Hospital Cost Shifting Not a New Trend

April 21, 2010

Recent confirmed reports of an alarming change within the hospital industry, one that has been going on since long before the passage of the healthcare reform bill last month: Because they get lower reimbursements from public health insurance services like Medicaid and Medicare, many hospitals are trying to find new ways of making money, and some are doing that by shifting costs away from conventional insurance and toward car insurance companies. How? By raising auto accident injury claim costs, and forcing those insurers to take more careful looks at their hospital bills prior to payment.

In a recent study released by the Insurance Research Council (IRC), it was estimated that in 38 tort and add-on states, cost shifting for bodily injury (BI) claims resulted in $1.2 billion in excess hospital charges in the 2007. That’s a fairly large number, but the study also says that the full impact of hospital cost shifting, especially when other states and other kinds of coverage are factored in, is likely to be much greater.

According to Elizabeth Sprinkel, senior vice president of the IRC, “The conventional wisdom is that hospitals aggressively seek to shift costs from public insurance programs to private payers such as auto insurance companies. With this study, we now have information on the magnitude of cost shifting and a better understanding of the need for supportive state laws and effective tools that will enable auto insurers to pay hospitals appropriately and help control auto injury claim costs.”

Sprinkel also said that hospital cost shifting to auto injury claims .”…illustrates the complex relationship between property/casualty insurance and the broader healthcare and insurance system.” She went on to add, “Healthcare legislation enacted by Congress last month underscores the complexity of this relationship. It will take months, if not years, to understand the full impact of the reforms on hospital cost shifting and the auto insurance system.”

In order to analyze the relationship between health system features and automobile injury hospital costs, the IRC had to develop a statistical model of average hospital charges for injury claims in different states. The model then confirmed key predictors of the average hospital charges, which were the percentages of a given state’s population without health insurance, and with Medicaid coverage.

Excess hospital charges due to cost shifting were estimated by comparing average BI liability claims charges in Maryland with average charges in 38 other tort and add-on states. Maryland was used because it received a government waiver in the 1970’s which allows it to regulate hospital reimbursement rates for all “purchasers of hospital services,”and which means there are almost no hospital cost shifting in that state. Maryland, therefore, makes an excellent “control” state, and in all cases, IRC found that average hospital charges for auto injury were substantially lower there than in most other states. Likewise, the costs of expensive diagnostic procedures performed in Maryland hospitals were lower than in other states, but, when performed outside a hospital, the costs were much more similar to those in other states.

The IRC study, Hospital Cost Shifting and Auto Injury Insurance Claims, is based on data from more than 42,000 auto injury claims closed with payment under the five principal private passenger coverages. Twenty-two insurers, representing 58 percent of the private passenger auto insurance market in the Unites Sates in 2006, participated in the study.