Some commentators on health policy in the United States believe the former currently happens in Medicare and Medicaid as they underpay for services resulting in private insurers overpaying.
For example, its origins go back to the environmental economy where cost-shifting referred to the practice where corporations pass the harmful consequences and negative externalities of economic production to third parties and communities whether those that are part of the production circuit or are in some way beneficiaries or those that are outside this circle, K.W.
[5] This concept is also used in the American legal system, especially since the cost of electronic discovery has increased dramatically due to a large amount of raw information and the urgent need to extract relevant data, its processing, and analysis.
Cost shifting occurs when the financial burden of maintaining and expanding infrastructure, such as roads and utility grids, is redistributed from one group of users to another.
As a result, the cost of maintaining roads may be shifted to other users, such as those driving less efficient vehicles, through increased taxes or tolls.
Consequently, these costs are shifted to customers who do not have the means to make such upgrades, leading to higher rates for those who continue to rely solely on the utility for their electricity needs.
[10] During discrimination, each segment of the market is offered a price so that the amount of surplus received from each customer group is at its highest level[11] and none of the market segments is unprofitable to a predominantly monopoly producer while cost-shifting is a solution to compensate for one group's lack of payment through another.
Although there are some pieces of evidence that prove hospitals practice this procedure but their ability to shift costs dynamically decreases over time.
[16] From that reason hospitals and healthcare facilities could be forced to come to cost-cutting or cross-subsidization, in order to balance their incomes and expenditures.
[16] Cost shifting is assumed to be present in medical facilities with a higher rate of state insured patients.
According to the source[16] there are studies which presents a development of differences in payments between private and public insurers.
[16] According to the study written by Roger Lee Mendoza[16] there could be assumed some discrimination premises which may lead to cost-shifting: When fixed costs rise (i.e. administrative expenses) the willingness of medical facilities to cost cut of possible price shifting may increase.
Possible negative effect If policy makers fail to create proper borders could be a situation, which leads to unfair cost-shifting.
The Problem comes from the US government programs such as Medicare and Medicaid, where prices are set low by law and so are not always able to cover all expenses.
The main influence on American healthcare system in the USA has the Medicare for All Act written in 2003.
[17] Medicare and Medicaid are mostly preferred in rural areas, where there is also highest concentration of not-insured patients.
Therefore, medical facilities have a much higher percentage of Medicare and Medicaid users and form a significant part of their income.
[17] Because there is a low presence of private insured patience, rural hospitals become dependent on these programs.
Another big change[17] was that billing would be united into one single-payer healthcare system which was supposed to decrease administrative costs approximately by 50%.
[19] A negotiable pricing regime has resulted in an opaque system in which payers with market power force weaker payers to cover disproportionate shares of providers’ fixed costs or providers simply succeed in charging higher prices when they can.
It means cost-shifting is not a common occurrence and can only persist in a market in which private payers are not price-sensitive, and entry is limited.