Posting date: October 8, 2003

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Health Affairs, 10.1377/hlthaff.w3.480
Copyright © 2003 by Project HOPE

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Medicare Payment Policy: Does Cost Shifting Matter?

¹ Jason Lee is principal senior adviser at the National Organization for Research at Chicago (NORC) in Washington, D.C., and president of Health Policy Consulting LLC in Bethesda, Maryland.
² Bob Berenson is senior fellow at the Urban Institute in Washington.
³ Rick Mayes is an assistant professor of public policy at the University of Richmond (Virginia) Department of Political Science.
⁴ Anne Gauthier is a vice-president at AcademyHealth in Washington, D.C.

^*Corresponding author.

Abstract

We examine cost shifting within the context of Medicare payment policy. We briefly review economic theory and available data and discuss the importance of cost shifting for policy. Then we present four central findings on cost shifting based on the views of former high-level policymakers. First, Medicare’s early (pre-prospective) payment policy was a boon to hospitals. Second, Medicare payment policy is a "top-down" affair, driven by budgetary and special-interest politics. Third, federal policymakers may not consciously consider cost shifting, but state policymakers do. Fourth, Medicare payment policy requires constant adjustment, but we are "getting it right" most of the time.

Key Words: Medicare, Health Spending, Hospitals, Consumer Issues, Physicians

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