The figure given below represents demand for and supply of hospital beds in Anytown, U.S.A. , as shown by curves D and S₁in the following figure.If the hospital receives permission to expand, its new supply curve will be S₂.Price level P₁ is the fixed prospective payment reimbursement rate paid by Medicare to the hospital, regardless of actual cost. Figure 18.3 Based on the information given in Figure 18.3, in order to increase its occupancy rate prior to the expansion, this hospital should:

Question

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Since the reimbursement rate paid by Medicare is fixed, the hospital cannot increase its revenue by raising prices. However, it could attract more patients by lowering its price for certain cost-effective medical procedures, which could increase its occupancy rate prior to the expansion. This would be a better alternative than increasing the number of beds, as the hospital would incur additional fixed costs associated with the expansion. Discouraging comparison-shopping by prospective patients or eliminating its advertising budget may not necessarily increase patient volume, and giving financial incentives to doctors without privileges to admit patients could potentially violate Medicare regulations.

The Figure Given Below Represents Demand for and Supply of Hospital