Table 1.

Theoretical Cost-Shift Literature (1996 to present)

Citation	Assumptions	Predictions	Implications for Empirical Estimates
Studies Assuming Profit Maximization by Providers
Rice et al. 1999; Showalter 1997	Provider profit-maximizing behavior.	Cuts in public payments lead to lower quantity of care supplied to the public, a higher quantity supplied to private payers, and a lower private payer price.	Cost shifting is not expected if providers maximize profit.
Glazer and McGuire 2002	Medicare sets prices independent of quality and must pay any willing qualified provider. Private payers negotiate quality-dependent prices and selectively contract. Provider quality is shared across payer types.	The presence of a private sector dilutes Medicare payment changes and can repair Medicare payment policy errors. Medicare can free-ride on private payers, receiving higher quality than that for which it pays.	A private payer's ability to exclude providers from its contract is a key source of bargaining power. Medicare's payment level may depend on factors (e.g., quality) correlated with private payer levels (i.e., may be endogenous). Public/private payer mix is a determinative factor in the extent that providers respond to Medicare payment changes.
Stensland, Gaumer, and Miller 2010	Hospitals with strong financial resources have a high cost structure.	A high degree of hospital market power leads to high private prices and donations. These strong financial resources are associated with a high cost structure that is responsible for low Medicare margins.	Provider market power and costs are positively correlated with private payments.
Studies Assuming Utility Maximization by Providers
Clement 1997/1998; Zwanziger, Melnick, and Bamezai 2000	Hospitals maximize a utility function with profit and quantity components.	Cost shifting is possible if hospitals have underexploited their market power.	Measures of public and private payer volume (or one relative to the other) are related to cost-shifting behavior.
Cutler 1998	Hospitals do not maximize profit.	Both cost shifting and cost cutting are expected responses due to public payment reductions. When insurers’ demand elasticity for hospital services is low, more cost shifting can occur.	Since cost cutting is a possible response to public payment reductions, cost-shifting analysis based on margins confounds price and cost effects.
Rosenman, Li, and Friesner 2000	Hospitals maximize prestige (revenue subject to the constraint that it must cover costs).	Cost shifting may occur, depending on the provider's ability to cut costs. A higher number of publicly covered patients relative to privately covered ones increase the degree of cost shifting.	Public/private patient mix and grants are relevant to cost shifting.
Friesner and Rosenman 2002	Hospitals maximize prestige (revenue subject to the constraint that it must cover costs).	Cost shifting and lower service intensity are substitute responses and should occur under similar circumstances.	Service intensity is related to cost shifting.