Advancing the thinking around cost shifting

We’ve commented before about the evolving research around cost shifting. The CT Mirror picks up on this discussion with a look at Connecticut hospitals and the pressures created by disparate commercial vs. Medicare/Medicaid payment rates. Here’s an excerpt:

Not everyone agrees that the higher costs commercial insurers pay to hospitals can be blamed on government underpayment. The Medicare Payment Advisory Commission, or MedPAC, which advises Congress on Medicare issues, has argued that Medicare payments are adequate for relatively efficient hospitals, and that raising Medicare rates would not necessarily lead to lower commercial charges. Hospitals that make high margins from commercial payers have less pressure to rein in costs, the group has argued, leading to expenses beyond what Medicare pays.

The actuarial firm Milliman concluded that a cost shift did exist in a 2008 analysis prepared for insurers and hospitals. The firm estimated the cost shift nationwide at $88.8 billion per year, or about 15 percent of what commercial insurers spend on hospital and physician services. The report defined cost shift as the difference between actual payments and payment amounts that would produce equal margins for each payer.

But more recent Milliman research has suggested that cost shifting is not the only option for hospitals, and that they might have little choice in the future but to become more efficient. The firm identified cities that have “high-value” hospital care, with low per capita inpatient costs for both Medicare and commercial insurance, and positive hospital margins.

“Considering cost shifting to be inevitable ignores both the potential for cost management within hospitals and hospitals’ flexibility to set commercial prices,” one report said. “The data demonstrates that hospitals can prosper in some low-Medicare cost regions without cost shifting to commercial payers for their inpatient services.”