costshifting

Cost shifting refers to the practice of moving or reallocating costs from one group, payer, or sector to another, typically to recover revenue shortfalls, balance budgets, or alter incentives. It can occur through pricing, billing, contracting, or policy design that effectively transfers financial burden.

In health care, cost shifting is most commonly described as providers charging higher prices to privately insured patients to compensate for lower reimbursement from government programs such as Medicare and Medicaid. This can manifest as higher negotiated rates, higher list prices, hold-harmless arrangements, or balance billing. The magnitude and policy relevance of cost shifting are debated, with empirical studies yielding mixed results depending on market structure and data.

Other contexts include employers, governments, and institutions shifting costs to others. Employers may pass rising health or retirement costs to employees through higher premiums, copayments, or narrower benefits. Governments may reduce funding to public services, shifting costs to users or private providers. In corporate environments, internal cost shifting involves reallocating overhead or administrative costs to different departments, projects, or grants through internal charging mechanisms.

Implications of cost shifting can include changes in affordability, access to services, and market efficiency. Critics argue that cost shifting can obscure true costs, undermine equity, and hinder efficient decision-making, while defenders contend that it reflects pricing to reflect risk, market power, or cost containment in other areas. Measuring cost shifting requires careful longitudinal and cross-market analysis.