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Hospital cost shifting, a continuing debate.

M A Morrisey1

  • 1School of Public Health, University of Alabama, Birmingham, USA.

EBRI Issue Brief
|November 3, 1996
PubMed
Summary

Hospital cost shifting, where some payers face higher prices due to others paying less, has significantly declined. Increased hospital competition limits pricing power, making cost shifting largely ineffective.

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Area of Science:

  • Health Economics
  • Healthcare Policy
  • Hospital Management

Background:

  • Cost shifting in healthcare occurs when higher prices paid by one payer group subsidize lower prices paid by another.
  • Hospitals require market power to engage in cost shifting, which is increasingly eroded by competition.
  • Recent evidence suggests a decline in hospital cost shifting, particularly since the mid-1990s.

Purpose of the Study:

  • To examine the evidence on hospital cost shifting.
  • To define cost shifting and explore incentives for hospitals and payers.
  • To critique recent studies and discuss policy implications.

Main Methods:

  • Review of industry-wide revenue-to-cost margin studies by payer.
  • Critique of methodologies used in cost-shifting research.
  • Analysis of cross-sectional and dynamic studies comparing hospital prices over time.

Main Results:

  • Industry-wide studies indicate a decline in cost shifting in the mid-1990s, though methodologies have been criticized.
  • Cross-sectional studies comparing individual hospitals found no evidence of cost shifting.
  • Dynamic studies, controlling for individual hospital price changes over time, also found no evidence of cost shifting.

Conclusions:

  • The ability of hospitals to shift costs has diminished due to increased competition, rendering the strategy largely ineffective.
  • Medicare reform or Medicaid restructuring is unlikely to directly impact employer and worker healthcare costs through cost shifting.
  • Reduced hospital profitability due to competition may decrease charity care, exacerbating issues related to care for the indigent.

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