Hospital Pricing and Public Payments

32 Pages Posted: 30 May 2018

See all articles by Michael Darden

Michael Darden

Johns Hopkins University - Carey Business School

Ian McCarthy

Emory University - Department of Economics

Eric Barrette

Health Care Cost Institute: HCCI

Date Written: February 2018

Abstract

A longstanding debate in health economics and health policy concerns how hospitals adjust prices with private insurers following reductions in public funding. A common argument is that hospitals engage in some degree of "cost-shifting," wherein hospitals increase prices with private insurers in response to a reduction in public payments; however, evidence of significant cost-shifting is mixed, and the rationale for such behavior is unclear. We enter this debate by examining plausibly exogenous variation in Medicare payment rates generated by two policies under the Affordable Care Act: the Hospital Readmission Reduction Program (HRRP) and the Hospital Value Based Purchasing (HVBP) program. We merge rich hospital-level information to actual private-payer payment data from a large, multi-payer database. Our data include roughly 50% of inpatient prospective payment hospitals in the United States from 2010 to 2015. We find that hospitals that faced net payment reductions from HRRP and HVBP were able to negotiate 1.5% higher average private payments - approximately $155 extra for the average acute care claim, or $82,000 per hospital, based on an average hospital penalty of nearly $146,000. We find the largest increases in payments for circulatory system (2.7%) and nervous system (3.2%) claims. We also find significant heterogeneity by payer mix, where cost-shifting is largest for hospitals with higher shares of private insurance patients.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Suggested Citation

Darden, Michael and McCarthy, Ian and Barrette, Eric, Hospital Pricing and Public Payments (February 2018). NBER Working Paper No. w24304. Available at SSRN: https://ssrn.com/abstract=3187090

Michael Darden (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

Ian McCarthy

Emory University - Department of Economics ( email )

201 Dowman Drive
Atlanta, GA 30322
United States

Eric Barrette

Health Care Cost Institute: HCCI ( email )

1100 G Street NW
Suite 600
Washington, DC 20005
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
7
Abstract Views
88
PlumX Metrics