Study: Medicare cuts don't promote hospital cost-shifting

Contrary to the long-held belief that cuts in Medicare spending leads to cost-shifting over to private payer patients, a new study suggests that such private sector spending actually decreases.

A study in the journal Health Affairs of Medicare and private payer rates between 1995 and 2009 in the 306 geographical regions outlined by the Dartmouth Atlas concluded that a 10 percent reduction in Medicare payments would translate to a reduction in private payer rates of between 3.11 percent to as much as 7.73 percent, depending on a variety of factors.

"When Medicare cuts its payment rates, Medicare patients become relatively less financially attractive, and private patients become relatively more financially attractive. Hospitals then seek to increase private volume, and the way to do that is by lowering the private payment rate," wrote the study's author, Chapin White, an economist with the Center for Studying Health System Change.

As a result, White concludes in an abstract that "repealing cuts in Medicare payment rates would not slow the growth in spending on hospital care by private insurers and would in fact be likely to accelerate the growth in private insurers' costs and premiums."

The trend has been for hospitals to continue to charge private payers more than Medicare. Private payer prices for hospital services rose 4.1 percent per year on average between 1995 and 2009 in Indianapolis, according to the Indianapolis Business Journal. By contrast, Medicare payments to hospitals in Indianapolis rose 3.5 percent annually on average.

According to the study, hospitals in 55 percent of the markets in the U.S. have raised prices for private payers at a higher rate than Medicare patients.

To learn more:
- read the study (subscription required)
- read the abstract
- read the Indianapolis Business Journal article