Hospitals retain pricing power even in bad times

Hospitals had substantial pricing power at the height of the managed care era, and this power has only increased

Even when pressed by the government hospitals retain their pricing power, according to a new study from USC health economics professor Vivian Wu (right).

Her findings were published in the International Journal of Health Care Finance and Economics.

Wu, who worked as a staff economist at the end of the Clinton Administration, in 2000 and 2001, looked at the 1997 Medicare cuts that were made part of the Balanced Budget Act,  enacted by a Republican Congress under Democratic President Bill Clinton.

She found 21% of those cuts were shifted directly to those on private insurance through cost-shifting. This was at the height of the HMO boom, Wu wrote, an economic environment designed specifically to prevent just such actions.

Hospitals in high-income areas, where people were not covered by insurance, did even better, shifting 37% of their Medicare losses on to paying customers.

Those in poorer areas suffered, having fewer patients on whom to shift costs, but they found ways if there were for-profit hospitals in the area whose practices they could copy , she wrote.

Wu's conclusion is that hospitals had substantial pricing power at the height of the managed care era, and this power has only increased. "For-profit hospitals carry some influence in the market that exceeds what may be initially construed by looking at their overall market share," she added.

Thus, Wu expects any Medicare cuts written into health reform to be passed on to those on private insurers, just as before. Hospital costs must be addressed directly, not through a government-funded proxy.

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