Editor's Note: This article originally appeared in National Underwriter, P&C.

Hospitals have driven up auto insurers' costs by more than $1 billion with charges for treating accident victims that would normally be paid by Medicare or Medicaid, an industry group study has found.

Low reimbursements from Medicare, Medicaid and other public health insurance programs have prompted the shift, announced the Insurance Research Council in Malvern, Pa., which did the research.

The IRC said this activity has meant auto injury claim costs have risen and auto insurers have been forced to scrutinize hospital bills more closely and negotiate them prior to payment.

The IRC estimated that bodily injury cost shifting in 2007 resulted in $1.2 billion in excess hospital charges from 38 states. Twenty-eight of those states do not have no-fault insurance, and another 10 have no-fault insurance but without threshold restrictions on injury lawsuits.

The IRC said that "The full impact of hospital cost shifting, including that occurring in other insurance coverages and in other states, is likely much greater."

"The conventional wisdom is that hospitals aggressively seek to shift costs from public insurance programs to private payers, such as auto insurance companies," said Elizabeth Sprinkel, senior vice president of the IRC, in a statement.

Sprinkel added that, "With this study, we now have information on the magnitude of cost shifting and a better understanding of the need for supportive state laws and effective tools that will enable auto insurers to pay hospitals appropriately and help control auto injury claim costs."

Hospital cost shifting to auto injury claims, according to the IRC, illustrates the complex relationship between property-casualty insurance and the broader health care and insurance system.

"Health care legislation enacted by Congress last month underscores the complexity of this relationship," said Sprinkel. "It will take months, if not years, to understand the full impact of the reforms on hospital cost shifting and the auto insurance system."

To explore the relationship between key health system features and auto injury hospital costs, the IRC said it developed a statistical model of average hospital charges for auto injury claims in different states.

Key predictors of average hospital charges confirmed by the model are the percentage of a state's population who goes without health insurance coverage and the percentage of the population covered by Medicaid.

To estimate excess hospital charges due to hospital cost shifting, the IRC compared average hospital charges for bodily injury liability claims in Maryland with average charges in the 38 states without no-fault or without no-fault threshold restrictions on lawsuits.

In the 1970s, Maryland received a waiver from the federal government allowing it to regulate hospital reimbursement rates for all purchasers of hospital services. As a result, virtually all hospital cost shifting in the state was eliminated, the IRC explained.

The researchers said, "Maryland's unique approach to hospital reimbursement, while unlikely to be replicated in other states, provides an opportunity to examine costs in an environment with minimal cost shifting."

In all instances, the IRC said it found that average hospital charges for auto injury claims in Maryland were substantially lower than hospital charges in most other states.

The IRC also found that the costs of expensive diagnostic procedures performed in Maryland hospitals were much lower than in other states, but were more similar to costs in other states when the procedures were performed outside a hospital.

Its study, "Hospital Cost Shifting and Auto Injury Insurance Claims," the IRC said, is based on data from more than 42,000 auto injury claims closed with payment under the five principle private passenger coverages.

Twenty-two insurers, representing 58 percent of the private passenger auto insurance market in the United States in 2006, participated in the study.

The IRC closed claim study collected detailed data on injury; medical treatment; claimed losses and total payments; claim handling techniques; and attorney involvement.

Copies of the study are available at $125 for an electronic version, or $140 for a printed copy.

More information on the study's methodology and findings is available by contacting David Corum at (484) 831-9046, or irc@cpcuiia.org. IRC's website is www.ircweb.org.

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IRC: Hospitals Drive Up Auto Insurers&#039; Costs by a Billion

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