June 17, 2021


Keep Fit & Healthy

Health cost cuts cooperative effort | Columns

3 min read

The Sept. 20 op-ed by Brian Tabor of the Indiana Hospital Association (“Hospitals part of the answer on health costs”) further illustrates what a strange year this has been.

Hospitals are on the defensive again because of an analysis published by the highly esteemed RAND Corporation, a nonpartisan research organization that shows Indiana health care consumers are paying more for hospital services than just about anybody else in America.

Hoosiers covered by employer-provided health plans paid Indiana hospitals three times what Medicare would have paid for the same procedures. Only five other states have a wider disparity.

The analysis examined $34 billion in spending from more than 3,100 hospitals across the country, 750,000 claims for inpatient hospital stays and 40 million claims for outpatient services.

This is the third report released by RAND in the past three years, and each time the conclusion has been the same: Hospital charges in Indiana are unconscionably excessive.

And each time the Indiana Hospital Association’s predictable response has been to discredit the research, which was conducted by a widely published health economist who utilized data provided by self-insured employers and health insurance plans.

In an effort to shift the blame, the hospital association conveniently omits a significant market dynamic that’s been at work in Indiana for the past 20 years. Namely, hospital systems have gained significant market clout as a result of widespread consolidation through merger-and-acquisition activity.

The consolidation trend extends to physicians, too, as more than two-thirds of doctors now are employed by the five major hospital systems that operate in Indiana, ensuring that referral patterns stay within those systems.

The big hospital systems exert this power and influence to demand unreasonable prices. This is why operating margins for hospitals in Indiana are 10% (or more) higher compared to the national average.

Yes, the COVID-19 pandemic affected hospitals financially, which is why the federal government earmarked $175 billion for hospitals across the nation, including several hundred million in Indiana. It was the right thing to do.

But long before the economic impact of the pandemic, an Indianapolis Star headline, in response to another RAND report, concluded “High health care costs leave some businesses saying anywhere but Indiana.” Clearly, this is not just an academic exercise.

Hospital prices that are three times the Medicare rate create a drag on the state’s economy – limiting hiring and wage increases, putting a financial strain on family and business budgets, and affecting business relocation and expansion decisions.

The headline of the hospital association’s op-ed is correct when it says hospitals are part of the answer to health costs, but we shouldn’t underestimate how large a part that really is. Hospital stays, physician services and office visits account for 58 cents of every health care dollar spent in America. Two cents goes to the insurance company.

The research has cast a bright light on the high costs of health care, and RAND will continue this important, objective analysis of hospital pricing.

Now is not the time to shift blame or point fingers. Instead of trying to discredit this important work, let’s come to the table with ways to make meaningful progress for Indiana’s businesses and health care consumers.

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