The Incidence of Medicare
Payment Reduction:
Evidence from the BBA of 97
Responses to Medicare
Payment Cuts
1.
Charge private payer higher prices
2.
Improve efficiency: shorter length of
stay, less cares, …. etc, without
hurting quality
3.
Lower quality of care
Vivian Y. Wu
University of Southern California
AcademyHealth Annual Research Meeting, June 5, 2007
Research question
„
Who bears the burden of 1997 BBA
Medicare reimbursement cuts?
Source: Dobson, A. et al., Health Affairs, Vol 25(1), 22-33
Prior Research
„
„
„
1980’
1980’s: mixed
Early 1990’
1990’s: costcost-shifting diminishing
Around BBA 97:
– Bernard, 2000 studied crosscross-subsidization
between 19941994-1998, elasticity was -0.5.
– Zwanziger and Bamezai,
Bamezai, 2006, found
costcost-shifting between 19931993-2001 in CA
was -0.17.
Research Questions
„
Central questions:
– Do and can hospitals raise prices to
private payers?
– Does the behavior differ by ownership
type?
– Does market environment (ownership
composition and managed care) have any
impact on this behavior?
1
Method
„
Method
Main Model:
– LongLong-difference model at hospital level:
Δ private price = Δ Medicare loss + control
„
Key identifying variable: BBA “bite”
bite” variable
1.12
1.1
1.08
1.06
1.04
1.02
1
0.98
0.96
0.94
Market basket increase
BBA reduction
1996
Method
„
– Private “price”
price”:
„ Private
revenue / private discharges
revenue / private days
– Private LOS
Method
„
Key independent variable:
– Ownership type: Teaching, NFP, Public
– FP market effect: % FP discharges in MSA
– HMO effect: Instrument for HMO penetration (%
in large firms, % white collar)
„
1997
1998
1999
2000
Method: Formal Model
Dependent variable:
„ Private
Bite
Other controls:
– Δ case mix, size (beds), SNF, HH, and market
dummies (HRR)
ΔP(i, t, t-t-1) = Δαi + β Δ Bite(i, t, t-t-1)
+ γ Δ Bite(i, t, t-t-1) * ownership(
t-1)
ownership(i, t+ δ Δ Bite(i, t, tt-1) * HMO IV(
t-1)
IV(i, t+ η Δ Bite(i, t, tt-1) * FP Share(
t-1)
Share(i, t+ λ Δ X(i, t, tt-1) + Δγ X(i, tt-1) + ε(i, t)
Results
Δ Private Rev per
Private Admission
Δ Private Rev per
Private Day
Δ Private LOS
-.76**
[.14]
-.53**
[.12]
-.0008**
[.00008]
SNF Bite
.11
[.10]
-.01
[.02]
-.00001
[.00008]
HH Bite
.03
[.04]
-.0003
[.009]
.000007
[.00003]
Δ case mix
482
[556]
44
[124]
.29
[.41]
Teach
198
[228]
-28
[47]
.18
[.16]
-381**
[150]
-36
[33]
-.05
[.11]
Public
-154
[188]
-12
[41]
-.13
[.14]
HMO IV
2.69
[6.31]
0.91
[1.34]
-.01**
[.0005]
IP Bite
NFP
2
Results
Key Findings
Δ Private Rev per
Private Admission
Δ Private Rev per
Private Admission
IP Bite
-1.06
[.25]
-.36*
[.19]
SNF Bite
-.10
[.10]
-.09
[.10]
HH Bite
.03
[.04]
.03
[.04]
Δ case mix
486
[557]
413
[556]
HMO IV
-2.45
[7.39]
2.73
[6.31]
FP Share
1.70
[5.03]
10.12*
[5.82]
Bite * HMO IV
.008
[.006]
--
Bite * FP share
--
-.015**
[.005]
Interpretations
„
Large degree of costcost-shifting comes from
higher prices.
„
„
– ownership composition:
„ Yes,
Yes,
„ More
Price increases more when there’
there’s more FP
in the market
-> there is NFPNFP-FP difference
-> costcost-shifting depends on some joint cost/quality
function, which is determined by market
composition
FP enables more costcost-shifting
– HMO penetration (IV):
„ No
effect
Policy Implications
„
-> managed care may not be effective in price
bargaining in late 1990’
1990’s.
„
Overall costcost-shifting: Yes,
Yes, 76%.
Ownership: not by individual status
Market effect:
„
The majority of “savings”
savings” from
Medicare BBA cuts are financed
through a hidden “tax”
tax” on privately
insured.
Injecting “competition”
competition” (through
managed care) may not prevent
hospital costcost-shifting
3