Cuts to Hospital Medicare Rates May Not Shift Costs to Private Insurers, Study Says

In the healthcare finance world, it's conventional wisdom to believe lower Medicare payment rates to hospitals lead to higher rates, or cost-shifting, to private health insurers, but according to a May article in Health Affairs, that may not be the case.

Chapin White, PhD, a senior health researcher at the Center for Studying Health System Change in Washington, D.C., conducted a study to test the cost-shifting theory. He analyzed discharge claims data for Medicare and private payment rates for inpatient hospital care from 1995 to 2009, and he found the gap between Medicare and private rates widened from 45 percent to 57 percent during that timeframe. Further, Medicare payment rates increased 3 percent annually on average compared with 3.56 percent per year for private payors.

However, Dr. White said that gap could've been even more if Medicare rates were not kept in check. He ran a simulation, reducing Medicare payment rates to hospitals by 10 percent, and he found that private payment rates actually dropped between 3 and 8 percent. The gap between Medicare and private payor rates to hospitals could be due to many different factors — such as hospital consolidation, higher labor costs, etc. — but Dr. White wrote that cuts to Medicare are not one of those factors.

"Hospital executives, understandably, want higher payment rates from private payors. To put a socially acceptable spin on higher rates, they blame Medicare for being a stingy payer — this study should put that notion to rest," Dr. White said in a news release.

The study also mentioned how the Patient Protection and Affordable Care Act permanently slows the growth in Medicare hospital payment rates, which will save the federal government billions over the coming decade, and Dr. White said repealing those cuts would increase federal spending and also boost the growth of private insurers' costs and premiums.

"My results indicate that cuts in Medicare payment rates have not caused the rapid rise in private rates," Dr. White wrote. "My hope is that the dynamic cost-shifting theory is hereby put to rest. If so, then future research can focus on identifying the real drivers of increases in private hospital payment rates, quantifying any volume shifts resulting from changes in Medicare payment rates and testing for broader impacts on access and quality of care."

More Articles on Hospitals and Payors:

4 Reforms That Could Cut U.S. Healthcare Spending by $1 Trillion
A Look From Within: Why Are U.S. Healthcare Costs so High?
Medicare Spending Not Running Wild Compared to Private Payors, Economist Argues

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