Under pressure to lower prices and profits, Indiana University Health has quietly donated $416 million to the Indiana University School of Medicine, an amount significantly higher than any contribution it has made to the medical school over the past decade.
Neither the hospital system nor the medical school had formally announced the unrestricted, nine-figure gift, one of the largest in recent years in Indiana.
A leading critic of IU Health said the huge contribution appears to be a way to make the hospital system’s profits drop below $1 billion last year, to $861.5 million, as it faces higher scrutiny from the Indiana General Assembly and other groups for its high fees and large profits.
Without the large contribution to the medical school, IU Health’s profits would have been as much as $1.27 billion last year.
“It looks like it was an attempt to reduce their profitability so it didn’t look like it was so high,” said Al Hubbard, chairman of Hoosiers for Affordable Healthcare, a not-for-profit consumer organization.
IU Health, the state’s largest hospital system, charges the highest hospital fees in Indianapolis and is sitting on more than $7 billion in cash and investments.
The health system said it disagreed with the criticism and said the funds will be used to support the education and research mission of the medical school, including recruitment, diversity and inclusion.
IU Health told IBJ it typically supports the School of Medicine as part of ongoing operational work. The large contribution allows IU Health to support the School of Medicine “in a more meaningful way,” it said.
The hospital system said several factors contributed to the larger amount given last year, including renewing funding for programs aimed at improving health outcomes in Indiana.
“It is important that Hoosiers have access to cutting-edge, destination medicine and top doctors. That cannot happen without significant resources to compete with other large academic health systems across the nation,” the IU Health statement said.
It added that the contribution “reduces the ongoing administration of making various other gifts or contributions” to the medical school in future years so it has reliable funding.
In recent years, IU Health has contributed about $17 million annually to the School of Medicine, in a line item it calls “educational and research support to Indiana University.”
It has also made larger gifts to the School of Medicine, including $65.7 million in 2021 and $61.6 million in 2020, which it expensed under its supplies, drugs, purchased services and other expenses.
Additionally, in 2012, IU Health committed $75 million to support a five-year program for clinical and translational research programs at the School of Medicine. In 2017, it approved a new, five-year gift of $55 million.
IU Health said it was planning to make a public announcement about the huge recent contribution over the course of 2022 “as utilization plans are finalized in concert with Indiana University and the School of Medicine.”
But instead of issuing a press release immediately about the large gift, IU Health noted it simply as a “contribution to a related entity” in its consolidated financial statements, which it issued last week.
A footnote deep in the report said IU Health’s board of directors approved the contribution on Dec. 9, and paid the amount on Dec. 30, and identified the “related identity” as the IU School of Medicine.
It said $16 million of the gift was designated for the Indiana University School of Nursing.
Chuck Carney, a spokesman for Indiana University, said the university was planning to make a “series of public announcements” later this year, after it finalized plans for new educational and research-related initiatives.
He said IU Health provides annual funding for the School of Medicine, which is planning to move its classrooms in coming years to IU Health’s new downtown hospital, which is planned to be built just south of the existing Methodist Hospital on Capitol Avenue.
“In anticipation of moving the School’s educational space to the new hospital complex, IU Health approached us at the end of 2021 and asked us to be more ambitious in our goals for faculty and student recruitment, with particular attention to increasing diversity in both the faculty and student ranks,” Carney wrote in an email to IBJ.
IU Health reported annual profit of $1.09 billion in 2019 and $1.1 billion in 2020. The line on the financial statement is actually called “excess of revenue over expenses,” as IU Health is a not-for-profit operation.
According to a recent study by the RAND Group, IU Health is the most expensive hospital system in central Indiana, charging private health plans 333% of what it charges Medicare. Statewide, it was the second-most expensive, behind only Parkview Health System in Fort Wayne, which charged 388% compared to Medicare.
Under criticism, IU Health said in December it would freeze prices through 2025 to help get in line with national average prices.
In January, Indiana’s top legislative leaders demanded that hospitals and health insurers lower the “out-of-control costs” of health care, saying prices in Indiana are well above the national average and need to come down.
Last month, IU Health said it plans to invest $1 billion in community health initiatives to help offset the cost of health care.
But consumer advocates like Hubbard, a former chairman of the Indiana Republican Party, said IU Health needs to do more to lower prices immediately.
“They are a nonprofit hospital, and their obligation is to provide the best service and lowest prices to their patients,” Hubbard told IBJ.
He added: “Why not immediately reduce your profits to a reasonable level, and also look for opportunities to save money and pass it on to the patient?”