Price of Medicaid and Uncompensated Care compared to Medicare and Private care: A translog shadow pricing approach for Floridian hospital outputs

Since the passage of the Affordable Care Act (ACA) of 2010, issues still remain regarding the mandated purchase of insurance to ensure more universal coverage. One such issue is the pricing of these insurance packages and whether or not the reimbursements will cover necessary services. Therefore, there are policy concerns that increasing the number of insured individuals may not curtail costs. Conversely, providers may not wish to treat patients covered by excessively frugal plans such as Medicaid; hence the tradeoffs between access and cost control. In this paper, we present findings from a cost function and a productivity approach to determine the shadow prices of providing inpatient hospital care for hospitals operating in Florida during 2005. Using these methodological approaches, we are able to use the marginal rate of transformation to determine the relative shadow prices while controlling for hospital technical and allocative inefficiency. By including both reimbursement rates under conditions of hospital efficiency, we can ascertain payment schemes that should, at least in theory, cover necessary costs for patient care without leading to excessive input usage.