HowDoHospitals Cope with Sustained SlowGrowth inMedicare Prices?

Objective. To estimate the effects of changes in Medicare inpatient hospital prices on hospitals ’ overall revenues, operating expenses, profits, assets, and staffing. Primary Data Source. Medicare hospital cost reports (1996–2009). Study Design. For each hospital, we quantify the year-to-year price impacts from changes in the Medicare payment formula. We use cumulative simulated price impacts as instruments for Medicare inpatient revenues. We use a series of two-stage least squares panel data regressions to estimate the effects of changes in Medicare revenues among all hospitals, and separately among not-for-profit versus for-profit hospitals, and among hospitals experiencing real price increases (“gainers”) versus decreases (“losers”). Principal Findings. Medicare price cuts are associated with reductions in overall rev-enues even larger than the direct Medicare price effect, consistent with price spillovers. Among not-for-profit hospitals, revenue reductions are fully offset by reductions in operating expenses, and profits are unchanged. Among for-profit hospitals, revenue reductions decrease profits one-for-one. Responses of gainers and losers are roughl