Three years into pandemic, Indiana hospitals paint bleak financial picture

Indiana hospitals, under fire from consumer groups and state lawmakers for their high prices, are fighting back, saying they are still dealing with “staggering” financial strain from the pandemic.

Hospitals across the state experienced their most difficult financial year in 2022 since the beginning of the pandemic, according a new study released Wednesday by the Indiana Hospital Association.

According to the report, Indiana hospitals lost a total of $72 million last year and saw their median operating margin fall to negative 2%—down from 4.2% in 2021 and 3% in 2020. Total operating income fell $1.2 billion below pre-pandemic levels.

The operating margin measures how much money a hospital makes on a dollar of revenue after paying for wages, supplies and other expenses.

“Indiana hospitals are facing unprecedented financial strain, but we must remain committed to providing accessible, high-quality care to Hoosiers, association president Brian Tabor said in written remarks. “We must make sure our hospitals and the thousands of caregivers who sustain them have the resources they need to rebuild and remain viable in communities across the state.”

Hospitals saw their labor expenses soar, as they had to pay for expensive contract labor, and increased wages to retain staff. Hospitals incurred a total increase of nearly $2 billion in labor costs last year compared to pre-pandemic levels, the study said.

At the same time, hospital volumes have not fully recovered to pre-pandemic levels, the study said. Patient days last year were flat, discharges were down 9% and emergency room visits dipped 1%, all compared to 2019 levels. The only metric that rose was average length of stay—up 7%–indicating that patients who were admitted had serious conditions.

As a result, Indiana hospitals saw a 20% decline in days cash on hand, a measure of cash reserves.

“These findings underscore the existential financial and operational threats Indiana hospitals continue to face,” said Erik Swanson, senior vice president of data and analytics at Kaufman Hall, which conducted the study. He said included data based on a representative sample of acute care and critical access hospitals across Indiana.

The hospital association released the report as the Legislature is discussing numerous bills that take aim at hospital finances.

One piece of legislation, House Bill 1004, would impose steep fines against hospitals that charge more than 260% of what Medicare reimburses for services.

“If you’re above a certain price, there would be penalties,” said House Speaker Todd Huston (R-Fishers) said last month. “You know again, we’re a low-cost state in almost every way. In this area, we are out of line.”

The bill comes a year after top Indiana lawmakers warned hospitals and health insurers to lower what they called they called “out-of-control costs” of health care, saying prices in Indiana are well above the national average and need to come down.

They pointed out that Indiana’s hospital facility fees—or the expenses charged by hospitals to cover their overhead and keep the doors open—are the fifth-highest in the country, according to a 2020 study by the Rand Corp.

Rand’s latest study found that Indiana ranks seventh in the nation for hospital price disparities—ahead of New York, California, Massachusetts 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.

Yet the study also found that Indiana has the fourth-lowest payments to doctors as a percentage of Medicare.

Another bill, Senate Bill 7, would ban physician non-compete agreements, which have long been supported by the hospital association and decried by physicians as punitive and interfering with the free market.

Other bills would set a price limit for every health service hospitals offer and require hospitals to disclose where a medical procedure was performed, or its “site of service.” Currently, medical providers can charge more for a procedure if it is performed in a hospital-owned outpatient office clinic than if performed in an independently owned clinic.

“Members of the General Assembly need to understand the disastrous consequences of these proposals and make significant changes and improvements to their legislation,” Dennis Murphy, CEO of Indiana University Health, the state’s largest hospital system, wrote in an open letter. “IU Health has been at the table for months and remains eager to work with our legislative and other health care industry colleagues to develop sustainable solutions that will ensure continued access to affordable healthcare for all Hoosiers. The survival of our essential hospitals and the future health of Hoosiers depend on it.”