Hospital monopolies strangling health care


The last six months of 2019 proved to be a fruitful time for Hoosiers alarmed about skyrocketing health-care costs.

First, the Rand Corp. — America’s premier health-care think tank — published a study reporting Indiana had the highest hospital prices among the 25 states they analyzed. A few months later, I released a study reporting the widespread monopolization of Indiana’s hospital chains was a prime cause of those higher prices.

My study also reported the shocking “profits” of Indiana’s “not for profit” hospitals. Nothing has changed, and this year, the state’s largest system is on track to earn more than $1 billion in profit, or maybe 20 percent of their total revenue. To put it in context, that is about four times the profit rate the state’s largest health insurance company will earn this year.

Not surprisingly, the hospital lobby isn’t happy to have this information widely known. Their lobbyists even penned op-eds claiming that these profits understate the true value of the charity care they provide. They also claim Indiana’s alarming spike in health-care spending is due to our terrible ill health, not their monopoly pricing. Both those issues warrant more discussion.

On the profit and charity issue, I’ll simply note that each of us have a choice to make. You may either believe what hospital lobbyists and CEOs say to newspaper reporters and in op-ed pages, or you can believe what they report to the Internal Revenue Service. However, you cannot believe both.

The hospital lobbyists make a second claim — poor health choices cause higher spending. While it is true healthier people need less health care, it is not plausible health differences between states explain the large expenditure differences. Something else is going on here, and that is the focus of my most recent study with co-author Srikant Devaraj.

There are a number of studies that try to understand how factors like poor health, income, demographics or poor access in rural areas affect health-care spending. We asked the same question using 20 variables across these categories. We found the typical Hoosier is spending $746 per year more than they should be. For the typical family, that is the equivalent of a car payment or a Disney vacation.

Now, the hospital lobby benefits from the fact these studies are technical, and most folks are experts at something different than economic research. So, they hire their own experts to muddy the waters. They’ve even rushed to do so in the past two months, hiring a consultant to claim bad health is causing our high medical spending and another that there is no hospital monopoly in our state. Both claims are easily discredited using their own data.

Reviewing the same data sources their consultants use, we note that six states have higher smoking rates than Indiana, but residents of those states pay 15.4 percent less for medical care than do Hoosiers.

Likewise, there are 13 states with higher obesity rates than Indiana, but residents of those states spend 11.4 percent less than do Hoosiers for health care. I can go on, covering every category of the American Health Rankings, but in each and every one of these categories, Hoosiers spend more than residents in states who rank worse than us.

In the overall ranking, we land in 41st place, but we spend 18.1 percent more per capita than do the residents of the nine states who rank worse than we do.

Our study concludes that Indiana’s high health-care costs can only be explained by examining the unusual market conditions in our state. To further explore that, we used self-reported data from hospitals to the federal government. That permitted us to compare the price of a night’s hospital stay to the intensity of local monopolies. What we found was that moving from the most competitive hospital markets to the middle of the pack monopoly increased the cost of a night’s stay by $719 or 17 percent. Going from the middle of the pack to the most monopolized market increased the price of a night in the hospital by $1,648, or almost 40 percent.

Of course, I’m not the only one who reports problems with monopoly conditions. The hospital lobby hired a consultant to rebut my last study. But, tucked away in that study, the consultant reported that 15 out of Indiana’s 17 health-care markets fell into the Department of Justice’s “extremely concentrated” level. In those places, it is unlikely that any of the hospital system mergers of the past 25 years should’ve been allowed by anti-trust authorities. The other two places are “moderately concentrated” according to federal anti-trust definitions. Again, that’s not my estimate; it comes from the consultants hired by the hospital lobby.

Hoosier citizens are being clobbered by shamefully high health-care costs that have nothing to do with our health, demographics or difficulty of access to health in rural places. In fact, it is far more likely high health-care costs are damaging our health, rather than bad health causing high hospital prices. These hospital monopolies are certainly damaging our disposable income and scaring away more mobile workers and businesses.

But, you don’t have to believe me about any of this. You can simply look at the underlying data the hospital lobby used to try to argue that everything is just fine.

These data make it plain health-care spending in Indiana is much higher than can be justified by our health, rurality, income or demographics.

Moreover, it is a simple fact Hoosiers are paying 18.1 percent more for health care than residents of states who score worse than us in the American Healthcare Rankings.

Finally, the data reported by the hospital lobby consultant’s report plainly that Indiana faces “extremely concentrated” markets, which are well above the federal anti-trust enforcement threshold. So, yes, there really is a hospital monopoly problem in Indiana.

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. His column appears in Indiana newspapers. Send comments to [email protected].

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