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Varying health care provider objectives and cost‐shifting: the case of retail pharmacy in the US

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  • John M. Brooks
  • Bernard Sorofman
  • William Doucette

Abstract

In this paper we investigate the relationship between health care provider objectives, cost‐shifting, and prices by exploring the relationship between state Medicaid pharmacy reimbursements and average prices paid by pharmacy retail customers for four distinct pharmaceutical products across the US in 1994. We develop a more general theory than past researchers to enable provider objectives to vary with Medicaid pharmacy reimbursement levels. We find that provider objectives and the direction of relationship between Medicaid pharmacy reimbursements and retail prices vary with Medicaid pharmacy reimbursement levels. At high Medicaid pharmacy reimbursement levels we find a consistent negative relationship across products. At low Medicaid pharmacy reimbursement levels, the direction of the relationship is product‐specific. As a result, policy‐makers should be aware that policies affecting reimbursements from government‐sponsored health insurance will also affect retail customers that include the uninsured. Paradoxically, for certain products if a state cuts a generous Medicaid reimbursement level this could hurt uninsured patients, whereas cuts in a stingy Medicaid reimbursement rate may help uninsured patients. Copyright © 1999 John Wiley & Sons, Ltd.

Suggested Citation

  • John M. Brooks & Bernard Sorofman & William Doucette, 1999. "Varying health care provider objectives and cost‐shifting: the case of retail pharmacy in the US," Health Economics, John Wiley & Sons, Ltd., vol. 8(2), pages 137-150, March.
    • Handle: RePEc:wly:hlthec:v:8:y:1999:i:2:p:137-150
    DOI: 10.1002/(SICI)1099-1050(199903)8:2<137::AID-HEC412>3.0.CO;2-7
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    1. Zuckerman, Stephen, 1987. "Commercial insurers and all-payer regulation : Evidence on hospitals' responses to financial need," Journal of Health Economics, Elsevier, vol. 6(3), pages 165-187, September.
    2. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 38(2), pages 112-134.
    3. Mark H. Showalter, 1997. "Physicians' Cost Shifting Behavior: Medicaid Versus Other Patients," Contemporary Economic Policy, Western Economic Association International, vol. 15(2), pages 74-84, April.
    4. Dranove, David, 1988. "Pricing by non-profit institutions : The case of hospital cost-shifting," Journal of Health Economics, Elsevier, vol. 7(1), pages 47-57, March.
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    Cited by:

    1. Kutzin, Joseph, 2001. "A descriptive framework for country-level analysis of health care financing arrangements," Health Policy, Elsevier, vol. 56(3), pages 171-204, June.

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