Economic Principles: Cost-Shifting and Hospital Reimbursement Impact

This essay examines the economic principles of healthcare, focusing on cost-shifting, cream skimming, and the impact of Medicare and Medicaid reimbursements on hospital finances. Cost-shifting occurs when hospitals charge insured patients more to cover losses from uninsured patients, leading to increased private payments and health insurance premiums. Cream skimming, the practice of selecting less ill patients, raises ethical concerns. The essay highlights how Medicare and Medicaid reimbursement policies contribute to cost-shifting, as underpayment forces hospitals to recover revenue from other payers. Ultimately, these reimbursement systems can reduce incentives for cost consideration, escalate costs, and lead to budget cuts for hospitals.

Running head: ECONOMIC PRINCIPLES OF HELTHCARE
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Economic Principles of Healthcare
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Institution

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Impact of Cost-Shifting on the Flow of Hospital Monies
Cost-shifting maybe defined as the moment when the hospital charges an insured client more
money than the amount it charges an uninsured client for a similar service or procedure.
Therefore, the patients who have insurance covers pay for the losses incurred by the hospital
when caring for non-insured patients (Feldstein, 2012). Cost-shifting leads to a reduction in
public payments from Medicaid and Medicare. As a result, private payments and health
insurance premiums go up. This helps the hospital in generating enough revenues to cater for the
operating expenses.
Cream Skimming
Cream skimming may be defined as the act of choosing patients based on their characteristics
rather than their need for care. This may mean that the provider only chooses to care for the
patients who seem to be less ill (Cheng, Haisken-DeNew & Yong, 2015). Cream skimming is an
unethical act because it may endanger the life of a patient. A patient has the right to receive
quality car. Therefore, denying them this right just because a particular provider does not want to
care for the critically ill patients is unethical.
Medicare and Medicaid
Once the costs are shifted to the consumers, there is an increase in taxes to that support
government programs such as Medicaid and Medicare. Medicare and Medicaid are responsible
for almost all the cost-shifting that is done by hospitals. When Medicaid and Medicare pay less
than the charges billed by the hospital, then the hospital is forced to shift some of the shortfalls in
reimbursement to other payers (Feldstein, 2012). This is aimed at recovering the lost revenue.

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The reimbursement policies for Medicaid and Medicare are the main reasons behind cost-
shifting.
Impact of Reimbursement System on Hospital’s Budget
These reimbursement systems sometimes underpay the hospitals thus forcing them to shift costs
and as a result cutting on their budget. The reimbursement reduces the incentives for the
consumers and providers to consider the costs. The result is that the Medicare and Medicaid
programs end up escalating costs thus leading to budget cuts in hospitals.

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References
Cheng, T. C., Haisken-DeNew, J. P., & Yong, J. (2015). Cream skimming and hospital transfers
in a mixed public-private system. Social Science & Medicine, 132, 156-164.
Feldstein, P. J. (2012). Health Care Economics (7th ed.). Chicago: Cengage Learning.