DO HOSPITALS SHIFT THE COSTS OF THE UNINSURED

TO PRIVATE PAYERS?

ByVivian Ho, Jerome Dugan, and Meei-Hsiang Ku-

Goto 

Rice UniversityBaker Institute for Public Policy and

Department of Economics

HIGHLY PRELIMINARY - DO NOT CITE

Introduction Cost shifting occurs when providers raise

prices to one group of payers in response to another group’s paying lower prices (M. A. Morrisey 1994).

Public perception that rising number of uninsured patients is leading to higher premiums for those who are privately insured (Washington Post, St. Louis Post-Dispatch, Houston Chronicle)

Reductions in Medicaid and Medicare reimbursement rates may have led to higher private insurance premiums.

Previous Theoretical Literature

Cost shifting ruled out if hospitals maximize profits (Morrisey 1994; Frakt 2010) Ppublic payer↓ → Qpublic ↓ , Pprivate ↓

Cost shifting occurs if hospitals maximize utility. U = U ( π , patient volume or quality) ability to cost shift depends on market

hospital power wrt insurers and mix of private pay versus public pay patients.

Previous Empirical Literature

6 studies employ regression methods: Are reductions in Medicare/Medicaid payments, or increases in uninsured care associated with increases in prices charged to private pay patients?

4 of 6 studies find cuts in Medicare or Medicaid lead to higher private pay payments.

4 of 6 studies are based on data from California, which had data to estimate price per discharge.

Previous Empirical Literature

Past regression-based studies do not explicitly consider hospital revenues from the uninsured and self-pay patients.

Price estimates in previous studies may be subject to measurement error.

2 of the 6 studies use data from Medicare cost reports, which only distinguish Medicare revenue from non-Medicare revenue. "Private pay revenue" includes payments

from Medicaid, self-pay, and uninsured patients.

Previous Empirical Literature

Dranove & White (1998) estimate an overall private price by applying a fixed market basket to prices from 10 different cost centers for each hospital. But hospitals may vary widely in revenues by

cost center (e.g. surgical intensive care vs. diagnostic radiology).

Zwanziger et al (2000) account for both inpatient and outpatient care when estimating prices, but must aggregate over the 2.

Cutler (1998) and Wu (2010) instrument for reductions in Medicare price using (reduced) updates to DRG reimbursement rates.

Previous Empirical Literature

This paper replicates analyses from previous papers using Texas data. 25.2% of population uninsured in TX,

compared w/ 18.5% in CA

Relating private pay price to prices of other payers.

Zwanziger et al (2000 & 2006), Wu (2010). But we explicitly consider the uninsured.

Data 2000-2007 versions of the American

Hospital Association annual survey Contains net revenue by payer type, which is

not reported in the national AHA survey.

Payer types: private pay, Medicare, Medicaid, uninsured/self-pay. The state and local governments provide

substantial subsidies to hospitals to care for uninsured and under-insured patients.

Upper Payment Limit (UPL) funds paid by federal gov’t to bring Medicaid prices up to level of Medicare payments.

Both these payment categories included in uninsured/self-pay.

Data

Medicaid DSH payments reported separately, but could be allocated to either Medicaid or uncompensated care.

Hospital expenses are not reported by payer type. Texas hospital discharge data is used to sum

charges by payer type and adjusted to reflect costs using the cost-to-charge ratio for each hospital and year.

The DRG weight for each hospital discharge is obtained from the state and averaged by hospital to create a case mix index.

Empirical Models

Private pay price (revenue/discharges) regressed on: Medicare price Medicaid price Uninsured/Self-pay price Cost per patient

casemix (quadratic) county HHI index (based on bedsize,

quadratic) county managed care penetration

(quadratic) year fixed effects

Empirical Models

Empirical Models

Estimates w/ and w/o hospital fixed effects.

Regressions include either hospital fixed effects, or first-differencing w/in hospitals.

Additional specification interacts prices & ownership status

Mean Hospital Revenue by Payer Type

2000

2001

2002

2003

2004

2005

2006

2007

$0 $50,000,000 $100,000,000 $150,000,000

Private Pay

Medicare

Medicaid

Self-Pay

Uncomp. Care

Price Per AdmissionYear Private pay Medicare Medicaid Uninsured/Self pay2000 6638 5997 4118 76082004 8699 6332 3959 89972007 9685 6400 4015 8618

% Growth 45.9 6.7 -2.5 13.3CV (2007) 0.45 0.38 0.58 0.77

Cost Per AdmissionYear Private pay Medicare Medicaid Uninsured/Self pay2000 5063 8568 5008 53822004 6174 9691 5269 63252007 6645 9779 5341 6742

% Growth 31.2 14.1 6.6 25.3

(1) (2)

Coef. t Coef. t

Medicare price 0.253 (1.35) 0.101 (1.44)

Medicaid price -0.085 (-2.29) -0.078 (-2.25)

Unins/self pay price -0.010 (-0.57) -0.032 (-2.72)

Average cost 0.671 (5.26) 0.599 (3.88)

Casemix 1.096 (4.58) 6096.757 (2.47)

Casemix² -0.240 (-3.17) -1214.832 (-1.24)

N 1660 1268

Price & Cost in logs X

Hospital Fixed Effects X

First Differences X

Regression Models for Private Payer Price

(1) (2)

Coef. t Coef. t

HHI 0.076 (0.17) 1002.022 (0.25)

HHI² 0.093 (0.29) 540.651 (0.19)

Man. Care Pen. -0.001 (-0.68) 8.563 (0.78)

Man. Care Pen.² 1.01E-06 (0.07) -0.066 (-0.76)

2001 0.074 (3.75)

2002 0.078 (3.29) -117.876 (-1.02)

2003 0.153 (6.00) -18.939 (-0.11)

2004 0.134 (4.03) -426.643 (-2.48)

2005 0.178 (5.60) -59.925 (-0.35)

2006 0.221 (6.49) -122.984 (-0.86)

2007 0.180 (5.20) -228.197 (-1.75)

Constant 0.723 (0.86) 331.724 (5.63)

Regression Models for Private Payer Price (cont.)

(1) (2)

Coef. t Coef. t

Medicare price 0.166 (1.21) 0.015 (0.24)

Medicare price * for-profit 0.149 (1.67) 753.231 (1.67)

Medicare price * public 0.071 (1.03) 338.980 (0.54)

Medicaid price -0.009 (-0.33) -0.003 (-0.05)

Medicaid price * for-profit -0.149 (-1.39) -658.092 (-1.46)

Medicaid price * public -0.050 (-0.8) -289.248 (-0.50)

Unins/Self pay price 0.000 (-0.02) -0.027 (-2.09)

Unins/Self pay price * for-profit -0.005 (-0.15) -111.854 (-0.58)

Unins/Self pay price * public -0.021 (-1.07) -40.658 (-0.34)

Average cost 0.684 (6.05) 0.763 (7.95)

N 1660 1267

Price & Cost in logs X

Hospital Fixed Effects X

First Differences X

(1) (2)

Coef. t Coef. t

Casemix 1.062 (4.38) 4869.042 (2.08)

Casemix² -0.221 (-2.81) -733.384 (-0.78)

HHI 0.040 (0.09) 1453.027 (0.36)

HHI² 0.111 (0.33) 165.659 (0.06)

Man. Care Pen. -0.002 (-0.97) 11.220 (1.07)

Man. Care Pen.² 4.45E-06 (0.31) -0.086 (-1.04)

2001 0.070 (3.67)

2002 0.074 (3.02) -118.615 (-1.04)

2003 0.150 (5.84) 18.107 (0.10)

2004 0.132 (3.77) -364.874 (-2.32)

2005 0.176 (5.53) -70.895 (-0.44)

2006 0.218 (6.43) -125.644 (-0.86)

2007 0.181 (5.24) -210.485 (-1.61)

Constant 0.675 (0.78) 302.002 (5.40)

Bargaining Power

Wu: Hospitals w/ large private payer volumes may be better able to cost shift onto private payers.

Wu’s measure of bargaining power

More appropriate measure may be

esDischTotal

esDischMedicare

esDischTotal

esDischivate

arg

arg

arg

argPr

esDischivateCounty

esDischivate

argPr

argPr

Table 5: Private Payer Price Regressions with Bargaining Power

(1)

Coef. t

Medicare price 0.102 (1.45)

Medicaid price -0.058 (-1.25)

Medicaid*bargain -0.055 (-0.76)

Unins/self pay price -0.022 (-1.37)

Unins/self*bargain -0.032 (-1.21)

Bargain -182.067 (-1.68)

Average cost 0.586 (3.73)N 1255Price & Cost in logsHospital Fixed EffectsFirst Differences X

Regression also includes Casemix, HHI, and Managed care penetration in quadratic form, year dummies, and a constant.

Conclusions & Future Work

Very little evidence of cost shifting to private payers from either government sources or the uninsured in Texas.

Further research on the DSH payments and payments for uninsured/self-pay care.

Identify better measures of hospital and insurance market competition.

Conclusions & Future Work

Cutler (1998) tests for effects of Medicare price cuts on: Hospital closures* Change in beds FTE RNs and LPNs* Cardiac services (PCI, cardiac cath,

CABG) Diagnostic radiology (CT, MRI, PET,

SPECT) ERs