Why hospitals leave the inner city, in one chart

June 23, 2014
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If Indiana University Health makes goods on its plans, which I first reported on Friday, to merge its University and Methodist hospitals, it will mark the latest instance of local hospitals closing hospital facilities in the city core while they open new facilities in the suburbs.

You can see how this has played out over the past two decades in the map below, which was produced as part of a stellar piece of reporting by the Milwaukee Journal Sentinel and the Pittsburgh Post-Gazette. That series emphasized how hospitals in cities around the country have generally vacated areas where there are high levels of low-income and disabled residents—the folks who usually have the greatest needs for health care.

The shading of the map shows the proportion of the population living in poverty. So darker-coored areas have more low-income residents and lighter shaded areas have fewer poor residents.

The red dots are hospitals that have closed since 1991 and the blue dots are hospitals that have opened since then. The green dots are hospitals that were there in 1991 and are still in the same place today.

IU Health accounts for blue dots in Avon, Carmel and Fishers, where it has added hopsitals in the past decade.

Two of the red dots are, I think, for Riley Hospital for Children and University Hospital, which didn't go away, they just merged in 1997 with Methodist Hospital, creating one tax ID. The others that have departed the city core are Franciscan St. Francis Health's Beech Grove Hospital and Winona Hopsital.

This trend goes back farther than just the early 1990s. In 1974, St. Vincent Health closed its hospital on Fall Creek Parkway, opening its current flagship location on West 86th Street.

Hospital Map (Image courtesy of jsonline.com)

To be clear, IU Health isn't abandoning downtown. It will still operate two large academic medical centers—one for kids and one for addults—in the downtown area. But its growth has been in the suburbs, not downtown.

These moves outward aren't hard to understand. Just as they say in real estate—retail follows rooftops—so too in health care. New facilities follow the population, which in Indianapolis, has moved steadily outward from the city core since the 1950s.

But there are wrinkles to this trend that are specific to health care. As I explained back in April, hospital economics almost require that hospitals pursue patients who have private health insurance, because those are the only profitable customers.

This predicament is partly the fault of federal and state governments and partly the fault of the hospitals themselves. The Medicaid program for low-income Hoosiers, which is funded jointly by the federal government and by states, has typically paid very low rates to hospitals—roughly 60 percent of their cost of providing care.

The federal Medicare program for seniors has been more generous, but most hospitals built up cost structures that still exceeded Medicare payments. They did so due to competition—if one hospital didn't buy the latest equipment and build the nicest buildings, the next one over would--but also because private health insurance allowed them to do it.

In the Indianapolis area, hospitals receive payments from private health insurers that average 264 percent more than what Medicare pays--for the same services for patients with the same level of sickness.

So since hospitals were losing money on just about every patient except those with private insurance, they understandably went where there were lots of privately insured patients—the suburbs, especially those in Hamilton County.

As a case in point, check out the trio of blue dots in the upper middle portion of the map above. That's the health care corridor along North Meridian Street. Privately insured patients account for more than 80 percent of the revenue at those hospitals.

Hospital economics are now changing under Obamacare and the financial strain on employers and governments created by decades of health care costs growing faster than inflation.

First, Obamacare is forcing health care providers to change how they think about their big inpatient hospitals. They look at them now as cost centers, not as revenue generators. As a result, they are trying to care for patients in lower cost settings like outpatient surgery centers and doctor's offices—or even outside any bricks and mortar facility at all. This is what IU Health is trying to do and why it thinks it can serve the same number of patients with only two inpatient hospitals downtown instead of the three it currently operates.

Also, those hospitals that have facilities in lower-income areas should get help from Obamacare. More than 100,000 Hoosiers obtained private health insurance subsidized by taxpayers via the Obamacare exchanges. Those plans are paying health care providers somewhere between private insurance and Medicare rates.

Also, Indiana health care providers could get better payments from low-income Hoosiers if Gov. Mike Pence's Healthy Indiana Plan proposal is accepted by the federal government and those patients start paying at Medicare, not Medicaid, rates.

That said, don't expect the general trend to change. Private insurance is and will continue to be the most lucrative payment source in health care. And whether we're mapping hospitals, or surgery centers or physician offices or walk-in clinics, health care providers are going to be drawn to where the money is.

  • Why Businesses Leave the Inner City
    Grocery and hardware stores left, now the hospitals. Indianapolis is the new Detroit.
    • Ummm
      Ellen, downtown is gaining residents, a second Marsh recently opened, there are at least 3 hardware stores, Whole Foods is coming soon.....we are far from being a "Detroit". When the hospital systems choose to build fancy newer facilities further and further out, and with Methodist joining the Clarian/IU group a few years ago, the writing was on the wall......this should and doesn't surprise many.
    • ACA
      The ACA should help to bring in the uninsured to have insured plans. Even the 2014 open enrollment brought in over 30,000 to the Medicaid ranks along with 130K to the exchange. My estimate is that is about 100K people that had no prior coverage. These are now consumers that have means to pay for health care services. We may very well see hospital in their current form change but if you have paying patients, I would look for medical providers to pop up in these low income areas. We will see medical providers that are able to make it off of the exchange reimbursement rates.
    • What about Eskenazi?
      They built a beautiful new hospital right downtown and they serve both the uninsured and the insured.
      • Hospitals
        Yes, Eskanazi is new, and there is still Riley and the VA in the same area. My guess is the IU will be redeveloped by IUPUI since it's on the campus and Methodist absorbs IU and gets an expansion.
      • Private insurance
        Am I missing something? Because since the affordable care act (Obamacare) is in place everyone will HAVE private insurance, right? So why move almost everything to Hamilton county? And why designate the whole of Indianapolis, north, east, west and south sides as inner city? How and when did this happen? The artificial boundary is the inner state loop encircling Indianapolis proper which wasn't even there before 1977 or so. If everyone is insured than what's the problem exactly? What's fair about making somebody who had a hospital that was close by now have to drive and drive and drive to Hamilton county to get treated? Sounds to me that Central Indiana is suffering from a snob mentality and only people living in "burbs" north if Indianapolis deserve to have state of art medical facilities and the rest of us have to pick $hit with the chickens.
        • To Susan
          If you're missing anything, I think it's this: all health insurance coverage isn't equal. As I tried to point out in my post, the amount of money Medicaid and Medicare pay to providers is very different form Anthem pays them. Going forward, an expanded Healthy Indiana Plan as well as private health insurance bought via the Obamacare exchanges will still pay providers less than employer-sponsored insurance. So it will continue to be in providers' interest to go where the highest concentration of patients with employer-sponsored insurance is. Right now, that's the northern and western suburbs of Indianapolis.
          • Time To Tax IU Health/Methodist/St Vincent's, etc..
            The one item missing from this article is that IU Health & St Vincent's are tax exempt non profit hospitals. They have billions in revenue that is not taxed in return for providing care to the poor & elderly. These new hospitals in the suburbs are For Profit Hospitals that revenue is laundered through the non profit parent to avoid taxes. They also ship all there uninsured & Medicaid patients to taxpayer owned Eskenazi Hospital to shift costs to local taxpayers.
            • Reimbursement Rates
              It just a matter of time before we see reimbursement rates reduced on the commercial networks.
            • Number 27th
              Yes and to listen to the Republican's, America has the best Health Care System in the world.
            • Medicaid
              You are correct, not all insurance is the same, and most people with newly acquired insurance under the ACA are in the Medicaid program. And as mentioned, Medicaid does not pay enough for many providers to even cover costs. Just one data point: 22 years ago when I began my practice, Medicaid paid $13.88 for a "unit" of my time and today pays the exact same amount. Without any adjustment for inflation in over two decades. Yet I still provide the same service to every Medicaid patient today who walks through the door, despite the effective yearly reduction in actual payment.
            • Kudos to Community East
              As a former employee of Community Health Network and with a family member still working there, Community Health has not forgotten its roots and even the reason it exists and still has a strong commitment to the hospital on the near east side that was founded by community donations to serve the east side of Indy. It could have run to the money like St V's or St Francis, but it has not and that is by choice. Kudos!
              • Simple Economics
                This is ECON101. Follow the money. End of story. Regardless if a business (a hospital is a business) is for profit or not for profit, they need to make money. So how do you do this? You find out where people with moeny (private insurance) live, and you establish services there. You plan things as your market demands--i.e...building an OB unit where there's a large population of younger couples, etc...
              • Community Health?
                I disagree. Community Health did run for the money. It's called Community North, and while Community East is still a fine hospital, when you compare the two facilities, it's easy to see where the money goes.
              • Time to Tax
                @Angy Accountant, the suburban IU Health hospitals opened as for profits, but IU Health converted them to not for profit right after Obamacare passed. Also, IU Health does not shift uninsured and Medicaid patients to Eskenazi, because it's a) not right, b) illegal, c) impossible for anyone outside of Marion county- and IU Health cares for a lot of patients from outside Marion County.IU Health takes all comers.
              • East is not the same
                To the commenter who thinks that Community east is still the hospital it once was - it certainly is not. I have lived on the eastside of Indianapolis for 65 years and Community Hospital, when originally built, was a full service hospital. In the last 6 years or so they have shipped most of the profitable departments like Hook Rehab, Physical Therapy, Sports Medicine, Psych, etc to Community North. This gives the impression that the area is so impoverished that it can't support these departments and makes East look unsuccessful. Many of the cobbled-together buildings at East are empty and not being used. Parts of East are like a ghost town. The once bustling basement which housed PT and Hook Rehab is a very empty, dark, spooky place. And as far as the area being lumped into the "inner city" or "near east side" - when did this happen exactly? That used to be called the suburbs of east Indianapolis NOT the near east side. There seems to be a concerted effort to downgrade the area and I'm not quite sure why but the hospital has pretty much abandoned the east hospital and left it a mere shadow of it's once busy and productive self. The eastside folks who contributed to the building fund back in the 1950's are not getting the hospital they paid for.

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              1. I am so impressed that the smoking ban FAILED in Kokomo! I might just move to your Awesome city!

              2. way to much breweries being built in indianapolis. its going to be saturated market, if not already. when is enough, enough??

              3. This house is a reminder of Hamilton County history. Its position near the interstate is significant to remember what Hamilton County was before the SUPERBROKERs, Navients, commercial parks, sprawling vinyl villages, and acres of concrete retail showed up. What's truly Wasteful is not reusing a structure that could still be useful. History isn't confined to parks and books.

              4. To compare Connor Prairie or the Zoo to a random old house is a big ridiculous. If it were any where near the level of significance there wouldn't be a major funding gap. Put a big billboard on I-69 funded by the tourism board for people to come visit this old house, and I doubt there would be any takers, since other than age there is no significance whatsoever. Clearly the tax payers of Fishers don't have a significant interest in this project, so PLEASE DON'T USE OUR VALUABLE MONEY. Government money is finite and needs to be utilized for the most efficient and productive purposes. This is far from that.

              5. I only tried it 2x and didn't think much of it both times. With the new apts plus a couple other of new developments on Guilford, I am surprised it didn't get more business. Plus you have a couple of subdivisions across the street from it. I hope Upland can keep it going. Good beer and food plus a neat environment and outdoor seating.