1. Who Pays in Pay for Performance? Evidence from Hospital Pricing, an NBER working paper by Michael Darden, Ian McCarthy, Eric Barrette: This is a revision of a prior working paper about which I wrote here. The paper finds that Medicare pay-for-performance programs “led to increases in private payments of 1.4%, or approximately $183,700 per hospital based on an average relative penalty of $271,000.”
In the revision, just as in the original version, though the authors do not definitively rule out cost shifting, they do not necessarily interpret their findings as evidence of it. As I wrote in my reaction to the original version, we should not either. I provided several reasons, among which were this:
Hospitals were aware in advance of their risk of being penalized. Those that looked like they would be may have invested more in quality improvements. For some, those improvements didn’t translate into avoiding the penalty, but they did increase the value those hospitals were delivering. Private payers may have been willing to pay more for that additional quality. It’s possible they’re even willing to pay more for investments in quality that haven’t yet translated into actual improvements.
2. Why Air Ambulance Bills Are Still Sky-High, by Rachel Bluth in NPR’s Shots:
[Rick] Sherlock [president and CEO of the Association of Air Medical Services] explained that reimbursements from Medicare and Medicaid do not cover the cost of providing services. So charges to private patients, he told the legislators, must make up that difference.
In case you need a fresh illustration of third degree price discrimination (or "segmentation" in b-school lingo), check out the cross-country variation in Spotify's monthly subscription price. pic.twitter.com/vfItpiqPxC
— Joel Waldfogel (@JWaldfogel) February 15, 2019
Is Spotify charging higher prices in Denmark because consumers in Vietnam will only pay $2.50 per month? Do you think the Danes think this too? That would be cost shifting and it’s what the air ambulance industry wants us to believe about their private prices with respect to Medicare/Medicaid ones. It’s what the hospital industry wants us to believe too. But if it’s cost shifting in those sectors, why not in the case of Spotify? (Hint: None of this is cost shifting. All of it is price discrimination.)