Dynamic Cost Shifting in Hospitals: Evidence from the 80s and 90s Journal Article by: Jan P. Clement Inquiry 34, 1997 Presentation by: Kevin Gebhard

Purpose of Paper Determine whether cost shifting occurred among hospitals during this time. Determine what variables affect the likelihood of cost shifting, both dynamic and static, including market factors. Author dissatisfied with previous research

Dynamic Cost Shifting Differs from static cost shifting, which is basically price discrimination. Rather, it is charging a higher price to those who are able to pay once another is unable to. Concerns about such actions: – Fairness –May limit incentives to control costs –Higher Insurance Premiums

Current Events of the Decade HMOs created, helping to make hospitals more cost conscious Medicaid paying less, and also paying by perspective payments, not reimbursements Fewer inpatients Research done on California hospitals, which had these reforms early

Variables and Hypothesized Signs Dependent: Markup by hospital PRVMKP. Calculated by revenue per patient per AC Independent Variables: –NEED measures: Medicaid/care (-) –Financial Strength: Total Margin, Y/TR (-) –Mkt Conditions: Competition (-) and HMO (-) –Hospital itself: Dependance on Private (-)

Results and Variable Analysis Medicaid dropped payments from 80% of costs to 55% of costs from ’83 to ‘92 Markup over cost rose from 11.7% to 30% BIG effect: Medicaid, Fin Strength, ICU Small effect: Competition and HMOs Opposite effect: Reliance on private was + (OLS used, and little multicollinearity found)

P Q AC D QEQE Q REQ Hospital’s Actions with Price Discrimination P

Q AC D1D1 QEQE P Now, new demand for the uninsured D2 D2D2 Q1Q1 P1 P2 Q2Q2 Will be below AC, causing a loss of Box Now must charge a higher P2 to others

Conclusions and Findings California hospitals did practice both dynamic and static cost shifting However, the ability to shift the costs decreased over time