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Dynamic Cost Shifting in Hospitals: Evidence from the 80s and 90s

Dynamic Cost Shifting in Hospitals: Evidence from the 80s and 90s Journal Article by: Jan P. Clement Inquiry 34, 1997 Presentation by: Kevin Gebhard . Purpose of Paper. Determine whether cost shifting occurred among hospitals during this time.

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Dynamic Cost Shifting in Hospitals: Evidence from the 80s and 90s

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  1. Dynamic Cost Shifting in Hospitals: Evidence from the 80s and 90s Journal Article by: Jan P. Clement Inquiry 34, 1997 Presentation by: Kevin Gebhard

  2. Purpose of Paper • Determine whether cost shifting occurred among hospitals during this time. • Determine what variables affect the likelihood of cost shifting, both dynamic and static, including market factors. • Author dissatisfied with previous research

  3. Dynamic Cost Shifting • Differs from static cost shifting, which is basically price discrimination. • Rather, it is charging a higher price to those who are able to pay once another is unable to. • Concerns about such actions: • Fairness • May limit incentives to control costs • Higher Insurance Premiums

  4. Current Events of the Decade • HMOs created, helping to make hospitals more cost conscious • Medicaid paying less, and also paying by perspective payments, not reimbursements • Fewer inpatients • Research done on California hospitals, which had these reforms early

  5. Variables and Hypothesized Signs • Dependent: Markup by hospital PRVMKP. Calculated by revenue per patient per AC • Independent Variables: • NEED measures: Medicaid/care (-) • Financial Strength: Total Margin, Y/TR (-) • Mkt Conditions: Competition (-) and HMO (-) • Hospital itself: Dependance on Private (-)

  6. Results and Variable Analysis • Medicaid dropped payments from 80% of costs to 55% of costs from ’83 to ‘92 • Markup over cost rose from 11.7% to 30% • BIG effect: Medicaid, Fin Strength, ICU • Smalleffect: Competition and HMOs • Opposite effect: Reliance on private was + (OLS used, and little multicollinearity found)

  7. Hospital’s Actions with Price Discrimination P AC D P QE QREQ Q

  8. Now, new demand for the uninsured D2 P • Will be below AC, causing a loss of Box • Now must charge a higher P2 to others D1 P2 AC D2 P1 Q1 Q2 QE Q

  9. Conclusions and Findings • California hospitals did practice both dynamic and static cost shifting • However, the ability to shift the costs decreased over time

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