Evidence of Cost Shifting in California Hospitals

The authors used 1993-2001 data from private hospitals in California to investigate whether decreases in Medicare and Medicaid prices were associated with increases in prices paid for privately insured patients. They found that a 1 percent relative decrease in the average Medicare price is associated with a 0.17 percent increase in the corresponding price paid by privately insured patients; similarly, a 1 percent relative reduction in the average Medicaid price is associated with a 0.04 percent increase. These relationships imply that cost shifting from Medicare and Medicaid to private payers accounted for 12.3 percent of the total increase in private payers' prices from 1997 to 2001.