Indy is poster child (again) for medical arms race

The opening this month of Franciscan St. Francis Health’s short-stay hospital in Carmel and the announcement of St. Vincent health’s merger with an Evansville hospital system provide further evidence of how Indianapolis-area hospitals are leading the nation in the latest “medical arms race”—geographic expansion.

Indianapolis was highlighted in a study published April 9 in the journal Health Affairs because its hospitals have been particularly aggressive at expanding their geographic reach, raising concerns among health insurers and even hospitals themselves that new medical facilities and market power can only lead to higher prices.

“Although hospital system leaders assert that expansion will allow them to provide better access to high-quality care, there is evidence that these systems’ geographic range and capabilities may increase their leverage in negotiations with payers in ways that are not addressed by conventional antitrust laws,” wrote study authors Emily Carrier, Marisa Dowling and Robert Berenson.

In less academic terms, they mean this: When hospitals say their expansions will bring higher quality, expect higher costs—particularly for employers.

Such warnings are nothing new to Indianapolis. Hospitals have eagerly chased affluent patients with employer-sponsored health benefits as they have gradually migrated farther from the core of Indianapolis.

St. Vincent Health moved from 38th Street to 86th Street in 1974, then opened a hospital in Carmel in 1985. That same year, Community Health Network added a hospital in Castleton to its original, east-side location.

In 1995, Franciscan opened a hospital near Interstate 465 on the south side and just last month finally ceased all inpatient care at its original Beech Grove campus.

In the early 2000s, the building became a full-fledged arms race, as physician groups–such as OrthoIndy and The Care Group–built specialty hospitals for orthopedic and heart patients. Soon afterward, Indiana University Health, then called Clarian, started breaking out of its downtown core with new hospitals in Avon and Carmel.

The competition soon became so fierce, it prompted The New York Times to use Indianapolis as the leading example in a 2003 story on a nationwide specialty hospital building boom.

IU Health was blasted by other hospitals because it was breaking the unwritten rule that hospitals didn’t build in one another’s territories.

“It used to be that the hospital systems wouldn’t be built near the other hospitals—there was an unspoken rule,” the Center for Studying Health System Change quoted one local health care observer as saying in a December report on Indianapolis.

The Center, based in Washington, D.C., conducted the interviews in the 12 markets that were the basis of the Health Affairs article. The study notes that, until 2007, hospitals in most markets were still competing based on service lines—"We’ve got the best heart care!"—but now have shifted to follow Indianapolis’ lead of rapid geographic expansion.

“But now,” the observer added, “they are right in each other’s back yards, and they are all vying for patients and are buying up smaller community hospitals.”

Indeed, IU Health’s new Saxony hospital, which opened last year, and St. Vincent’s free-standing emergency room both were invasions of Community’s typical claim to the suburbs northeast of Indianapolis. And Franciscan’s conversion of a medical office building into an outpatient and six-bed inpatient facility in Carmel lies less than two miles from three other hospitals—two owned by St. Vincent and one owned by IU Health.

Franciscan’s rationale? Many of its existing patients—including its CEO—live in Carmel, anyway. So the new facility is naturally more convenient for them, and perhaps for many others in the area that might have never visited a Franciscan facility.

Keith Jewell, Franciscan’s chief operating officer, explained in a press release that “the Carmel location creates a convenient continuum of care for current and future patients and provides a closer access point to Franciscan Alliance hospitals and facilities in Indianapolis, Mooresville, Beech Grove, Plainfield, Lafayette and Crawfordsville.”

But with Indianapolis already shown to be one of the nation’s more expensive health care markets—and that due primarily to hospitals’ excess costs—such convenient access doesn’t come free, as Indianapolis health insurers are eager to point out.

“They  are building hospitals right next to each other; it is pretty amazing,” one unidentified Indianapolis health insurance representative is quoted as saying in the Health Affairs study. “They have to pay for them; someone must fill them up.”