by Jordan Roberts
Former Director of Government Affairs, John Locke Foundation
A new Kaiser Health News article titled “Medicaid Expansion Boosts Hospital Bottom Lines – And Prices” discussed the phenomenon of what is known as cost-shifting in hospitals and the experience in Colorado after the state expanded Medicaid.
Hospitals claim that to recoup costs from providing free charity care and low reimbursement from Medicare and Medicaid, they must charge commercial payers much higher. Expansion supporters claim that through an expanded Medicaid program, the hospitals will have to provide less uncompensated care which will lead to lower prices throughout the state. However, as I have discussed before, here is what happened in Colorado:
Hundreds of thousands of state residents gained coverage under the Medicaid expansion, lowering Colorado’s uninsured rate by half to 7 percent. In addition, hospitals’ uncompensated care costs dropped by more than 60 percent, or more than $400 million statewide.
Kim Bimestefer, executive director of the Colorado Department of Health Care Policy & Financing, said that hospitals have used their expanded revenues to focus on adding services that provide high profits or expanding operations in wealthier areas of the state that often duplicate what is already available.
“They used those dollars to build free-standing [emergency departments], acquired physician practices, build new facilities where there was already sufficient capacity,” she said. “Hospitals had a fork in the road to either use the money coming in to lower the cost shift to employers and consumers or use the money to fuel a health care arms race. With few exceptions, they chose the latter.”
To the extent cost shifting occurs, hospitals use this claim to justify the high prices they charge commercial insurers (a central claim of the hospitals in North Carolina in the battle over the reimbursement rates for the SHP). The article goes on to say:
The hospital industry disputes reports that it has merely pocketed profits from Medicaid expansion. They say many factors influence how much they charge employers and private insurers, including the need to upgrade technology and meet rising health and drug costs.
Lonborg of the state hospital association said hospitals need to shift costs to private employers to make up for lower prices paid by Medicare and Medicaid and to make up for care hospitals give for free to the uninsured.
The article wisely concludes, perhaps it is the market consolidation and policies that protect the market power hospitals have that create an environment conducive to rising hospital costs, rather than solely the amount of uncompensated care:
But he noted health experts have long debated whether the higher prices hospitals charge people with private insurance are designed to make up for the losses they take on with Medicare, Medicaid and uninsured patients.
He said the state report shows how hospitals in heavily consolidated markets don’t have to cut prices as their bottom lines improve. “They can charge whatever the market will bear.”
Marianne Udow-Phillips, director of the Center for Health and Research Transformation at the University of Michigan, said hospitals have considerable bargaining power in many places because of health system consolidations and their purchases of many physician practices.
“It does appear Colorado hospitals have a strong negotiating position with payers, or payers there are not negotiating very effectively,” said Udow-Phillips. “Hospitals are not going to give it away.”