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Related Experiment Videos

Can cost shifting continue in a price competitive environment?

J Zwanziger1, G A Melnick, A Bamezai

  • 1Department of Community and Preventive Medicine, University of Rochester, USA. zwanzige@prevmed.rochester.edu

Health Economics
|May 3, 2000
PubMed
Summary
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Hospitals facing reduced Medicare and Medicaid payments increased prices for privately insured patients, particularly in response to Medicare cuts. Market competition and ownership influenced this cost-shifting behavior.

Area of Science:

  • Health Economics
  • Hospital Management
  • Public Policy

Background:

  • Medicare and Medicaid are reducing hospital payments, raising concerns about cost-shifting to privately insured individuals.
  • Theoretical models offer unclear predictions on whether hospitals will shift costs to private payers.

Purpose of the Study:

  • To extend theoretical models of hospital behavior regarding cost-shifting.
  • To empirically test hospital responses to reimbursement changes using California data.

Main Methods:

  • Analysis of California hospital data from 1983-1991 during a period of intense price competition.
  • Econometric testing of hospital price adjustments in response to Medicare and Medicaid payment changes.

Main Results:

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  • Hospitals significantly increased prices to private payers following reductions in Medicare rates.
  • Responses to changes in Medicaid reimbursement were smaller and generally insignificant.
  • Hospital ownership and market competitiveness influenced cost-shifting, but no significant temporal changes were observed.

Conclusions:

  • Hospital behavior demonstrates a clear cost-shifting response to Medicare payment reductions.
  • The findings suggest a need for broader models of hospital behavior that incorporate local market dynamics.
  • Medicaid payment changes had a limited impact on hospital pricing strategies for private payers.