Carpe Diem

Who’d a-thunk it? Without taxpayer subsidies, market-based Megabus has revitalized inter-city bus travel in the US

OLYMPUS DIGITAL CAMERAOn the Bacon’s Rebellion blog, James Bacon explains the “Megabus Disruption” in an excellent post about how the market-based model of Megabus has revolutionized and revitalized inter-city bus transportation in the US, without a single dollar of government taxpayer subsidies, here’s an excerpt:

In 2006 the Megabus inter-city bus line opened its Chicago hub serving a handful of Midwestern cities. Today the company has 300 buses operating in 100 cities across the United States and Canada. Not only does the bus line now serve millions of riders annually, the so-called “Megabus effect” has inspired numerous imitators to pile into the market for inter-city bus service. After 35 years of decline, inter-city bus service has rebounded.

Megabus can charge insanely low rates — e.g. only $7 to downtown Washington, D.C. from downtown Richmond — and yet receives no federal or state subsidies.

The Megabus business model has stripped out many of the costs associated with traditional inter-city bus carriers. Most notably, it has no terminals. It picks up customers curbside at pre-determined, city-center locations, and it books 98% of its customers online. (A few buy walk-up tickets.) Thanks to a double-decker configuration, the company also packs more customers onto a bus without sacrificing comfort. Wi-Fi and electrical outlets allow passengers to use their laptops and tablets during the trip.

Without a lot of fixed investment in terminals to tie it down, the company is extraordinarily flexible. It moves into new markets quickly — and leaves just as quickly. If business materializes — typically by word of mouth — the company stays. If it doesn’t, it packs up and leaves. Needless to say, bus travel is more energy efficient and environmentally benign than riding in automobiles or airplanes., especially when the double-decker buses are traveling fully loaded.

Bacon’s bottom line: No state or federal policy wonk foretold the revitalization of inter-city bus travel. We don’t need more government subsidies and industrial policy to solve our transportation problems — we need more innovation, more disruptive business models, more out-of-left-field thinking in a free-market economy.

MP: Maybe we can apply that thinking and business model to health care?

26 thoughts on “Who’d a-thunk it? Without taxpayer subsidies, market-based Megabus has revitalized inter-city bus travel in the US

  1. WRT disruptive models for healthcare: the Surgery Center of Oklahoma (featured in an earlier post) was a revelation. I had actually tried to price locally a surgical procedure that I might need in the future, to figure out how much to put in my healthcare flexible spending account. I could not get a solid answer from a single source. The surgeon might be able to tell me his fee, but there’s the anesthetist, the hospital facility charge, the lab work, the radiologist, supplies and drugs (at obscene markups)…. With health care, it seems that all too often you can only find out what something costs by agreeing to buy it first and waiting for the bill. How can a market function if consumers don’t have the most fundamental information: the price?

    I think for health care, just to help get the ball rolling, we should have a fairly benign and minimalist form of government intervention: a requirement that prices must be posted both for self-pay patients and insurance reimbursement rates. (Insurers could be made responsible for posting their own procedure reimbursement rates, rather than the providers.)

    A bit more intrusive, but still fairly minimalist: require insurers to reimburse up to their average in-network reimbursement rate for the insured’s home locality, regardless of whether the provider is in the insurer’s network or not. Pre-notification clauses could still be enforced, and possibly a modest (and capped) administrative charge could be permitted for the inconvenience of handling paperwork that doesn’t follow their standard claims process. The only purpose here is to ensure that consumers are not perversely penalized for choosing a cost-efficient provider that is not part of the insurer’s network.

    • Health care costs are complicated. How do you know what to charge until you know who is going to pay and how much?

      If I have a party and have $10,000 invested and invite 100 people, that’s $100 each just to break even. What if I don’t collect on entry and 100 people enter but I collect on exit and only 50 people pay some amount of money? What should I attempt to charge the ones who pay and what do I do about the ones who don’t pay that I can’t refuse to serve by a federal emergency party law?

      • @Walt Greenway – “How do you know what to charge until you know who is going to pay and how much?”

        Yet hospitals do have charge sheets, and for emergency room services do send bills to insurance companies, which then pay according to their negotiated rates (if applicable) or policy terms. For the uninsured, they send bills to the patients before knowing whether/how much the patient can actually pay. They have historical experience on which those charge sheets are based. Furthermore, not everything a hospital does is emergency room medicine.

          • walt-

            that seems like a very odd way to look at it.

            lots of goods and services from restaurant meals to the services of a contractor or plumber are provided before payment is received.

            emergency medicine might be a little bit more fraught as there is little time to decide and hospitals are not allowed to refuse service (itself a questionable rule), but that is not the bulk of the expense.

            the bulks of expense is around pre planned procedures and services.

            why would hospitals be any less able to determine the creditworthiness of customers than building contractors?

          • morganovich, contractors normally get a 30% – 50% deposit before they even start the job, choose their customers, and price their service to what they are performing for that customer. Sure some people don’t pay the contractors, but I don’t see how hospitals’ and contractors’ business models could be more different. Does the Megabus let customers get on the bus and travel wherever they want and then send them a bill?

          • It’s customary here for the customer to pay retail for parts when they are ordered and before they are installed (plumbing, electrical, heating . . .) along with another 25% when the job is 50% completed. If the customer does not pay the 25% remaining charge when billed, you are only out some profit and you’ve made some money on the markup from wholesale to retail on the parts and enough to pay the help. I teach bachelor level classes in service management, and pricing along with fleet management, customer service, and operations planning is part of the class.

          • walt-

            1. not around here they don’t. i routinely run up $10-20k contractor bills and do not pay until they are done. this includes parts. of course, they know where i live and it’s not like i can hide from their collections.

            2. why could a hospital not also take an upfront payment?

            you seem fixated on emergency care, but that’s not most of their business. why can’t a hospital take a deposit for planned surgery? or why shouldn’t they even work like the us auto makers and make most of their money from financing? sure, their is no car to reposes (and so rates would be higher) but on a full faith loan secured by all your assets, they could find a price that covered risk and generate underwriting competency just like any financial organization from ge capital to american express.

            there is nothing difficult about this model.

          • Morganovich, our city hospital had $50 million uncollected out of $375,000 million charged or 13.3% (i just looked at the online report). Heating and cooling contractors run at less than 3% uncollected account receivables. I doubt you would get a contractor around here who would bill 100% upon completion unless you have done substantial prior business with them OR you have a deal with someone else like that and they that want to match it.

          • walt-

            “U.S. hospitals provided $41.1 billion in uncompensated care in 2011, representing 5.9 percent of annual hospital expenses.(Source: American Hospital Association, “Uncompensated Hospital Care Cost Fact Sheet,” January 2013.)”


            thus, it would seem that your hospital is somehting of an outlier.

            how they got such poor results, i do not know, but clearly, most are doing a great deal better.

            and again, why, if their collections are so awful, do they not do somehting about it? why not take deposits or require prepay or be more careful about to whom they extend credit?

            you are pointing to this number as though it is a law of nature, like gravity, and not the result of a set of business decisions that can be altered.

            it sounds to me like they just run a terrible business.

            that’s a good reason to change your business practices or prices, not to lament that healthcare is impossible.

            the creditworthiness of customers and how to mitigate losses from nonpayment and maintain a business model that works is basic blocking and tackling for a business.

            i still do not understand why you think that hospitals and doctors are somehow unable to do what every other business does.

          • further-

            note that that 5.9% is a percentage of expenses, not of revenues.

            it’s likely (and i’m guessing here) more like 3% of revenues which is quite a manageable slippage number.

            supermarkets deal with worse.

          • Why not means-test health care like you propose for SS? The Megabus ride charge could be a percentage of your weekly income.

            In Flint, we don’t have hospitals, we have war-zone MASH units where Army medical personnel come to train for battle field gunshot wounds. I doubt a lot of gunshot victims have good health insurance if they have any at all. That might be the outlier.

      • How do you know what to charge until you know who is going to pay and how much?

        An excellent argument for free market approach, letting all those selling products and services determine how to charge their customers. Customers in free markets know that they alone are on the hook for whatever products and services they buy, so shop for the best bang for their buck, based on their own preferences.

        The problems you mention only arise, when some arrogant ass decides he knows better than everyone else and employs a top-down approach that must be followed on pain of jail time.

        In other words, free markets are an acknowledgement of ignorance to all situations. It’s best to leave the people who actually have a stake in their own problems make all the decisions, rather than some disinterested third party who loses nothing for being wrong.

  2. Michael P. Stein

    I think for health care, just to help get the ball rolling, we should have a fairly benign and minimalist form of government intervention:

    I think it’s way too late for minimal intervention.

  3. California is in the midst of building a High Speed Railway which will be ‘finished’ in 20 years, cost $100B (at least), will carve up the state in a way that they would never let a pipeline do and will need tremedous ongoing subsidies.

    I’m guessing that a free Megabus might cost just $2B per year but no one has come up with a proposal. This state is nuts!!

    • Given that the distance between la and SF is about 400 miles, and the best you could do is 70 mph with a bus that would take about 6 hours to do. The real idea with the train is to put the la sf plane corridor out of business. The time limits might be about then 2.5 to 3 hours for the trip, 1 waiting at the starting airport 1 in the air. and the other for the additional time to get to the airport compared to getting to the train station (not clear if that really applies in LA if they use Union Station, for lots of the basin, Lax or Hollywood Burbank (Bob Hope Airport), or John Wayne for Orange county or Ontario for eastern LA county and San Bernadino County. (this is not as much of a problem in the SF bay area at the cost of a stop in San Jose.

      • lyle-

        but aren’t you leaving costs out of that equation?

        sure, a 150 minute train from sf to la might be useful, but can it justify the costs this project involves particularly as one can already take a flight in the same amount of time?

        this ca high speed rail is a boondoggle and a vanity project.

        that’s why no private firm would fund it.

  4. Of course there is a legitimate question is are the busses paying to park while loading? It seems to me that since they are using public property (the street) in a way that is not intented you modify the loading zone signs to say no buses without paying a license fee. Its just like food trucks should pay to use the street to do business. If folks want the government to be like a business, any business would do this and charge a fee for using their property. (Utility companies pay now for the right to put poles up and string lines)

    • Of course there is a legitimate question is are the
      busses paying to park while loading?

      Perhaps Megabus should be charging cities a fee for the reduced congestion they cause by removing some number of cars from city streets.

      Don’t forget that buses pay registration and license fees as well as fuel taxes presumably to cover their share of road and street use. Why should they pay more than that?

      How are buses using streets in a way not intended?

  5. Perhaps the greatest failures of market interference are pointed out by this article: the inability of central planners to imagine goods and services that did not exist before.

    RE: health care alternatives. We see glimmers of same. Some docs do not accept ANY insurance, medicare, medicaid or government payments for services. Often they can charge what the co-pay amount would be or slightly more, because they can streamline their businesses.

    While working temporarily in Milwaukee, someone pointed out to me that a stand alone clinic did MRI’s for about 1/4 what hospitals charge. When I told that to another person, she told me that there are independent labs that do tests for about the same, 20-25% of what the big establishments do. MORE evidence that we need to get the government out of the way and let markets work. ESPECIALLY in health care, more regulation favors the big players, as they are better equipped to handle the regulatory burden that adds nothing to quality or quantity of services, but a great plenty to its price.

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