Keziah Discussion: Cost Shifting And Organizational Theory

Keziah Discussioncost Shifting Is The Theory That Organizations Offer

Cost-shifting is the theory that organizations pass excess costs onto patients with private insurance by offering free care, often as a response to changes in reimbursement rates or how payments are structured. This shift can significantly impact an organization’s financial health, influencing the payer mix, especially when reimbursement rates from Medicare and Medicaid are substantially lower than private insurance payments. As reimbursement rates decrease from public payers, healthcare organizations may prioritize treating patients with higher-paying private insurance plans to compensate for revenue gaps. This strategic adjustment often involves negotiations with private payers to secure higher reimbursement rates, which can mitigate financial losses from lower-paying public programs.

The implications of cost-shifting extend beyond financial considerations. Cash flow challenges may arise, affecting the organization’s ability to pay salaries and bills, potentially leading to service disruptions. Moreover, cost-shifting can create incentives for unethical practices such as “cream skimming,” where providers selectively enroll healthier individuals who are less costly to treat and more likely to afford insurance policies that are priced to favor healthier populations. This practice fosters disparities in healthcare access, as it may result in the exclusion of less healthy or socioeconomically disadvantaged populations, thereby undermining principles of equity and fairness in healthcare delivery.

Cream skimming, despite its potential to enhance profitability, is widely regarded as unethical because it discriminates among patients based on health status or social circumstances outside their control. It can lead to unnecessary testing or treatments encouraged by providers to justify higher reimbursements, thereby inflating healthcare costs and compromising patient care quality. Such practices exacerbate inequalities, reduce public trust, and threaten the core values of the healthcare profession. Furthermore, the existence of various reimbursement models, like Fee-for-Service, introduces additional complexities. Fee-for-Service incentivizes providers to deliver more services, which may result in overutilization, unnecessary procedures, or, conversely, undertreatment of complex cases due to financial constraints (Britton, 2015).

The broader impact of cost-shifting and cream skimming underscores the importance of ethical, equitable, and sustainable healthcare policies. While financial survival pressures lead organizations to adopt cost-shifting strategies, these practices often come at the cost of increased disparities, compromised care quality, and diminished public trust. Developing equitable reimbursement systems, promoting transparency, and addressing the ethical concerns surrounding cream skimming are critical steps toward ensuring that healthcare organizations can deliver high-quality, accessible, and fair care for all populations.

Paper For Above instruction

Cost-shifting remains a critical concept in healthcare economics, reflecting how provider organizations adjust their financial strategies in response to varying reimbursement rates from different payers. This phenomenon involves transferring the financial burden from lower-paying public programs such as Medicare and Medicaid to private insurance payers or directly onto patients in the form of higher charges. The underlying motivation is often to maintain financial viability in the face of reimbursement reductions, which have become common due to policy changes and budget constraints. This strategic response influences multiple dimensions of healthcare delivery and organizational behavior, notably affecting payer mix, service utilization, and ethical standards.

One of the foremost effects of cost-shifting is its influence on the payer mix. As reimbursement rates from public payer programs decline, healthcare organizations tend to prioritize patients with private insurance, which generally offers higher payments. This shift can inadvertently lead to a reduction in services provided to uninsured or publicly insured populations, thereby deepening health disparities. For instance, hospitals may selectively admit healthier, privately insured patients ("cream skimming") to optimize revenue streams. This practice not only impacts organizational revenue but also raises ethical concerns, as it conflicts with the fundamental principle of equitable healthcare access (Henderson, 2018; Lopez et al., 2020).

Cost-shifting also has significant implications for financial stability within healthcare organizations. Reduced reimbursements from public payers can lead to cash flow problems, making it difficult for hospitals and clinics to cover operational costs, pay staff, or invest in quality improvement initiatives. These financial pressures may force organizations to pursue aggressive negotiations with private payers to secure higher reimbursement rates, which can sometimes be successful but often are not, leading to financial strain. In such scenarios, the risk of service reduction, staff layoffs, and compromised patient care quality increases, further undermining the healthcare system’s resilience (Darden et al., 2018; Frakt, 2011).

Beyond financial aspects, cost-shifting is intimately linked with ethically questionable practices such as "cream skimming." This refers to targeting healthier, less complex patients who are more profitable under the current reimbursement models. While such practices may benefit providers financially, they contribute to healthcare inequalities by excluding sicker or socially disadvantaged patients from receiving appropriate care. Cream skimming perpetuates discrimination, violates the ethical obligation of equitable care, and can diminish public trust in the healthcare system. Empirical studies have documented how such practices often lead to overutilization of unnecessary services for some and under-provision of care for others, further widening health disparities (Chareyon et al., 2023; Werbeck et al., 2021).

The reimbursement system itself plays a role in shaping provider behavior. Fee-for-Service (FFS) models, which reimburse providers for each individual service rendered, incentivize volume over value, encouraging unnecessary procedures that inflate costs and potentially compromise care quality. Conversely, capitation and value-based models aim to promote efficiency and patient-centered care but are vulnerable to gaming by providers seeking to maximize profits. These systemic issues highlight the necessity for policy reforms that balance financial sustainability with ethical commitments to equitable care. Addressing how reimbursement models influence provider incentives is vital to mitigating the negative effects associated with cost-shifting and cream skimming (Britton, 2015).

In conclusion, while cost-shifting may be seen as a pragmatic response to financial pressures, it engenders a complex web of ethical, economic, and social challenges. Emphasizing equity in healthcare reimbursement policies, reducing incentives for discriminatory practices like cream skimming, and fostering transparency are essential to building a sustainable healthcare system that prioritizes care quality and social justice. Ensuring that all populations, regardless of socioeconomic status or health condition, receive equitable, high-quality care remains the overarching goal of healthcare policy and organizational management in this context.

References

• Britton, J. R. (2015). Healthcare reimbursement and Quality Improvement: Integration using the electronic medical record comment on “fee-for-service payment - an evil practice that must be stamped out?” International Journal of Health Policy and Management, 4(8), 549–551.
• Chareyon, S., L’Horty, Y., & Petit, P. (2022). Cream skimming and discrimination in access to medical care: A field experiment. Health Economics, 32(8), 999-1012.
• Frakt, A. B. (2011). How much do hospitals cost shift? A review of the evidence. Milbank Quarterly, 89(1), 90–130.
• Henderson, J. W. (2018). Health Economics and Policy (7th ed.). Cengage Learning US.
• Lopez, J., Smith, R., & Patel, K. (2020). Reimbursement trends in healthcare and implications for policy. Journal of Healthcare Finance, 46(3), 15-27.
• Darden, M., McCathry, I., & Barrette, E. (2018). Hospital pricing and public payments. National Bureau of Economic Research.
• Werbeck, A., Wubker, A., & Ziebarth, N.R. (2021). Cream skimming by health care providers and inequality in health care access: Evidence from a randomized field experiment. Journal of Economic Behavior & Organization, 188, 116-133.
• Chareyon, S., L’Horty, Y., & Petit, P. (2023). Cream skimming and discrimination in access to medical care: A field experiment. Health Economics, 32(8), 999-1012.
• Additional sources examining ethical concerns and policies in healthcare reimbursement systems.