Wednesday, August 29, 2007
Bad Ideas for Spending UPMC’s Profits
The University of Pittsburgh Medical Center seems to be getting the same level of respect as Wal-Mart. That’s par for the course when you are the biggest boy on the block. However, there are significant differences, the most notable being UPMC is a non-profit corporation, so it is exempt from paying real estate taxes, no doubt a contributing factor to the expansion of its physical footprint.
As the largest employer in the City, its report of large profits has brought calls for where the money should go. For example, a PG editorial offers suggestions, including the Pittsburgh Public Service Fund, a voluntary fund from non-profits to help boost the City’s finances. (Note that they never ask the Pirates, Steelers, or Penguins—all of whom play in tax exempt facilities—to kick in, but that’s another story).
The editorial implores UPMC to “direct more of its abundance to aid the City that sustains it”. That’s funny on many counts, including the fact that UPMC and the other large non-profits like the universities are likely sustaining the City instead of the other way around.
But there is a way UPMC could engage in some economic benevolence which does not involve writing a check to the City, which essentially amounts to throwing money down a rathole. As a monopoly, the excessive profits indicate that UPMC’s prices are too high. Cut the price, and increase the quantity demanded for the services. That would increase the consumer benefits. It is more cost effective to provide more service to directly improve the health of the region than to give it to the City government in order to sustain its profligate spending ways. It would also lead to more price competition for other health care providers in the market.
As the largest employer in the City, its report of large profits has brought calls for where the money should go. For example, a PG editorial offers suggestions, including the Pittsburgh Public Service Fund, a voluntary fund from non-profits to help boost the City’s finances. (Note that they never ask the Pirates, Steelers, or Penguins—all of whom play in tax exempt facilities—to kick in, but that’s another story).
The editorial implores UPMC to “direct more of its abundance to aid the City that sustains it”. That’s funny on many counts, including the fact that UPMC and the other large non-profits like the universities are likely sustaining the City instead of the other way around.
But there is a way UPMC could engage in some economic benevolence which does not involve writing a check to the City, which essentially amounts to throwing money down a rathole. As a monopoly, the excessive profits indicate that UPMC’s prices are too high. Cut the price, and increase the quantity demanded for the services. That would increase the consumer benefits. It is more cost effective to provide more service to directly improve the health of the region than to give it to the City government in order to sustain its profligate spending ways. It would also lead to more price competition for other health care providers in the market.
