Price Transparency Could Stymie Cost-shifting

Cost-shifting by hospitals to cover lousy Medicaid reimbursements will become more problematic as price transparency mandates take effect.

Lower state Medicaid per-patient reimbursements correlate with higher cost-shifting to commercial and managed care plans, a new study from Crowe LLP's Revenue Cycle Analytics shows.

Cost-shifting is not new, of course. It's been going on for decades.

However, foisting higher costs on commercial payers in low-reimbursement states means consumers are paying more for healthcare, and that could prove problematic as more charge data becomes available to the public under federal and state price transparency mandates, says Brian Sanderson, managing principal of healthcare services at Crowe.

"Effectively, if you live in a state with lower Medicaid reimbursement rates and get your insurance through your employer, you're likely being charged more than what the exact same service costs in other states," Sanderson says.

The accounting and consulting firm's new report, Price Transparency in Healthcare: It Won’t Help Hospitals, examined patient transactions 707 hospitals in 45 Medicaid expansion states and 445 hospitals in non-expansion states, as of 2019.

The analysis found that the Medicaid outpatient net payments hospitals get varied greatly among 45 states, with payment discrepancies ranging from $200 to $650 per patient.

Several factors affect payments, including acuity, locality adjustments and types of programs, Crowe reports, "but one thing is clear: state-run Medicaid programs are not uniform across the country, in process or payment." 

Crowe found a similar correlation when the analysis compared average outpatient managed care and Medicaid reimbursement by state as a percent of Medicare outpatient rates for a similar set of services.

For states with lower Medicaid reimbursement rates, including Florida (40%), California (39%) and Wisconsin (39%), the comparative rates for managed care were high at 268%, 261% and 251%, respectively.

Conversely in states with higher Medicaid reimbursement rates such as Iowa (78%) and Minnesota (97%), the managed care rates were lower at 166% and 188%, respectively, the analysis found.

"Hospitals and health systems will need to focus on highlighting their best attributes, like quality of care, convenient locations and well-rounded services offerings," Sanderson says.

"We envision a future where many parameters of a patient's decision are graded, similar to how we shop for cars," he says. "For example, a luxury SUV costs more than a no-frills sedan model – but differences in reliability, safety features and prestige might lead some customers to choosing the more expensive option."

Editor's note: This story was updated on February 3, 2021.