Hospital monopolies drive up health care costs, study shows

By Brynna Sentel
TheStatehouseFile.com

INDIANAPOLIS—Over nearly 20 years Hoosiers went from having lower than average healthcare costs to medical expenses that were much higher than average and a Ball State University study helps explain why.

That study, by Ball State’s Michael Hicks, shows that medical expenditures are so high because not-for-profit hospitals have monopolies in their markets. Hicks is the director of the school’s Center for Business and Economic Research.

Michael Hicks, director of Ball State’s Center for Business and Economic Research, conducted the study of hospital costs. By Lesley Weidenbener, Franklin College Statehouse Bureau.

Hicks’ study shows that in 1998 Hoosiers paid an average of $330 less on healthcare than the average American but by 2017, Hoosiers were paying on average $819 more.

“This is the most positive response of anything that I have ever written,” Hicks said. “I’ve had board members of hospitals in two different systems say ‘hey, keep it up. You’re exactly right, this is what we have been complaining against but we can’t get any traction.’”

Although this report has received a lot of positive feedback, Brian Tabor, president of the Indiana Hospital Association, does not believe Indiana has a monopoly problem in healthcare and said the numbers don’t show the full picture.

“I feel it is imperative to dispel these myths, as the report does a disservice to the thousands of caregivers who work every day to serve patients,” Tabor said in a press release.

The hospital association said the study ignores the community benefit, which includes providing financial assistance, training medical professionals, conducting life-saving research, and much more.

“Indiana’s not-for-profit hospitals are absolutely committed to improving public health and investing in their communities,” Tabor said. “The annual benefit they provide approaches $2.5 billion for the most recently available data.”

Despite the increase in the cost of healthcare, the quality of service did not follow suit, Hicks’ research shows. From 1998 to 2017, Indiana fell nine places in national rankings for healthcare outcomes.

“I think the boards of these hospitals have lost track of their public mission,” Hicks said. “We are one of the few states in the country that is wholly dominated by not-for-profit hospitals so it’s a structural problem across the state.”

In 2015, not-for-profit hospitals in Indiana collected a little more than $1.7 billion in profits, according to the study.

The largest for profit hospital company in the nation had a profit rate of 5.4 percent. In contrast, the number one not-for-profit hospital in Indiana had a profit rate of 49%, and number 10 had a profit rate of 19.4%.

This could in part be because of the increase in network mergers across the state. Between 1998 and 2017, there were 1,625 hospital mergers nationwide and within the same two decades Indiana also experienced increases in mergers.

“When I moved here in 2007 there were four hospitals in the region that I am in now, four independent hospitals and now there are two, and both are owned by different networks, and three of the four hospitals are held by the same network,” Hicks said.

All of the top 10 not-for-profit hospitals with the highest profit rates in Indiana are in one of five healthcare networks. There were only nine hospitals that were less profitable than the national average and only one of them was part of a network.

Indiana’s five largest not-for-profit hospital systems accumulated more than $27 billion in profits by 2017. This is about 8% of Indiana’s total Gross Domestic Product in 2017 and about 12 times the reserves the entire state holds in the event of an economic downturn.

Reserves are usually meant to last up to 180 days should their income stop completely. These not-for-profits have reserves that could last nearly eight years without collecting any revenue, according to the study.

Within the study Hicks proposed three broad policy changes—returning competition to not-for-profit markets, imposing a tax on not-for-profits that earn profits at rates consistent with private sector firms, and returning the revenue to health and educational services.

“It’s too big, to acute of a problem here in Indiana for it to be ignored by researchers in universities and elsewhere,” Hicks said.

IHA has requested an independent analysis of the data in hopes of putting the credibly of the study to rest and will be released soon.

Brynna Sentel is a reporter for TheStatehouseFile.com, a news website powered by Franklin College journalism students.

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Hospital monopolies drive up health care costs, study shows