Region below average on Obama’s health care cost measure

President Obama wants to take an ax to “wasteful” spending by hospitals and doctors across the country.

The tool the Obama administration is using to measure waste shows that expenses in Indianapolis might be low enough
not to get whacked. But the region isn’t performing so well that it’s likely to get much praise, either.

Obama’s budget director, Peter Orszag, cites the Dartmouth Atlas of Health Care, which shows the federal Medicare
program spends wildly different amounts across the country for doctors and hospital systems to care for patients in the last
two years of their lives.

“The costs associated with that should not vary significantly across different
hospitals,” said Indianapolis hospital accountant Ed Abel of Blue & Co.

According to Dartmouth, Medicare
payments to Indianapolis-area hospitals are 18 percent below the national average. Medicare payments to Indianapolis-area
physicians run 23 percent below average.

That means Medicare spends more than $18,000 for hospital care in Indianapolis
during the last two years of the average patient’s life. By contrast, the national average is more than $22,000.

For physician care during the last two years of life, Medicare spends $2,800 on doctors in Indianapolis, compared
with nearly $3,700 across the country.

Medicare adjusts 70 percent of its payment rates according to the different
cost-of-living standards around the country, so it’s natural to expect Indianapolis to fall below average. But the region
also ranks below other Midwestern metro areas, including Kansas City, St. Louis, Louisville, Cincinnati and Columbus, Ohio.

That’s not to say Indianapolis is a model. Its costs are substantially higher
than those in Madison, Wis.—a similar city that, like Indianapolis, has a medical school and teaching hospital, something
for which Medicare pays extra. Medicare payments to Madison hospitals are 24 percent below average, and payments to the city’s
doctors run 44 percent below average.

Indianapolis is also far more expensive than Salt Lake City, where Intermountain
Healthcare has joined doctors and hospitals in a system that is a model for high-quality, computerized and low-cost care.

Orszag and Obama want Congress to approve an Independent Medicare Advisory Council that would cap payments in some
of the highest-spending locales, while trying to encourage doctors and hospitals to emulate practices of the lowest-cost areas.

“The higher-cost areas and hospitals don’t generate better outcomes than the lower-cost ones,” Orszag
wrote on his blog May 28. “The result is an estimated $700 billion a year spent on health care that does nothing to
improve patient health, but subjects you and me to tests and procedures that aren’t necessary and are potentially harmful—not
to mention wasteful.”

Such savings would cut about 30 percent from current spending levels—and would
easily pay for health care reform. For example, the proposal by Sen. Max Baucus, D-Mont., would cost $774 billion—over
10 years.

In the Indianapolis area, Medicare paid the most to Clarian Health, possibly because it includes Indiana
University Hospital and serves more acutely sick patients. Clarian was one of three local hospital systems with payments above
the national average, along with Saint John’s Health System in Anderson and Westview Hospital in Indianapolis.

The next-most-costly were Community Health Network in Indianapolis, then Major Hospital in Shelbyville, then St. Francis
Hospital & Health Centers in Indianapolis, then the St. Vincent hospitals in Indianapolis and Carmel.

Health Services was the lowest-cost hospital in Indianapolis, mainly because it received far less for outpatient services.
For inpatient hospital stays, Medicare paid Wishard more than any local hospital except for Clarian.

The data are
from 2001 to 2005.•

Please enable JavaScript to view this content.

Story Continues Below

Editor's note: IBJ is now using a new comment system. Your Disqus account will no longer work on the IBJ site. Instead, you can leave a comment on stories by signing in to your IBJ account. If you have not registered, please sign up for a free account now. Past comments are not currently showing up on stories, but they will be added in the coming weeks. Please note our updated comment policy that will govern how comments are moderated.