Center for Public Policy Studies Looks at Cost Shifting

"The vertical and horizontal integration have created health systems providing a broad group of services not traditionally associated with a stand-alone hospital." Steve Norton

A new study released by the New Hampshire Center for Public Policy Studies in Concord has examined the practice known in the health care industry as "cost-shifting," which is typically described as the practice of charging one group of patients more than the actual cost of their care in order to cover the costs of uninsured patients or Medicare and Medicaid patients whose expenses are not completely covered by the government.

"Our previous studies have studied the practice of cost-shifting among hospitals," said Steve Norton, the Center's executive director. "Today however, vertical and horizontal integration have created health systems providing a broad group of services not traditionally associated with a standalone hospital."

According to the report "Health System Cost-Shifting in NH," expanding the analysis of cost-shifting to the entire health system did not fundamentally change the Center's previous findings. Health systems continue to shift losses to private sector payers and the health care system continues to generate operating marginsalthough not all individual providers do.

During the period of analysis (2008-2009) six health systemsMary Hitchcock, Portsmouth Regional, Parkland Medical, Concord Hospital, Exeter Hospital and Wentworth Douglas Hospitalaccounted for more than 70 percent of the operating gains in the state, while seven other hospitalsNew London, Speare Memorial, Cottage, Alice Peck Day, Huggins, St. Joseph, and Upper Connecticut Valley Hospitalsexperienced negative operating margins, ranging from a small loss to one of almost 6 percent.

The report also notes that health systems cost-shift at different levels and are experiencing different levels of financial health. This has implications for the current budget conversation. The Department of Health and Human Services Commissioner Nick Toumpas recently introduced a series of potential budget reductions, including the use of funds being sent to hospitals with a disproportionate share of low-income patients. Some of those hospitals happen to be ones with low, and sometimes negative, operating margins.

More generally, for policy makers interested in limiting cost-shifting, the report presents three possible policy responses:

• Encouraging the health care system to lower the cost of services so that existing reimbursement levels are adequate.
• Expanding health insurance coverage so that charitable care is financed by a source other than cost-shifting.
• Encouraging both the state Medicaid program and the federal Medicare program to increase reimbursements.

Any of these changes could significantly reduce the cost-shifting phenomenon-and theoretically reduce premiums for private payers. However, the costs of these policy options-specifically expansions in coverage and increases in reimbursement levels-would have to be borne by either the state or federal government.

Free copies of the report "Health System Cost-Shifting in NH" are available from the Center's Web site www.nhpolicy.org.