Hospital resource allocation decisions when market prices exceed Medicare prices.

Abstract

To examine nonprofit hospitals' financial and spending allocations when the private sector payment rate is higher than the Medicare's payment rate. Hospital financial data for 2014-2018 from Center for Medicare and Medicaid Services Hospital Cost Reports, hospital characteristics from the American Hospital Association (AHA) Annual Survey. Hospital and year level fixed effects regressions modeling each hospital's (1) operating net income per discharge equivalent (DE); (2) administrative cost per DE; (3) patient care cost per DE; (4) registered nurse per bed; charity care cost per DE; and (5) provision of unprofitable services as a function of the private sector to Medicare payment ratio (PMR). Hospital/year-level data from hospital cost reports merged with AHA data. Samples included general short-term hospitals with nonprofit ownership, excluding critical access hospitals. The final sample included a total of 8862 hospital-year observations, with a mean PMR of 1.62. Nonprofit hospitals having a 0.1 higher PMR were associated with $257 (95% CI: $181-$334) increase in operating net income per DE; $66 (95% CI: $32-$99) increase in administrative cost per DE; $170 (95% CI: $120-$220) increase in patient care cost per DE; and $18 (95% CI: $10-$25) increase in charity care cost per DE. We found hospitals hired 0.86 (95% CI: -0.08 to 1.81) more registered nurses per 100 beds, but no evidence on providing more beds for unprofitable services, such as obstetric care, burn care, alcohol/drug abuse treatment, or psychiatric care. Higher private sector prices led primarily to greater surplus and administrative cost for nonprofit hospitals and smaller increases in spending on services that will directly benefit patients.