Jeff - what impact has the reduced reimbursement rates from CMS and Medicaid programs have in the price increase from hospitals? Also if employer sponsored plans are making every effort to reduce inpatient stays doesn’t it reason the hospital per unit costs would need to increase since the number of units has deceased
1) In the 1990s economists concluded that when government payers lowered reimbursement this could lead to higher costs for private insurer. However, in those days many contracts were "% of charges," so the hospitals could bill private payers more and get paid more. Now very few contracts are % of charges - and most are fee schedules negotiated for ~3 years. If hospitals can turn around and bill private payers more when they get government fee cuts, that means they were leaving money on the table in the first place. Since their leverage hasn't changed, they shouldn't be able to get higher prices to account for lower government reimbursement. In fact, at least one study showed that Medicare fee cuts led to less capital investment at hospitals - lowering the total future cost for all payers! Here's a great 2011 post by Austin Frack about this issue. https://theincidentaleconomist.com/wordpress/cost-shifting-as-it-used-to-be/
2) Good point. As length of stay declines, people who require hospitalization are sicker- so we should expect some increase in unit cost that is due to "mix" rather than inflation. Hard to imagine this justifying the exceptionally high rate of increased unit costs at hospitals.
Jeff - what impact has the reduced reimbursement rates from CMS and Medicaid programs have in the price increase from hospitals? Also if employer sponsored plans are making every effort to reduce inpatient stays doesn’t it reason the hospital per unit costs would need to increase since the number of units has deceased
Hi Jeanne! Thanks for your comment/question!
1) In the 1990s economists concluded that when government payers lowered reimbursement this could lead to higher costs for private insurer. However, in those days many contracts were "% of charges," so the hospitals could bill private payers more and get paid more. Now very few contracts are % of charges - and most are fee schedules negotiated for ~3 years. If hospitals can turn around and bill private payers more when they get government fee cuts, that means they were leaving money on the table in the first place. Since their leverage hasn't changed, they shouldn't be able to get higher prices to account for lower government reimbursement. In fact, at least one study showed that Medicare fee cuts led to less capital investment at hospitals - lowering the total future cost for all payers! Here's a great 2011 post by Austin Frack about this issue. https://theincidentaleconomist.com/wordpress/cost-shifting-as-it-used-to-be/
2) Good point. As length of stay declines, people who require hospitalization are sicker- so we should expect some increase in unit cost that is due to "mix" rather than inflation. Hard to imagine this justifying the exceptionally high rate of increased unit costs at hospitals.
Thanks!