The research, published as a working paper for the National Bureau of Economic Research, also comes amid a new wave of market consolidation and as hospitals face continued payment cuts from Medicare.
The growth in Medicare reimbursement, a major source of revenue for many hospitals, was tightened under the 2010 healthcare reform law and further reduced during federal deficit negotiations.
Craig Garthwaite, an assistant professor of management at Northwestern University and one of the paper's authors, said the results suggest changes in federal payment policy “could have very important consequences for the financial viability” of hospitals “and for the type of care that patients receive there.” Unable to raise prices, hospitals must absorb the loss or cut costs. “What we worry about potentially is that they might start reducing things that are unprofitable,” he said.
The research also found hospitals may have scaled back on costly investment in information technology in response to the 2008 financial losses but did not lay off registered nurses. The research did not find evidence that hospitals added more profitable services after investment portfolios dropped.
The study excluded for-profit hospitals and government-owned hospitals without the investment portfolios used for the analysis. Critical-access hospitals were also excluded for lack of certain data.
There is evidence that hospitals have scaled back on unprofitable services and invested in more profitable operations during and after the recession.
Exeter (N.H.) Hospital did so after New Hampshire halted subsidies to some hospitals for low-income patients. The state's hospitals pay taxes to help finance the subsidies. Until last year, all New Hampshire hospitals were also eligible to receive the supplemental payments under the state's Medicaid program.
Exeter paid $10.5 million in taxes toward the subsidy in 2011 and received $7.4 million. Last year, however, the hospital paid $10 million but received nothing under the new state policy. Executives then cut 40 jobs from the payroll in response and closed sub-acute-care services, which lost money, according to Moody's Investors Service. Exeter Hospital did not respond to an interview request.
Hospitals' response to Medicare's reductions may be more systematic than reactions to the 2008 market volatility, which executives may have considered temporary, said Chapin White, senior health researcher at the Center for Studying Health System Change, who has studied hospital pricing power.
Hospitals saw investment portfolios plunge with the market as the financial crisis and recession worsened in late 2008 and early 2009. But markets began to rebound in the spring of 2009.
Medicare cuts are more permanent, White said. The latest study echoes other research that suggests hospitals will likely target costs, not prices, to offset the Medicare pay cuts, he said.
Meanwhile, consolidation has accelerated as hospitals have acquired other hospitals as well as medical groups and even some insurers, said Austin Frakt, a health economist at Boston University. That could give hospitals more clout to raise prices for the commercially insured.
“The trend is, unfortunately, toward conditions that are more favorable for cost-shifting,” Frakt said.
A limited group of hospitals did raise prices, Garthwaite and his colleagues found. Hospitals ranked nationally by U.S. News and World Report and medical schools' main teaching hospitals raised prices after suffering large endowment losses. Researchers said such hospitals may have more leverage with insurers. Roughly one out of five patients received care at hospitals raised prices.