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

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 i n 1994. We develop a more general theory than past researchers to enable pr ovider objectives to vary with Medicaid pharmacy reimbursement levels. We f ind that provider objectives and the direction of relationship between Medi caid pharmacy reimbursements and retail prices vary with Medicaid pharmacy reimbursement levels. At high Medicaid pharmacy reimbursement levels we fin d a consistent negative relationship across products. At low Medicaid pharm acy reimbursement levels, the direction of the relationship is product-spec ific. As a result, policy-makers should be aware that policies affecting re imbursements from government-sponsored health insurance will also affect re tail customers that include the uninsured. Paradoxically, for certain produ cts if a state cuts a generous Medicaid reimbursement level this could hurt uninsured patients, whereas cuts in a stingy Medicaid reimbursement rate m ay help uninsured patients. Copyright (C) 1999 John Wiley & Sons, Ltd.