• Health Care Cost Shifting: Show Me the Studies

    In response to my two posts on cost shifting (or lack thereof) in health care, I’ve heard many arguments why I am wrong (see comments at The Health Care Blog and Ezra Klein’s blog). In brief: my claim is that there is little or no cost shifting from public to private payers in health care. I cited recent studies (which in turn cited peer-reviewed papers) to support my claim.

    But nobody has yet pointed to credible studies that counter what I wrote. Here’s the challenge: find a qualified (see below) publication that supports your health care cost shifting claim. Send it to me (pdf or URL to paper please). I will read it, and I will blog about it.

    “Qualified” means:

    • Appears in a peer-reviewed journal (send me a link to the journal’s editorial policy that confirms this if it is not obvious) or is based in large part on peer-reviewed articles.
    • Has been published in the last decade.
    • Is by authors that are not obviously conflicted (not employed, recently employed, or funded by the insurance or hospital industries).
    • Has not already been covered in my posts or the references I cite (see below).

    References already covered (don’t bother to send me these):

    • MedPAC report, March 2009.
    • CBO report, December 2009.
    • GAO report, August 2005.
    • Milliman report, December 2008 (doesn’t actually qualify since there are conflicts of interest, but I reviewed it anyway because it is what the insurance and hospital industries cite).
    • Richard Frank, Health Affairs, March/April 2001.
    • Dranove, D., and W. White. 1998. Medicaid-dependent hospitals and their patients: How have they fared? Health Services Research 33, no. 2: 165–185. “We find no evidence that [CA] Medicaid-dependent hospitals raised prices to private patients in response to Medicaid (or Medicare) cutbacks; if anything, they lowered them…. We find no evidence of cost shifting.”
    • Zwanziger, J., and A. Bamezai. 2006. Evidence of cost shifting in California hospitals. Health Affairs 25, no. 1: 197–203. “We found that a 1 percent relative decrease in the average Medicare price is associated with a 0.17 percent increase in the corresponding price paid by privately insured patients; similarly, a 1 percent relative reduction in the average Medicaid price is associated with a 0.04 percent increase.”
    • Zwanziger, Glenn A. Melnick, and Anil Bamezai, Can Cost Shifting Continue in a Price Competitive Environment Health Economics, vol. 9, no. 3 (April 2000).
    • Michael A. Morrisey, Cost Shifting in Health Care: Separating Evidence from Rhetoric (Washington, D.C.: AEI Press, 1994)
    • Jack Hadley, Stephen Zuckerman, and Lisa I. Iezzoni, “Financial Pressure and Competition: Changes in Hospital Efficiency and Cost-Shifting Behavior,” Medical Care, vol. 34, no. 3 (1996), pp. 205–219.
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    • The problem with all of the supposed evidence against cost shifting is that in most cases you’ll find the researchers discussing it in theoretical economic terms assuming a competitive marketplace, and completely ignoring the fact that there is not a market when it comes to setting Medicare reimbursements, the gov’t sets the price. It is not price discrimination when the buyer who is paying less did so through the coercive power of government. They treat this as if it were a normal competitive marketplace, ignoring that one buyer (the biggest one at that) is dictating prices, and that the other smaller buyers have a very limited ability to refuse to pay the higher demanded price because of disruption for their customers.

      The continual focus by both yourself and some of these other studies on “Industry X charges different prices to different customers, is that cost shifting?” type arguments only magnifies how some people appear to not be addressing the real dynamics that are in place here.

      Lower cost growth in Medicare is held up as a reason for greater gov’t control over health care spending, but that line of thinking ignores the fact that the lower growth is being subsidized by the higher payments from private insurers. Without those higher payments they would have to find other ways to lower costs. I do not think one can credibly claim it can all be made up with “efficiency”. Even the CBO study above acknowledges they would do this by providing “less intensive or lower quality” care.

      The issue here is not “would increasing Medicare payments lead to lower private payments” (I don’t want Medicare to spend more money!), the issue is whether or not we should increase the number of people whose care is reimbursed at rates dictated by the government, and what effect would that have on the quality and amount of care being supplied. What I am arguing is that shifting more people into gov’t plans is not the panacea many people like to present it as, because providers are going to require a certain rate of return, and they’re not going to get it from efficiency alone.

      As for your request, the health actuaries who do this type of work are in the private sector. They are not publishing their work in academic journals. That does not invalidate it. I don’t see why the actuaries at Milliman are any more conflicted than the analysts at MedPAC, since the question they seem to be trying to answer in that portion of their report is “should Medicare pay more”. If private sector actuaries are conflicted, isn’t the congressional agency charged with analyzing a public program with an unfunded liability in the tens of trillions to decide if it should spend yet more money also conflicted?

    • @AB – Other than in the studies I’ve cited, nobody will honestly answer the question: if there is cost shifting, how much?

      Studies I cite point to some (maybe 17% at most). Milliman says 100%. But Milliman is basing that on the price differentials entirely. That just can’t be right.

      What is right? How much of the private-pay increase is due to public-pay rates? Let’s not make a mountain of a molehill, unless it really is a mountain. If it were that’d be big enough news that an academic (like me) would want to show it. So, where are the studies? (Find non-industry funding for me and I’ll do it.)

      Forget MedPAC and CBO if you like. I’ve cited academic studies. Let’s do our best to get away from conflicts of interest. Really, if there are no good studies on this somebody should fund one (RWJ?).

    • I think the only valid answer right now is “we don’t know how much”. I do not think it is a complete dollar for dollar shift, but it is definitely not zero. I don’t do Medicare work, but I have spoken with a number of people who do and read a lot of the literature, and I think a majority of the difference is a rather direct shift. In my opinion there is a pretty simple dynamic at work here: health providers in general require a certain rate of return, and they earn a negative return on Medicare business while having an extremely limited ability to not accept that business at the dictated price. The money has to come from somewhere, and it’s very difficult for insurers to avoid those cost increases without angering their customers and losing business.

      I wish someone would fund another study, if nothing else to avoid the claims of the Milliman one being somehow tainted. Heck, I’d work on it myself if my employer would allow it. Probably the appropriate place for this to happen is the American Academy of Actuaries. They do a lot of similar research. You may not like it that the most of the people who would work on it are employed in the private sector, though they would be volunteering their time to work on something like this.

      • @AB – After a conflict of interests, my chief concern about a study done by actuaries is that they try (hard) to understand the difference between a price differential (an accounting measure) and a cost shift (a causal link). The best study might include actuaries and economists.

        In general, were I an actuary who believed strongly that there is significant cost shifting going on (well beyond what has been estimated in the peer-reviewed literature to date), I would be very frustrated at my profession and at the advocacy groups. Good, honest, unbiased research can have an impact on policy (just look at what CBO and MedPAC cite). Yet, on the cost shifting question the actuaries’ interest seems not to have been well represented in the literature. They can do better and should. It really does matter.

        I’d love to see a good study done, though I have no reason to question the other studies I’ve already cited (other than the Milliman one).

    • How about this from Academy of Health Meeting.
      http://gateway.nlm.nih.gov/MeetingAbstracts/ma?f=103624359.html

      It’s about cost shifting from the Tenncare program.

    • The last link is not from a peer-reviewed journal, but it seems like a reliable source. I just googled, and read the abstract and thought it seemed relevant.

      • @Pete – It not being published in a peer-reviewed journal it doesn’t qualify. This is more important than many might think. Conference papers are infamously sloppy and loaded with incorrect, preliminary results. In the case of AcademyHealth, from which this one is taken, the abstracts are submitted six months before the actual conference and the results in them really cannot be trusted and are usually different from those presented at the conference.

        However, even in this case, the results are mixed. Some cost shifting is identified, but not in all states. If cost shifting is as certain and large as some suggest, why would it not be found everywhere? But really let us not take this as evidence one way or the other for the reasons I gave above.