The Effects of Government Reimbursement on Hospital Costs: Some Empirical Evidence from Washington State (original) (raw)
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Inpatient–Outpatient Cost Shifting in Washington Hospitals
Health Care Management Science, 2004
This paper empirically investigates the phenomenon known as "cost shifting" across inpatient and outpatient hospital services. That is, we examine whether, when faced with lower government reimbursement for outpatient services, providers raise inpatient prices for non-government patients (and analogously for lower inpatient government reimbursement). Using a panel of hospitals from Washington State, we find that private, nonprofit hospitals do cost shift across types of services. We also find that a firm's cost shifting behavior differs based on the type government insurance program (i.e., Medicare versus Medicaid). Government owned hospitals do not cost shift with respect to any type of government insurance plan.
Hospital `profits' : The effects of reimbursement policies
Journal of Health Economics, 1982
This paper provides a theoretical and empirical analysis of the eff't of mst-based reimbursement (CBR) on hospital costs and charges. It takes issue with previous analyses which have treated CBR as paying economic costs plus a markup , and have concluded that the markup is too small to significantly distort hospital decision-making. The basic thesis here is that if reimbursement is based on costs, accounting costs become a price to cost-paying patients, and will be optlmlzed to maxim& revenue. A hospital serving both cost and charge-paying (private) patients can set two price schedules. Accounting profits (ratio of charges to costs) are not a measure of economic profit but of relative prices to these two groups of patients. In the absence of constraints from regulation or patient co-payment, the optimum level of accounting costs would be infinite. In practice, the Medicare reimbursement formula links allowable costs to charges received from charge-paying patients. This formula creates incentives for the hospital to raise charges above the single-prim profit-maxim& g monopoly level. This inflationary effect of the Medicare formula does not presuppose that Medicare pays less than full cost. The emplrlcal analysis of hospital laboratory costs and charges generally supports the predictions; for other departments, the conclusions are consistent but more tentative because of data limitations. Overall, evidence suggests minimal cross-subsidy between cost and chargepaying patients. Comparisons of cost and charge levels in for-profit, voluntary non-profit and government hospitals are presented, but it is emphasized that inferences about relative efliciency and profitabiity cannot be drawn from accounting data, given the inantives created by CBR.
THE PRICE AIN'T RIGHT? HOSPITAL PRICES AND HEALTH SPENDING ON THE PRIVATELY INSURED
We use insurance claims data covering 28 percent of individuals with employer-sponsored health insurance in the US to study the variation in health spending on the privately insured, examine the structure of insurer-hospital contracts, and analyze the variation in hospital prices across the nation. Health spending per privately insured beneficiary differs by a factor of three across geographic areas and has a very low correlation with Medicare spending. For the privately insured, half of the spending variation is driven by price variation across regions and half is driven by quantity variation. Prices vary substantially across regions, across hospitals within regions, and even within hospitals. For example, even for a near homogenous service such as lower-limb MRIs, about a fifth of the total case-level price variation occurs within a hospital in the cross-section. Hospital market structure is strongly associated with price levels and contract structure. Prices at monopoly hospitals are 12 percent higher than those in markets with four or more rivals. Monopoly hospitals also have contracts that load more risk on insurers (e.g. they have more cases with prices set as a share of their charges). In concentrated insurer markets the opposite occurs -hospitals have lower prices and bear more financial risk. Examining the 366 mergers and acquisitions that occurred between 2007 and 2011, we find that prices increased by over 6 percent when the merging hospitals were geographically close (e.g. 5 miles or less apart), but not when the hospitals were geographically distant (e.g. over 25 miles apart). JEL Codes: I11, L10, L11. for outstanding research assistance. The opinions expressed in this paper and any errors are those of the authors alone. More details on our analysis and downloadable data, including our roster of hospital mergers, can be found online at www.healthcarepricingproject.org. 1 Our discussion of Medicare is focused on the traditional, publicly administered Medicare program. See Curtu et al. (2017) for a comparison of the traditional, public Medicare program and the privately administered Medicare Advantage program. The remainder of the population have coverage from the Medicaid program, other payers (e.g. the Veterans Administration), or are uninsured.
Evidence Of Cost Shifting In California Hospitals
Health Affairs, 2006
We used 1993-2001 data from private hospitals in California to investigate whether decreases in Medicare and Medicaid prices were associated with increases in prices paid for privately insured patients. We found that a 1 percent relative decrease in the average Medicare price is associated with a 0.17 percent increase in the corresponding price paid by privately insured patients; similarly, a 1 percent relative reduction in the average Medicaid price is associated with a 0.04 percent increase. These relationships imply that cost shifting from Medicare and Medicaid to private payers accounted for 12.3 percent of the total increase in private payers' prices
Contemporary Economic Policy, 2011
This study examines the effect of physician-owned hospitals (POHs) on Medicare per enrollee expenditures at the metropolitan area (MSA) level nationwide, spanning the 8-year time period from 1998 to 2005. The study uses fixed effects panel data estimation with instrumental variables to account for the bias introduced by endogenous POH market entry (i.e., POHs may be more likely to open in high-growth/high-demand markets with high levels of Medicare per enrollee expenditures). After controlling for other variables that are likely to affect expenditures (especially the age and sex distribution of the MSA), we find no association between POH presence and Medicare expenditures per enrollee at the MSA level. The results are robust to changes in model specification, estimation technique, and definition of geographic market. These findings suggest that the "demand inducement" aspects of physician ownership of acute care hospitals (if any) have no meaningful impact on market-level Medicare expenditures per enrollee. Current policies based on an assumption that POHs are associated with significant increases in total expenditures may need to be reassessed. (JEL I11, L10, C33)
Private insurers pay widely varying prices for inpatient care across hospitals. Previous research indicates that certain hospitals use market clout to obtain higher payment rates, but there have been few in-depth examinations of the relationship between hospital characteristics and pricing power. This study used private insurance claims data to identify hospitals receiving inpatient prices significantly higher or lower than the median in their market. High-price hospitals, compared to other hospitals, tend to be larger; be major teaching hospitals; belong to systems with large market shares; and provide specialized services, such as heart transplants and Level I trauma care. High-price hospitals also receive significant revenues from nonpatient sources, such as state Medicaid disproportionate-share hospital funds, and they enjoy healthy total financial margins. Quality indicators for high-price hospitals were mixed: High-price hospitals fared much better than low-price hospitals did in U.S. News & World Report rankings, which are largely based on reputation, while generally scoring worse on objective measures of quality, such as postsurgical mortality rates. Thus, insurers may face resistance if they attempt to steer patients away from high-price hospitals because these facilities have good reputations and offer specialized services that may be unique in their markets.
Inquiry : a journal of medical care organization, provision and financing, 2015
Although uncompensated care for hospital-based care has fallen dramatically since the implementation of the Affordable Care Act and Medicaid expansion, the changes in hospital physician reimbursement are not known. We evaluated if payer mix and physician reimbursement by encounter changed between 2013 and 2014 in an academic hospitalist practice in a Medicaid expansion state. This was a retrospective cohort study of all general medicine inpatient admissions to an academic hospitalist group in 2013 and 2014. The proportion of encounters by payer and reimbursement/inpatient encounter were compared in 2013 versus 2014. A sensitivity analysis determined the relative contribution of different factors to the change in reimbursement/encounter. Among 37 540 and 40 397 general medicine inpatient encounters in 2013 and 2014, respectively, Medicaid encounters increased (17.3% to 30.0%, P…
PloS one, 2016
In 2013 the United States spent $2.9 trillion on health care, more than in any previous year. Much of the debate around slowing health care spending growth focuses on the complicated pricing system for services. Our investigation contributes to knowledge of health care spending by assessing the relationship between charges and payments in the inpatient hospital setting. In the US, charges and payments differ because of a complex set of incentives that connect health care providers and funders. Our methodology can also be applied to adjust charge data to reflect actual spending. We extracted cause of health care encounter (cause), primary payer (payer), charge, and payment information for 50,172 inpatient hospital stays from 1996 through 2012. We used linear regression to assess the relationship between charges and payments, stratified by payer, year, and cause. We applied our estimates to a large, nationally representative hospital charge sample to estimate payments. The average amo...
How Do Hospitals Cope with Sustained Slow Growth in Medicare Prices?
Health Services Research, 2014
Objective. To estimate the effects of changes in Medicare inpatient hospital prices on hospitals' overall revenues, operating expenses, profits, assets, and staffing. Primary Data Source. Medicare hospital cost reports (1996)(1997)(1998)(1999)(2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008)(2009)). Study Design. For each hospital, we quantify the year-to-year price impacts from changes in the Medicare payment formula. We use cumulative simulated price impacts as instruments for Medicare inpatient revenues. We use a series of two-stage least squares panel data regressions to estimate the effects of changes in Medicare revenues among all hospitals, and separately among not-for-profit versus for-profit hospitals, and among hospitals experiencing real price increases ("gainers") versus decreases ("losers"). Principal Findings. Medicare price cuts are associated with reductions in overall revenues even larger than the direct Medicare price effect, consistent with price spillovers. Among not-for-profit hospitals, revenue reductions are fully offset by reductions in operating expenses, and profits are unchanged. Among for-profit hospitals, revenue reductions decrease profits one-for-one. Responses of gainers and losers are roughly symmetrical. Conclusions. On average, hospitals do not appear to make up for Medicare cuts by "cost shifting," but by adjusting their operating expenses over the long run. The Medicare price cuts in the Affordable Care Act will "bend the curve," that is, significantly slow the growth in hospitals' total revenues and operating expenses.
The Growing Difference Between Public And Private Payment Rates For Inpatient Hospital Care
Health Affairs, 2015
The difference between private and public (Medicare and Medicaid) payment rates for inpatient hospital stays widened between 1996 and 2012. Medical Expenditure Panel Survey data reveal that standardized private insurer payment rates in 2012 were approximately 75 percent greater than Medicare's-a sharp increase from the differential of approximately 10 percent in the period 1996-2001. E xpenditures for hospital care in the United States are projected to exceed $1 trillion for the first time in 2015, 1 and debate is intensifying over pricing transparency, provider and insurer competition, and differences between private and public payment rates. The stakes involved are high, and there are stark examples of variations in payment rates across hospitals and geographic areas. 2-6 However, there is limited evidence on how payment rates for privately insured patients compare to those for patients covered by Medicare and Medicaid, or on how payment rate differences have changed over time. We examined amounts paid per inpatient hospital stay in the period 1996-2012 for patients whose primary payer was private insurance, Medicare, or Medicaid. Payment rates were adjusted for inflation and standardized across patient and stay characteristics. We found that payment rates for privately insured patients exceeded those for Medicare and Medicaid beneficiaries throughout the study period, but the difference widened rapidly in the latter half of the period (Exhibit 1). In 2012 private insurers' payment rates for inpatient hospital stays were approximately 75 percent greater than Medicare's payment rates-a sharp increase from the approximately 10 percent differential in the period 1996-2001.