• Cost shifting is still not a thing

    A clever, new paper shows that hospitals don’t cost shift, in general. But that’s not all! Read about it in my new post on the AcademyHealth blog.


    • Hospitals don’t have the flexibility to set prices, not like (for example) airlines or museums (the examples in the referenced article). Prices (i.e., reimbursement rates) are set by CMS (Medicare) or in negotiations with private third party payers – private pay patients are so few in number that they have only a marginal effect on the overall price structure. What’s more revealing isn’t how a particular hospital responds to shocks in the marketplace (such as the 2008 financial collapse) but how one hospital compares to another. The comparison is nearly impossible because a hospital’s prices and net revenues are dependent on demographics: what percentage of the hospital’s patients are Medicare, Medicaid (very low pay), private third party payer, or self-pay (typically the highest). For example, a hospital with a high percentage of Medicaid may have to treat 20% to 25% more patients to collect the same revenues as another hospital with a low percentage of Medicaid patients. Does the former skimp on patient care or accept lower net revenues (or net losses)? If the two hospitals are part of the same system (public or private), are the lower net revenues (or net losses) in one at least partially offset by higher (negotiated) reimbursement rates for the other? Cost shifting by hospitals is opaque.

      • While elite hospitals do not negotiate with CMS, they do hold significant market power when they negotiate with private insurers. In general, they negotiate for the best fees they can obtain. What they get from CMS is largely irrelevant. (Basically, what Austin just said.)


    • Would it be accurate to say that costs for various procedures all over the map?
      If so, whether there is cost shifting or not, is not as important as how seriously one should take their hospital and other provider charges, particularly if they are not in a network?
      How does one take seriously that which is pathetically comical?
      Don Levit

    • “They key question is whether hospitals cut (not raise) private prices enough to offset the losses in lower quality. (Price cutting is what a profit maximizing hospital would do.)”

      What if demand for services remains unchanged and only rates from payers go down? The only reason (or the primary one) to lower quality would be decreased revenue. In this instance, would a profit maximizer cut prices further?


      • A profit maximizer has the option of cutting quality or prices. In the abstract, it’s not evident how much of each would occur. It depends on the demand response in each dimension.