Lawmakers hear testimony on hospital, pharmacy concentration
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Health economic researchers from the University of California, Berkeley on Thursday shared their analysis of Indiana’s healthcare markets — determining that the concentration of insurers and hospitals has contributed to higher costs over the last decade.
Prices at non-merged hospitals, for instance, remained relatively flat over the time period they analyzed, while those entities that had been involved in a merger or acquisition had prices increase by roughly 50%.
The presentation was at a joint meeting between interim committees on finance and public health, and dozens of policymakers reviewed the state-commissioned studies.
But work on addressing Indiana’s high healthcare costs is an ongoing discussion, committee chair Rep. Brad Barrett, R-Richmond, said.
Systems analyzed included health insurance, hospitals, health care practitioners, retail pharmacies, pharmacy benefit managers, pharmacy wholesalers and pharmacy services administration organizations.
“We started these discussions with stakeholder groups… a year or two ago and maybe even a little further back then that,” Barrett said. “This is just kind of a formal chapter of that continued process so that’s the frustration… I think the main focus of today was to get these reports in and have these groups talk about it.”
Testimony split into two broad categories: hospitals and insurers and then pharmacies and pharmacy-adjacent services. In both areas, vertical integration drove costs up. A hospital may own a physician organization while a pharmacy may own a benefit manager, thereby consolidating services into one company that could artificially increases prices.
“I kind of have an optimistic outlook that we’re gaining ground in this; I hope that’s not naive,” Barrett said near the end of the four-hour meeting. “We hear what consumers, what patients are paying for health care… but we’re also seeing that there’s unintended consequences. It’s hurting our pharmacies, it’s hurting our independent doctors.
“… it kind of lets us see that the impact of this is grander than maybe I initially (thought).”
Results from the hospital, insurance consolidation study
The new study found that between 2011 and 2020, Indiana’s healthcare spending increased by 48% per capita, while other Midwestern states – Illinois, Michigan, Ohio and Wisconsin – increased by just 35%. In particular, hospital mergers in Indiana were associated with 13.2% higher inpatient prices while each additional insurer decreased premiums by 3.3%. However, Indiana hasn’t had an insurer enter the market in that decade.
Researchers said other states have implemented a merger review authority to analyze proposed future mergers. But, due to the already consolidated nature of Indiana’s healthcare market, advised that lawmakers instead seek to “ensure” entities are not using “anti-competitive contracting terms.”
In particular, the monopolization of healthcare was evident in Fort Wayne, which the report said had higher monthly premiums than the rest of the state. Parkview Health, the major healthcare player in the area, owns 14 general and specialty hospitals and over 200 physician group locations.
Hospitals have pushed back, placing the blame for Indiana’s high healthcare costs on the poor health of Hoosiers, specifically for the: “high prevalence of frequent mental distress, high prevalence of obesity (and) high prevalence of cigarette smoking.”
Lakshmi Aggarwal, a Fort Wayne oncologist, rebuffed claims that Indiana’s poor health drove up prices, noting that other states had the same struggles or ranked even worse.
“All of the Midwest is obese – look at Michigan, look at Ohio,” Aggarwal said. “How come they can keep their prices down?”
Aggarwal was one of a handful of healthcare practitioners from Fort Wayne who testified before the committee about the way patients were harmed by the consolidation of health services under Parkview Health.
Aggarwal said she worked with doctors for years via referrals before they suddenly dropped the Fort Wayne Oncology and Hematology practice after getting bought by Parkview.
Instead, she said, the health system kept services centrally located and limited outside referrals, even closing competing oncology clinics after it bought them.
“This is all about power and we have no power,” Aggarwal said. “I think you guys (at the legislature) can do more than I can do… that’s why I asked (a partner) to cover my calls and came down here. And when I get back, I will be back on call.”
Hospitals take issue with the findings
Pushing back on the findings from the Petris Center, the Indiana Hospital Association (IHA) said the researchers couldn’t be objective, noting it received funding from Arnold Ventures, a healthcare philanthropy organization that IHA says pushes for “government price-setting and other anti-free market solutions.”
In another submission to the committee, IHA said the state’s premiums are in-line with the national average and neighboring states, using information from the Kaiser Family Foundation. Using Petris’ own analysis, IHA said that health care expenditures for privately insured Hoosiers are comparable to or below the national average.
Brian Tabor, the president of IHA, said that Petris’ analysis for the Fort Wayne area didn’t capture the 2020 meeting between Anthem and Parkview to negotiate prices and reduce healthcare costs.
“The agreement was hailed as a success… these pricing studies and others lag quite a bit so you have not seen in datasets the fruits of these negotiations,” Tabor said. “There is a tremendous amount of change in that northeast Indiana market that developed later, after the data used in the (Petris) study.”
In regards to vertical integration and the purchase of physician organizations, Tabor said the study failed to reflect the tough market for independent healthcare providers.
“We are… almost at the very bottom of the country in how commercial insurers pay physicians,” Tabor said. “That makes it even harder for Indiana physicians to stay independent which is why they often come to a hospital for employment and why hospitals need to subsidize, and take significant losses in physician practices.”
Recently, the IHA released a study detailing the increased costs for hospitals, partially due to the nationwide labor shortage of healthcare workers and inflation’s impact on supplies. One critic panned it as an attempt to dissuade lawmakers from enacting monopoly-busting tactics in the upcoming legislative session.
Employers pushback on IHA claims
But even the Employers’ Forum of Indiana identified high costs to be the culprit for Indiana’s increased health spending, noting that policies with high premiums usually had low deductibles but Indiana had high costs all-around.
For individual policies, Indiana’s premiums were the 15th-highest in the nation while deductibles were the 10th-highest, and the most expensive of all its neighboring states. Indiana ranked better on family premiums, with the 27th-highest premiums and 13th-highest deductibles in the country.
“The biggest slice of the pie (is) hospital expenditures, followed by physicians,” Gloria Sachdev, the president and CEO of the forum, said. “What’s really driving high healthcare costs are prices.”
Sachdev said that hospitals accounted for nearly a third of costs, 31%, compared to physicians, who were responsible for 20%. According to an analysis by the American Enterprise Institute, while inflation had increased the cost of goods and services across the economy, hospital services were 200% more expensive in June of 2022 than in January of 2020.
“Our hospital prices are fourth-highest in the country,” Sachdev said, referring to a study from the RAND Corporation. “Our prices for outpatient (services) are more than twice as high as Michigan’s… labor shortages are impacting all hospitals across the country and so is inflation. Why, if other hospitals can keep their prices down, can ours not?”
Sen. Ed Charbonneau, R-Valparaiso, said he believed there was enough money in the healthcare system but legislators needed to refocus on where it’s being spent – partially by acknowledging the $250 million request to fill gaps in public health funding.
“We’re excellent at treating people after they get sick and we’re terrible — there’s no other way of saying it — we’re terrible at preventing problems from developing,” he said. “We have to start paying attention to treatment and prevention.”
The Indiana Capital Chronicle is an independent, not-for-profit news organization that covers state government, policy and elections.