The Dose

Welcome to The Dose, which tackles the finances behind local health care and life sciences and points to the most interesting national analysis. Your host is J.K. Wall.

Health Care & Life Sciences / Life Science & Biotech

Ouch! Indy hospitals charging employers three times more than Medicare

September 5, 2013

I stirred up a hornet’s nest back in May when I wrote that Indianapolis hospitals were charging patients with private insurance about double what the federal Medicare program was paying for exactly the same inpatient services.

A new study confirms that I was right, more or less. Indianapolis-area hospitals charge 88 percent more for inpatient care than Medicare would pay for exactly the same services.

But that isn’t the half of it.

Indianapolis-area hospitals are billing patients insured by their employers far, far more for outpatient services—that’s anything done in a hospital facility that doesn’t require an overnight stay.

How much more? 264 percent more than what the federal Medicare program has determined as the hospital’s cost of providing care. (Many hospitals say Medicare pays below cost, but no one says it pays any more than about 25 percent lower.)

This means that when you go to a hospital for, say, an MRI or for a minimally invasive surgery, your employer-sponsored health plan is paying, on average, a price that is 3.6 times as much as the price Medicare would pay for a senior patient with same degree of sickness that went to the same hospital for the same service.

That’s what researchers at the D.C.-based Center for Studying Health System Change found when they analyzed claims data for 590,000 patients, all below the age of 65, who were covered in 2011 by the union-negotiated health plans at automakers General Motors, Ford and Chrysler. The study was paid for by an organization that is funded by the automakers, the UAW and the International Union.

The study compared the claims from 13 different metro areas against each other, all of them in the Midwest. Indianapolis had the highest hospital outpatient prices among all cities and the second highest inpatient prices, behind only Kansas City. Interestingly, Kokomo had the third highest inpatient prices and the second highest outpatient prices.

Physician prices in Indianapolis here were in the middle of the pack, about 10 percent to 20 percent higher than Medicare prices.

The beauty of this study is that its design cuts off all the typical objections of health care providers right from the start.

The demographics of the patients are roughly the same, since they are all autoworkers or retired autoworkers and their dependents.

Their health benefits are essentially the same, since the Big 3 automakers all negotiate similar contracts with the UAW union.

The cost of doing business is roughly the same in all 13 cities, which include St. Louis, Detroit, Cleveland and Buffalo.

By comparing the private insurance price data against Medicare’s prices, the study eliminates any difference in sickness. That’s because Medicare’s prices are adjusted for how complex each patient’s care is.

Also, Medicare adjusts its prices so hospitals that train new doctors get more money to cover those costs.

So what’s left, ask the authors of the study, Chapin White, Amelia Bond and James Reschovsky?

One factor they don't mention is cost-shifting. Since the uninsured end up paying only a small portion of their bills, and since the Medicare and Medicaid programs pay at less than cost, hospitals have to charge patients with private  insurance more to make up the difference. This is a real issue and, at one hospital system, leads to overall prices for private insurance plans that are 34 percent above cost.

But, obviously, cost shifting does not account for a 264 percent difference. So what other explanation is there?

Market power, say the study authors.

In other words, hospitals charge higher prices because they can.

And health insurers—most especially Anthem Blue Cross and Blue Shield, whose network is used by most of the Big 3 in Indiana—either cannot or will not force hospitals down on price.

I’ve written before on the game played by hospitals and health insurers that has allowed health care prices in Indiana to soar. But this finding stunned me.

Two-hundred-sixty-four percent.

Wow.

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