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I'm writing this a little earlier than usual as I'm heading to Idaho for the weekend in search of trout and garnets. So, what reading did I manage to squeeze into a shortened week?
Universities have a lot in common with ambulance services. That was my conclusion after reading David Oks' excellent post on the cost of ambulance rides. Oks argues that the often absurd cost of an ambulance ride—which can run to many thousands of dollars and is frequently not covered by health insurance—is an unintended consequence of the economics of the industry and the way reimbursement works. What struck me wasn't really the economics of ambulances. It was how easily the same logic explains some of the most persistent debates about the cost of higher education.
Although the post is ostensibly about ambulances, it's really about the difference between transaction-intensive organizations, where costs scale with each service delivered, and capacity-intensive organizations, where most costs are incurred before any service is delivered. Ambulance services and universities are both capacity-intensive organizations, which goes a long way toward explaining why both struggle with the economics of pricing their services.
One historical detail particularly caught my attention. Until the 1960s, at least in the United States, ambulance services were often provided by funeral homes as a loss leader. Hearses and ambulances did double duty—which, unsurprisingly, was not a particularly effective emergency medical system.
In 1966, the National Academy of Sciences published a report called Accidental Death and Disability: The Neglected Disease of Modern Society, which found that American ambulance systems were badly untrained and unequipped for emergency care. A soldier gravely wounded in Vietnam, the report found, had a better chance of survival than a motorist gravely injured on an average city street.
At first glance, this sounds like a quirky piece of medical history. But it illustrates a challenge that many public services share: paying for capacity is much harder than paying for individual transactions.
As emergency medicine advanced, a different kind of ambulance service became necessary—one equipped with increasingly sophisticated technology and staffed by trained professionals. These services are expensive, but not because of corporate greed or some sinister private equity conspiracy. Most ambulance companies operate on razor-thin margins and generate little profit. The challenge lies in the underlying economics.
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