With budget tightening and planned hospital cuts from Medicare, you will apprehend more from your administrative leaders and hospital organizations about cost shifting. The thinking goes that due to lower payments from CMS, and thus lower Medicare margins, hospitals shift costs to private payers, i.e., commercial plans make up the difference because of government shortfalls.
Private payers complain, CFO’s push back, politicians grumble, employers go ballistic, and the wrath of least resistance is inevitably Medicare. You might hear, “you know why we axed your physician assistant. Medicare cut their rates.” Conversely, you might lose your same PA, but this time because, “WellPoint would not budge and pay our asking rate.”
See below for a historical plot of Medicare versus commercial inpatient margins (and note when the Medicare slope drops, the commercial slope rises, i.e., “the shift”):
However, as we often observe in medical intervention trials (confounding), it takes deeper digging to move beyond, “if x, then y” and examine other variables that might explain a potentially narrow conclusion:
Notice the external factors (A-D) that might alter the shift assumption. The political and market landscape induces payers to change prices due to other influences, such as their market power, reputation, or (excessive) internal costs. To assume that because one payer zigs, albeit a big one, and reduces their rates, the market uniformly zags. It is not that simple.
It then breaks down to this: if it is not costs exclusively driving prices, perhaps prices may drive costs. Pause. Think.
Are hospitals, our mother ships, cost shifting, or sometimes price discriminating?
If I make a widget for $10, and Sally pays me $5 (she always paid me $10 until today), I will ask Mary to pay me $15. Cost shift. If I make a widget for $10, and Sally pays me $10, but I ask Mary to pay me $15—I price discriminate.
However, if my widget now costs $11, what do you call my next step if I ask or charge Mary more. Also, what gives me the ability to ask her to pay the higher price…and get it.
Yes, this relates to what we do as hospitalists. Yes, this is important. Yes, the reimbursement environment and how we comprehend it will effect the resources we receive and how we allocate them.
You know the research surveys we complete every few years, asking whether we received enough systems and health economics training in residency a la Likert 1-5 (one is the right answer btw)? Well, its here and you may need to understand it.
Part II here