More than a year after an extensive study on hospital prices in the United States, Indiana House Speaker Todd Huston, R-Fishers, and Senate President Pro Tem Rodric Bray, R-Martinsville, sent a not-so-subtle threat in the form of letters to state insurers and hospitals.
Their message was clear: Find a way to lower your prices to get Indiana to the national average by 2025, or the General Assembly will do what it needs to do to get there.
“Studies continue to show health care prices in Indiana remain some of the highest in the nation, and it’s time for that to change,” Bray said in a Jan. 4 statement. “We understand the health care industry and its pricing structures are complicated, but that’s not an excuse to ignore the problem and let prices grow — at a rate significantly higher than inflation — at the expense of hardworking Hoosiers and business owners.
“It’s time for leaders in our medical community to come together and work in tandem to lower costs for Hoosiers, and I stand ready as a lawmaker to assist however I may be able.”
The letters and statements were a rare move for state legislators and signaled that the Statehouse is serious about addressing the issue. The General Assembly has passed bills that have done away with surprise billing and forced the implementation of price transparency as ways to save patients money, but the December letter signaled that legislators were willing to do more if needed.
As for a possible fix to state health care prices? It’s currently unknown what it will detail. Hospitals and insurers were expected to announce April 1 what their steps will be to lowering prices and get the state’s health care costs more aligned with the national average.
What should be done — by either the private companies or the state government — varies by who you ask.
PRICES IN INDIANA
The letters and statements from Bray and Huston come a little more than a year after RAND, a nonprofit think tank, published in September 2020 its study “Nationwide Evaluation of Health Care Prices Paid by Private Health Plans.”
As previously reported by CNHI News Indiana, the comprehensive study found that Indiana had the sixth-highest health care costs in the country, with Indiana employers and insurance companies paying 304% more than Medicare prices to the state’s hospitals, which is higher than the national average of 247%.
The study looked at prices collected from 2016-2018 in all but one state (Maryland), receiving data from 40.2 million outpatient and 750,000 inpatient claims and both in-network and out-of-network claims from 3,112 hospitals across the country. Its aim: to help employers become better informed health services purchasers in the future.
The study was in partnership with the Employers’ Forum of Indiana, a coalition of state employers. Part four of the RAND study is set to be released in May.
Gloria Sachdev, president and CEO of the Employers’ Forum of Indiana and vice chairwoman of Hoosiers for Affordable Healthcare, told CNHI News Indiana that the nonprofit has seen an increasing number of its members express concern over rising health care costs in Indiana.
Health care prices, she said, have gotten to a point that’s unsustainable for both employers and their employees.
“We’re on an unsustainable track,” Sachdev said. “There’s no reason why Indiana’s hospital prices should be higher than the national average.”
RAND researchers suggested employers begin offering a narrow hospital network or even a tiered network to employees in exchange for lower premiums and hospital costs as a way to lower general health care costs for both them and their employees. However, an economics professor at Ball State University has another theory that he thinks will lower prices: anti-trust legislation.
Michael Hicks, a professor of economics and director of the Center for Business and Economic Research at Ball State, has written extensively about hospital’s market power in Indiana, which has grown more concentrated after years of acquisitions. He has previously said there’s no more concentrated industry in Indiana than the hospital industry except for the utilities industry.
In a January Substack article, Hicks used IU Health — the state’s largest hospital network with 16 locations throughout the state — as a prime example of monopoly power.
In 2020, despite technically being a nonprofit, IU Health earned a $1.2 billion profit and has nearly $9 billion in cash and investments as of last September. Since it’s a nonprofit, it also largely avoids paying taxes on its revenue.
“This sprawling firm could give away all its healthcare services for free through all of 2022, pay all its bills and employees and would still finish the year with more savings than the entire State of Indiana’s Rainy Day Fund, which is now at record levels, ” Hicks wrote.
Part of the reason IU Health has been able to accrue so much money is its regional monopoly, Hicks said. Monopolies or heavily concentrated markets tend to sell goods at a more expensive rate than markets where there’s true competition.
It’s no different in health care, Hicks contended, citing the difference in childbirth cost between IU Health in Delaware County — between $19,488 and $21,305 — and nearby Madison County, where there are two competing hospital systems — between $2,671 and $7,380.
“Indiana’s hospital systems are the modern equivalent of gilded-age robber barons,” Hicks wrote.
Monopoly power doesn’t just affect how much consumers pay. It also can negatively affect patient safety, according to Mercy Hylton, a pediatric emergency physician and a member of Physicians for Patient Protection.
In a March op-ed, she said giving the Indiana hospital industry free rein over cost reductions will likely lead to cost-cutting measures in staff and salaries, which could lead to less quality care for patients.
“To protect profits, we can expect healthcare corporations to focus on cutting labor costs by slashing employee salaries that are already lower than national averages and cutting more corners on already inadequate staffing,” Hylton wrote.
A physician herself, Hylton said she has seen the hospital systems wield their power to get physicians to sign non-compete clauses in employment contracts and make it harder and harder for independent physicians to operate.
Hylton, too, supports the state enforcing antitrust laws, as well as price transparency laws with stringent enforcement.
“The root cause of a lot of the other symptoms in our health care systems is the corporatization of health care,” Hylton said.
Hylton believes there are many ways the state legislature could lower prices for patients, improve quality of care and improve workplace conditions for health care employees. This includes promoting true competition among hospitals by enforcing antitrust laws and banning non-compete clauses; scrutinizing non-inflated, true market values of the “community benefits” claimed by “nonprofit” health systems; banning in and out of network distinctions for acute care; and enforcing clear distinctions between whether or not a patient is seeing a nurse practitioner or a physician.
CALL AND RESPONSE
In what was a reaction to ongoing criticism over prices, IU Health announced last December at a price transparency meeting it would institute a four-year price freeze for all commercial payers, ie the insurance companies that offer health plans, chiefly through employers. The meeting was the first to be held after a bill passed last year mandating the state hospitals and insurers to hold an annual public forum over pricing.
“We actually feel like what we’re doing will drive the prices down in Indiana,” Jennifer Alvey, IU Health senior vice president and chief financial officer, said at the forum. “That’s why we think the program’s really elegant.”
IU Health’s announcement drew some light praise from Hoosiers for Affordable Healthcare, though the organization criticized the state’s other hospital systems for not acknowledging the pricing problem.
But what the forum and letters sent by Bray and Huston show is that pressure can work.
For the Employers’ Forum and Hoosiers for Affordable Healthcare, the want is simple: A state that has a cost of living 9% below the national average shouldn’t have some of the highest health care costs.
“I’m hopeful that we can get it done,” Sachdev said about lowering prices.
HEALTH CARE INDUSTRY RESPONDS
On March 31, the state’s hospital systems and largest insurance trade association responded to Bray and Hustson’s demands in letters collectively totaling more than 50 pages.
All the letters agreed that it is beneficial for the state to work on making health care more affordable and praised recent efforts on price transparency and the banning of “surprise billing.”
But when it came to reasons for the state’s high costs, many of the organizations pointed fingers at each other and some at the state itself.
“It’s crucial to consider that hospital prices are just one part of the overall cost equation — and what matters most to employers and individuals alike is the final cost they pay,” Bryan Mills, president and CEO of Community Health Network, wrote, citing a recent study authored by Kaufman Strategic Advisors that found claims paid to physicians and hospitals rose at a rate lower than the cost of prescription drugs and the price of insurance premiums.
“The Kaufman study concluded that Indiana is not a high-cost outlier for medical services, and demonstrated that ranking states by unit prices and comparing those prices to government-set rates such as Medicare can paint an inaccurate picture of Indiana care costs. In short, we suggest that it’s counterproductive to set specific pricing targets based on measures that don’t accurately reflect the costs paid by patients and employers.”
The Insurance Institute of Indiana placed some of the blame on prescription drug companies and even state lawmakers.
“Calling on the insurance and hospital industries to reduce the cost of healthcare in Indiana, while a start was an incomplete assignment,” Marty Wood, president of the Insurance Institute of Indiana, wrote. “Without question there are numerous other stakeholders who must be challenged to do their part … If the goal of the General Assembly is to truly reduce healthcare costs, then it is imperative the legislature re-evaluate its own role as a stakeholder. For more than three decades the insurance industry has seen its cost control policies limited and even prohibited by statute. Unnecessary and inefficient regulatory reporting requirements have been implemented. At the same time, coverages have been mandated and expanded without seriously looking at the levels in which these actions drive up overall costs.”
IU Health said it is not “realistic” to believe the state can lower health care costs but believes it is possible to slow it so it is more in line with the growth of the economy. The state’s largest hospital system encouraged the state to invest more in public health, noting that the state ranks near dead last in most major health metrics compared to other states in the US
“Given this research, we would be remiss not to draw attention to the fact that Indiana’s prolific investment in public health relative to national benchmarks only exacerbates the cost of care when the population seeking care is in poorer health than the rest of the nation,” Dennis Murphy, president and CEO of IU Health, and Sephanie Motter, president of IU Health Plans at IU Health, wrote.
It’s unclear whether any of the responses to the legislative leaders were “viable plans” as called for in the state officials’ December letter, though Bray said he was “encouraged” by the responses.
“I look forward to continuing this discussion in the coming weeks as we process the information provided so we can identify solutions that will lower the cost of health care for all Hoosiers,” he said in a statement.