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Sponsored by The Robert Wood Johnson Foundation under its Changes
in Health Care Financing and Organization (HCFO) initiative and
conducted by AcademyHealth
November
13, 2002 - Wyndham Washington, Washington, D.C.
For
at least 30 years, different federal administrations have taken
varied approaches to imposing health care cost control policies.
The Nixon and Carter administrations aimed to curtail inflationary
cost pressures across the entire health care system, for example,
while the Reagan and subsequent administrations developed strategies
that only address public programs, particularly Medicare and Medicaid.
When
researchers and policymakers evaluate Medicare-only payment policies,
one of the critical issues they must address is who bears the burden
of such payment reductions. Is it the hospitals, whose reimbursement
rates are directly reduced, or other payers, particularly private
employers who provide health insurance to their employees? In short,
do providers "cost shift" (i.e., raise prices to one set
of payers in response to lower payments from another)? In the case
of Medicare and Medicaid, do hospitals and physicians respond to
payment reductions by cost-shifting to private payers?
Some
economists argue that, theoretically, cost-shifting should not occur.
Providers with market power should be profit maximizers, they say,
who exercise their market power on all payers at all times and not
selectively, based on temporary financial conditions. Whether or
not cost-shifting occurs in reality has been difficult to determine.
Research on the topic has been inconclusive, with some studies suggesting
that hospitals do indeed shift costs from Medicare to private payers,
and other investigations finding that they do not. Moreover, the
bulk of the literature on cost-shifting has become dated: Most studies
were published in the mid-1990s and drew on data from the late 1980s.
The
Balanced Budget Act (BBA) of 1997 brought the issue of cost-shifting
to the fore once again. Some anecdotal reports suggest that hospitals
have reacted to declining, post-BBA Medicare margins by adopting
more aggressive negotiating positions with health plans and self-funded
employers in order to obtain higher payment rates. On the other
hand, some believe that physicians, often with less market power
than hospitals, have been subject to shadow pricing of the Medicare
fee schedule by private plans. In the past, the issue of the relationship
between Medicare payments and private payments has not received
much attention because physicians had not been subject to significant
BBA cuts. However, in 2002 physicians saw their Medicare payments
cut by 5.4 percent, with additional cuts scheduled for the next
few years.
The
purpose of this meeting is to revisit the issue of cost-shifting
among payers by bringing together economists, hospital administrators,
physician practice managers, researchers, and public and private
payers. Speakers will address questions such as:
- Does
cost shifting exist and under what market conditions?
- Does
the phenomenon vary between hospitals and physician markets and
between Medicare and Medicaid?
- How
can we reconcile economic theory about profit maximization and
evidence of cost-shifting?
- Should
Medicare payment policy to hospitals and physicians provide subsidies
for uncompensated care and for private payers, who otherwise might
experience cost-shifting?
- More
broadly, at a time of dramatically escalating cost pressures on
all payers, should federal policy address total system costs or
be limited to the costs associated with the beneficiaries of federal
programs?
- Are
there additional public policy implications of cost-shifting?
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