Hospital cost shifting is alive and well, but its premature demise could have negative effects on all hospital patients.by Allen Dobson, Joan DaVanzo, and Namrata Sen ABSTRACT: The cost-shift payment "hydraulic" is an integral component of the fragmented U.S. health care financing system. If private payers' acceptance of the cost-shifting burden were to erode, our system of health care financing could become unstable. This is especially true for the hospital industry. In this paper we provide a series of examples of cost shifting and a historical profile of the cost shift in the hospital industry since 1980, noting that cost-shifting pressures seem to fluctuate over time and across health care markets. Cost shifting need not be dollar per dollar, as hospitals can absorb some degree of costshifting pressure through increased efficiency and decreases in service provision. [Health Affairs 25, no. 1 (2006): 22-33] D u r i n g t h e pa s t t w e n t y y e a r s , documentation of hospital cost shifting has accumulated in the health services research literature; at the same time, some economists have maintained that cost shifting either does not exist or is "dead." Several researchers have defined the cost shift and described the history of the debate in both conceptual and empirical terms. 1Those who advocate for the existence of cost shifting point to differential hospital payment-to-cost ratios across payers and to increased premiums paid by private-sector payers at the same time public payers receive rate reductions.2 In 1992 the Prospective Payment Assessment Commission (ProPAC) estimated that privately insured patients were being charged, on average, 28 percent more than costs.3 Those who argue against the existence of cost shifting cite profit maximization, selective contracting, and price competition as precluding hospitals from shifting costs, maintaining an "impossibility theorem" associated with classical economic theory. 4 They posit that firms aim to maximize profits and that, as such, hospitals would charge private payers the highest price permitted by the market. 5Selective contracting by managed care plans meant that hospitals began to compete on price, which further hindered their ability to raise prices to selected pay-2 2 J a n u a r y / F e b r u a r y 2 0 0 6 M i s s i o n V s . M a r k e t
The current Medicare reimbursement for hip fractures lacks accountability and promotes cost cutting. A bundled payment system-analogous to the Medicare Acute Care Episodes Demonstration for Orthopedic and Cardiovascular Surgery-may help curtail costs, foster communication among health care providers, and improve their accountability for patient outcomes. In hip fracture care, bundled payment may spur development of multidisciplinary best practice guidelines, quality assessment, and reporting, and result in benchmarking and best practices sharing. However, its implementation may face challenges: the need for quality assessment criteria and risk adjustment methods and possible risks of pushing costs outside of Medicare boundaries.
The objective of this study was to compare measures of MedCath heart hospital patient severity, quality, and Medicare-related expenditures for comparable services to a group of comparison heart hospitals. This analysis is relevant to stakeholders' concerns over the emergence of the specialty care hospital industry. The study incorporates Medicare data for seven MedCath hospitals as compared with 1192 hospitals that performed open-heart surgery in federal fiscal year 2001. The authors developed cardiac-specific patient severity measures based on All Patient Refined-Diagnostic Related Groups and all subsequent analyses were standardized for differences in case mix between MedCath and comparison group hospitals. Study results indicate that MedCath hospitals have higher cardiac case mix severity, fare better in indicators for quality of care, and provide care at less expense to Medicare than comparison group heart hospitals. These results imply that "cherry picking" arguments and quality-of-care concerns of the specialty care hospital industry critics do not seem applicable for MedCath hospitals.
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