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Myth Busters #1: Roemer’s Law

If you ask anyone who has studied health economics or health policy in the last 40 years, “what is Roemer’s Law?” they will each be able to tell you in an instant — “that means a built bed is a filled bed.”

Milton Roemer, MD, was a researcher and professor, mostly at UCLA, who spent a lifetime (he died in 2001) advocating for national health systems around the world. He was involved in creating the World Health Organization in 1951 and Saskatchewan’s provincial single payer system in 1953. His “law” was based on a single study he did in 1959 that found a correlation between the number of hospital beds per person and the rate of hospital days used per person. That’s it.  That is the whole basis for “Roemer’s Law.”

“A built bed is a filled bed.” This little bumper sticker slogan has been the foundation of American health policy for 40 years. Hundreds of laws, massive programs, thousands of regulations at the federal, state and local levels of government, all have been based on this slogan. It is the source of such concepts as “provider induced demand,” and has resulted in centralized health planning, Certificate of Need regulations, managed care, and everything else currently on the table. Yet this “law” is both verifiably untrue and illogical.

There is a kernel of truth to it. When third-party payers pick up the tab, the usual tension between buyer and seller doesn’t exist. The buyer has no reason to resist excessive prices if someone else pays the bill.

But the believers in Roemer’s Law take that core idea to Alice-In-Wonderland proportions. They argue that, therefore, whenever a health care provider wants to make more money, it simply has to sell more services, and it will sell as many services as it has the capacity to provide — more capacity equals more sales without end. So, the only way to reduce this endless consumption is to limit the capacity — place strict controls on the availability of services.

But the notion fails for several reasons:

  1. People are not eager to enter the hospital, even when the cost is zero. Hospitals are miserable places to spend time. Folks are not lined up around the corner just waiting for an opportunity to be admitted to the hospital if only there were more beds available.
  2. If the “law” were true, hospital occupancy should approach 100 percent at all times. In fact, occupancy rates vary considerably over time and from place to place. Some years they are up, other years they are down.  For example from 1970 to 2000 national hospital occupancy rates dropped from 77 percent to 67 percent, according to the National Center for Health Statistics (page 368)  apparently one-third of “built beds” were not “filled beds” during this period. In 2005 occupancy rates varied from 92 percent in Delaware to 53 percent in Idaho.

So, Roemer’s Law is statistically untrue, it is behaviorally untrue, yet it has been the basis for virtually all of the health policy initiatives of the last 40 years, including Certificate of Need, national health planning, hospital rate-setting, Health Maintenance Organizations, and more recently, Accountable Care Organizations, pay-for-performance, and comparative effectiveness research.

No wonder all these efforts were doomed to fail — they were all based on a false premise, as we will look at in future installments.