Causal Chains and Cost Shifting: How Medicare's Rescue Inadvertently Triggered the Managed-Care Revolution

Journal of Policy History

Volumn 16, Issue 2, 2004, Pages 144-174

  Mayes, Rick ^a  

^a UNIVERSITY OF RICHMOND   (United States)

Author keywords

[No Author keywords available]

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EID: 33845227790     PISSN: 08980306     EISSN: 15284190     Source Type: Journal    
DOI: 10.1353/jph.2004.0010     Document Type: Article

References (129)

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82. David Burda and Cathy Tokarski, “Hospitals Are Under Pressure to Justify Cost Shifting: But Some Payers Are Rejecting Hospitals’ Excuses and Are Demanding Data,” Modern Healthcare (12 November 1990), 28–36.
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127. Reinhardt, “The Predictable Managed Care Kvetch,” 908.
128. Oberlander, The Political Life of Medicare, 199.
129. Personal communication with Jack Ashby, MedPAC Hospital Research Director (7 August 2003): “The 14% PPS margins [in Fig. 1] come from ProPAC publications and are based on Medicare cost report data. The 0.98 to 1.01 payment-tocost ratios [in Table 4] are, of course, from the AHA annual survey. The first and perhaps primary difference between the two measurements is that the cost report figure is an inpatient margin, while the AHA numbers cover all services hospitals provide for Medicare beneficiaries. Medicare inpatient margins have always been, and still are, much higher than Medicare outpatient margins. Besides that, though, the two data sources are fundamentally different in two ways. First, the cost report measure is based on Medicare-allowable costs while the AHA measure captures all costs per the hospitals’ books. This difference also leads to a higher margin value for the cost report data. Second, the cost report measure reflects a complex method for allocating costs among payers, while the AHA data reflect a simple application of an RCC to charges by payer to produce costs by payer. While the proof has been illusive to date, we have anecdotal evidence that hospitals over the years have set their charges so as to maximize the allocation of costs to Medicare, which then biases the AHA payment to cost ratio downward. Charges are used in the cost report allocation also, but to a lesser degree than in the AHA data. This factor also leads to a higher value for the cost report data, and this manipulation of charges was at its zenith in the first few years of the PPS. The net result of all this in our minds [at MedPAC] is that the AHA data are quite useful for monitoring trends (which includes providing evidence that there has been cost shifting), but are much less useful in establishing the level of margins or payment/cost ratios.”