This blog continues my exploration of the great mysteries of the health of the economy.
Northwestern University is one of the largest Blue Cross of Illinois customers. Let us assume that the premium for all BC plans are expected to increase by 10 percent, but is now able to force Blue Cross to accept a 5 percent increase. Would you expect that Blue Cross McDonalds stick to the 15 percent increase to cover the deficit from NOW?
I will, for two reasons. First, McDonald’s is likely to threaten his insurance elsewhere. In the second scenario I described is consistent with the maximization of profit Blue Cross.After all, it means BC’s ability to keep McDonald’s 15 percent growth at least not depend on the price paid by NU. Each dealer will to keep him McDonalds is tied to the prices NOW leaving money on the table and probably would have been fired long ago.
We can expect that BC will never raise prices for some customers to the shortcomings of others, so why do we think that still in the hospital? It is possible to discuss Medicare and Medicaid payments, without anyone calling mantra of cost shifting. Theory of cost shifting is deeply rooted in the minds of decision makers and health policy implications of this theory are profound. Consider that if hospitals cost shift the burden of Medicaid reductions attributable to privately insured patients, not on Medicaid patients and hospitals that serve them. This requires that the question whether the cuts will result in some savings for taxpayers and cause harm to Medicaid recipients. Also wonder why a hospital that serves low-income communities struggling for survival. You can not just cost-shift the path of economic difficulties? Cost-shifting fanatic would have concluded that managers of these hospitals are incompetent.
I must admit that I committed one of the most cited papers proving that the cost shifting. I studied what happened in Illinois hospitals in the early 1980s there was a significant reduction in Medicaid fees, finding that the hospital is increasing prices to privately insured patients represent a great deal about half of Medicaid deficit. But it was different then, and I do not think that the evidence can be used to describe what is happening today. Firstly, it has been virtually no managed care in Illinois, so that insurers had to accept prices set by hospitals. Insurance companies are much stronger today than they were back. Secondly, all hospitals in Illinois were nonprofit organizations, and if I could tell, mostly based Mission Over profits. It is therefore possible to believe that the Medicaid cuts, hospital really went private money on the table. With all the empire building that the hospital takes care today, it’s hard to believe that it would never leave the insurance money on the table. It’s just hard to believe that it would be necessary under the guise of government cutbacks before sticking it to the insurer.
Cost-switch may be faulty theory, but can still be a discrepancy between theory and practice. Hospitals may change because, well, that’s what they think they do. What is modern evidence show? White, and I published another work, a dozen years ago, to track what has happened in hospitals, in California, after the big cuts in Medicaid. We found that hospitals that experienced a large Medicaid cuts also experienced relatively slower growth in private-sector payments, the opposite of what would happen under the cost to move. There are quite a few other studies showing that the quality of care for Medicaid and Medicare patients suffer when government payments falls. This can happen if hospitals cost shift.
Unfortunately, there are many more stylized analysis that seems to show that the cost of sorting is alive and well. Typical analysis finds that the profits from privately insured patients negatively correlated with profits from the government insured patients, both in cross section and over time. This is cited as conclusive evidence of cost shifting.
There is an alternative explanation, which unfortunately for the price, sort fanatics are completely in accordance with institutional facts. Motivate explanation for the sector in which all firms earn zero profits, but accounting firms are somewhat arbitrary systems and assign costs to different customer groups in a somewhat haphazard manner. If a company in this sector has two groups of customers may seem to be profiting from one group because of the way that distributes costs. Because the company earns zero profits overall, it seems to lose money from another group. Thus, reported earnings will be negative correlation between customer groups.
Now suppose that one group of customers who are to act together and demand a lower price. It would have no impact on the price paid by another group in a short period. In the long term there is an exit, because some companies were losing money. This would drive up prices and recreates a negative correlation in both the Department and over time. But it would not be cost effective shift, what is commonly discussed. (Even that would require any cost calculation.)
If we relax the assumption zero profits, but I assume that the profit is limited to a relatively narrow band, so we get the same negative correlation as a cross-section and over time, provided that it is a relatively large amount of arbitrary cost allocation. And I think it pretty well describes the hospital where most profit hospitals within plus or minus 5 percent, and Apportionment of costs is speculative, even in the best institutions.
So I explain the stylized evidence without invoking the mantra of cost shifting. But that does not mean that my interpretation is correct. Cost-shifting is so deeply entrenched that CFOs can do, although it is not profit maximization. I think I could stand and game theory model where hospital CFOs use government cutbacks as a kind of rallying point for the transmission of silence together secretly raise prices to offset costs is to maximize profits in strategic terms. My opinion is indisputable that the cost of switching to emphasize that there is good reason to question both the theory and evidence.Whether prices move the hospital is still one of the great mysteries of the health of the economy.