News Release

When Medicare Squeezes Payments, Hospital Use Declines for Nonelderly, Too

Services Research Study: Spillover Effects from Accountable Care Act (ACA) Medicare Payment Reductions Likely to Slow Inpatient Hospital Spending More Broadly Than Predicted

When Medicare keeps a tight rein on inpatient hospital payments, hospitals scale back overall capacity, resulting in less hospital use by nonelderly patients—not just elderly patients, according to a study from the nonpartisan, nonprofit National Institute for Health Care Reform (NIHCR) published online in the journal Health Services Research.The 2010 ACA permanently slows the growth of Medicare payment rates for inpatient hospital care, and hospitals could respond in one of two ways: either increase the volume of services provided to the nonelderly to offset lost Medicare revenues—known as cost shifting—or scale back overall capacity and reduce services provided to both the elderly and the nonelderly.

Conducted for NIHCR by Chapin White, Ph.D. a researcher at the former Center for Studying Health System Change (HSC) now at the RAND Corp., the study used 1995-2009 data from the Healthcare Cost and Utilization Project in 10 states and Medicare hospital cost reports to analyze how Medicare inpatient payment changes affected inpatient utilization by nonelderly patients. Conducted at the market level to capture overall changes in utilization, the study included 116 metropolitan statistical areas in Arizona, California, Colorado, Florida, Iowa, Massachusetts, New Jersey, New York, Washington and Wisconsin representing about one-third of the U.S. population.

“Some analysts have likened efforts to constrain health care spending to squeezing a balloon—even if costs are constrained successfully in one place, they bulge somewhere else….The balloon-squeezing imagery does not fit with our results, however. Our results suggest that the tightening of Medicare payment policy can have spillover effects that help slow utilization and spending growth broadly,” the article states.

“In the 1960s and 1970s, Medicare paid hospitals very generously, and so the implementation of Medicare spurred spillover increases in spending and utilization among the nonelderly. Over the period of our study, Medicare kept tight constraints on hospital payments, and those Medicare constraints appear to have contributed to falling inpatient hospital utilization rates among the nonelderly. Looking ahead, we expect the Medicare provisions in the ACA to slow the growth in hospital spending to a larger degree than has been projected [by the Congressional Budget Office and others]. Analyses of the effects of the ACA have generally ignored possible effects on utilization rates among the elderly and nonelderly,” the article concludes.

The article, titled “Cutting Medicare Hospital Prices Leads to a Spillover Reduction in Hospital Discharges for the Nonelderly,” is available here.

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The National Institute for Health Care Reform (NIHCR) is a nonpartisan, nonprofit 501(c)(3) organization created by the International Union, UAW; Chrysler Group LLC; Ford Motor Company; and General Motors. Between 2009 and 2013, NIHCR contracted with the Center for Studying Health System Change (HSC) to conduct high-quality, objective research and policy analyses of the organization, financing and delivery of health care in the United States. HSC ceased operations on Dec. 31, 2013, after merging with Mathematica Policy Research, which assumed the HSC contract to complete NIHCR projects.