Cost-shifting: no longer a concern?

A study refutes the theory of cost-shifting in health care and suggests private cost growth mirrors Medicare.

2603129684_64730d5bbfIncreasing costs of health care in the United States have been longstanding concerns.  Several solutions have been proposed to address this issue; one idea calls for decreasing Medicare reimbursement rates for hospital services.  Critics of this plan argue that private insurers will see an increase in hospital prices in order to offset decreases in Medicare reimbursement.  The author of this study hypothesized that a decrease in Medicare reimbursement rates would be associated with a similar reduction in private insurers’ reimbursement rates. If proven true, this could lead to the stabilization of rising health care costs.

The study evaluated hospital prices for Medicare and private insurance between 1995 and 2009.  The researcher identified markets with high vs. low rates of growth in Medicare payments and compared trends in private payments.  Private payments were calculated using the MarketScan Commercial Database.  After excluding Medicare enrollees, HMO enrollees, anyone over age 65, as well as markets without at least 20 claims in every year of the study period, the final data set contained 6.3 million inpatient claims from 257 markets.  Medicare rates derived from Medicare hospital cost reports.

The data indicated that payments for private insurers vs. Medicare showed an impressive and increasing gap.  In 1995, the average Medicare payment per discharge was $7,249 while the average private payment was $10,504 (a 45% difference). In 2009, the average Medicare payment rose to $11,031 while the average private payment was $17,286 (a 57% difference).  The annual growth rate was 3.00% for Medicare and 3.56% for private insurance.

Within Medicare, cost and growth varied by geography. Urban areas with teaching hospitals had higher than average Medicare payments ($7,643) but slower growth rates (2.43%) compared to regions with lower than average Medicare payments ($6,696) yet faster growth rates (3.63%).  Similarly, private payment rates increased slower (3.04%) in high cost markets than in lower cost markets (4.15%).

Using regression models to adjust for variables affecting hospital inputs (e.g. nursing wages, funding for medical education, etc.) the author was able to demonstrate how private insurer payment rates would change due a 10% reduction in Medicare payment.  In one model, a 10% reduction in the Medicare payment rate was associated with a 3.11% (p<0.001) reduction in private payer rates.  In another model, a 10% reduction in the Medicare payment rate was associated with a 7.73% (p<0.001) reduction in private payer rates.

Commentary

Although the results showed a decrease in the reimbursement rates for private insurers as Medicare reimbursement rates decreased, caution should be taken when applying these results broadly across publicly-funded health care programs.  As a provider who works in a federally qualified health center, the majority of my patients receive publicly-funded health insurance.  Reimbursement rates received for services provided to these patients have been steadily declining. As a result, a dramatic increase in my daily patient census has occurred in order to maintain the same total revenue as when reimbursement rates were higher (i.e. an increase in patient volume).

Cutting reimbursement rates, might lead providers (and hospitals) to deliver fewer non-reimbursable services to each individual patient – both publicly and privately insured – in order to move more patients through the system. This might prove to be unfortunate considering many new patients will have both private and public insurance coverage as a result of the Affordable Care Act.  Instead of only focusing on decreasing reimbursement rates, the solution to decreasing the total cost of health care should focus on improving the proper utilization of health care services by patients.

White, C. Health Affairs. 2013; 32 (5): 935-943.

by

Tyree Winters, DO