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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. Why not take some time to do some research before traveling to that Indiana town or city, and find the ones that are no smoking either inside, or have a patio? People like yourself are just being selfish, and unnecessarily trying to take away all indoor venues that smokers can enjoy themselves at. Last time I checked, it is still a free country, and businesses do respond to market pressure and will ban smoking, if there's enough demand by customers for it(i.e. Linebacker Lounge in South Bend, and Rack and Helen's in New Haven, IN, outside of Fort Wayne). Indiana law already unnecessarily forced restaurants with a bar area to be no smoking, so why not support those restaurants that were forced to ban smoking against their will? Also, I'm always surprised at the number of bars that chose to ban smoking on their own, in non-ban parts of Indiana I'll sometimes travel into. Whiting, IN(just southeast of Chicago) has at least a few bars that went no smoking on their own accord, and despite no selfish government ban forcing those bars to make that move against their will! I'd much rather have a balance of both smoking and non-smoking bars, rather than a complete bar smoking ban that'll only force more bars to close their doors. And besides IMO, there are much worser things to worry about, than cigarette smoke inside a bar. If you feel a bar is too smoky, then simply walk out and take your business to a different bar!

  2. As other states are realizing the harm in jailing offenders of marijuana...Indiana steps backwards into the script of Reefer Madness. Well...you guys voted for your Gov...up to you to vote him out. Signed, Citizen of Florida...the next state to have medical marijuana.

  3. It's empowering for this niche community to know that they have an advocate on their side in case things go awry. http://www.youtube.com/watch?v=Lrst9VXVKfE

  4. Apparently the settlement over Angie's List "bundling" charges hasn't stopped the practice! My membership is up for renewal, and I'm on my third email trying to get a "basic" membership rather than the "bundled" version they're trying to charge me for. Frustrating!!

  5. Well....as a vendor to both of these builders I guess I have the right to comment. Davis closed his doors with integrity.He paid me every penny he owed me. Estridge,STILL owes me thousands and thousands of dollars. The last few years of my life have been spent working 2 jobs, paying off the suppliers I used to work on Estridge jobs and just struggling to survive. Shame on you Paul...and shame on you IBJ! Maybe you should have contacted the hundreds of vendors that Paul stiffed. I'm sure your "rises from the ashes" spin on reporting would have contained true stories of real people who have struggled to find work and pay of their debts (something that Paul didn't even attempt to do).

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