Dynamic cost shifting in hospitals: evidence from the 1980s and 1990s

The purpose of this paper is to determine whether dynamic cost shifting occurred among acute care hospitals during the period from the early 1980s to the early 1990s and, if so, whether market factors affected the ability to shift costs. Evidence from this study of California acute care hospitals during three time intervals shows that the hospital did practice dynamic cost shifting, but that their ability to shift costs decreased over time. Surprisingly, hospital competition and HMO penetration did not influence cost shifting. However, increasing HMO penetration (measured as the HMO percentage of hospital discharges) did decrease both net prices and costs for the early part of the study, but later was associated with increases in both.