Cost-shifting
Cost-shifting[1] is either an economic situation where one individual, group, or government underpays for a service, resulting another individual, group or government overpaying for a service (shifting compared to expected burden).[2][3] It can occur where one group pays a smaller share of costs than before, resulting in another group paying a larger share of costs than before (shifting compared to previous arrangement). Some commentators on health policy in the United States believe the former currently happens in Medicare and Medicaid as they underpay for services resulting in private insurers overpaying.[4] In 1995, Health Affairs started a study testing the “cost-shifting” theory using a unique new data set that combines MarketScan private claims data with Medicare hospital cost reports, the study ran from 1995-2009. In May 2013 when the findings were released, the study found that a 10 percent reduction in Medicare payment rates led to an estimated reduction in private payment rates of 3 percent or 8 percent, depending on the statistical model used. These payment rate spillovers may reflect an effort by hospitals to rein in their operating costs in the face of lower Medicare payment rates.[5]
Cost shifting in Healthcare[6]
Cost shifting can mean many different things. It can mean a situation where different groups are charged different prices. Or it can mean a situation where a group underpays for some services. But in the end, it is a situation, where the cost does not really equal the service.
Some examples of cost shifting are for example; in America the commercial insurers pay the hospitals more than the medicare. Some organisations are even charged less than health insurers.
Problems of Cost shifting in Health care
The problem of cost shifting in health care is based on the fact, that medicare pays hospitals only a fraction of the patient’s costs, which is often significantly lower than the replacement cost.
The government says that this gap (the cost gap between the patient’s real cost and the compensation), is because the compensation is paying only for the costs of the treatment (meaning, it pays the doctors and hospital for the expenses).
Economics of Cost shifting
As we mentioned earlier, the cost shifting is the possibility to set different prices for different groups of customers.
There are two important definitions: static cost shifting (price discrimination), that is the ability to charge different prices to different customers.
The other one is the dynamic cost shifting, which means charging the maximal amount of money that the customer is able to pay (not necessarily the highest possible value, but the value that people are still willing to pay for the service).
Imagine the hospitals to have two groups of patients. Those, who are covered by the government. From this group the hospital get fixed cost from the government. On the other hand, the second group of patients are those, who pay for their treatments. Those patients can buy more hospital care at lower price.
The hospital that wants to earn as much profit as it can, has to decide whether it will accept patients covered by the government (lower income for hospital), and how much it should charge to the patients that pay for their treatments. And there we can already see another case of cost shifting. Both groups pay for the same service (hospital), but each has to pay different sum.
But in competitive market there is rarely any price discrimination, nor cost shifting, because as soon as the hospital would have raised a price to one of those two groups of patients, they would seek care in some other hospital, therefore the hospital would only lose money.
References
- Murphy, Dr. Brian: McCague Borlack LLP, "Cost Shifting in Health Care: A Pilot Study Explores the Relationships Between Cost Shifting, Repetitive Strain Injury, the Workplace Safety and Insurance Board of Ontario, and Publicly Funded Health Care" York University, 2003
- "Preferred Medical Claim Solutions - Healthcare, Medical Claim Settlement Terms". Pmcsonline.com. Retrieved 2009-09-16.
- "Behavioral Health Glossary". Pmhm.com. Archived from the original on January 5, 2009. Retrieved 2009-09-16.
- Wangsness, Lisa (2009-06-21). "Healthcare debate shifting to public vs. private - The Boston Globe". Boston.com. Retrieved 2009-09-16.
- Health Affairs Chapin White, May 2013.
- Morrisey, Michael A. (1994). Cost Shifting in Health Care Separating Evidence from Rhetoric (PDF). Washington D.C.: The AEI Press.