Fluconomics--Preserving Our Hospital Infrastructure during and after a Pandemic


Influenza pandemics occur regularly. The deadly Spanish flu pandemic of 1918 infected more than 25% of the United States population, and killed 2.5% of those infected. Virtually all experts agree that it is not a question of if another influenza pandemic as deadly as the Spanish flu will occur, but a question of when. The Centers for Disease Control and Prevention estimates that the direct and indirect medical costs in the United States associated with a “medium-level” influenza pandemic would range from $71 billion to $167 billion.

Although public health officials are rapidly implementing pandemic preparedness plans on both the local and national levels, and Congress has appropriated several billion dollars for pandemic preparedness, we currently have no means of ensuring that hospitals acting as isolation, quarantine, and treatment centers in a pandemic will survive the loss of revenue that they will experience in protecting the public’s health. Our hospitals depend on a fragmented financing system that presumes the hospital’s ability to shift costs from low-paying public payors to higher-paying private payors, and from less lucrative cases to more lucrative, often elective, procedures. During a pandemic, hospitals treating pandemic victims will be unable to perform this cost-shifting function. Furthermore, the stigma that surrounds a hospital that acts as an isolation or quarantine center for an infectious disease will make it difficult for such hospitals to attract privately insured patients for some time after a pandemic ceases. The failure to provide financial assurances to hospitals reacting to a pandemic is likely to result in severe damage to our hospital system and to our ability to care for the sick and injured, both during and after a pandemic.

This article proposes that we institute a public health policy of providing the nation’s hospitals with financial assurances that they will survive a pandemic. It proposes that we use some of the billions of dollars being allocated by Congress to pandemic preparedness to create a fund earmarked to compensate hospitals for the direct costs of caring for pandemic victims. It also proposes that Congress create a Public Health Emergency Business Interruption Insurance program, modeled after the Terrorism Risk Insurance Act of 2002, to offset losses caused by disruption of the normal system of health care financing engendered by a pandemic. Finally, it proposes that the courts re-interpret the Takings Clause to allow compensation to hospitals for losses of goodwill due to their compliance with the orders of public health officials during a pandemic. This will ensure that the interests of hospitals are aligned with the interests of the public during a pandemic, that the hospitals will cooperate with the orders of public health officials, and that our hospitals will emerge from the pandemic intact and ready to resume providing acute care to the public.


Constitutional Law | Health Law and Policy | Insurance Law | Law and Economics | Medical Jurisprudence

Date of this Version

March 2006