October 1, 2019; Becker’s Hospital Review
A study authored by Michael Hicks, director of Ball State University’s Center for Business and Economic Research, has found that Indiana’s nonprofit health system networks “exhibit broad signs of monopolization.” (This circumstance isn’t unique to the state; similar issues have led the state of California to sue one nonprofit health system.) Lack of competition is driving up healthcare prices, especially in places with limited competition, such as Fort Wayne, South Bend, and Evansville. As Ayla Ellison in Becker’s Hospital Review explains, the households in Indiana healthcare markets where competition is most limited pay more than double what those in more competitive markets do per procedure.
This study follows a similar study that also found high costs in Indiana. That study, authored by Chapin White of the Rand Corporation and published in 2017, found that employers in Indiana paid 295 percent of Medicare rates, while employers in Michigan paid only 149 percent of Medicare rates. Within Indiana, White found considerable variation in terms of how much different employers pay. And prices can vary not just between different health systems, but among hospitals within the same health system. Large hospital systems, which often have the most significant market power, by and large were found to have the highest prices.
The newly released Ball State study adds to this data, finding that 85 percent of Indiana’s nonprofit hospitals recorded higher earnings than the national average. In Indiana markets where competition was limited, Hicks found that hospital earnings averaged $82 million in 2015, compared to a slim $2.3 million average in markets with a high degree of competition.
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Hicks concludes, “Evidence strongly suggests healthcare markets in Indiana experience significant monopoly power, which has increased prices, allowed not-for-profit providers to accrue stunningly large profits, increased the burden on Hoosier families, and likely reduced healthcare outcomes across the state.”
But not everyone agrees with these findings. The Indiana Hospital Association (IHA) claims the study uses “misleading information” in support of “outrageous conclusions.” In a response to the Ball State study, IHA president Brian Tabor claims that Hicks discounted the $2.5 billion in community benefits that these nonprofit hospitals provide, which includes “financial assistance, training medical professionals, conducting life-saving research, and much more.” Tabor says that the IHA was not contacted for the Ball State report and argues that Hicks was incorrect to base his study on Form 990 records instead of using audited financial statements. Tabor also contends that Indiana has high obesity and smoking rates, leading to poorer health outcomes and higher costs than other states.
Nonetheless, it is difficult to understand why 20 years ago the average expenditure on healthcare per year in Indiana was $330 below the national average, yet now that cost per year is $800 above the national average. Have these nonprofit hospitals massively increased their community benefits? It certainly does not help that hospital pricing has not historically been very transparent; frequently, health insurance plan structures and fees have been difficult for the average person to understand.
It would be useful to quantify the benefits that Tabor claims these nonprofit hospitals bring to communities. Is it “worth” the overall cost to those who are paying astronomical healthcare bills? Where are they seeing these benefits? In light of the Ball State study, it seems essential that the IHA and the nonprofit healthcare systems clearly show why healthcare costs for Indiana residents are so high, especially relative to other nearby states that may face similar health issues.—Kristen Munnelly