Lecture 15 - 10/26/99

Hospital Cost-Shifting

Forms Erosion of Retrospective Reimbursement has Taken

• Narrowing of what is considered to be a legitimate cost
• Cost limits (TEFRA of 1982)
• Switch to other methods of paying hospital: discounted charges (negotiated) and capitation (Raleigh example)

Cost Shifting by Hospitals

• Pluralistic payment system
• Erosion of retrospective reimbursement--cost and charge

"Cost Shifting" by Hospitals

• What it is
• Policy implication of cost-shifting argument
• Problems with Cost Shifting Argument
• (1) if cost shifting were limitless, hospitals would never go broke
• (2) different prices may be due to price discrimination rather than to cost shifting

Policy Context of Cost-Shifting

• State legislative debate over Medicaid cuts in reimbursement--state hospital association position
• National health care reform

Conditions under which Cost Shifting Occurs

• Hospital market power
• Can’t have been profit maximizer before payer lowered price

Contrast with the Price Discrimination Model

Empirical Test of the Cost-Shifting Model

• If fall in price paid by payer j leads to an increase in the hospital’s usual charge, this is evidence in favor of cost shifting
• If fall in price paid by payer j has no effect on hospital's usual charge or decreases usual charge, cost-shifting hypothesis is rejected

Terminology Keeler Article

Issues

1. Observe quality using process and outcome measures
2. Differences in quality among hospitals with various characteristics
3. Normative issue: What to do with findings?
4. Applicability to individual institutions

Methods

1. Sample size and characteristics
2. 30-day mortality
3. 60-80 disease-specific variables from charts
4. Regression analysis (logit)
5. Use regression to define "excess mortality"

 

 

Excess % = observed % - predicted %

6. Rerun with reduced set of seventy indicators
7. Explicit measurement of process (quality)
8. Implicit measurement of process (quality) 8-point Implicit Overall Quality Scale

1. How useful is this methodology for assessing quality of individual hospitals?
2. Should rural hospitals be closed? If so, how?
3. What are the implications of the quality difference for payment? Should hospitals in higher quality groups be paid more?
4. Which mechanisms are likely to be effective for improving quality? Information? CON? Peer review (external, internal)?

1. Remarkable agreement among 3 quality measures
2. Rural hospitals provided lower quality (Table 2)
3. Hospital in larger cities and in certain states provided higher quality. No difference FP = NFP. "Classic" – city-county.
4. Problems in measuring case severity. Study of 15 teaching hospitals in Boston.
5. Regression-adjusted results (Table 3). Confirm Table 2 results.
6. Quality up over time (1981-82 v. 1985-86) even with PPS (Table 4)