The latest paper on cost shifting

A new paper on cost shifting is out. And it’s mine!

Since it has already been available in working paper form, and I’ve already blogged considerably about it, I don’t have a lot more to say about the content of the paper. But I do have a few things to say about how I hope it is used and about how it got written.

I cannot tell you how many papers I’ve read that include something in the discussion about cost shifting. It seems to be a requirement — probably policed by reviewers — that papers that suggest ways of saving a little public health program spending must include a caveat in the discussion to the effect of, “Of course, providers could just shift costs to the privately insured.”

To be sure, not all papers mention cost shifting in this way. Some note that there is debate in the literature about the size of the possible cost shift. Still, on the whole, I think the community of health services researchers and health economists can be much more forthright about what the literature really shows.

I’m sympathetic to the challenges in doing so. When a reviewer asked me to add a discussion of cost shifting in one of my papers, I had a hard time sensing the gestalt from the literature. That’s what originally motivated me to look more systematically at what had been done on the subject. If I’m going to mention cost shifting in the discussions of my papers, I want to do it right!

Doing it right, it turns out, is to say that cost shifting, as distinct from price discrimination, is not an inevitable, pervasive, and large phenomenon. One should not expect that all or even half of every dollar trimmed from public program spending shows up in private prices or premiums. Far from it! If one is talking about hospital prices, perhaps a shift of 20 cents on the dollar is a justifiable estimate (which means far less than that ends up in premium increases). If one is talking about physician or pharmaceutical prices, the estimate is even lower, essentially zero. All one need do to back up such a point about hospital prices is cite my article, or my companion working paper in the case of physician prices.* It’s all there, carefully explained.

As motivated as I was to get to the bottom of cost shifting, I would not have written a paper on it if it had not been for Uwe Reinhardt. He personally challenged me to do it. After a not-so-long summer of sleepless nights, I did. (I wrote the first draft of the paper largely on my own time, outside of work.) Michael Morrisey, whose prior work on cost shifting set a high bar, Vivian Ho, Steve Pizer, and Bradford Gray all provided enormously useful comments on early drafts. The paper is far better for them. As the paper came together, Rick Mayes, Jonathan Oberlander, and in a blog-based, crowd-source surprise, Rob Maurer, all contributed important insights into early Medicare hospital payment policy.

I’m very proud of the paper. Part of what makes the experience of writing it a fond memory is the way in which it facilitated interaction with some kind and smart people. It’s not why I wrote the paper, but that was a nice fringe benefit.

* For pharmaceuticals, see this prior post.

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