Hospital cost-shifting may be overblown

Is hospital cost-shifting dead? The New York Times thinks so.

The newspaper's Upshot column takes a new look at the phenomenon--long believed to have been caused by Medicaid's underpayments to hospitals, which in turn cause hospitals to charge higher rates to commercially insured patients.

Jim DeMint of the Heritage Foundation wrote in the Daily Signal that the expansion of the Medicaid program exacerbates the cost-shifting and damages the entire U.S. healthcare system.

However, the New York Times article regards cost-shifting with some skepticism. "The cost-shifting theory goes back decades. But economists have long been skeptical of it, pointing to two key weaknesses. One is that it assumes hospital costs are immutable. We should be just as suspicious of such claims in healthcare as we would be for any other industry."

Instead, the newspaper quoted a variety of studies that suggest charges to private insurers actually go down when Medicaid or Medicare payments go down. 

Indeed, a 2013 Health Affairs study concluded that every 10 percent reduction in federal payments is translated to an 8 percent drop in charges to privately insured patients. That's as a result of hospitals trying to attract more private pay patients by making their rates more competitive.

Instead, cost-shifting should be seen instead as cost differentials, driven primarily by competitive forces in each market, according to the article. "Put it together and it is hospitals' underlying costs, driven by competition--not cost shifting--that lead to differences in prices charged to insurers and Medicare shortfalls or profits," the New York Times concluded.

To learn more:
- read the New York Times article 
- check out DeMint's opinion piece