By Michael Hicks | Ball State University
Late last year, Indiana’s Senate pro tempore and Speaker of the House wrote an open letter to leaders of the healthcare industry, urging them to craft a plan to reduce costs. This was a particularly smart, pragmatic and principled approach by Sen. Bray and Rep. Huston to seek compromise in one of the more vexing challenges faced by the state. At issue is the broad monopolization of hospital services and the resulting hospital prices that make Indiana a national outlier for healthcare costs.
The deadline for the plan was April 1, and we now have an answer from the hospitals. In an op-ed couched in careful, lawyerly prose it said to the Indiana legislature, “Drop Dead.”
The op-ed was signed by eight hospital CEOs who again denied that any sort of hospital pricing problem exists. It was a stunning example of falsities and misrepresentation that should enrage Hoosiers of every stripe. I will do my best to expose just a few.
The hospital CEOs began with a laundry list of woeful complaints. They first grumbled of skyrocketing costs for travel nurses and drug prices. As it turns out, there are quantities of data on both of these issues. And, you guessed it, the facts don’t match the hospital CEO narrative.
The average advertised wage for a “Travel Nurse” with an RN from Jan. 1 to March 31 of this year was $36 an hour. But, over the same three months of 2020, the advertised pay averaged $40 per hour, and that doesn’t even include an adjustment for inflation. Today, Hoosier travel nurses are paid one dollar less per hour than the same RNs nationwide. These data are from help wanted advertisements listed by a commercial aggregator of these data.
One might suppose that the CEOs of some of the highest-priced hospitals in the world would pay their key staff a bit better. But, we live in a state with highly monopolized healthcare, whose “not-for-profit” hospitals don’t feel market pressure to compete on wages.
The claim about drug prices is also a clear misrepresentation, or at least according to the Bureau of Labor Statistics, who maintain price index data. The fact is that over the past two years, drug prices have risen slower than inflation as a whole and at just about half the rate of hospital prices.
The hospital CEOs also blamed insurers for rising prices, claiming that insurance premiums are increasing at a pace greater than the associated medical expenditures. Again, the U.S. Bureau of Labor Statistics maintains data on health insurance and healthcare pricing. You guessed it; the Producer Price Index for health insurance has risen more slowly than the Producer Price Index for hospital care over the past two years.
It is almost like the hospital CEOs don’t really have command of the facts.
Not surprisingly, the CEOs also complained in advance about the next Rand Corporation study that is due to be released in a few weeks. They grumble that the data is now two years old, thus out of date. The problem with that complaint is that the hospitals themselves have control of the data. If they wanted a “real-time” comparison, they could do so tomorrow. Perhaps — and I’m just guessing here — they don’t really want real-time price comparisons.
The hospital CEOs touted their “new” models of healthcare, which they call “bundled” services. These are being offered to schools and other employers directly. We would do well to be suspicious of these behaviors. Historically, Indiana’s not-for-profit hospitals have been purchasing medical offices of providers to control patient flows into their hospitals. This acquisition of “upstream” activities, such as a physician’s office, is not a new innovation. This is a tactic right out of the “robber baron” days that led to the first big anti-trust cases in the U.S.
Moreover, the potential for monopolization through the bundling of services is specifically covered in detail by the Department of Justice in their anti-trust guidance. In a better world, hospitals would proceed cautiously with bundled services. Perhaps this is the sort of hubris is what you get after more than a decade of uncontested mergers and acquisitions.
The op-ed piece went on to claim that the market for healthcare is working well and that focus should be diverted from their operations to insurers, drug manufacturers, and the poor health of Hoosiers. From their standpoint, that is a natural thing to say. These companies have amassed financial holdings of more than $17.7 billion, mostly tucked into hedge funds and money markets.
In the pandemic year of 2020, these hospitals earned a whopping $2.395 billion in profits, making it one fantastic year to be a not-for-profit entity. It is useful by comparison to know that Indiana’s hospital industry in 2020 earned a profit rate that was three times that of Walmart. The most profitable of them all, IU Health, earned a 16.1% profit rate in 2020. Walmart earned just 3.6% in its best quarter of that year.
To be fair, in the eyes of these hospital CEOs the healthcare marketplace couldn’t be working any better. History provides precisely zero examples of monopolists complaining about their markets.
I haven’t covered all the deception in the hospital CEOs op-ed piece. That would take too much space. But, to be fair and balanced, they did have at least one good idea that I think the legislature should seriously consider. These CEOs noted that public health spending in Indiana lagged the nation, and they urged the legislature to spend more on public health. This is a fine idea, and I urge both Sen. Bray and Rep. Huston to take steps to close the gap. Furthermore, I know precisely where the legislature can find the tax revenue to fund public health. A modest 11% tax on annual hospital profits would boost Hoosier public health spending to the national average.
That still leaves a whopping $17 billion in assets held by these “not-for-profit” hospitals. Nearly all of this was accrued from monopoly profits over the past decade. I’d like to see a 90% tax on those windfall profits; after all, these profits came from Hoosier families and businesses. To put it in context, that’d be more than enough to fund Indiana state government for more than a year. But even that won’t be sufficient to end the hospital monopoly problem.
Having been told to “Drop Dead,” the Indiana General Assembly now begins the long process of unwinding Indiana’s hospital monopolies. This will take time and political courage, but it just might restore some sanity to healthcare pricing in our state.
Michael J. Hicks, PhD, is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University.