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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowIndiana ranks seventh in the nation for hospital price disparities—ahead of California, New York, Connecticut and other larger states with higher costs of living—when it comes to what privately insured people pay for care compared to what Medicare would have paid for the same service.
A new study released Thursday by the Rand Corp. showed that Hoosiers covered by employer health plans paid Indiana hospitals nearly three times—or 292%—of what Medicare would have paid for the same procedures.
Indiana’s relative prices are higher than all four of its neighboring states—Michigan, Illinois, Ohio and Kentucky—the study said.
The issue looms large for Indiana, where employer-sponsored plans cover 53.3% of the population—higher than the nationwide figure of 49.6% and higher than all neighboring states but Illinois.
Medicare typically pays less than private health plans, and hospitals often count on privately insured patients for much of their revenue and profit.
But employer groups in recent years have begun to push back, saying they are unfairly charged a higher amount and thus shoulder much of the burden for the nation’s health care.
“Year after year, independent research using real insurance claims data demonstrates that hospital care in Indiana is incredibly expensive,” Gloria Sachdev, president and CEO of the Employers’ Forum of Indiana, in written remarks.
The latest study is almost sure to add pressure on policymakers to push hospitals to lower prices. Earlier this year, Indiana’s top legislative leaders told hospitals and health insurers to come up with a plan to lower the “out-of-control costs” of health care, saying prices in Indiana are well above the national average and need to come down.
“Absent a viable plan, we will be left with no choice but to pursue legislation to statutorily reduce prices,” said the letter, signed by House Speaker Todd Huston and Senate President Rodric Bray.
In response, several hospitals sent letters to Huston and Bray last month citing the complexity of the health system and showing little agreement over who is to blame for the cost of health care or how to fix the problem.
The RAND study analyzed claims data from employers, private insurers and 11 state all-payer-claims databases that included more than 4,000 hospitals and 4,000 additional ambulatory surgical centers across every state except Maryland. The latest study utilized claims data from 2018 to 2020.
South Carolina, West Virginia, Florida, Wisconsin, Wyoming and Minnesota were the only states with high disparities than Indiana in the study, with relative prices above 300% of Medicare.
Forty-three other states had lower hospital prices compared to Medicare, the study said.
Two years ago, the previous study, known as RAND 3.0, found that Indiana ranks sixth in the nation for hospital cost disparities, and that Hoosiers covered by employer health plans paid 304% of what Medicare would have paid.
“Unfortunately Rand 4.0 confirms that our hospital prices continue to be among the highest in the country, which is unnecessarily taking money out of the pockets of all Hoosiers,” said Al Hubbard, chairman of Hoosiers for Affordable Healthcare, a consumer organization.
He added: “We calculate the impact to be as much as $2,500 per family. This situation is especially egregious given that our cost of living is 9% less than the national average and our earnings are 12% below the national average. Needless to say, the other impact is to make our employers less competitive and less able to pay higher wages. It is time for hospitals to lower their prices at least to the national average, especially considering today’s high inflation, which is impacting all Hoosiers.”
But the Indiana Hospital Association said it was concerned that some of the data in the new Rand study is four years old, and does not reflect recent measures some hospitals have take to freeze or lower prices.
“But what’s more concerning about today’s conference is that the Employers’ Forum of Indiana and its partners like Hoosiers for Affordable Healthcare are connected by a web of national funding that points in one direction—government price setting,” IHA President Brian Tabor said in written remarks. “This was made clear by the keynote speaker just minutes into the conference. Instead of the price transparency and free market solutions that are working in Indiana, I fear these groups are coordinating to use outdated reports to push heavy-handed policies and state public options.”
Employers’ Forum has said its main goal is to improve transparency of hospital costs and prices, and to raise awareness about Indiana’s large disparities.
It is doing that by pressing for more consumer-friendly data sets and websites that allow employers and the public to compare prices and quality at hospitals.
Employers’ Forum on Thursday launched a new dashboard, Sagetransparency.com, that lets people study a ream of data that compares hospitals and states on prices, procedures and payers.
The dashboard, which is free and open to the public, uses data from the Centers for Medicare and Medicaid Services, Turquoise Health, Healthcare Bluebook and the National Academy for State Health Policy.
“Our state does not have enviable health outcomes, yet Indiana employers and health plans pay among the highest hospital fees anywhere in the country,” Sachdev said.
The study was funded by the Robert Wood Johnson Foundation and self-funded employers.
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Lot’s of interesting numbers. Pretty complex topic. Does Medicare adjust their reimbursement prices by a state’s cost of living (i.e., do they expect hospital costs to be less in Indiana then elsewhere)? Does the average Hoosier’s heath (e.g., smoking, weight) complicate and make hospital care more difficult here for each specific procedure (more expensive)? Are the insured making up for the unpaid costs generated by the uninsured, particularly those on Medicare.
My understanding from my medical friends is that Medicare pays way less than the cost of delivering services. Until the cost of delivering services decreases, trying to cap the prices will only result in less services being provided. As far as I can tell, costs for hospitals, particularly nursing, are not going down. This should not simply land in the lap of the hospitals. (I’m not employed in the industry).
Answers:
– does Medicare adjust reimbursement for cost of living – yes, thru a wage index formula.
– yes, they expect costs to be lower in a low cost of living state
– does the health of an average Hoosier make care more expensive – yes – however, the presence of comorbidities results in a higher Medicare reimbursement.
– are the insured making up for the cost of uninsured – yes – however, bad debts in Indiana are relatively modest. Medicare reimburses for its bad debts.
– to address the high cost of healthcare in Indiana, you must start with the hospitals. Then look at nursing homes, especially the Medicare UPL program that has been terribly abused by many county-owned hospitals. Then, look at physician compensation, especially those employed by hospitals.
I suggest that all hospital executives have their compensation tied to the competitiveness of their pricing (measured by the % of Medicare). For example, if Hospital A has pricing at the 50th percentile, then it’s executives would be paid at the 50% percentile. As Hospital pricing exceeds the 50th percentile, executive compensation would be reduced ratably; as Hospital pricing falls below the 50th percentile, executive compensation would be increased ratably. This is the only incentive that hospital executives understand.
doesn’t work for university-associated hospitals that can shuttle salaries through the university
I suspect that all of this is a the natural outgrown of having a health care industry as opposed to having a health care system. You can’t treat it like a free market system, because in order to have a free market the buyer and the seller have to be able to some understanding and in the healthcare industry there is no way to achieve the transparency needed.
Most industrial countries have gone to a single payer system and they realize that it is better for the country as a whole to keep the population healthy and productive.
On top of that, Indiana has no certificate of need and hospitals are all out trying to look like luxury hotels so that can continue to compete for those inflated reimbursements from private insurers.
Having worked in the public policy arena for more than three decades, it is always alleged that the challenge is “complicated” and that the status quo is nearly always the best that can be achieved for reasons that are also “complicated.”
The solution to attaining meaningful pricing reform in medical care begins first and foremost with pricing transparency. A state law can and should require that every health care provider – be it a private physician, an urgent care center, or a hospital – publish the prices charged to patients for each of their services, from the price of an aspirin to the price of a heart bypass operations. These entities already have that data, in real time, as they are required to provide it to private insurers as well as to the federal government for Medicaid and Medicare reimbursements.
The second step in pricing reform is to put the patient – not the purchaser of the insurance – in charge of their medical decision-making by incentivizing the use of medical services. This can be accomplished by adopting another state law that employers provide health savings account insurance coverage to their employees. Under this model, the total annual cost of the employee’s health insurance policy is paid by the employee with funds provided by the employer. Whatever the employer does not spend rolls over to the next year and may be saved for future medical expenses or can be used by the employee for discretionary purchases that are not tied to health care.
As it stands now, the typical employee doesn’t know what the costs are of their medical care beyond their out-of-pocket $10 co-pay d he or she doesn’t have an incentive to shop for the better deal because there is nothing in it for them.
Beware the special interests (aka the health care “industry” which includes providers and insurers) who say it’s too complicated an issue. It is not.
If private insurance for employees is such a huge giant burden for business, you’d think the business world would be pushing really really hard for a national healthcare system. Oh but then their miserable employees wouldn’t stay just for insurance coverage. I get it. Send the spokespeople out to complain and moan! Make it sound / actually be incredibly complicated! God forbid we create a humane work-life balance instead of profits!