International Journal of Health Care Finance and Economics

, Volume 10, Issue 1, pp 61-83

First online:

Hospital cost shifting revisited: new evidence from the balanced budget act of 1997

  • Vivian Y. WuAffiliated withSchool of Policy, Planning, and Development, University of Southern California and RAND Email author 

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This paper analyzes hospital cost shifting using a natural experiment generated by the Balanced Budget Act (BBA) of 1997. I find evidence that urban hospitals were able to shift part of the burden of Medicare payment reduction onto private payers. However, the overall estimated degree of cost shifting is small and varies according to a hospital’s share of private patients. At hospitals where Medicare is a small payer relative to private insurers, up to 37% of BBA cuts was transferred to private payers through higher payments. In contrast, hospitals with greater reliance on Medicare were more financially distressed, as these hospitals saw large BBA cuts but were limited in their abilities to cost shift.


Cost shifting Balanced Budget Act Medicare Hospital pricing

JEL Classification

I11 L33 H44