Administrative vs. Competitive Health Care Pricing
Administrative vs. competitive mechanisms constitute a fundamental dichotomy in health care pricing. For the former think Medicare, for which prices are largely set via political/administrative processes. For the latter think the private non-elderly market, for which prices are set via insurer-provider negotiation. In a recent paper in the American Journal of Managed Care, Chernew, Sabik, Chandra, Gibson, and Newhouse shed some light on the implications for health care prices of administrative vs. competitive pricing. The results are not surprising.
In a retrospective descriptive analysis of geographic variation the authors find that Medicare and large-firm commercial hospital utilization were positively correlated, but spending was not. The authors interpret these results with appropriate caution since they are correlations. However, they are consistent with other work that suggests Medicare and commercial insurers have different responses to hospital competition. Commercial insurers can exploit it to drive costs downward. In contrast, Medicare may be less influenced by the effects of provider competition since it doesn’t negotiate prices (or doesn’t do so in the same fashion as commercial insurers).
The authors conclude,
The potential susceptibility of private payers to provider market power has important implications when assessing the merits of private markets or public markets in setting prices. Administrative price systems have many flaws, which are fundamentally related to the difficulty in determining the appropriate price when costs are heterogeneous, are not known very precisely, are changing over time, and may reflect discretionary provider behavior.
… Yet despite all the concerns about administrative pricing, our analysis appears to suggest that administratively set prices seem to reduce purchaser vulnerability to provider market power. The challenge for policymakers interested in administered prices must be how to mitigate distortions in the price-setting process, although policymakers will never have enough information to establish perfect (economically efficient) prices (bundled or otherwise).
The analogous challenge for policymakers interested in market systems is how to avoid the pitfalls associated with provider market power. It is not clear whether concerns about market systems are more important or will be easier to mitigate than concerns about administered pricing. However, as the country moves forward with changing the healthcare system, these concerns will be paramount.
That’s an even-handed take on the two pricing systems. Neither is perfect from every perspective. Proponents of one can (and do) easily point to flaws in the other. However, given that our system is and will remain a mix of public and private payers, sound policy must attempt to address the issues raised by both.
Before concluding, I also want to highlight what Chernew, et al. say about cost shifting:
[O]ur analysis does not necessarily indicate cost shifting. The pattern of results we observed, particularly the association with market structure, may merely reflect differential market power as opposed to a causal relationship between prices in different sectors.
That market structure has an important impact on the degree of cost shifting has already been covered on this blog. Chernew, et al.’s paper is just one more in a large body of work that suggests that ignoring market structure when considering health care pricing and price dynamics misses the point.
21% Cost Shift: Neither Ceiling Nor Floor
In her careful study of the effects of Medicare cuts in the late 1990s on private prices for hospital services Vivian Wu obtained an estimate of a 21% cost shift. That is, when Medicare prices went down by $1, private prices went up in response by $0.21. She also found the degree of cost shift varied by level of hospital competition. For the most competitive markets, cost shifting could be as low as 5%.
What are we to make of this 21% figure? Is it the maximum degree of cost shifting we might expect due to Medicare cuts? Or is it the minimum? Where in the range of likely levels of cost shifting does this point estimate sit? Without further information reasonable people can disagree. In her reaction to Wu’s study Megan McArdle took a stab at this question, speculating that the 21% was not a ceiling. She declared it a floor.
McArdle is “wont to prefer academic studies,” as am I. So let’s look at some. I am aware of several that estimate levels of cost shifting below Wu’s 21% figure. For instance, Cutler found no evidence of cost shifting in the 1990s (0%) and Zwanziger and Bamezai estimated a cost shift rate of 17%. To be sure, one can find studies that obtain estimates higher than Wu’s 21% figure, though many are based on even older data and some use indefensible methodology.
So, I agree with McArdle that we cannot conclude with full confidence that 21% is a ceiling. However, I disagree that we can confidently conclude it is a floor. After reviewing the literature I think a reasonable person can only conclude that it is a credible point estimate far closer to the truth than those suggested by the industry.
A Cost Shift Study Done Right
Good, policy relevant, health economics studies are hard to do. They have to satisfy many criteria in multiple dimensions, being fundable, tractable, publishable, timely, relevant, built on accepted methods appropriate for the application, and for which data are available. Moreover, given the delays in funding, the time it takes to do the work, and the slow journal review process one must anticipate by years what is likely to be important. So, it is hard. But when it is done well it is a thing of (wonky) beauty.
Lately there have been quite a few health care cost shifting studies that fail to be beautiful, even in the eye of a wonk. In health care “cost shifting” is the idea that lower public payments to providers lead (causally) to higher private payments and health insurance premiums. Not too long ago I described a recent cost shift study and traced its assumptions back to their source. I found that it was built on a weak foundation and therefore didn’t advance our understanding of cost shifting. From poor assumptions and inappropriate methods incorrect results follow, leading to the wrong policy recommendations.
This is, of course, relevant. The notion that most or all of public payment reductions are or will be shifted to private payers is pervasive. With Medicare expansion part of the Senate public option compromise there are renewed claims from hospital and physician groups that low payment from Medicare leads to higher private payments and insurance rates.
Fortunately, a sound cost shifting study by Vivian Wu has recently been published (Hospital Cost Shifting Revisited: New Evidence from the Balanced Budget Act of 1997, International Journal of Health Care Finance and Economics, 12 August 2009). It satisfies the criteria of a good study and leads to sensible policy recommendations consistent with those implied by other studies. Wu’s is just the latest in a growing body of work suggesting that increasing competition among hospitals should be part of an overall strategy to control health care costs.
Wu’s main result is that on average prices paid to hospitals by private payers increases by 21 cents in response to each dollar reduction in public revenue. By way of comparison, this 21% rate of cost shift is about half of the lowest estimates produced by industry studies and is far below their common assumptions of 50% to 100%.
If you can stand a bit of economic, econometric, and public policy wonkery read on. The details reveal just how good a job Wu did in her study and why others are not up to the highest standards of good technique and scholarship. First, Wu describes the two schools of thought on cost shifting. One espouses the “market power” hypothesis which is that hospitals with large shares of private patients are able to cost shift more due to their greater bargaining power. The other abides by the “strategy” hypothesis leading to the notion that hospitals with a greater share of private payers cost shift less because they are relatively more immune to changes in public payments. (Here “strategy” refers to that of the public programs, which includes free riding on high private payments.)
Next Wu thoroughly reviews the academic cost shifting literature, some of which I’ve covered in prior posts (under the cost shift tag). In doing so she makes the crucial point that changes in private and public revenues are endogenous, as is revealed directly by the “strategy” school argument, though there are other reasons. Quoting Wu’s paper,
On the one hand, Medicare prices can affect private prices because the latter are negotiated after observing Medicare prices. On the other hand, Medicare revenues can be affected by private prices as well. Medicare, knowing private payers’ generosity, can strategically set prices too low to free ride.
Hence, one cannot conclude anything about cost shifting by direct examination of private and Medicare revenues, a mistake made in many studies. One must use more sophisticated techniques (instrumental variables to use precise jargon) to relate changes in private revenues to the exogenous component of public revenue changes.
Of course, having made this point Wu applies appropriate methodology to estimate a (plausibly) causal relationship between private price changes and changes in hospital Medicare revenue due to the 1997 Balanced Budget Act (over the period 1996-2000). In addition to finding a 21% cost shift she also finds evidence that the “market power” hypothesis dominates. That is, if the “strategy” hypothesis holds it is weaker and therefore overwhelmed by market power forces. To put this more simply, in a more competitive hospital market one should expect less cost shifting.
The policy implications are clear. Wu doesn’t state them, but I will. Within the range of variation studied by Wu, with respect to hospital payments, overall health costs can be reduced by 79 cents per dollar of Medicare payment reduction, the other 21 cents being shifted to the private sector. However, the more competitive the hospital market the less the cost shift. For some hospitals in some markets Wu found cost shifting rates as low as 5%. Therefore, sound public policy would encourage greater competition among providers (wherever possible) in tandem with reductions in public payments. Doing both concurrently would reduce public health expenditures with minimal impact on private payments.
Behind the Curtain: Industry Cost Shift Calculation Revealed
Recently I wrote about the September 2009 Health Affairs paper by Dobson et al. “How A New ‘Public Plan’ Could Affect Hospitals’ Finances And Private Insurance Premiums.” In that paper the authors assumed that hospitals would shift 50% of reductions in payment from public payers to private ones. Their conclusion that private premiums would skyrocket follows necessarily from this assumption. It turns out the 50% assumption rests on 14 year-old analysis of 18 year-old data. In this post I follow the paper trail back to the source document.
As support for the 50% cost shifting assumption, Dobson et al. cite the March 2009 Lewin report by Sheils titled The Health Benefits Simulation Model (HBSM): Methodology and Assumptions. End note 7 of Dobson et al. reads, “Sheils estimates the cost shift at 40 percent, which is roughly consistent with our assumption.” By “roughly” the authors mean that 50% is roughly 40% (a mere 25% difference).
In the HBSM report Sheils justifies the 40% cost shift assumption as follows, “Our own analysis of hospital data indicates that about 40 percent of the increase in hospital payment shortfalls (i.e., revenues minus costs) in public programs were passed-on to private-payers in the form of the cost shift during the years studied.” A footnote indicates that their “own analysis” is that provided in a December 1995 report and “years studied” means 1991-1992. The 1995 report referenced is one by Sheils and Claxton titled “Potential Cost Shifting Under Proposed Funding Reductions for Medicare and Medicaid: The Budget Reconciliation Act of 1995.”
If the 1995 Sheils and Claxton paper is online I couldn’t find it. But I am a curious fellow with urgent questions. What analysis in 1995 revealed a 40% cost shift? Why is the document so hard to find, yet so frequently cited (18 hits in a Google search of the title, many to documents written or testimony given within the past few years)? Could I get my hands on this old study? And what would I find when I pulled back the curtain?
While neither of the authors could provide the report (Claxton, now Vice President of The Henry J. Kaiser Family Foundation returned my e-mails, Sheils did not), I obtained a PDF on request by calling The Lewin Group directly (703-269-5500). Sure enough, it included a calculation that had a 40% bottom line. Better yet, it included enough aggregate hospital cost and revenue data (from the American Hospital Association’s survey of hospitals) to replicate the calculation. (See the “wonk note” below for a summary of the calculation.)
There is a key assumption embedded in the calculation, that costs are beyond control of hospital managers. Working through the calculation, every additional dollar of cost produces an additional dollar of public to private cost shift. Is it credible that costs drive private revenue and not the other way around (at least in part)?
Another interesting fact revealed by the data is that that profits increased as the purported cost shifting was taking place. In fact, profit increases represent two-thirds of the increase in payments from private payers. One way to look at it is that when the hospitals were done being forced into increasing charges to private payers due to public shortfalls they were then forced to increase them a lot more to support growing profit.
If cost shifting exists the approach in the 1995 Lewin report does not make a strong case for it. An assumption of inviolable costs is not reasonable. Profits increased at the expense of private payers and despite lower public payments, suggesting insufficient pressure to reduce costs. One thing is clear. The document tells us a little bit about how to use early 1990s hospital cost report figures to make it appear as if a 40% cost shift is an inevitable, causal phenomenon. But that’s a poor foundation for the analyses of health reform conducted in 2009 that build upon the 1995 results. Like the Wizard of Oz, what was behind the curtain was rather old and less powerful than suggested.
Wonk note: The methodology of the 1995 Lewin report that derives a 40% cost shift is as follows. The difference between the 1992 and 1991 non-private (I’ll call it “public”) payer shortfall (revenue less costs) is computed (call this value A).
Next, the 1992 private payer revenue less its expected value is calculated (call this value B). The expected value of the 1992 private payer revenue is the product of the 1991 revenue-to-cost ratio and the 1992 cost.
From B a change from expected 1992 profit is subtracted (call the difference C). Expected 1992 profit is the product of the 1991 profit-to-revenue ratio times the 1992 revenue. The cost shift is the ratio C/A which works out to 40% using the actual figures in the report.
Cost Shifting by Assumption
Recently renewed claims by the insurance industry (or consulting firms on their behalf) that lower public payments to health providers result in higher health insurance premiums have reinvigorated the debate over cost shifting. This is no mere academic argument. Whether or not cost controls implemented in public health programs actually reduce overall health expenditures is central to how we finance health care and the range of options available to control its costs.
So it is important that we get straight in our minds the extent to which cost shifting exists, if at all. In an earlier post I reviewed academic literature on cost shifting and concluded that it either doesn’t exist or if it does it is small. Studies have found evidence of a 0.4 to 1.7 percent increase in private payments in response to a 10 percent decrease in Medicare and Medicaid fees. Older studies found higher rates but under a 1980s health care system that differs considerably from what exists today.
Thus, the most recent academic literature suggests at most a degree of cost shifting well below the level others have claimed. But, to be thorough, a few weeks ago I issued a challenge to readers: send me any credible peer-reviewed article that provides evidence of a substantial level of cost shifting.
It turns out the journal Health Affairs recently published an article pertaining to cost shifting. “How A New ‘Public Plan’ Could Affect Hospitals’ Finances And Private Insurance Premiums” by Allen Dobson, Joan DaVanzo, Audrey El-Gamil, and Gregory Berger (all employees of Dobson DaVanzo & Associates, LLC, a health care consulting firm) appeared on September 15, 2009. Some of the same authors published an article in Health Affairs in 2006 with much of the same intellectual content (at the time they were employed by the Lewin Group).
In a press release the authors summarize their findings that “a government-run plan that is aggressively implemented to include large proportions of the privately insured could test the U.S. health care financing system…Rising hospital private-payer payment-to-cost ratios could be followed by rising private insurance premiums.” In the paper itself, the key driver of this finding is the assumption that cost shifting will occur. The authors write, “Our model assumed that hospitals shift costs to private payers at a 50 percent rate.” As support, they cite Lewin and Milliman reports, the latter by the same individuals who produced the one I previously reviewed.
That is, the authors’ conclusion is preordained by their assumption. Costs will be shifted at a 50% rate because it is assumed they will be. No serious economist I know of believes this assumption. And nobody should if it is not based on a body of credible, peer-reviewed work, which it is not.
Why does the cost shifting fallacy persist? First, it stems from an accidental or intentional confusion with the notion with price differentials. That payer A pays less than payer B (a price differential) does not imply that payer A’s lower payment caused payer B’s higher one (cost shifting). Second, it is (or has been) an argument of convenience for the insurance and hospital industries. A legislator believing the argument would be less inclined to exert downward pressure on the public health budget for fear of constituency backlash in reaction to higher private payments and premiums.
Today, it is hard to understand how the cost shift argument, even if true, could work in industry’s favor. As Uwe Reinhardt put it in his NY Times Economix piece on this topic, “if [hospitals and health insurers] cannot resist a cost shift from government insurance programs to the private sector caused by a cut in, say, fees, then presumably they cannot resist a reduction in the growth of government spending on health care for any reason.” Why then should we build a health care system around an industry that claims it cannot solve the very problem health reform is, in the long run, intended to address?
It is time to recognize the 50%-100% health care cost shifting assumption for what it is and send it the way of the fallacies of antiquity. Like the flat Earth or the Ptolemaic model of the universe, it belongs in the dustbin, at least until such time as its existence is demonstrated with by a body of work, conducted by sound methods, and passing peer-review. Today, as far as I know, no such credible body of work exists, and the new Health Affairs paper by Dobson et al. makes no contribution toward one.
The PWC Report
Here’s an instance where I don’t really need to do any blogging. Others I respect and agree with have already thoroughly read and commented on the new PricewaterhouseCoopers (PWC) report that AHIP is using as a basis for argument against the Senate’s health reform proposal. So, if you care to know what I think about it, please see Aaron Carroll’s analysis or that of Ezra Klein. (And subscribe to both. They’re consistently good.)
And, I’ve already written a great deal about cost shifting, which is relevant to the PWC report.
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.
Price Differentials Are Not Evidence of Cost Shifting
A recent Business Week article summarized an argument against a public option that is based on the unfounded claims of cost shifting made by insurers and hospitals. In it Jane Sasseen and Catherine Arnst write
Proponents add that government competition would force private insurers to lower premiums, making coverage more affordable for all.
But the business community keeps cranking out studies undercutting such arguments. The insurance industry trade group, America’s Health Insurance Plans (AHIP), compared the lower reimbursement rates for health care paid by public programs vs. private payers. The group claimed the difference reflects cost shifting, which added an estimated $1,512 to the average premiums paid by a family of four. “The existence of the private sector allows that shift,” says Karen Ignagni, the head of AHIP. “If you clamp down on one side of a balloon, the other side just gets bigger.”
Ignagni’s balloon analogy is a false one, and AHIP’s cost shifting argument is faulty. It is based on a study that misapplies the term “cost shift” to price differentials.
In December 2008 Milliman published a report with the unfortunate title “Hospital & Physician Cost Shift: Payment Level Comparison of Medicare, Medicaid, and Commercial Payers” (authored by W. Fox and J. Pickering). The report was produced at the request of America’s Health Insurance Plans (AHIP), the American Hospital Association (AHA), the Blue Cross Blue Shield Association (BCBS), and Premera Blue Cross. AHIP’s December 9, 2008 press release summarizes the report.
You’d think with “cost shift” in the title the report would be about cost shifting. It isn’t. It is about the fact that public and private payers pay different rates to health care providers. The report shows that in the 2006-2007 period Medicare and Medicaid paid $88.8 billion less than private payers for hospital and physician services than they would have if public and private payers paid the same rates for health services.
The report goes on to translate this payment differential into an amount attributable to health insurance premiums. The claim is that private health insurance premiums for a family of four are $1,512 higher per year than they otherwise would be in the absence of the payment differential identified.
The Milliman report is widely misinterpreted, in part due its misleading language. Price differentials, which it describes, do not support the conclusions reached. Just because payers A and B pay different prices does not mean that if payer A paid more payer B would pay less. I’ve made this point elsewhere, as have Uwe Reinhardt and Richard Frank.
Look at it this way: McDonald’s [sic] pays far less per pound of chicken (or beef) than you or I do. That’s a price differential based on market power. Being a far bigger purchaser McDonald’s has far more market power than you or I and commands lower prices. But if McDonald’s suddenly paid more, would we pay less? Do we believe chicken (or beef) costs have been shifted from McDonald’s to us? No. It is a price differential, not a cost shift.
Another example: you take a second job on weekends and it pays less per hour than you make during the week. Does this mean your weekend job shifts costs to your weekday job? If your weekday job cuts your pay, will your weekend job pay more? No. It would be foolish to expect such a thing and strange for any employer to provide it.
If price differentials are not cost shifting, what is? Economists’ definition is consistent with a plain language interpretation: a cost shift is a causal relationship between what is paid by A and paid by B. If changes in price paid by A cause changes in price paid by B then that is a cost shift.
Scholars have looked for such cost shifting in health care and found very little evidence of it. In the rare cases it occurs, it does so at a minimal level. It is a myth that in health care lower prices paid by public payers are substantially offset by higher prices paid private payers. Yet this is precisely what the Milliman report claims (or strongly implies by its use of misleading language).
The Milliman report did not come anywhere near looking for or finding such a causal relationship. It is not a report on cost shifting, despite what it says and the way it is used by its sponsors.
The Health Care Cost Shifting Myth
This post originally appeared on The Health Care Blog on 31 August 2009.
There is a pervasive notion that providers of health care can make up for lower payments received from one set of payers (e.g. Medicare, Medicaid, uncompensated care) by increasing prices charged to other payers (e.g. private insurance companies). To the extent it occurs cost shifting offsets attempts to control overall health care costs through reduced fees paid by public insurers. It makes “bending the cost curve” harder.
However, it is a myth that providers can fully shift costs. That they could do so violates, in most cases, principles of economics. Moreover, empirical evidence suggests cost shifting, where it occurs, is done so at a minimal level: only a small fraction of decreased payments by public payers shows up as an increase in charges to private payers. Losses associated with one payer are largely not recouped from another.
Some take price discrimination as evidence of cost shifting. However, price differentials are not necessarily the recouping of losses from one payer by overcharging another. As described in the 2001 Health Affairs paper by Richard Frank “Prescription Drug Prices: Why Do Some Pay More Than Others Do?” price discrimination can be due to unequal bargaining power across classes of purchasers. In other words, in maximizing profits, providers charge different prices to different market segments. In such cases, by definition, profits cannot be further increased by cost shifting. (Uwe Reinhardt makes a similar argument on the Health Affairs Blog.)
It’s true that cost shifting could theoretically occur under specific conditions. One case is when a provider has monopoly power that it has not fully exploited, for instance charging private insurers less than it could. More fully exploiting its monopoly power with respect to those payers, such a provider can recoup losses. Still, there is a limit to how much of the lost revenue can be recouped. The monopoly profit-maximizing price level imposes a ceiling.
Another instance in which cost shifting could occur is in a more competitive market in which all providers have roughly the same level of undercompensated care. All competitors in such a market might choose to increase charges to private insurers by the same amount, maintaining their relative competitive positions. However, if one competitor elects to reduce costs or reduce its burden of undercompensated care, it might be able to charge private insurers less then others, thereby increasing its market share. So, cost shifting may not be a stable equilibrium.
The literature provides estimates of the extent of cost shifting in cases where it is theoretically possible. The March 2009 MedPAC Report to Congress: Medicare Payment Policy (Chapter 2A) includes a summary of such evidence. It concludes that the dominant dynamic in the market is that hospitals with strong market power have abundant financial resources. In turn they have a high cost structure (perhaps due to provision of relatively higher quality care) that causes lower or negative Medicare margins. In contrast, hospitals that are forced to run efficiently are adequately funded by Medicare payments. That is, Medicare payments are sufficient to cover costs but some hospitals run inefficiently and make it appear otherwise. Therefore, MedPAC has concluded that increased Medicare payments to hospitals would not reduce rates charged to private insurers. The primary effect would be to induce lower cost operations.
The MedPAC report cites mixed evidence from the literature on the level of cost shifting, as does the December 2008 CBO report Key Issues in Analyzing Major Health Insurance Proposals. A few studies from the 1980s found evidence of cost shifting at a rate of up to fifty cents on the dollar. However, conditions in the 1990s were less conducive to cost shifting and the rates were found to be on the order of a 0.4 to 1.7 percent increase in private payments in response to a 10 percent reduction in Medicare and Medicaid fees. In a 2005 study of geographic variation in health costs of the Federal Employees Health Benefits Program, the GAO concluded that the considerable variation it found was not due to variations in payments from other payers.
In conclusion, cost shifting is not as large and widespread a phenomenon as some would believe. Under some market conditions it is inconsistent with economic theory. And, while it can occur under other market conditions it is far from a dollar-for-dollar shift in costs. The most recent studies of the phenomenon find little evidence of cost shifting or very low levels of it. Claims that reductions in public payments for health care will necessarily show up as commensurate increases in private payments are unfounded.
Subscribe
