Cost shifting and cost shrinking

We all pay for public programs such as Medicare and Medicaid through taxation and other levies. But the costs of these programs are actually more than their budgeted value. That’s because hospitals and physicians have a hard time covering their costs through reimbursement from public programs and look to private payers to make up the difference. Thus if a public program holds the line on reimbursement it often ends up coming out of the hide of private employers who pay the bills. When private payers are brought into subsidized, scrutinized systems such as the Massachusetts Connector they often face public pressure to keep premiums down. They end up shifting the burden onto smaller firms like ours, which aren’t in a position to do much about it. That’s why we’ve seen our premiums rise anywhere from 11 to 26 percent per year recently, as I’ve mentioned on the Health Business Blog.

As the depression deepens and public sources make up an increasing share of the payment pie, cost shifting gets harder to do but –from a provider standpoint– more vital. Look carefully and you’ll see some serious abuses: outrageous charges for out-of-network services, bloated workers comp and auto injury claims and so on. Other than providing good growth opportunities for cost containment companies, there’s nothing particularly good about the situation.

We need a system that encourages efficiency, not just cost-shifting. Unless it starts to happen expect a slide toward single payer over the next five years.

January 9, 2009

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