HOSPITALS DON’T SHIFT COSTS FROM THE UNINSURED TO THE INSURED

I haven’t devoted much time to Managed Care Matters, but I had assumed that Joe Paduda was reasonably well informed on the nuances of health care. So, having followed a link from Kevin, MD to Paduda’s site, I was surprised to find him promulgating a myth that few people with knowledge of the industry take seriously. Commenting on the costs incurred by hospitals pursuant to EMTALA, he writes:

The cost of treatment is then shifted to other, paying patients, further driving up their health care costs.

Paduda repeats this same canard a few days later, in an unconvincing attempt to delegitimize the cost concerns that many have raised about ”universal coverage.”

Cost-shifting ensures that a portion of the costs of treating the uninsured ends up on the bills of those who have insurance.

Paduda does not, of course, describe the alchemy by which this “cost-shifting” occurs. But he presumably imagines that it is accomplished through a price increase of some sort. Well, I hate to be the one to break this to him, but that wouldn’t work in today’s reimbursement environment.

These days, Medicare, Medicaid, SCHIP, and managed care patients comprise the lion’s share of a typical hospital’s case mix, and their services are paid at fixed rates. Thus, raising prices doesn’t significantly increase a hospital’s reimbursement, which means it can’t “shift” its unreimbursed costs to anyone.

It would be interesting to know how Paduda reconciles his cost-shifting theory with the fact that two-thirds of American hospitals are either losing money or barely breaking even. If they are able to shift costs, why aren’t they making money?

The reality is that Paduda’s comments on this issue betray a profound naivete concerning how hospitals work. I would suggest that he take a couple of introductory courses in health care finance.

Comments 2

  1. Tyler Kiley wrote:

    Self pay/uninsured patients tend to pay less than their cost of treatment. HMO/PPO patients tend to pay more than their cost of treatment. How is that not cost shifting?

    Hospitals don’t have to raise their rates from where they are now in order to shift costs; the status quo has cost-shifting built in. No?

    Posted 18 Jul 2007 at 8:23 am
  2. Catron wrote:

    The status quo has cost-shifting built in. No?

    No.

    The “status quo” is responsible for countless hospital bankruptcies across the country. In order for a hospital to survive (non-profit or otherwise) average reimbursement must exceed average costs.

    As to HMO/PPOs, their payment rates are not much above cost, and they certainly don’t pay enough to make up for the losses incurred on uninsured patients.

    Posted 18 Jul 2007 at 12:31 pm

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