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Study: Indianapolis high-priced hospital market

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Indianapolis-area hospitals have negotiated reimbursement rates with private health insurers that are two and three times higher than those paid by the federal Medicare program, suggesting the hospitals have the upper hand over insurers, according to a new study.

By contrast, private insurers pay Indianapolis-area physicians just 10-percent more than Medicare rates, according to the Nov. 18 analysis of eight hospital markets by the Center for Studying Health System Change, based in Washington, D.C.

The findings jibe with what local health care professionals have said for years: Health insurers do not feel they're in a position to let any of the four major Indianapolis-area hospital systems fall outside of their provider networks. That’s because employers demand wide choice for their workers, who can be scattered all over the city.

“Indianapolis is not highly concentrated overall but has a number of distinct markets within the metropolitan area where a particular hospital dominates,” center President Paul Ginsburg wrote to explain why Indianapolis was among four areas that “stood out as high-priced markets for private insurers.”

You can read Ginsburg's study here.

In the Indianapolis area, Ginsburg found, health insurers pay for inpatient care at an average of 198 percent of Medicare rates. The outpatient facilities run by Indianapolis hospitals do even better, pulling in payments that run 307 percent of Medicare rates.

Nationwide, health insurers pay hospitals an average of 139 percent of Medicare rates for all types of care, according to the Medicare Payment Advisory Commission.

Ginsburg’s study was based on data from four private health insurers—Aetna, Anthem Blue Cross and Blue Shield, Cigna and UnitedHealthcare—for eight metro markets.

Indianapolis ranked third-highest for inpatient rates and second-highest for outpatient rates. San Francisco was the most expensive, relative to Medicare rates, in both categories.

Medicare rates are set by a federal agency and adjusted for different costs of resources in various regions of the country. Ginsburg said it's reasonable to assume, therefore, that private insurance rates across different regions of the country should be fairly consistent when calculated as a percentage of Medicare rates.

Ginsburg’s study was immediately criticized by David Dranove, a Northwestern University professor of health industry management. In a blog post, Dranove said variation in prices is natural in competitive markets.

"So what did we learn from this study? That different hospitals get different prices? We also see price dispersion for authors, and for dry cleaning and electric pencil sharpeners, for crying out loud," he wrote. "This isn’t news and there are no policy implications to be drawn from the study."

Ginsburg does acknowledge that some hospitals might get higher prices from private insurers because they serve patients with more severe illnesses than Medicare recognizes. And Indianapolis might be higher than other markets because the Indiana Medicaid program reimburses at lower rates than the Medicaid program in many other states.

But Ginsburg insists that hospital market power is a significant factor in the payment disparity. And mergers by hospitals and doctors is a major reason for this market power, he wrote.

“There has been extensive provider consolidation over time, initially by the creation of hospital systems through mergers and acquisitions, and more recently through mergers of group medical practices and increasing hospital employment of physicians,” Ginsburg wrote.

The new health reform law’s push for doctor-hospital cooperation through “accountable care organizations” might only worsen the situation, he warned. Indeed, hospitals and doctor groups are lobbying the U.S. Federal Trade Commission to be liberal in applying antitrust laws to accountable care organizations.

“The formation of Medicare ACOs could increase provider leverage in rate negotiations with private insurers,” Ginsburg wrote, “especially if ACOs lead to mergers between hospitals and medical groups or to hospitals increasing employment of physicians.”

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  • further conclusions
    Indianapolis hospitals are paid 198% of Medicare, but so were three of the other markets studied. The issue is whether the Indy providers are being paid more than they should - thereby costing patients and employers more. For that, let's look at their 990 tax returns, but also factor in the high infrastructure costs as hospital systems build and expand more (Exit 10). The author is correct that employers do not want to exclude any system, so therefore this provider power is used against the insurance company. (Look up Sutter Health in California to see an extreme case)
    The consolidation of providers (hospitals buying doctors, imaging, other hospitals) would seem to be leading to higher charges.

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  1. So as I read this the one question that continues to come to me to ask is. Didn't Indiana only have a couple of exchanges for people to opt into which were very high because we really didn't want to expect the plan. So was this study done during that time and if so then I can understand these numbers. I also understand that we have now opened up for more options for hoosiers to choose from. Please correct if I'm wrong and if I'm not why was this not part of the story so that true overview could be taken away and not just parts of it to continue this negative tone against the ACA. I look forward to the clarity.

  2. It's really very simple. All forms of transportation are subsidized. All of them. Your tax money already goes toward every single form of transportation in the state. It is not a bad thing to put tax money toward mass transit. The state spends over 1,000,000,000 (yes billion) on roadway expansions and maintenance every single year. If you want to cry foul over anything cry foul over the overbuilding of highways which only serve people who can afford their own automobile.

  3. So instead of subsidizing a project with a market-driven scope, you suggest we subsidize a project that is way out of line with anything that can be economically sustainable just so we can have a better-looking skyline?

  4. Downtowner, if Cummins isn't getting expedited permitting and tax breaks to "do what they do", then I'd be happy with letting the market decide. But that isn't the case, is it?

  5. Patty, this commuter line provides a way for workers (willing to work lower wages) to get from Marion county to Hamilton county. These people are running your restaurants, hotels, hospitals, and retail stores. I don't see a lot of residents of Carmel working these jobs.

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