A study published in Health Affairs and authored by members of the Medicare Payment Advisory Commission (MedPAC) refutes the assumption that hospitals have little control over costs, forcing them to increase private insurers’ rates to compensate for lower Medicare reimbursements.  The article argues that hospitals with strong market power and higher private-payer revenue have less pressure to contain costs and high per-unit costs cause them to lose money on Medicare patients.  However, hospitals under greater financial pressures have more incentive to control costs and often generate profit on Medicare patients.

Stensland, J., Gaumer, Z.R. & Miller, M.E.  (2010). Private-payer profits can induce negative Medicare margins. Health Affairs, Published online March 18, 2010. doi: 10.1377/hlthaff.2009.0599. http://content.healthaffairs.org/cgi/content/abstract/hlthaff.2009.0599v1

Authors: Jeffrey Stensland, Zachary R. Gaumer and Mark E. Miller