Facing criticism over high fees and profits, IU Health rolls out 5-year price freeze

Indiana University Health, which charges the highest hospital fees in the Indianapolis area and is sitting on nearly $9 billion in cash and investments, said it is freezing prices through 2025 to help get in line with national average prices.

The Indianapolis-based hospital system described the price freeze on Thursday as a multi-year “pricing and affordability plan” that holds prices flat for the next four years for all commercial payers, the insurance companies that offer health plans, chiefly through employers.

The health system said it began implementing the plan earlier this year. But it did not lay out details until this week, when it began hosting a series of end-of-year community meetings to explain prices, a requirement that went into effect this year under a new law.

IU Health, the largest hospital system in Indiana, is rolling out its price freeze in the face of growing criticism that its prices, profit margins and cash reserves are too high, causing financial hardship for patients and employers.

A study last year by the RAND Corp. found that Indiana ranks sixth in the nation for hospital price disparities—ahead of New York, California, Massachusetts and other larger states with higher cost of living—when it comes to what privately insured people pay for care compared to what Medicare would have paid for the same service.

IU Health officials said the plan should get its prices more in line with the national average and save patients and employers more than $1 billion over five years.

“For 2021, we implemented the first phase of a multi-year pricing plan that’s designed to get us to national parity on hospital prices by the end of 2025,” David Burton, vice president and chief revenue officer said.

This year, the hospital system said it has actually lowered prices for radiology services by 45% and laboratory tests by 60%. IU Health will next focus on prices for infusions, ambulance services, outpatient surgery and ambulatory surgery centers.

According to the RAND study, IU Health is the most expensive hospital system in central Indiana, charging private health plans 333% of it charged Medicare. Statewide, it was the second-most expensive, behind only Parkview Health System in Fort Wayne, which charged 388% compared to Medicare.

A grassroots group, Hoosiers for Affordable Healthcare, has been pushing IU Health to lower its prices, not just freeze them, pointing out that the health system had $8.9 billion in cash and investments as of Sept. 30.

It also wants the health system to accelerate its schedule to achieve national parity by Jan. 2, 2024, not Dec. 31, 2025.

“Charging patients prices that dwarf the national average does not improve the health of a community,” Al Hubbard, chairman of consumer organization, wrote to IU Health officials on Dec. 9, in a letter he shared this week with IBJ. “Instead, it unnecessarily burdens every Hoosier healthcare consumer with exorbitant and indefensible fees for care. It leaves them with fewer resources to address other areas of importance in their lives including shelter, nutrition, and the welfare of their children. It depresses wages and forces consumers into high deductible health plans.”

He added: “Put simply, we find it incredulous and disappointing that a not-for-profit hospital system that generates $1 billion dollars annually in earnings and boasts a $9 billion cash reserve is not willing to lower its prices.”

Hubbard, former chairman of the Indiana Republican Party, is co-founder of Indianapolis-based investment firm E&A Industries. He served in the White House under the George H.W. Bush and the George W. Bush administrations.

IU Health officials defended the hospital system’s large cash holdings. Jenni Alvey, the hospital system’s chief financial officer said that strong, not-for-profit health care systems need to carry about a year’s worth of cash on hand, “and that’s close to $7 billion for us.”

The system also wants to make sure it has money to pay for major building projects, including its expanded downtown campus around the existing Methodist Hospital, which will expand the footprint by about 44 acres.

“We plan to spend more than $3 billion in the downtown Indy area in the next few years, so that will explain some of our cash and investment balances as well,” she said.

IU Health has said its prices from 2020 to 2021 were flat, and rose by only 2.4% from 2019 to 2020. It said its ongoing price freeze could take between three to seven years to help it achieve national parity on pricing, so it has chosen five years as the most likely timeframe.

In a Dec. 6 letter to Hoosiers for Affordable Healthcare, she said the ongoing pandemic, with its high labor costs, “underscore the need for us to be prudent when executing against this plan so that we can continue to provide quality patient care today and in the future.”

Last year, IU Health brought in total revenue of $7.6 billion and spent $6.4 billion on wages, supplies and other expenses. That gave it net income of about $1.2 billion—the third time in four years it has rung up more than $1 billion in net income. Its profit margin last year, when calculating net income as a percentage of total revenue, was 16%.

IU Health operates 16 hospitals from Muncie to Bloomington. Its flagship is Methodist Hospital in downtown Indianapolis, the state’s largest hospital. It also operates dozens of clinics and urgent-care centers.