s was 27 p e rc e n t and t o d ru g s was 17
p e rc e n t—b o th more th a n i n t h e Copper C ountry (s e e T able 4 .5 ) .
'Hie a v e ra g e g r o s s income o f p h y s ic ia n s i n t h e Copper C ountry
i s about $70,000 p e r y e a r .

D educting t h e i r b u s in e s s e x p e n se s,

which i s 41 p e rc e n t o f g r o s s incom e, t h e i r n e t incom es b e fo r e and
a f t e r ta x e s a r e $42,000 and $ 3 1 ,0 0 0 , r e s p e c t i v e l y , w hereas t h e
av erage g r o s s income o f d e n t i s t s i s a b o u t $51,000 and t h e i r
b u sin e ss ex p en ses a r e about 49 p e r c e n t.

T h e ir n e t incom es b e fo r e

and a f t e r ta x e s a r e ab o u t $26,000 and $ 2 1 ,0 0 0 , r e s p e c t iv e ly (s e e
T ab les 5-1 and 5 .2 ) .

P h y s ic ia n s and d e n t i s t s in v e s te d ab o u t

th r e e and s i x p e r c e n t, r e s p e c tiv e ly , o f t h e i r n e t incom es i n th e
m edical i n d u s tr y .

Thus an a v e ra g e p h y s ic ia n re c e iv e d about 60

p e rc e n t more th a n an a v e ra g e d e n t i s t .

About 17 p e rc e n t o f t h i s

d if f e r e n c e c o u ld be e x p la in e d by th e lo n g e r and c o s t l i e r t r a i n i n g
in m edicine and th e remainder* may be a t t r i b u t e d t o t h e d i f f i c u l t y
o f e n tr y i n t o th e p r o f e s s io n .

The co m p u tatio n s show t h a t each

p h y sic ia n re c e iv e d an " u n e x p la in a b le " h ig h e r income o f ab o u t $11,000
compared t o t h a t o f d e n t i s t s , and f o r a l l p h y s ic ia n s i n th e Copper

132

Country th e t o t a l was about $300,000 (s e e T able 5*3)*

The t o t a l

ta x o f ab o u t $113,000 on " u n e x p la in a b le " income flo w s o u t o f th e
a re a and i s a p u re d r a i n on t h e conm unity' s r e s o u r c e s .
Drug m a n u fa c tu re rs e a rn a h ig h r a t e o f p r o f i t .

In f a c t , s in c e

1957 (ex c ep t f o r 1966) th e p r o f i t r a t e s i n th e d ru g in d u s tr y were
th e h ig h e s t among a l l i n d u s t r i e s (s e e T ab le 6 . 2 ) .

P ric e c o m p e titio n

in e t h i c a l d ru g s i s r e s t r i c t e d by p a te n t p r i v i l e g e s w h ile i n te n s i v e
a d v e rtise m e n t and s a l e s prom otion o f p a r t i c u l a r b ran d s may c r e a t e
b a r r i e r s t o e n tr y .

The t o t a l " u n e x p la in a b le " h ig h e r p r o f i t s o f

drug m a n u fa c tu re rs and drug r e t a i l e r s from th e Copper C ountry
(compared t o t h a t o f a l l m a n u fa c tu re rs and r e t a i l e r s ) were ab o u t
$30,000 and $16,000, r e s p e c t i v e l y .

U n e x p lain ab le d if f e r e n c e s i n

p r o f i t ( p r o f l t - d i f f e r e n c e ) r a t i o s (u n a d ju s te d p r o f i t - d i f f e r e n c e )
were’ computed by d e d u c tin g t h e p r o f i t r a t e s o f a l l m an u fa c tu re rs
and a l l r e t a i l e r s from t h e p r o f i t r a t e s o f drug m a n u fa c tu re rs and
drug r e t a i l e r s , r e s p e c t iv e ly .

The t o t a l amount o f "u n e x p la in a b le "

p r o f i t v:as computed by m u ltip ly in g t h e r a t e o f " p r o f i t - d i f f e r e n c e "
by th e t o t a l s a l e s .

I n com puting th e a d ju s te d " u n e x p la in a b le p r o f i t -

d if f e r e n c e ," I t was assumed t h a t th e c o m p e titiv e r a t e o f p r o f i t sh o u ld
be eq u al t o th e "norm al" r a t e o f I n t e r e s t f o r i n d u s t r i a l c a p i t a l .
And t h i s i n t e r e s t r a t e v/as th e n d ed u cted from t h e a d ju s te d a c c o u n tin g
p r o f i t r a t e s o f th e m a n u fa c tu re rs and r e t a i l e r s t o compute th e r a t e
o f a d ju s te d " u n e x p la in a b le p r o f i t - d i f f e r e n c e , " w hich m u lt i p li e d by
th e t o t a l s a l e s o f d ru g s i n th e Copper C ountry e q u a ls th e t o t a l
a d ju s te d "u n e x p la in a b le " p r o f i t o f ab o u t $118,000.

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The h o s p i t a l equipm ent in d u s tr y showed u n a d ju s te d " u n e x p la in a b le ”
p r o f i t o f o n ly $4,000 when i t s a c c o u n tin g p r o f i t r a t e was compared
v /ith t h a t o f a l l m a n u fa c tu rin g .

But when compared w ith th e "norm al"

r a t e o f i n t e r e s t (a s i n th e c a s e o f th e d ru g I n d u s t r y ) , w hich by o u r
a ssu m ption i s e q u a l t o th e c o m p e titiv e r a t e o f p r o f i t , th e t o t a l
s

a d ju s te d " u n e x p la in a b le " p r o f i t was $14,000.

I n o t h e r w ords, t h e

e x p e n d itu re o f th e C opper C ountry m e d ic a l in d u s tr y would h av e been
about t h a t much lo w er i f t h e r e w ere no " u n e x p la in a b le " p r o f i t s i n
t h e m ed ical equipm ent in d u s tr y .

T h u s, t h i s amount i s a ls o l o s s t o

th e conm unity.
The h o s p i t a l s r e c e i v e th e l a r g e s t p r o p o rtio n o f th e consum ers'
m edical d o l l a r i n t h e Copper C o u n try .

I n com parison t o th e n a ti o n a l

a v e ra g e s, th e h o s p i t a l s I n th e Copper C ountry have low er c o s t s p e r
p a ti e n t day (ex c ep t f o r h o s p i t a l E _ ), lo n g e r le n g th o f s ta y (e x c e p t
s
f o r h o s p i t a l E ) , few er p e rs o n n e l p e r b e d , and g e n e r a l l y a h ig h e r
s
r a t e o f occupancy (e x c e p t f o r h o s p i t a l E , se e T a b le 8 .1 and 8 . 2 ) .
s
The le n g th o f s ta y an d r a t e o f occupancy a re in te r d e p e n d e n t, so t o
o b ta in a r a t e o f occupancy com parable t o t h a t o f t h e U n ited S t a t e s ,
i t was a d ju s te d f o r th e le n g th o f s t a y .

I n o th e r w o rd s, w hat would

th e r a t e o f occupancy be i n th e Copper Country h o s p i t a l s i f t h e
le n g th o f s ta y a c t u a l l y were e q u a l t o th e av erag e f o r th e U n ite d
S ta te s ?

The r e s u l t s show t h a t , e x c e p t f o r h o s p i t a l s D . t h e a c t u a l

r a t e o f occupancy i s much l e s s i n t h e Copper C ountry h o s p i t a l s (s e e
T ables 8 .4 ) th a n t h e U n ited S t a t e s a v e ra g e .

C o n sid e rin g 85 p e rc e n t'

a s th e " e f f i c i e n t " r a t e o f occupancy, t h e a c tu a l number o f u n occu p ied
beds v/as computed by m u ltip ly in g t h e p e rc e n ta g e d i f f e r e n c e betw een

134
" a d ju s te d " and " e f f i c i e n t " r a t e o f occupancy by t h e number o f
beds i n th e h o s p i t a l s ( s e e T ab le 8 .5 ) .

The nurrber o f u noccupied

beds was th e n m u lt i p li e d by th e c o s t o f each u n occupied bed t o
g e t th e t o t a l m ain ten an ce c o s t o f such b e d s .

T h is i s ab o u t

$510,000, w hich i s about 13 p e rc e n t o f t h e t o t a l c o s t o f a l l
h o s p ita ls .

I n o t h e r w o rd s, h o s p i t a l s e r v ic e s c o u ld be p ro v id ed

t h a t much c h e a p e r i f t h e s e o p e r a tio n a l i n e f f i c i e n c i e s w ere
e lim in a te d .

The r a t e o f occupancy i n t h e lo n g -te rm f a c i l i t i e s

i s about 95 t o 99 p e r c e n t , Which shows t h a t th e s e f a c i l i t i e s a r e
overcrow ded; t h i s i s f u r t h e r s u b s ta n t ia t e d by a lo n g l i s t o f
w a itin g p a t i e n t s .
The r o l e o f h e a lth in s u r a n c e , i n f in a n c in g m e d ic a l c o s t s ,
has in c re a s e d trem en d o u sly d u rin g th e l a s t two d e c a d e s .

About

tw o -th ird s o f a l l m e d ic a l e x p e n d itu re s a r e p a id by in s u ra n c e
com panies.

In s u r e d p e rs o n s u se more m ed ic a l c a re th a n u n in s u re d

p erso n s (se e T ab le 9 .2 and 9 .3 ) .

I t I s d i f f i c u l t t o sa y w h eth er

in su re d p eo p le u s e more m e d ic a l c a r e th a n n e c e s s a r y , o r t h a t
u n in su red p e o p le a r e n o t a b le t o pay f o r th e n e c e s s a ry m e d ic a l c a r e .
V.'ith th e s p i r a l l i n g p r i c e o f m ed ica l c a r e , th e c o s t o f In s u ra n c e i s
a ls o in c r e a s in g , and th e p o o r f i n d i t i n c r e a s in g ly d i f f i c u l t t o pay
f o r In su ra n c e prem iums.

Pbout o n e - t h i r d o f a l l f a m i li e s i n th e

Copper C ountry, and more th a n h a l f th e f a m i li e s w ith fa m ily head s
over 64

y e a r s , do n o t hav e any In s u ra n c e p r o t e c t i o n , b u t t h e i r

m edical needs a r e g e n e r a lly more th a n o t h e r s .

T hese a r e t h e t y p i c a l ,

m ed ica lly in d ig e n t f a m i li e s o f t h e Copper C o u n try .

135
Seme a l t e r n a t i v e f i n a n c i a l a rra n g e m e n ts, b e s id e s in s u ra n c e
p r o t e c ti o n , a r e re q u ir e d t o e n a b le th e m e d ic a lly in d ig e n t p eo p le
t o buy a d e q u a te m ed ica l c a r e .

To p ro v id e m e d ic a l c a re to th e

p r e s e n tly u n d e rse rv e d p o p u la tio n i n th e Copper C ountry, t h e
fo llo w in g a d d it i o n a l f a c i l i t i e s a r e needed:

ab o u t 1*10 lo n g -te rm

»■»

b e d s, 13 p h y s ic ia n s , sev en d e n t i s t s , 45 lic e n s e d p r a c t i c a l n u r s e s ,
*10 r e g i s t e r e d n u rs e s and n in e te c h n ic ia n s .

T hese f a c i l i t i e s would

c o s t th e Copper C ountry p e o p le a p p ro x im a te ly $2.17 m i l l i o n p e r
y e ar (s e e T ab le 1 0 .2 ) .

However, e x p re s s in g t h e m ed ic a l n e ed s o f

th e Copper C ountry i n te rm s o f manpower and d o l l a r s may a c t u a l l y
be an o v e r s i m p l i f i c a t i o n o f th e s i t u a t i o n .

The need f o r t h e

above number o f beds and t r a i n e d p e rs o n n e l i s , a t b e s t , an
approxim ate e s tim a te and does n o t prom ise any s i g n i f i c a n t Improve­
ment i n t h e q u a l i t y o f c a r e .

I t d o e s, how ever, g iv e some id e a o f

th e m agnitude o f th e c u r r e n t n e e d .

The t o t a l sa v in g s from th e

removal o f i n e f f i c i e n c i e s and e lim in a tin g " u n e x p la in a b le " incomes
and p r o f i t s i n th e m e d ic a l in d u s tr y amount t o o nly about $860,000
t o $950,000 (se e T ab le 10.3)*

Even i f t h i s amount could be sa v e d ,

an a d d itio n a l $1.25 m i l l i o n would rem ain t o b e funded th ro u g h o t h e r
so u rc e s.

T h is co u ld n o t b e r a i s e d e n t i r e l y w ith in th e c o u n tie s

because p r e s e n tly

38 p e rc e n t o f th e t o t a l revenue o f t h e c o u n tie s

(in c lu d in g s t a t e a i d , w hich i s 58 p e rc e n t o f t h e t o t a l rev en u e o f
th e Copper C ountry) i s s p e n t on h e a l t h , w e lf a r e , and m e d ic a l a s s i s t a n c e ,
and i f t h e c o u n tie s had t o fin a n c e I t by i n t e r n a l re v e n u e s , alm ost
a l l th e rev e n u es o f th e c o u n tie s would be e x h au ste d and n o th in g

136
would b e l e f t f o r o t h e r program s (se e T able 1 0 .4 ) .

The s t a t e ' s

av erage s h a re i n t h e t o t a l re v e n u e s o f a l l c o u n tie s i n M ichigan
i s ab out 37 p e rc e n t.

T h is shows t h a t th e s t a t e i s a lre a d y g iv in g

more th a n a p r o p o r tio n a te amount o f a id t o th e Copper C ountry
(see T a b le 1 0 .4 ).

T h is re d u c e s th e lik e lih o o d t h a t s t a t e a i d

s

could b e in c re a s e d enough t o p ro v id e f o r a l l m e d ic a l needs o f
th e a r e a .

I t seems c l e a r t h a t u n d er t h e e x i s t i n g s i t u a t i o n more

f e d e r a l a i d i n th e form o f m e d ic a re , m e d ic a id , o ld -a g e a s s i s t a n c e ,
e tc . m ust be added t o p ro v id e f o r a d d it i o n a l m ed ic a l n e e d s.

I

f e e l t h a t b e s id e s rem oving e x i s t i n g i n e f f i c i e n c i e s and " u n e x p la in a b le ”
incomes and p r o f i t s i n th e sy ste m , f i n a n c i a l p a r t i c i p a t i o n a t a l l
le v e ls — c o u n ty , s t a t e and f e d e r a l —i s needed t o p ro v id e a d e q u a te
m edical c a r e t o th e m e d ic a lly in d ig e n t p e o p le o f th e Copper C o u n try .
However, th e above n eed s f o r a d d i t i o n a l m ed ica l f a c i l i t i e s and
e x te r n a l a id a r e l i k e l y t o be te m p o ra ry , b ecau se t h e o v e r a l l
p o p u la tio n o f t h i s a r e a i s d e c lin in g and th e number o f o ld p e o p le
about 64 y e a r s , w hich has b een in c r e a s in g i n p re v io u s y e a r s , now
shows s t a b i l i z i n g t r e n d s .

F u r t h e r , t h e economy o f t h i s a r e a i s

a ls o g ra d u a lly r e c o v e rin g from a slum p.
o f perm anent f a c i l i t i e s

C o n se q u e n tly , c o n s tr u c tio n

and lo n g -te rm a id program s t o h a n d le p r e s e n t

needs may not be e co n o m ic a lly sound.

To d e te rm in e w h eth er n e ed s a r e

o f perm anent n a tu r e , i t i s reconrnended t h a t th o ro u g h s tu d ie s be made
on th e dem ographic t r e n d and c o m p o sitio n , t r e n d o f m o rb id ity and mor­
t a l i t y r a t e and f u t u r e inccme and employment p o s s i b i l i t i e s i n t h e
Copper C ountry.

137
However, f o r a more com prehensive and r e a l i s t i c p la n t o
p ro v id e a d e q u a te m e d ic a l c a r e , a d d i t i o n a l r e s e a r c h m ust be
done on th e fo llo w in g a s p e c ts :

(1 ) optimum l o c a ti o n o f new

f a c i l i t i e s ; (2 ) s p e c i f i c in c e n tiv e p la n t o a t t r a c t t r a i n e d
manpower t o t h e a r e a ; (3 ) ways t o remove o p e r a t io n a l i n e f f i ­
c ie n c ie s i n h o s p i t a l s , e lim in a te " u n e x p la in a b le " h ig h e r income
i n t h e m ed ica l p r o f e s s io n and " u n e x p la in a b le " h ig h e r p r o f i t s
i n th e drug and m ed ica l equipm ent i n d u s t r i e s w ith o u t je o p a r d iz in g
t h e i r e f f i c i e n t f u n c tio n in g ; (4 ) ways t o r e d i s t r i b u t e p o s s ib l e
sa v in g s i n t h e m e d ic a l in d u s tr y t o t h e p e rs o n s who need them
m ost; (5 ) o t h e r a l t e r n a t i v e m ethods o f p ro v id in g m e d ic a l c a r e ;
(6) improvement needs i n th e f e d e r a l program s f o r more e f f e c t i v e
fin a n c in g o f m e d ic a l n eed s o f th e aged and th e p o o r w ith o u t
re d u c in g in c e n tiv e s o f h o s p i t a l s and n u r s in g homes t o d e c re a s e
c o s t.

C o n c lu sio n s
The Copper C ountry i s a t y p i c a l m e d ic a lly in d ig e n t r e g io n .
With i t s h ig h p r o p o r tio n o f o ld p e o p le and h ig h in c id e n c e o f
ch ro n ic i l l n e s s , th e a r e a i s i n s e r io u s need o f more lo n g -te rm
beds and t r a i n e d manpower.

F in a n c e s

f o r th e s e a d d itio n a l

f a c i l i t i e s can n o t be e n t i r e l y found by e lim in a tin g w h a tev e r
o p e ra tio n a l i n e f f i c i e n c i e s and " u n e x p la in a b le " income and p r o f i t s
e x is t.

S u f f i c i e n t i n c r e a s e s i n fu n d s th ro u g h cou n ty t a x a t i o n does

not seem t o be a p o s s i b i l i t y e i t h e r ; so I f e e l t h a t u n d e r t h e
p re s e n t s i t u a t i o n more s t a t e and f e d e r a l a i d m ust b e p ro v id e d t o

138
fin a n c e a d d it i o n a l m ed ica l needs o f th e p e o p le .

However, p r e s e n t

needs f o r a d d it i o n a l m ed ica l f a c i l i t i e s and e x te r n a l a id may be
tem porary b ecau se th e p o p u la tio n o f th e Copper C ountry i s d e c lin in g
and income p e r fam ily i s g ra d u a lly in c r e a s in g .

C onsequently,

b e fo re c o n s tr u c tin g perm anent f a c i l i t i e s , i t must be d eterm ined
w hether th e needs a re l i k e l y t o c o n tin u e .
O th e r r e l a t e d problem s such a s optimum lo c a tio n o f f a c i l i t i e s ,
a t t r a c t i n g t r a i n e d manpower t o th e a r e a , and e f f e c t i v e ways o f
red u cin g m ed ical c o s ts by m inim izing i n e f f i c i e n c i e s o f th e m ed ica l
in d u s try , r e d i s t r i b u t i o n o f incom es i n f a v o r o f th o s e who need i t
m ost, and a l t e r n a t i v e v/ays o f p ro v id in g m ed ica l c a r e , must be
s tu d ie d b e fo re any r e a l i s t i c p la n s can be made t o meet th e m ed ica l
needs o f th e Copper C ountry.

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m
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APPFJIDIK A

appendix a

I.

Incomes o f d o c to r s ;
The r i s i n g Incomes o f p h y s ic ia n s have alw ays been a
c o n tr o v e r s i a l i s s u e .

Men i n o t h e r p r o f e s s io n s have been c r i t i c a l

ab o u t t h e changing r e l a t i v e f i n a n c i a l s i t u a t i o n i n fa v o r o f t h e
m ed ica l p r a c t i t i o n e r s .

A few o f th e view p o in ts on th e s e a r e

a s fo llo w s :
I n th e y e a rs 1942-52, a n av erag e o f 13,400 s tu d e n ts was
a d m itte d t o t h e p r a c t i c e o f law each y e a r . 1

D uring th e same

y e a r th e number o f in d iv i d u a ls a d m itte d t o th e p r a c t i c e o f
m ed icin e a v e ra g e d 6,259 a y e a r

o r l e s s th a n h a l f th e number

b e in g added a n n u a lly t o t h e l e g a l p r o f e s s io n .

The r e s u l t i s

t h a t th e supply p o s i t i o n o f d o c to r s p e r 100,000 p o p u la tio n
d e c re a se d from 164 i n 1910 t o 132 i n 1955, w hereas t h a t o f law y ers
in c re a s e d from 125 t o

146 i n th e same p e r io d .

From t h i s i t would seem t h a t ( i f we assume c o m p e titio n
p r e v a i l s ) th e incom es
th a n t h a t o f d o c to r s .

o f law y ers m ust be c o n s i s t e n t l y h ig h e r
But i f welo o k i n t o th e incom e p o s i t i o n

o f th e two p r o f e s s i o n s , we f i n d t h a t though i n i t i a l l y law yers
had s l i g h t l y h ig h e r incom es th a n d o c to r s , t h i s p o s i t i o n h a s lo n g

1 Cunningham and R eed, Guide t o L earn in g and L iv in g . (Simon &
S c h u ste r, 1 9 5 5 ), p p . 1 7 -1 8 .
2

M edical L ic e n s u re S t a t i s t i c s f o r 1966, l 6 l J o u r n a l o f Am erican
M edical A s s o c ia tio n . 357 (May 2 6 , 1956).
145

1HG

been re v e rs e d i n fa v o r o f d o c to r s .

I n th e 1930fs la w y e rs ' a v e ra g e

incomes d e c re a se d t o 57 p e rc e n t a s much a s d o c t o r s '.

3

In a co m p a rativ e stu d y o f incom es o f d i f f e r e n t p r o f e s s i o n a l s ,
Friedman and K uznets f i n d t h a t t h e incomes o f p h y s ic ia n s a r e ab o u t
s

32 p e rc e n t h ig h e r th a n t h a t o f d e n t i s t s .

They can e x p la in o n ly

17 p e rc e n t o f t h e d if f e r e n c e by h ig h e r c o s t and lo n g e r d u r a tio n o f
tr a i n in g o f p h y s ic ia n s .

They a t t r i b u t e th e u n e x p la in e d 15 p e rc e n t
H
to d i f f i c u l t y o f e n tr y i n to m edicine*
Were th e e n tr y i n t o t h e two
p ro fe s s io n s e q u a lly e a s y , th e number o f p h y s ic ia n s sh o u ld have been
th re e tim e s th e number o f d e n t i s t s t o wipe o u t th e income d i f f e r e n c e s
6
But th e r a t i o o f p h y s ic ia n s t o d e n t i s t s a t t h a t tim e was o n ly 2:1*

5

More r e c e n t l y , F riedm an p o in ts o u t t h a t th e only way p h y s ic ia n s co u ld
raise* t h e i r income i s by r e s t r i c t i n g su p p ly .

T h is th e y have accom7 fi
p lis h e d th ro u g h t h e i r c o n tr o l o v e r t h e s t a t e lic e n s u r e m echanism .' *

^ L o ev in g er, p p . 615-618.
lj

M ilto n Friedm an and Simon Kuznets, Income from In d ep en d en t P r o f e s s io n a l
P r a c tic e s . N a tio n a l Bureau o f Economic R esearch (New York, 1 9 4 5 ).
5 I b i d . p . 133.
6 I b i d . p . 29.
7

M ilto n F riedm an. P r ic e T heory:
A ldine, 1962) p p . 1 5 9 -lS T

A P r o v is io n a l T e x t, (C hicago:

Q
F o r a c r i t i c i s m o f Friedm an an d Kuznets* s tu d y see H e rb e rt E.
K la m a n 's The Economics H e a lth . (Colum bia U n iv e rs ity P re s s : New Y ork,
1965), p p . 90-94.

3747
Iri th e p o s t-w a r p e r i o d , t h e d i f f e r e n c e betw een p h y s ic ia n s '
f)
income and o th e r p r o f e s s io n s lias w idened • ' And t h e r e i s ev ery
reaso n t o b e lie v e t h a t th e s h o rta g e o f p h y s ic ia n s h a s p e r s i s t e d
10
i f not in te n s ifie d *
S anders b e lie v e s t h a t th e p u b lis h e d incom e f i g u r e s o f p h y s ic ia n s
•N

a re to o low.

As a n e v id e n c e h e c i t e s many v a c a n c ie s i n th e D epartm ent

o f H ealth w ith s a l a r i e s more th a n p r e s e n t l y r e p o r te d income f i g u r e s
o f p h y s ic ia n s .

T hese p o s i t i o n s rem ain u n f i l l e d e v en though t h e

advantages t h e r e ( s h o r t e r and more r e g u l a r h o u rs , r e tir e m e n t
b e n e f i ts , e t c . ) a r e much g r e a t e r th a n i n in d e p e n d e n t p r a c t ic e s .

11

Of c o u rse he n e g le c ts t h e f a c t t h a t t h e s e p o s i t i o n s in c lu d e
a d m in is tr a tiv e d u ty (w hich many p h y s ic ia n s do n o t l i k e ) and do n o t
have th e charm

and freedom o f a n in d e p e n d e n t p r a c t i c e .

There a r e s e v e r a l o p p o sin g view s on t h e s u b j e c t s o f su p p ly and
12
incomes o f p h y s ic ia n s .
But t h e c o n cen su s seems t o be t h a t
9

Herman M iles Somers and Anne Ramsey Som ers, D o c to rs . P a t i e n t s and
H ealth In s u r a n c e , (W ash., D .C .iT he B ro o k in g s I n s t i t u t e , 1§61) p p . 2 0 0 -5 .
10 P aul A. Sam uelson, E co n o m ist. F i r s t e d i t i o n (New Y ork. McGraw H i l l .
19*8), p . 9 5 .
--------------^ B ark er S . S a n d e rs , "D isc u ss io n o f S t r u c t u r e , U ses and In a d e q u a c ie s
o f th e O f f i c i a l P r ic e D e f le c t o r s ," P ro c e e d in g s o f t h e B u sin e ss and
Economic S t a t i s t i c s S e c tio n o f t h e A m erican S t a t i s t i c a l A s s o c ia tio n ,
(Wash. D .C .: The A s s o c ia tio n , 1959) p p . 320-322 c i t e d I n K larm an, p . 91.
12

For an i n t e r e s t i n g d is c u s s io n o f d i f f e r e n t v iew s s e e t h e Economics
o f H ealth by H e rb e rt E . Klarman (Colum bia U n iv e r s ity P re s s : New York,
19&5) pp. 88-101.

i48
p h y s ic ia n s a r e i n s h o r t s u p p ly .

To cope w ith th e i n c r e a s in g

p o p u la tio n , a n o th e r 10 t o 30 f o u r - y e a r m e d ic a l sc h o o ls need t o
be e s t a b l is h e d i n t h e n e a r f u t u r e .

T h is p o in t o f view i s a ls o

shared by t h e A m erican M edical A s s o c ia tio n .

13

The Am erican M edical A s s o c ia tio n (AMA) h a s b een v e ry
s u c c e s s fu l i n c o n t r o l l i n g t h e su p p ly o f p h y s ic ia n s an d m ain­
ta in in g th e h ig h incom es o f th e p r o f e s s i o n .

The AMA e n jo y s a

very la r g e m em bership and k eep s a s tr o n g c o n t r o l on i t s members
because o f i t s a b i l i t y t o b o th b e n e f i t and p u n ish members.

A

key f u n c tio n o f th e AMA i s i n s p e c tio n and a p p ro v a l o f m e d ic a l
sc h o o ls.

About 50 p e rc e n t o f th e a p p l i c a t i o n s t o e n t e r th e

m ed ical p r o f e s s io n a r e r e j e c t e d .

Of c o u rs e , t h i s k eep s th e

sta n d a rd o f m e d ic a l p r o f e s s io n h ig h .

But t h e s t r i c t e r th e

sta n d a rd s s e t f o r t h e p r o f e s s io n , t h e s m a lle r th e number o f th o s e
a b le t o q u a li f y and t h e a n a l l e r th e su p p ly o f p r o f e s s i o n a l
s e r v ic e s a v a i l a b l e t o th e p u b l i c .

L o ev in g er sa y s " . . . . re a s o n a b le

b alan ce m ust b e s t r u c k betw een s ta n d a rd s a d e q u a te t o m a in ta in
a h ig h le v e l o f p r o f e s s i o n a l com petence and n e c e s s ity f o r p e r ­
m ittin g a s u f f i c i e n t number o f p e rs o n s t o e n t e r t h e p r o f e s s io n
each y e a r t o p ro v id e t h e s e r v i c e s r e q u ir e d by th e p u b l i c .

13

14

Herman M ile s Somers and Anne Ramsey Som ers, D o c to rs , P a t i e n t s
and H ealth In s u ra n c e (W ashington, D. C ., The B rookings I n s t i t u t e
19t>lJ, pp. 124-125. C ite d i n H e rb e rt E. K larm an, The Economics o f
H ealth (Columbia U n iv e rs ity P r e s s : New Y ork, London, p . 161",’ S om erses,
pp. 124-125, C ite d i n Klarm an, p . 101.
L o e v in g e r, p p . 615-6

149
The Drug I n d u s tr y
I n th e l a s t few d e c a d e s, th e d ru g com panies, th ro u g h t h e i r
re s e a rc h u n i t s , have c o n tr ib u te d much t o t h e developm ent o f new
dru g s.

The p r i c e s o f th e s e new d ru g s a r e g e n e r a lly v e ry h ig h ,

and th e g e n e r a l co n cen su s i s t h a t i f a c o m p e titiv e s i t u a t i o n
e x is te d i n t h e d ru g i n d u s t r y , t h e p r i c e s co u ld be much lo w er.

T hat

i s why d ru g m a n u fa c tu re rs were c r i t i c i z e d i n s e v e r a l c o n g re s s io n a l
h e a rin g s.

The fo llo w in g pages a r e d e v o te d t o g e n e r a l d is c u s s io n s

o f th e s t r u c t u r e , conduct and p erform ance i n th e d ru g in d u s tr y .
P ric in g P r a c t i c e s :
F or more th a n a dozen y e a r s , drug m a n u fa c tu re rs have b een
involved i n a w orld-w ide c a r t e l t o f i x t h e p r i c e o f b ro ad -sp ec tru m
a n tib o tlc s ( e f f e c t i v e a g a in s t b o th gram p o s i t i v e and gram n e g a tiv e
b a c te r ia ) a t i d e n t i c a l , g r o s s ly i n f l a t e d , and u n co n scio n a b ly h ig h
p r ic e s .

A c a r t e l o f f i v e p h a rm a c e u tic a l f irm s :

C h a rle s P f i z e r

and Company, I n c . , Am erican Cynamid Company, B risto l-M y e rs and
Company, I n c . , th e Squibb D iv is io n o f O lln M athieson Chemical Cor­
p o ra tio n , and t h e Upjohn Company* f ix e d th e p r i c e s o f b ro ad -sp ec tru m
a n tib o tlc s a t an u n re a so n a b ly h ig h l e v e l and c o n s p ire d to fo llo w
th a t u n ila te r a lly .

P i l l s w ith p ro d u c tio n c o s t o f o n ly 1 .6 c e n ts

were so ld t o t h e Am erican p u b l ic , u n t i l r e c e n t l y a t 51 c e n ts each
15
and now s e l l f o r a b o u t 30 c e n ts p e r p i l l .

15

H earings b e fo re th e S e n a te Subcom m ittee on A n t i tr u s t and Monopoly,
87th C ongress, 1 s t S e s s io n , (December 7 - 9 , 1 9 6 1 ), p p . 2407-8.

100
I n F e b ru ary 1969 th e same f i r m s , u n d e r a n t i t r u s t law s, were
accused o f h a r v e s tin g huge p r o f i t s by r ig g in g t h e p r ic e o f a
wonder d ru g and were fo rc e d t o o f f e r a payment o f $120 m illio n
16
to s e t t l e alm o st 100 c i v i l law s u i t s *
I n I960 S h e rin g b i d $17.97 on P re d n is o n e , an Im portant drug
■
s

f o r a r t h r i t i s , on a c o n tr a c t to t h e m i l i t a r y procurem ent ag en cy .
I t s p r ic e t o th e d r u g g i s t a t t h a t tim e was $170 f o r th e same b o t t l e
(5 m .g. t a b l e t s , 1000 p e r b o t tl e ) s e l l i n g u n d e r th e tr a d e name,
M e tic o rte n .

S h e rin g d id n o t g e t t h e o r d e r from th e m i l i t a r y .

o f th e s m a lle r com panies won w ith a b id o f a b o u t $10.

One

A ccording

to th e 1966 Redbook, w hich p u b lis h e d t h e p r i c e s p ro v id ed by th e
drug com panies th e m s e lv e s , S h erin g i s s t i l l s e l l i n g a t th e p r i c e
o f $170 t o th e d r u g g i s t s .

I f a d o c to r w r ite s a p r e s c r i p t i o n u n d e r

th e g e n e ric name "P re d n iso n e " I n s te a d o f " M e tic o rte n ," t h e
consumer can buy t h e i d e n t i c a l d ru g f o r l e s s t h a n $20. ^
A nother example i s th e case o f R e s e rp in e , a n im p o rta n t hypo­
te n s iv e d ru g .
m il i ta r y .

In 1959 CIBA was b id d in g 60 c e n t s on s a le s t o th e

At th e same tim e , i t s p r i c e to th e d r u g g is t was $39*50

f o r th e same q u a n tity (25 m .g. t a b l e s p e r 1000 b o t t l e ) .

By 1964,

th e m i l i t a r y p eo p le w ere buying them f o r a ro u n d 47 c e n ts and a c c o rd in g
to th e 1966 Redbook, CIBA's p r ic e f o r t h e same day s o ld u n d e r i t s
tra d e name " S e r p a s i l ," was $39.50.

I n c lu d in g t h e d r u g g i s t 's m ark-up

the consumer p a id a b o u t $65 •

The S ta te News (M ichigan S t a t e U n i v e r s i ty ) , F ebruary 7» 1969* p . 3.
17

U .S. C o n g ress, S enate H e a rin g s , 89t h C o n g re ss, S e ss io n 2 , PA 3
pp. 2886-2912.
18 ^ I d . . pp. 2886-2912.

151
S im ila r ly , T e tra c y c le n e was s o ld a t p r e n e g o tia te d p r ic e s
under d i f f e r e n t names by d i f f e r e n t com panies, Cynamid s o ld i t
as Cliromycin, P f i z e r a s T e tra c y n and Upjohn a s Panmycin.
charged alm ost 50 tim es t h e c o s t o f th e p ro d u c t.

They

They a ls o

se cu re d p a te n st r i g h t s by m is r e p r e s e n ta tio n i n th e P a te n t
O f f i c e .19
Product D i f f e r e n t i a t i o n :
Dnrg firm s a r e a b le t o d i f f e r e n t i a t e t h e i r p ro d u c ts by
brand names and i n te n s iv e a d v e r t is in g .

E vidence a t th e 1956-60

Senate A n t i tr u s t H earin g s on th e Drug In d u s tr y in d ic a t e s t h a t
drug companies spend a b o u t o n e -f o u rth o f t h e s a le s d o l l a r on
20
prom otion o r a b o u t $4,000 a y e a r p e r d o c to r.
Camanor and
W ilson s tu d ie d 41 i n d u s t r i e s and found t h a t a l l bu t two had low er
a d v e r tis in g to s a l e s r a t i o s th a n t h a t o f d ru g m a n u fa c tu re rs.

T h e ir

s tu d ie s a ls o re v e a le d t h a t a d v e r t is in g o u tla y s re p r e s e n t l e s s th a n
h a lf o f th e t o t a l s e l l i n g e x p e n d itu re s o f d ru g com panies.

21

In f a c t , m ost d o c to rs depend upon th e a d v e r t i s e r s t o t e l l them
about th e d ru g s.

Due t o t h e i r busy s c h e d u le s , d o c to rs cannot keep

pace w ith th e m u ltitu d e o f d ru g s coming i n t o th e m a rk e t.

So d o c to rs

terjd t o reconmend th e h ig h ly p u b lic iz e d b ran d s th e y a r e most

19

F or a v e ry i n t e r e s t i n g and illu m in a tin g d is c u s s io n o f t h i s
see 8 9 th Congress S e ss io n 2 , p a r t 3 , p p . 2886-2912.
20

A d m in is tra tiv e P r i c e s i n th e Drug I n d u s tr y , H earings b e fo re
th e S e n a te C om nittee on A n t i tr u s t and Monopoly, 86th C o n g ress, S e ss io n
2 (I960) p a r t 18, p p . 10454-58.
21

W illiam E . Camanor and Thomas A. W ilson, " A d v e rtis in g , M arket
S tr u c tu re and P erform ance: An B n p ir ic a l A n a ly s is ," Review o f Economics
and S t a t i s t i c s . (November 1 9 6 7 ), Appendix, T ab le 2.

152
f a m i li a r w ith .

T h is I s why a b o u t 90 p e rc e n t o f t h e p r e s c r i p t i o n s

today a r e w r i t t e n w ith e x p en siv e brand names, e v en though c h e a p e r
g e n e ric e q u iv a le n ts a r e a v a i l a b l e .

The s a le s o f p r e s c r i p t i o n d ru g s

have b een in c r e a s in g f o r th e l a s t few d e c a d e s .

22

Between 1929 and

1956 r e t a i l p r e s c r i p t i o n s a l e s grew f r a n $1^0 m i l l i o n t o $ 1 .5 b i l l i o n ,
■s

an in c r e a s e o f a lm o st 1,000 p e r c e n t , and n e a rly t h r e e tim e s a s f a s t
as t o t a l d ru g s to re s a l e s . ^

T h is t r e n d i s s t i l l c o n tin u in g .

I s in t h e p r e s c r i p t i o n drugs t h a t d r u g s to re s
g re a t p r o f i t .
th e d r u g s to r e s

It

and com panies make

I f a d o c to r p r e s c r i b e s a p a r t i c u l a r b ran d o f m e d ic in e ,
a r e l e g a l l y a llo w ed t o f i l l th e p r e s c r i p t i o n w ith t h a t

brand o n ly .
Sometimes d o c to r s h o ld s to c k s i n d ru g com panies, t h i s i s a n o th e r
rea so n why th e y te n d t o reconm end s p e c i f i c brands*

A stu d y a t th e

U n iv e rs ity o f W isco n sin shows t h a t , in d e e d , d o c to r s h o ld in g s to c k
p re s c rib e d th e b ra n d o f t h e i r c o n p a n ie s about 19 p e rc e n t o f t h e tim e
in 1963 and 13 p e rc e n t o f th e tim e i n 196^ and m ore th a n th e d d c to r s -----w ith no s to c k .

More th a n c o in c id e n t ly , t h e i r ( d o c to r s w ith s to c k )

p a tie n ts p a id an a v e ra g e o f 33 p e rc e n t more f o r d ru g s th a n p a t i e n t s o f
th e o th e r p h y s ic ia n s (w ith o u t s to c k ) d i d i n 1963, and an a v e ra g e o f 20
p e rc e n t more i n 196*h2^

22

P r e s c r i p t i o n d ru g s a r e th o s e w hich a re s o l d under d o c to r’s
a u th o r iz a tio n p lu s th o s e n o n p r e s c r ip tio n drugs f o r w hich d o c to r s w ro te
a p r e s c r i p t io n .
2*3

Lucy M. K ram er, "Drug and M e d ic in e s ,"
(O ctober 1958) p . 932.

P u b lic H e a lth R e p o rts

89t h C o n g re ss, S e s s io n 2 , p p . 11929-11931*
89t h C o n g re ss, S e s s io n 2 , (May 19-June 6 , 1966) p p . 11929-11931*

153
C o n c e n tra tio n :
The d eg re e o f c o n c e n tra tio n i n t h e drug in d u s tr y i s a ls o v e ry
h ig h .

Seven m ajor d ru g groups:

a n t i b o t l c s , horm ones, d i a b e ti c

d ru g s, s u l f a s , v ita m in s , and t r a n q u i l i z e r s , a cco u n ted f o r ab o u t tw ot h i r d s o f th e t o t a l v a lu e o f a l l e t h i c a l d ru g s i n 1958*

The

Kefauver com m ittee a n a ly z e d 51 p ro d u c ts i n t h e s e s i x groups and
found t h a t 15 le a d in g drug com panies c o n tr o lle d th e p ro d u c tio n a s
fo llo w s:

" . . . . I n 27 o f th e p ro d u c ts more th a n o n e -h a lf o f th e e n t i r e

U nited S t a te s o u tp u t i s produced by one o f t h e 15 com panies. . .

In

s u lf a d ru g s one company a cco u n ts f o r 100 p e rc e n t o f th e o u tp u t I n
e ig h t o f th e n in e p ro d u c ts .

In t r a n q u i l i z e r s t h e c o n d itio n s o f

monopoly p r e v a i ls i n s i x o f t h e se v en p ro d u c ts .

I n a n t i b o t l c s ( o th e r

th an p e n i c i l l i n ) t h e t o t a l o u tp u t i s produced by one company i n f iv e
o f th e p ro d u c ts , and i n hormones and v ita m in s , th r e e out o f t h e n in e .
In e ig h t a d d it i o n a l p ro d u c ts c o n c e n tra tio n t a k e s th e form o f duopoly
(c o n tro l by two) w h ile i n te n o t h e r s th e e n t i r e o u tp u t i s p roduced by
th re e com panies.

A g a in st th e t y p i c a l s t r u c t u r e o f c o n c e n tr a tio n in

m anufacturing i n d u s t r i e s , I t I s In d e e d , rem a rk ab le t h a t I n o n ly s ix o f
th e 51 p ro d u c ts a r e t h e r e a s many a s fo u r p ro d u c e rs ."

26

P aten t p r i v i l e g e s :
P a te n t p r i v i l e g e s s e r io u s ly l i m i t p r ic e c o m p e titio n among e t h i c a l
drugs.

H olders o f p a te n ts may c o n tr o l o u tp u t l e g a l l y , th u s m ain­

ta in in g th e p r ic e a t a h ig h l e v e l .

26

Drug p a t e n t s may not c r e a t e a b s o lu te

U .S. C o n g re ss, S e n a te , R ep o rt M8 o f t h e C cntnittee on j u d ic i a r y
made by i t s subcom m ittee on A n t i t r u s t and M onopoly, 87t h C o n g re ss, 1 s t
S essio n , Study o f A dm inistered P r i c e s in t h e Drug I n d u s tr y , Ju n e 27,
1961, pp. 68-99.

15*1
m onopolies b ecau se o n ly a few p a te n ts a r e w ith o u t s u b s t i t u t e s ,
but th e y do c r e a t e a fo rm id a b le b a r r i e r t o e n tr y .

P a te n ts a r e

le g a l o n t h e ground t h a t th e y h e lp r e s e a r c h and d ev elo p m en t, b u t
very l i t t l e o f t h e r e s e a r c h i s o r i g i n a l .

Most o f i t i s j u s t a

m o le cu la r J u g g lin g o f th e o r i g i n a l p r o d u c ts .

Drug com panies r e a p

high p r o f i t on t h e s e p a te n te d d ru g s .
P ro fits :
The p r o f i t r a t e s i n t h e d ru g I n d u s tr y have b e en one o f th e
h ig h e s t among a l l i n d u s t r i e s .

E s p e c ia lly a f t e r 1956 th e drug

in d u s try h a s c o n s i s t e n t l y ra n k e d f i r s t o r second i n t h e l e v e l o f
p ro fit r a t e s .

H ie t a b l e below g iv e s a com parison o f t h e p r o f i t

r a te s o f l a r g e d ru g com panies and t h a t o f a l l le a d in g m a n u fa c tu re rs .
TABLE A .l —R ates o f R etu rn o f L eading Drug M a n u fa c tu re rs and
A ll L eading M a n u fa c tu re rs i n 1950 t o 1966
DnJS a : A ll M anu-.i Ranking o f L eading Drug Companies Among
Year ; I n d u s tr y
. f a c t u r in g J A ll L eading M a n u fac tu rin g Companies
1950
1952
195*1
1956
1958
I960
1961
1962
1963
196*1
1965
1966

19.6
12.7
1 2 ,8
18.2
20.2
18.*1
17.6
17.1
1 7 .8
18.9
21.0
2 1 .1

17.3
12.7
1 2 .8
1 3 .8
9 .3
10 .'3
9 .8
10.6
11.5
12.3
13.4
13.3

6
11
8
2
1
1
1
2
2
2
2
1

I d e n t i c a l C o m p an ies'in S e le c te d M an u fac tu rin g I n d u s t r i e s , 1 9 5 5 -6 6 ," and
Moody's I n d u s t r i a l M anual, 1952-5*1. Q uoted i n 9 0 th C o n g ress, P a r t 5»
S essio n 1 and 2 , p . 1825.
a Based- on e i g h t l a r g e s t conqpanies from 1950 t o 1953 and 12 l a r g e s t
companies from 195*1 t o 1966.
b B ased on e i g h t l a r g e s t com panies from 1950 t o 1953 and 12 l a r g e s t
companies from 195*1 t o 1966 e x c e p t f o r two i n d u s t r i e s .

155
3.

H ealth In s u ra n c e
I t I s som etim es a rg u e d t h a t p re p a id h e a l t h I n s u ra n c e , b e s id e s
g iv in g f i n a n c i a l p r o t e c t i o n a g a i n s t i l l n e s s , i s e n co u rag in g o v e ru se
and m isu se o f m e d ic a l c a r e f a c i l i t i e s .

The r o l e o f h e a l th in s u ra n c e

companies i n f in a n c in g m e d ic a l c a r e c an n o t b e d e n ie d — i t i s in d e e d
an e x tr a o r d in a r y sy ste m .

However, many a r e c r i t i c a l o f t h e e f f e c t s

o f e x te n s iv e h e a l t h In s u r a n c e .

Some c r i t i c i s m s a r e p r e s e n te d below .

H e a lth in s u r a n c e h a s made i t v e ry e a sy f o r d o c to r s and h o s p i t a l s
t o g e t payment o f t h e i r b i l l s .

Some d o c to r s p u t up t h e i r c h a rg e s

a f t e r consum ers have a lr e a d y b o u g h t p a r t i c u l a r u n i t s o f s e r v i c e s .
r i s e i n th e p r i c e o f an appendectom y, w hich h as b een "b o u g h t11 b u t
which may o r may n o t be n e c e s s a r y , w i l l c o s t t h e consum er n o th in g
27
i n th e s h o r t - r u n o r u n t i l t h e p o lic y I s renew ed. '
A ccording t o many s u r v e y s , p r i v a t e h o s p i t a l in s u ra n c e h a s
r e s u l te d i n u n n e c e ssa ry h o s p i t a l s t a y s , u n n e c e ssa ry d ia g n o s tic
pQ

p ro c e d u re s , u n n e c e ssa ry tr e a tm e n ts and s u r g i c a l o p e r a tio n s .

A

stu d y by Columbia U n iv e rs ity i n 1962 showed t h a t o v e r o n e - t h i r d o f
2Q
a l l h y s te re c to m ie s p erfo rm ed w ere u n n e c e ssa ry . ^

27

H. M. Somers and A. R. Som ers, D o c to r, P a t i e n t s and H e a lth
In s u ra n c e , 1961; and M. G. T a y lo r , The A d m in is tra tio n o f H e a lth
In su ra n ce i n C anada, 1956.
J . H. Hayes ( e d . ) , F a c to r s A f f e c tin g th e C ost o f H o s p ita l
C are, 1961!.
R. E. T r u s s e l l , New York T im es, May 11, 1962.

A

APPENDIX B

TAH£ B .l—Hie T o tal Expenditures o f th e Copper Country M edical F a c ilitie s by Major Components in 1967

Code Names : T otal
o f F a c ilitie s : Cost

%
$BT
5?
C
cp

£
Ds

5SL
sp
Grand T o tal
Note:

: S a la rie s
:
and
: Wages

: M edical
Equipment : and
: P rofes.
: Fees

780,158
1,511,546
56,274
65,238
71,674
"641,718
133,588
162,213
754,690
513,670
80,200
303,000
30,000

470,914
996,500
35,009
36,993
58,708
506,348
100,713
92,325
438,642
301,912
45,000
16,583
10,000

42,431
76,039
1,200
3,484
1,400
17,083
3,000
10,833
51,528
38,754
5,113
34,074
1,225

47,015

5,103,969

3,258,147

286,164

84,796

—
—
—
—

- —
—
- —
— -

37,781
—
—

Food

: Drugs

: U tilitie s

22,170
5,619

1,000
10,803
- —
---39,820
8,885
—
---15,764
4,600
35,955 36,955
23,744
30,620
8,000
2,000
12,000 16,316
8,000
* ”

16,509
37,150
1,796
3,441
2,500
24,042
1,000
4,800
22,606
11,111
3,500
8,000
500

186,128

136,958

48,074

40,185
101,000
-

-

287,301

32,152
45,600
—

Computed fra n th e audited records o f th e resp e c tiv e m edical care f a c i li ti e s .

S ubscripts:

s = short-term
L = long-term
sp = serv ice providing

: R epair :
Laundry : and
: Supplies
: M ainten-:
: ance
:
8,371
58,000
—
1,500
500
597
——
924
8,433
9,123
—
155
1,000
100
2,658
1,443
3,694
2,194
2,400
200
3,000
1,500
100
90
85,697

Dep. and :
In te re s t :

42,685
76,283
1,663
1,934
6,000
17,466
5,359
4,974
50,625
27,943
2,500
15,000
5,000

36,346
56,207
7,690
3,663
1,100
4,000
2,721
2,000
53,559
13,146
1,700
19,926
535

257,432

202,603

O ther

21,370
59,148
7,413
2,823
1,042
6,518
20,640
25,817
60,719
22,741
9,787
28,101
4,550 •
270,669

APPENDIX B

157
TABLE B .2—The T o ta l R evenues, E x p e n d itu re s, and P r o f i t s i n th e Copper
Country M edical Care F a c i l i t i e s i n 1967
•
•

Code Names o f F a c i l i t i e s

:
:

T o ta l
Revenue

:
:

■
■

T o ta l
Cost

•

Net P r o f i t
and Loss

•

772,681

780,158

-7 ,4 7 7

1 ,5 6 4 ,7 5 0

1 ,5 1 1 ,5 4 6

53,204

59,094

56,274

2,820

80,882

65,238

15,644

Bsp

95,694

71,674

24,020

*L

641,718

641,718

-

Csp

163,513

133,588

29,925

171,122

162,213

8,909

755,043

754,690

353

514,024

513,670

354

°L

100,000

80,200

19,800

Es

267,417

303,000

-3 5 ,5 8 3

Dsp

30,000

30,000

5 ,2 1 5 ,9 3 8

5,103,969

As

'

Bs
Asp
al

CL
Cs
Ds

TOTAL
Note:

:
:

111,969

Computed from th e a u d ite d re c o rd s o f th e r e s p e c tiv e
fa c ilitie s .

S u b s c rip ts :

s = s h o rt-te rm
L = lo n g -te rm
sp = s e r v ic e p ro v id in g

TABIE B.3—T o ta l Income o f P h y s ic ia n s and D e n tis ts i n th e Copper
C ountry i n 1967

Profes­
sions

V is its
p e r D o cto r
p e r Day

Fee
per
V is it

Income : In ca n e
from :
from
V i s i t s : Surgery*

Income
from
Goods
S o ld

:
:
:
:

G ross
Income

- -niiTtoer- Physicians

40

48,000

20,675

1,500

70,175

D entists

26

31,200

18,640

1,500

51,340

■ I n th e y e a r 1967, th e p h y s ic ia n s i n t h e Copper C ountry perform ed
1,590 m ajo r and 2 ,3 2 1 m in o r s u r g e r i e s .
Source:

C o lle g ed by su rv ey o f th e a r e a and h o s p i t a l r e c o r d s .

159
TABLE B. 4—B u sin e ss R e c e ip ts and E xpenses o f P h y s ic ia n s and D e n tis ts

Item s

: P h y s ic ia n

:

D e n tis t

----------- p e rc e n t---------B usiness R e c e ip t
B usiness D e d u c tio n s, T o ta l
Cost o f Goods S o ld , T o ta l
In v e n to ry , B eginning o f Year
M erchandise P urchased
Cost o f Labor
M a te r ia ls and S u p p lie s
O th er C o sts
Less In v e n to r y , B id o f Year
D e p re c ia tio n
Taxes
Rent
R epairs
S a la r ie s and Wages
In su ran ce
Legal and P r o f e s s io n a l P ees
Commissions
A m o rtizatio n
R etirem ent P la n s , e t c .
In te re s t
Bad D ebts
C asualty L o sses
D ep letio n
O ther B u sin ess D eductions
Net P r o f i t (L ess L oss)
Source:

100.00
40.67
2 .9 9
.06
.71
.62
1 .1 5
.52
.07
3*31
1 .0 0
4 .1 1
0 .3 9
10.59
1 .0 9
1 .4 8
.04
.01
.02
.38
.02
.05
.02
15.15
59*33

100.00
49*20
8.39
.02
*73
1.69
3.52
2.42
.02
3.26
1.18
4.36
.48
11.84
.75
2.60
,05
.02
.01
.58
.04
.01
.01
15.64
50.60

Computed from T ab le 3 , p . 31 o f th e S t a t i s t i c s o f
Incom e
1964, I n t e r n a l Revenue S e r v ic e .

/

lG
O

B.5

The Methods of KstJmatinp; Profit Rate of Drugstores

A t y p i c a l d ru g s to re

has e ig h t d e p a rtm e n ts:

p re s c rip tio n ,

p r o p r i e t a r y , t o i l e t r i e s , s u n d r ie s , to b a c c o , c o n f e c tio n s , m agazines
and f o u n ta in .

We a re i n t e r e s t e d i n knowing th e p r o f i t r a t e s o f

o n ly p r e s c r i p t i o n and p r o p r i e t a r y d e p a rtm e n ts .

T hese two d e p a r t ­

m ents account f o r ab o u t 1*5 t o 50 p e rc e n t o f t h e t o t a l s a l e s o f
th e d r u g s to r e s .

To e s tim a te th e " r a t e o f u n e x p la in a b le p r o f i t -

d if f e r e n c e " o f d ru g s to re s

(s e e C h a p te r V I ) , I computed t h e combined

p r o f i t r a t e s o f th e p r e s c r i p t i o n and p r o p r i e t a r y d e p a rtm e n ts i n
12 s to r e s s tu d ie d by B u rle y , F is h e r and Cox (se e T a b le B .5 b e lo w ).
TABLE B.5—Combined P r o f i t R ate o f P r e s c r ip t i o n and P r o p r ie ta r y
D epartm ents

»

Departments

: Total
: Sales

: Gross
: Margin

: Operating : Net P r o f i t
:
Cost
:(before tax)
«
»

Prescription

329,81*0

160,302
(1*8.6)

108,188
(3 2 .8 )

52,11^
(1 5 .8 )

Proprietary

176,096

56,175
(3 1 .9 )

37,685
(21.1*)

17,081
(9 -7 )

Total

505,936

216,1*77
(1*2.79)

11*5,873
(2 8 .8 3 )

69,196
(1 3 .6 8 )

Source:

Adapted from T able 1 6 .1 , p . 221 and T a b le 1 7 .1 ,
p . 2l*2 o f Drug S to r e O p e ra tin g C o sts and P r o f i t s
by O rin E. B u rle y , A lb e rts B. F i s h e r , J r . and
R obert G. Cox. New York: M cGraw-Hill Book
Company, I n c . 1956.

16]
F or T ab le 6 .3 i n C h a p te r VI we needed t o compute t h e p r o f i t
r a t e ( a f t e r ta x ) a s a p e rc e n ta g e o f e q u ity .

But th e t o t a l e q u ity

f ig u r e i s n o t a v a i la b l e f o r th e above d r u g s to r e s .

The t o t a l s a l e s

f ig u r e o f $505,936 was m u lt i p li e d by 0.2411 t o c o n v e rt i t t o t o t a l
e q u ity f i g u r e .

The f a c t o r 0.2411 was computed by ta k in g a r a t i o

o f t o t a l e q u ity t o t o t a l r e c e i p t s o f a l l d r u g s t o r e s .1
e q u ity o f th e 12 s t o r e s was computed t o be $121,425.

H ie t o t a l
The p r o f i t s

a f t e r ta x e s ($ 4 4 ,1 5 4 ) was computed by d e d u c tin g an income ta x o f
o
36 p e rc e n t from th e n e t p r o f i t b e fo r e t a x ($ 69, 196) . F i n a l l y , n e t
p r o f i t o f $44,154 was e x p re ss e d a s a p e rc e n ta g e o f th e t o t a l e q u ity
($121,425)* w hich comes t o be 36.36 p e r c e n t.
The m ajo r l i m i t a t i o n s o f th e above e s tim a te s a r e :

(1 ) th e s a l e s

and p r o f i t d a ta o f th e p r e s c r i p t i o n and p r o p r i e t a r y d e p a rtm e n ts o f
th e d r u g s to r e s a r e f o r th e y e a r 1950-51* and th e s i t u a t i o n m ight
have changed s in c e th e n .

B ut a s t h e s a l e s and p r o f i t s i n th e

p r e s c r i p t io n d ru g s have in c re a s e d i n th e r e c e n t y e a r s , t h e p r o f i t
r a t e s may be s l i g h t l y u n d e re s tim a te d .

(2) The r a t i o o f t h e t o t a l

e q u ity t o r e c e i p t s f o r a l l th e d r u g s to r e s was u se d t o compute th e
t o t a l e q u ity f i g u r e o f p r e s c r i p t i o n and p r o p r i e t a r y d e p a rtm e n ts,
which may u n d e re s tim a te o r o v e re s tim a te ( th e d i r e c t i o n i s n o t c l e a r )
th e e q u ity f i g u r e .

However, t h i s i s th e b e s t p o s s ib le e s tim a te

th a t co u ld be o b ta in e d w ith th e d a t a a v a i l a b l e .

1 I n t e r n a l Revenue S e r v ic e , S t a t i s t i c s o f Incom e. 1965, p . 192.
2
The f i g u r e 36 p e rc e n t was computed by ta k in g a p e rc e n ta g e o f th e
t o t a l Income t a x (p a id by a l l r e t a i l e r s ) t o t o t a l n e t incom e o f a l l
r e t a i l e r s . S o u rc e: I b i d , p . 255.

162
B.6

The Procedures for Determining the Quality of Care In the
Copper Country Hospitals

The q u a l i t y o f c a r e i n h o s p i t a l s was d ete rm in e d by t h e number
o f s e r v ic e s and f a c i l i t i e s a v a i la b l e i n e ac h .

T hese f a c i l i t i e s ,

common t o a l l h o s p i t a l s , were g e n e r a lly e lim in a te d , b e cau se we a r e
•s

I n t e r e s t e d h e re o nly i n th e r e l a t i v e q u a l i t y o f c a r e i n th e s e
h o s p ita ls .

The f a c i l i t i e s a r e l i s t e d i n T able B .7 .

The h o s p i t a l s

were th e n ranked w ith r e s p e c t t o th e number o f f a c i l i t i e s i n each
d e p a rtm e n t.

The one v /ith maximum number o f f a c i l i t i e s was ra n k e d

1 and so on.

Two o r more h o s p i t a l s w ith th e same number o f s e r ­

v ic e s i n a p a r t i c u l a r d e p artm e n t w ere a s s ig n e d t h e same ra n k .
The ran k f o r each h o s p i t a l was th e n added f o r a l l 17 item s i n th e
lis t.

The one w ith minimum ra n k t o t a l s was c o n sid e re d t o have th e

b e st q u a l i t y o f c a r e , b e cau se we assumed t h a t th e q u a l i t y o f c a r e
i s p o s i t i v e l y c o r r e l a t e d w ith t h e number o f a v a i la b l e f a c i l i t i e s .
The m ajor l i m i t a t i o n o f t h i s p ro c e d u re i s i n t h a t t h e item s i n
th e l i s t a r e n o t w eig h ted a c c o rd in g t o t h e i r c o n tr ib u tio n t o th e
q u a lity o f c a r e .

F u rth e r1, t h e a v a i l a b i l i t y o f f a c i l i t i e s does n o t

g u a ra n te e t h e i r e f f i c i e n t u s e .

However, t h i s p ro c e d u re i s p a r t l y

in l in e v /ith th e a c c e p te d p ro c e d u re o f t h e J o i n t C om nisslon on th e
A c c r e d ita tio n o f H o s p ita ls .
In T ab le B.7 i t i s e v id e n t t h a t th e h o s p i t a l B

s

h as th e m ax i-

mum facilities, followed by A_ and C . The hospitals D and E '
s
s
s
s
have equal rank totals.

It is difficult to say which of than has

163
h ig h e r q u a l i t y

o f c a re .

N e ith e r o f th e s e h o s p i t a l s m eet th e

s ta n d a r d s o f t b e J o in t Cccrmission on th e A c c r e d ita tio n o f
H o s p ita ls .

H ow ever, Michigan H o s p ita l S e rv ic e (B lue C ross)

h as p r o v i s i o n a l l y approved D_ b u t n o t E .
5

S

So we may say t h a t

h o s p i t a l D_ h a s a s l i g h t edge o v er E_.
s s
s
B ased on t h e follow ing a n a l y s i s , we r a n k th e h o s p i t a l
B a s h a v in g t b e b e s t q u a lity o f c a r e , fo llo w ed by A_, C ,
s
s
s
n

s

and E

s

i n t l x a t o rd e r, but t h e d i f f e r e n c e betw een th e l a s t
'

two i s n e g l i g i b l e .

TABLE B.7— In v e n to ry o f S e le c te d H e a lth S e rv ic e s and F a c i l i t i e s i n
H o s p ita ls i n th e Copper C ountry i n 1966

S e ria l :
Number

S e r v ic e F a c i l i t i e s
:

s

H o s p ita ls
: C
s
s .
•
•

•*
•

s

:

E

S

*

1.

I n - s e r v i c e N urse Program

-

X

-

-

-

2.

B o a r d - e lig ib le Surgeon

X

X

-

-

-

3.

S u r g ic a l Equipm ent
Gas A n e s th e s ia E quip.
D e fib rilla to r-C a rd io sc o p e Pacem aker
S u c tio n Equipment
C ystoscopy Roctn

X

X

X

X

X

X
X
—

X
X
X

X
X
—

-

X
-

X
X
-

X
X
X

X
X
X

X
X
-

X
X
—

X

—

—
X
X
X

X
X

X

X

—

—

-

—

-

X

X

X

X
X
X
X
X

X
X

X
X

X
X

—

—

-

—

—

—

X

X

X

X
X
X

X
X

X
X

X
X

-

-

-

L a b o ra to ry
P a th o lo g is t
C l i n i c a l L a b o ra to ry
Morgue F a c i l i t i e s
P a th o lo g y L a b o ra to ry
F a c ilitie s
Blood Bank
M edical T e c h n o lo g is ts
L a b o ra to ry T e c h n ic ia n s
5.

6.

7.

R adiology
R adio D ia g n o s tic ia n
R a d io lo g is t
R o u tin e C hest X -ray
X -ray T herapy (Deep)
R a d io lo g ic T e c h n ic ia n

—

X
X
X
X
X
-

X

-

D epartm ent o f O b s te t r ic s
D e liv e ry Room
N ursery
P rem atu re N ursery

X
X

Pharmacy
Pharmacy D epartm ent
Drug Room
P h a rm a c is t, f u l l - t i m e
P h a rm a c is t, p a r t- tim e

-

X

-

-

X

—

X

X

-

—

X

_

..

_

X

-

X

-

-

—

165
TABLE B.7— Continue!

S e r ia l :
Humber

S e rv ic e F a c i l i t i e s

:
;

As

«

8.

9.

10.

11.

12.

13.

14.

P h y s ic a l T herapy
P h y s ic a l Therapy D ept.
P h y s ic a l Therapy S e rv ic e
P h y s ic a l T h e r a p is t, Reg.
D epartm ent o f P e d i a t r i c s
P e d i a t r i c D epartm ent
P e d i a t r i c D e p t., I s o l a t e d
from M ed ./S u rg . P a t ie n t s

H o s p ita ls
K5 .: CcS :
•
•

:•

X
X

—

X

—

X

—

—
—

—

X

X

X

X

X

-

X

-

-

-

X

X
—
X
X
-

X
—
X
X
-

X
—
X
X
—

D epartm ent o f M edicine
E.K.G. F a c i l i t i e s
P s y c h i a tr i c H olding U n its
Emergency D epartm ent
M edical S t a f f L ib ra ry
R e s p ira to r y C are

X
X
—

X
X
X
X
X

D ie ta ry D epartm ent
D ie ta ry D epartm ent
D i e t i t i a n , R e g is te re d

X
—

X
X

X
—

X
—

X
—

Laundry
Own Laundry F a c i l i t y
Laundry C o n tra c t

X

X
—

X
—

X
—

X
—

X

X

X

X

X

X

X

H o s p ita l P o lic y
H o s p ita l A ccepts P t s . w ith
L im ite d R esources
H o s p ita l Has N u rsin g
P ro ced u re Manual
H o s p ita l Has A utom atic S top
O rder on D angerous Drugs
C o n s u lta tio n R eq u ired f o r
C -s e c tio n
S te riliz a tio n
H ysterectom y
In v e n to ry o f M ajor Equipment
B.M.R.
I n f r a Red

—

X
X
X
X

—

.

X
X
X
X

_
-

-

X
X
X

X
X

X
X

X
X

X
X

—

166
TABLE B.7— Continued

Serial
Number

:

Service Facilities
:
Whirl Pool
Mamography
Defibrillator Pacemaker
Ultra-sonic
Image Amplification
Microtone
Auto-technician
Cryostat
Particle Counter
Microtome Sharpener
Deep X-ray
Archilles Tendon
Reflexometer
Spirometer
Aerosol Generator
Tank Respirator
PH Meter
Hubbard Tank

15.

16.

17.

Inventory of Laboratory
Procedures
Electrolytes
Blood Bank
Trypsin
Major Diagnostic Procedures
Pap Smear
A-Beta Hemolytic
Titer
Blood 0P or 00p Tension
Vital Cfipaclty
Exercise Tests
Pulmonary Compliance
Ain/ay Resistance
Staff
No. of Beds per Physician
No. of Beds per R.N.
No. of Beds per L.P.N,

A =

_
-

X
—

X
X
X

Hospitals
: B
: C
.
s
.
s :
*
•
*
X
X
X
X
X
X
X

—

-

—

X
X
X

—
—

:
D *

E
s

•

-

X
X
X
X
X

—

—

—

—

X
X
X
X
X
X
X
X

X
X

—

—

-

—

—

-

-

-

-

-

-

X
X

—

—

X

r

—

—

-

—

—

X

—

—

X
X
X

—

-

-

—

—

-

-

-

-

X
X
X

X
X

X

X

—

—

-

-

-

—
-

X
—

X

X
X
X

—

X
X
X
X
X
X
X
X

13.33
4.71
6.67

8.46
3.93
11.00

—

X
—
—

X

X

X

—

—

—

—

—

—

X

—

—

—

—

—

—

_

-

—

—

-

-

-

17.50
5.38
11.67

12.33
3.70
6.17

20.00
3.33
5.00

167
TABLE B.7— Continued

S e ria l :
Number :

S e rv ic e F a c i l i t i e s

:
;

T o ta l No. o f P e rso n n e l
p e r Bed
A d m in is tra to r
T ra in e d
U n tra in e d
Source:

As

H o s p ita ls
: B
: C
: D„
s
.
s
,» s
*
•

E
s

I .56

1.H5

1 .7 6

1 .7 5

1.15

x
-

X

X

X

X

F o r ite m s 1 th ro u g h 16, se e Leo R eich , " In v e n to ry o f
H e a lth S e rv ic e s and F a c i l i t i e s i n M ic h ig a n 's W estern
Upper P e n in s u la ," e d . John S . H ib lo ck , Copper C ountry
H e a lth and W elfare C o u n c il, I n c . , M ich ig an , (Septem ber
1967, m im eo.).
In fo rm a tio n i n ite m 17 was g a th e re d by su rv e y .

Note:

:
.•

x
-

means t h a t th e p a r t i c u l a r s e r v ic e i s p r e s e n t .
means t h a t th e p a r t i c u l a r s e r v ic e i s a b s e n t.

168

TABLE B .8—Rank o f th e H o s p ita ls w ith R espect t o t h e A v a i la b il i ty
o f D if f e r e n t F a c i l i t i e s i n th e Copper C ountry i n 1966
«
S e r ia l •
Number
•
t•

S e rv ic e F a c i l i t i e s

•
*•
:
•

As

:

•

H o s p ita ls
B«3 .: c e3 ;. Ds
*
*

* F
.•*
3

1

I n - s e r v ic e Nurse Program

2

1

2

2

2

2

B o a r d - e lig ib le Surgeon

1

1

2

2

2

3

S u r g ic a l Equipment

2

1

2

3

2

4

L ab o ra to ry

2

1

2

3

4

5

R adiology

2

1

3

3

3

6

Departm ent o f O b s te tr ic s

2

1

2

2

2

7

Pharmacy

1

1

1

2

3

8

P h y s ic a l Therapy

2

1

2

3

3

9

D epartm ent o f P e d i a t r ic s

2

1

2

2

2

10

Departm ent o f M edicine

2

1

2

2

2

11

D ie ta ry D epartm ent

2

1

2

2

2

12

Laundry

1

1

1

1

1

13

H o s p ita l P o lic y

1

1

3

4

2

in

In v e n to ry o f M ajor Equipment

4

1

2

3

3

15

In v e n to ry o f L a b o ra to ry
P ro ced u res

2

1

2

3

3

16

M ajor D ia g n o s tic P ro ced u res

2

1

3

4

4

17

S ta ff

2

2

3

1

2

32

18

36

42

42

Rank T o ta ls
Note:

Rank o f 1 means th e b e s t f a c i l i t y . So l e a s t o v e r a l l ra n k
t o t a l means th e h o s p i t a l h a s th e b e s t f a c i l i t i e s and s e r v ic e s
a v a i l a b l e . The ran k s a r e based on th e number o f f a c i l i t i e s
a v a ila b le i n each d e p a rtm e n t. A d ep artm en t was ran k e d 1 i f
i t h as maximum number o f f a c i l i t i e s .