Cost shifting is a term used to describe the costs that one group is paying for another’s use of services.  Cost shifting occurs because there are those that don’t pay all or some of their bill (bad debt) and those that don’t have the ability to pay for their care (free care).   Also, when certain payers (such as Medicare or Medicaid) set reimbursement at less than the provider’s cost of services, costs are shifted to commercial plans and are reflected in commercial health insurance premiums.

The Department of Banking, Insurance, Securities and Health Care Administration (BISHCA)  convened a task force in 2006 to identify cost shift opportunities and to recommend statutory and administration changes to address and slow the growth rate in hospital charges and insurance premiums. The Cost Shift Task Force submitted their report to the Commission on Health Care Reform on December 1, 2006, and BISHCA submitted a cost shift analysis to the legislature in March, 2008. 

BISHCA also undertook several other initiatives related to cost shift, including a standard statewide hospital policy for bad debt and free care compensation that was submitted to the General Assembly on January 15, 2007 and changed the requirements for annual hospital financial reports to BISHCA to include the composition of their cost shift, beginning in July, 2007.

To begin to address Medicaid provider underpayments, the 2006 Health Care Reform legislation increased Medicaid provider reimbursement in the following manner:

1. Payment of evaluation and management services at Medicare rates in order to support primary care physician practices;
2. Supplemental payments to dentists with high Medicaid patient counts; and
3. Annual increases in hospital rates until the federal upper limit is reached.

If you would like more information on this initiative, Provider Rate Increases, you should contact the Office of Vermont Health Access (OVHA).