The cost of healthcare

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Nonprofit hospitals, including Community Howard Regional Health and St. Vincent Kokomo, are charging significantly more than Medicare will pay for procedures, leaving patients with potentially large bills, according a study published by the Rand Corp.

For instance, Community Howard Regional Hospital charges 386% more than what Medicare will pay, meaning that a $10,000 procedure would be billed at $38,600. That could leave a patient with a significant portion they would have to pay out of pocket. St. Vincent Kokomo Hospital, meanwhile, charges 306% more than what Medicare will pay.

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Additionally, according to GuideStar, an online database containing information about nonprofits nationally, both hospitals have millions in gross receipts and assets. St. Vincent Kokomo has $161 million in gross receipts and $53 million in assets, while Community Howard has $147 million in gross receipts and $160 million in assets.

St. Vincent did not respond to requests for comment for this story, and Community Howard directed questions to Brian Tabor, the president of the Indiana Hospital Association.

The question is: Are nonprofit hospitals behaving like for-profit hospitals?

According to a study by the Kellogg School of Management at Northwestern University, “Nonprofits are supposed to provide a public good in exchange for not paying taxes. ... For the most part, nonprofit hospitals do act like for-profits.” 

Despite not paying taxes, nonprofit hospitals do contribute greatly to a community because many, including St. Vincent Kokomo and Community Howard, are some of the largest employers in their communities.

But Michael Hicks, director of the Center for Business and Economic Research at Ball State University, found the numbers in the Rand report disturbing enough to conduct his own study.

Hicks' study, “Indiana Has a Monopoly Problem in Healthcare,” used data from Rand and the hospitals’ Internal Revenue Service 990 forms, which can be found online at guidestar.org.

Tabor takes strong exception to Hicks’ study.

“It is both completely inaccurate and quite frankly malicious. I realize that’s sort of strong, but I’ve never encountered anything like this …” he said. “One thing I’ll say up front, when it comes to the cost of healthcare, we understand that’s a concern of Hoosiers. I’m not someone who ducks the conversation of costs when a study comes out.

“Saying it’s a monopoly is so fundamentally flawed that it defies explanation.”

Claims against system

There are 35 for-profit hospitals in Indiana, according to the Kaiser Family Foundation, and 71 nonprofits. The nonprofit chains include Community Health Network, Franciscan Alliance, Indiana University Health, Parkview Health Systems and St. Vincent (Ascension).

In economic terms, a monopoly is a market with a single seller, selling a unique product in an industry. This allows that seller to set the price of the industry, Hicks said.

The professor said the handful of nonprofits have created a monopolistic and anti-competitive atmosphere in the healthcare industry.

According to the study, the nonprofit hospital industry in Indiana accrued more than $27 billion in 2017. Hicks wrote that the single most profitable industry in Indiana is the nonprofit healthcare industry.

“In 1998, the typical Hoosier spent $330 less than the average American for healthcare. We now pay $819 more per person than does the average American. The only factor that can explain this is growing monopoly power among our not-for-profit hospitals,” Hicks wrote.

Critics said Hicks provided examples of revenue that weren’t an accurate representation of the industry; he used the instance of a cash infusion as an example of profit because it wasn’t differentiated in the IRS forms.

Second, the $27 billion figure is inaccurate because it included out-of-state systems, critics say. Third, Hicks based his data on IRS forms instead of the hospital’s audits.

Hicks said the first two criticisms don’t change the conclusion of the study, and that third criticism is false. He said he used the IRS 990 forms because hospitals will inflate their “Community Benefit” expenses. The community benefit money goes to waived and discounted health care, charity and more.

Hicks hasn’t been subtle. He said the hospitals’ profits were large enough that if they were reinvested back into the state’s economy, that could increase economic growth by a third.

During a phone interview, Hicks was just as passionate, saying the nonprofit healthcare industry is “absolutely pillaging” Indiana’s economy.

“I don’t believe that many of the major healthcare providers here are meeting the spirit of the 501(c)3 laws,” he said.

A 501(c)3 organization is a corporation, trust, unincorporated association, or other type of organization exempt from federal income tax under section 501(c)3 of the United States Code.

Indiana Hospital Association President Tabor said the healthcare system needs work, namely that employers need to be better informed on healthcare options for their employees. He said the Rand study doesn’t give answers on fixing that problem, and Hicks’ study was outright wrong.

Many employers have been choosing healthcare plans that involve a “narrow network,” which means insurance is covered under one health system in exchange for a lower rate. As far as streamlined healthcare systems go, Tabor said keeping care under one roof leads to better managed health, especially for high-risk cases.

“There can be a loss of choice, sometimes, for the employee, but you can also see an improvement,” he said. “There’s a better job managing what would be called chronic conditions. So there are lower rates, lower prices involved with that, but also we know we could manage someone’s conditions better.”

Tabor said the Indiana Hospital Association will be releasing a study within the coming weeks with numbers he believes are accurate representations of the hospital systems’ financial situation.

Legislators react

Indiana state Reps. Tim Brown, R-Crawfordsville, and Cindy Kirchhofer, R-Indianapolis, disagree with the term “monopoly” as defining nonprofit hospitals in Indiana.

“Monopoly is in the eye of the beholder in what people feel, patients feel, is related to their insurance company,” Brown said. “They don’t feel systems are necessary monopolistic. They care about the bottom line, ‘How much is it going to cost me?’”

Brown, who is also the chairman of the Indiana House Ways and Means Committee, said the panel will be looking at the nonprofit hospitals’ revenue.

“Well, I think we’re going to investigate where the money is and how much,” he said. “The question surrounds the IRS form reporting. What are they required to put on them? Are they inflated numbers? Are they the real numbers? What are they doing? If they’re not investing back into their communities, they kind of do destroy their not-for-profit status.

“But that doesn’t mean that we take away the not-for-profit status from the whole system or anything like that. Not-for-profit hospitals in the state of Indiana are very, very important.”

Both legislators have unique experience in the healthcare field. Brown is a retired medical doctor and Kirchhoffer works in administration at Franciscan Alliance.

“I think there are arguments on both sides of the story; whether you’re on the side of Rand or on the side of hospital administration. I think both sides have very valid points,” Kirchhofer said.

But Hicks isn’t the only one to raise questions as to whether nonprofit hospitals are acting appropriately. The study by Kellogg attempted to find key factors that influence the cost of care at hospitals. The study found that nonprofit and for-profit hospitals act very similarly as entities.

“It’s definitely not the case of the benevolent nonprofit and rapacious for-profit. That’s not the world we’re in,” said Craig Garthwaite, co-author of the study.

The next step

Despite differing opinions across the board, all parties agree that transparency on hospital pricing and consumer literacy for those on Medicare, Medicaid or private insurance is an important next step in the right direction.

Kirchhofer said the healthcare issue is complex. She said legislators have had conversations surrounding costs of healthcare for years.

“Having been a part of these conversations, I’m more convinced that it’s complex, and there is not an easy solution,” she said. “It’s become increasingly obvious to me that Indiana needs to have a strategic healthcare plan because how are we going to know what our baseline is and how to measure things if we don’t know where to start?”

Ideally, Kirchhofer would like all stakeholders, from healthcare administrators, physicians, insurance companies, employers buying insurance and patients to sit down with a third party to find the best course of action.

When it comes to finding the most financially sensible option for hospital services, being an informed consumer is part of the process, but the responsibility for informed choices don’t fully fall on the consumer, she said.

“To an extent, yes, the consumer needs to strike her best bargain. But then we must not forget those that don’t have the resources that we have. People are uninsured, underinsured, or just don’t have the same ability to be an informed consumer. What can we do? That is where we can be effective policymakers in this state, to make sure our most vulnerable are getting our best service at a good price.”

Finding exact pricing on procedures, however, can be complicated. Tabor said the Indiana Hospital Association has an online database that allows people to search for procedure charges by hospital with a metric assessing quality of the hospital online at mycareinsight.org.

For instance, a total hip or knee replacement not for trauma can range from $89,074.28 to $208,189 at Community Howard Regional Health and $40,553 to $94,917 at St. Vincent Kokomo. The state average is $64,489.59, according to the site.

The prices are reflective of what the hospital would bill an insurer or Medicare, not what a patient would pay out-of-pocket.

Tabor said the hospital association is now having conversations internally on expediting an online database of healthcare prices across the state. A database like that would give estimate prices for not only procedures but after-care and doctor visits as well.

“We’re trying to make sure that we can provide as much information across the board as possible,” he said. “Not only are we giving those prices but also an assessment on quality so our members can make their most informed choices.”

Hicks said neither the consumer nor the legislator is to blame for the prices of healthcare. He said the convoluted nature of healthcare pricing is the best evidence for why the system desperately needs a legislative upheaval.

“Of all these other things that we consume that are infinitely more complex - a university education, a telephone, a car - and then you go to a hospital and ask yourself, why is this so complex? The answer lies in whom does the complexity benefit, you or the hospital? The answer is the hospital,” he said.

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