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The Dose - JK Wall

Welcome to The Dose, which tackles the finances behind local health care and life sciences and points to the most interesting national analysis. Your host is J.K. Wall.

Health Care & Life Sciences / Life Science & Biotech

Moms in Indy pay 50 percent more for C-sections than in Manhattan

December 18, 2015

When Hoosiers go to the nation’s biggest cities, they expect everything to cost more than it does here.
 
And for the most part, that’s true.
 
If you want to watch a movie, it will set you back an average of $10.33 here in Indy, according to data gathered by NerdWallet. But you’ll shell out $10.80 in Boston, $13.00 in Chicago, $13.83 in Manhattan and $14.30 in Los Angeles.
 
If you buy a gallon of milk, you’ll pay $2.26 in Indy, which is higher than $1.97in Chicago, but a nice savings compared with $2.37 in Manhattan, $2.42 in Los Angeles and $3.04 in Boston.
 
If you need a place to stay, the average monthly cost of a two-bedroom apartment is $1,125 in Chicago, $1,888 in Boston, $2,282 in Los Angeles and $3,883 in Manhattan. But in Indy, it’s just $895.
 
You get the idea.
 
But when it comes to hospitals, the shoe is on the other foot.
 
Indianapolis is among the highest-priced areas in the country for hospital services for patients with private health insurance—and is far more costly than Boston, Chicago, Manhattan and Los Angeles.
 
That result was made starkly clear this week in a study published by the Health Care Pricing Project titled, “The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured.”
 
That study, conducted by researchers at Yale University, the University of Pennsylvania, Carnegie Mellon University and the London School of Economics, created a price for the average inpatient stay average inpatient price for all of the 306 hospital regions in the nation. The average was adjusted to try to eliminate differences across those regions in the mix of care hospitals deliver and the mix of patients they treat.

On that measure, the Indianapolis region ranked as the 48th most expensive in the nation, with average inpatient price of $16,895, according to figures e-mailed to me by the study’s lead author, Yale University researcher Zack Cooper. That's $4,224 dollars, or 33 percent, higher than the national average.
 
The study, which uses prices from 2008 to 2011, also looked at prices for key services: knee and hip replacement surgeries, childbirth, both via C-section and vaginal delivery, coronary angioplasties, as well as colonoscopies and lower limb MRIs.
 
And this isn’t just an Indianapolis problem. The Indianapolis hospital region, as defined by the federal Medicare program, actually covers the majority of the state. Only two regions of the state—near Gary and in southeast Indiana near Louisville—were not ranked in the most expensive category.
 
The average inpatient in the Indianapolis region pays $3,733 more the average inpatient in Manhattan, $3,781 more than in Los Angeles, at least $4,030 more than in Chicago, and $5,254 higher than in Boston.
 
In percentage terms, those differences range from 28 percent to 45 percent higher. And that’s without adjusting for the fact that the wages of health care workers—which account for about 60 percent of the cost of delivering hospital care—are markedly lower in Indiana than in the nation’s largest cities.

There are caveats to these findings. There is wide variation in prices across markets, including the Indianapolis hospital region, which means not every hospital is charging prices these high.

Also, the data for this study were drawn from the Health Care Cost Institute--which gathers negotiated price information from claims processed by three health insurers: UnitedHealthcare, Humana and Aetna. It does not include data from Indianapolis-based Anthem or any of the other Blue Cross and Blue Shield plans around the country. In Indiana, the claims examined for this study represent 18 percent of all Hoosiers with private health insurance in 2011.
 
Furthermore, Indiana isn’t the only place with sky-high hospital prices. The most expensive category includes Charleston, South Carolina; Madison, Wisconsin; Seattle and San Diego.

And on certain services, prices in Indianapolis closer to those in large cities. According to Cooper’s data, a knee replacement in the Indianapolis region cost, on average, $25,122. That’s actually 28 percent cheaper than it would be in Manhattan, but still 6 percent higher than in Los Angeles and 7 percent higher than the national average.

But on other services, hospital prices in the Indianapolis region—both inpatient and outpatient—soar above the rest of the nation.

For a mom to deliver a baby by C-section here, it costs an average of $12,175. That’s 40 percent higher than in Los Angeles, 50 percent higher than in Manhattan and 58 percent higher than the national average.

To get a colonoscopy here, it costs $2,229 on average. That’s 28 percent higher than in Manhattan and 29 percent higher than the national average, although it’s actually 13 percent cheaper than in Los Angeles.

To get an MRI scan of a lower limb, it costs n average of $1,756 in the Indianapolis region. That’s 18 percent higher than in Los Angeles, 34 percent higher than in Manhattan and 28 percent higher than the national average.
 
This study is further proof that hospital prices in Indiana are out of whack. It’s not just that health care is expensive nationwide (although it is); it’s not just perverse payment formulas coming from the federal government (although they are perverse); and it’s not just that Hoosiers are less healthy than the rest of the country (although they are). It’s not even due to differences in insurance coverage, since this study is based on prices negotiated by the same insurers around the country.
 
This study equalizes all those factors among regions—and yet still finds that Indianapolis and nearly the entire state of Indiana are among the most expensive places to be for hospital care.

So why are Indianapolis and most of the rest of the state so expensive when it comes to hospital care?

The study notes that prices tend to be higher at for-profit hospitals, those that use lots of technology, those that are large, those that have few competitors in their markets and those that operate in lower-income areas.

Some of those factors apply in Indiana, where incomes are lower than the rest of the country and where many of the state’s smaller hospitals are the only ones in their counties.

But prices were still high in cities such as Indianapolis, Fort Wayne and Lafayette, where wages are closer to the national average and where there are multiple choices of hospitals.

I suggest the bigger problem is the employers of Indiana, who make the buying decisions for roughly 95 percent of the privately insured Hoosiers.

Hoosier employers have steadfastly refused to limit or restrict their workers’ choice of doctor or hospital, even when the price differences could be huge. Perhaps that is starting to change ever so slightly in recent years. But in the period covered by this study, 2008 to 2011, and still by and large today, Indiana employers have clamored for the broadest network of health care providers.

This habit has been fueled by the generous health benefits negotiated by the United Autoworkers union with the Big 3 automakers. Those broad-choice benefits have functioned as a kind of benchmark for other employer benefits plans in many Indiana communities, including Indianapolis. Various attempts by insurers and hospital systems to offer a narrower selection of providers for a lower cost have been widely rejected by employers for decades.

The problem is, that preference ties the hands of the health insurers employers hire to negotiate prices with hospitals and doctors. They can’t really do much in price negotiations with big hospital systems like Indiana University Health or St. Vincent Health, who know that the insurer can't kick them out of its network without losing lots of employer clients.

Since employers were clamoring for broad networks and the largest discounts—without paying much attention to the galloping increases in the underlying cost of care—who can blame health insurers for giving employers what they asked for?

And who can blame hospital systems from hiking prices as much as they could get away with year after year?

As Princeton University health economist Uwe Reinhardt told employers in the 1990s (and repeated in 2013): “If you want to find the culprit behind the health care cost explosion in the U.S., go to the bathroom and look in the mirror.”

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