Hoosier hospitals warn of costs ahead of 2023; critic dismisses them

Indiana's hospitals warn of a "fragile" healthcare sector easily damaged by well-meaning but overeager legislation with the release of a recent survey documenting increasing healthcare costs for providers as policymakers prepare for the 2023 legislative session.

"There are very important Medicare funding programs that expire at the end of this year. (In) some of our rural hospitals, some of our urban safety net hospitals, these programs are kind of make-or-break," Brian Tabor, the president of the Indiana Hospital Association, said. "I really do fear for the future of some of those hospitals and communities; I don't want to see more facilities closed."

In particular, Tabor said federal funding for programs like Medicare and Medicaid hadn't kept up with costs. Inflation and supply chain shortage similarly played a role, compounded by a workforce shortage spurred by burned out healthcare workers.

"Applying heavy-handed policies to hospitals at a time when the industry is very fragile — that would be a mistake," Tabor said.

But some critics see the released data as nothing more than a marketing ploy attempting to divert monopoly-busting tactics.

"We've just been through a period of inflation and so of course it's expensive," Michael Hicks, an economist at Ball State University, said. "Of course the hospital association can come out with this because they're facing an imminent reckoning by both the federal and state government regarding their sustainment of their monopolies.

"That's my brutal assessment; that this is a marketing piece, not a serious piece of economic analysis."

As lawmakers prepare for the 2023 budget-writing session, healthcare costs are sure to attract action. Previously, Republican leaders have vowed to take action if the healthcare industry didn't act on its own to lower prices, outlined in December 2021 letters to health insurance companies and healthcare systems.

Analysis from the RAND Corp. found that Hoosiers have the seventh highest hospital costs in the nation, spending nearly 300% more than what Medicare paid for the same services.

Tabor criticized the narrowness of the study, saying that Indiana's costs were comparable to its neighbors and the national average.

"We know that affordability is an issue and our members are working on that, trying to do everything we can to create efficiencies and look for other options rather than passing laws," Tabor said. "There is a health care affordability issue nationally ... but at the same time, we've got to make sure that hospitals have the resources to be able to operate and provide care to their communities."

Results from the study

The results shared by the association show costs are up for hospital systems across the board but especially in their staff. In the survey, 70% of hospitals said travel nurse expenses had increased more than 20% since the first quarter of 2021 and more than half of hospitals have increased their salaries and benefits by 15% or more. An additional third of hospitals said labor costs had increased nearly 30%.

"If there is a bright spot (to COVID-19), it's that salaries and benefits associated with those positions have never been higher; hospitals really invested in their workforce," Tabor said. "That's one of the reasons our costs are up but it's what's needed to keep individuals in the field."

Tabor is also a member of the Governor's Public Health Commission that recommended a $250 million investment in public health to shore up a chronically underfunded system. He noted that staffing shortages affected nearly all healthcare sectors, especially as Baby Boomers retired and need care themselves.

But investing in public health would help improve Hoosier health overall, reducing healthcare costs.

"It's time to really invest," Tabor said.

The study also said seven Indiana-based health systems reported $3 billion in loses over the last 18 months. Many hospitals, 83%, relied heavily on Medicaid and Medicare, which covered two-thirds or more of their inpatient days. Just under half relied on the programs for more than 75% of those costs.

Critics note previous years of hospital profits

Hicks has written extensively about Indiana's high healthcare costs detailing the state's monopolized healthcare in his weekly economics column.

Overall, Hicks said Indiana had some of the most concentrated hospitals in the country, which reduced competition and increased healthcare prices. As a result, even as the pandemic forced hospitals in 2020 to shutter elective surgeries, typically their most lucrative procedures, some reported record-breaking profits over $1 billion.

"It's expensive to hire physicians, nurses to provide oxygen, to provide security for emergency rooms and all those other things. No one would deny that," Hicks said. "My critique is that … the five big hospital systems in Indiana are running profits in the 20-plus% range. Just to put that in context, Walmart has never run a profit more than 4% or less than 3% since going public in 1969."

Hicks said not every hospital acts as a monopoly and those businesses may have legitimate financial concerns — but those wouldn't be impacted by General Assembly action. Though he anticipated that Indiana systems would likely opt for a settlement, similar to Sutter Health's $575 million settlement with California over similar alleged anti-competitive practices.

"You'll hear from hospitals that medical pricing is so complex ... (but) complexity of healthcare markets is contrived to mislead legislators that this is more complex to buy health care than it is to buy a car or to buy a cell phone," Hicks said. "That benefits them because they can then go to endless hearings and explain how complex it is."

The legislature and Attorney General needed to shift its focus to dismantling those monopolies, Hicks said.

"Frankly, I don't think anything short of full antitrust enforcement will work," Hicks said. "I'm just hypothesizing that they may have been distracted by other facts rather than targeting the one thing that would most immediately affect the well-being and financial stability of so many Hoosier families."