The theory of cost shifting is often used as the basis for public policy proposals. Some believe that the increase in increase premiums is due to cost shifting. This will be the topic of this weeks paper. Briefly discuss what cost-shifting is. Discuss the 4 points associated with determining the profit-maximizing price. establishing a profit-maximizing price means the price is set so that the additional revenue received is equal to the additional cost of serving one more patient if the hospitals fixed costs go up from for example, $5 to $11, the hospital should not change its price; if it did, it will make even less profit if the hospitals variable costs changedperhaps because nurses wages or the cost of supplies increasedthe hospital will find it profitable to change its price hospitals will also be expected to change the price they charge if the relationship between price and quantity were to change. The pricequantity relationship is a measure of how price sensitive purchasers are to changes in the hospitals price Why do private purchasers claim that they are being charged more to make up for lower prices paid by the government? hospital prices to private payers have increased for two reasons: o (1) variable costs have increased as expenses for wages and supplies have risen and o (2) changes in the hospitals payer mixesgrowth in the proportion of patients who are less price sensitivemay have enabled them to raise their markups on certain types of private patients. Some purchasers may be more price sensitive than others o private patients had either indemnity insurance or Blue Cross hospital coverage o The pricequantity relationship for those with indemnity insurance represented the average relationship for everyone in the indemnity plan. o as employers began offering different types of health plans such as health maintenance organizations (HMOs), preferred provider organizations (PPOs), and managed carein addition to the traditional indemnity plan and as employees had to pay varying premiums and copayments under these plans, the pricequantity relationships of these plans differed o Faced with different pricequantity relationships with different pur- chasers, hospitals began charging different prices to each type of payer. o Charging according to what the market will bear is not really cost shifting but rather simply charging a profit-maximizing price to each group; this is price discrimination. What are some of the conditions under which cost shifting can occur? Some hospitals may have a different pricing objectivethey do not price to maximize their profits. When hospitals do not set profit-maximizing prices, increases in uncompensated care or fixed costs may cause the hospital to raise its prices to those groups who have more ability to pay average cost pricing occurs when a hospital sets its price by relating it to the average cost of caring for all of its patients For cost shifting to occur, the hospital must have bargaining or market power that it has not used; the purchasers of hospital (or physician) services have to be relatively insensitive to the higher prices cost shifting occurs when the government pays hospitals a fixed price for Medicare patients use of the hospital but reimburses outpatient services on a cost basis cost shifting occurs when the government shifts its costs to employers, such as when requirements that otherwise cost the government money are imposed on employers Based on your research, do you feel that cost-shifting is occurring? The paper should be formatted using APA (6th ed). It should be 4 pages in length (excluding title page, reference page). Minimum of 3 references.
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