There has been growing interest in the past few years in the economics of medical services. Due to the nature of the medical "industry" a number of problems heretofore considered to be of minor importance have assumed major proportions. It is the purpose of this paper to present a model for predicting the demand for hospital beds, which is free from a rather serious specification error. This error arises from a failure to recognize the nature of the underlying stochastic mechanism and is by no means unique to the demand for hospital beds. Indeed, the demand for hospital beds is merely the vehicle used in explicating, what seems to be, an often overlooked source of error.