A STEP FORWARD: Indiana tackles health care costs but more to be done, advocates say

Dec. 6—In early 2022, before a non-budget year Indiana General Assembly session began, House Speaker Todd Huston, R-Fishers, gave a stern warning to the state's hospital systems: Find a way to lower your prices to get Indiana to the national average by 2025 or the General Assembly will do what it needs to do to get there.

Backed by a number of activists and lobbying groups, several health care cost bills were filed in this year's session. But so far, the state's bark has been mightier than its bite as several of the bills were weakened.

For example, one bill proposed would have penalized hospitals who charged more than 260% the cost of Medicare, but by the time the bill was passed and signed by Gov. Eric Holcomb, the penalty was removed and switched to requiring the state to collect data on when hospitals charge more than 285%.

A senate bill that would have banned all hospitals requiring physicians to sign noncompete clauses was whittled down to banning them in regard to only primary care physicians.

"Senate Bill 7 was a stone to throw at this Goliath as it passed the Senate," Rep. Ethan Manning, R-Logansport, said of the noncompete bill during a committee hearing during this year's legislative session. "As amended, I think we're throwing a wiffle ball."

Still, some advocacy groups believe the state is headed in the right direction when it comes to lowering health care costs, though they stress there's still more to be done.

Matt Bell, chief policy strategist for Hoosiers for Affordable Healthcare, called this year's legislative session the "most productive and impactful" session to date when it comes to lowering hospital costs. In 2020, the state ended "surprise billing."

Bell pointed to the fact the Indiana Department of Insurance will now be able to compile data from what hospitals charge and compare that to what Medicare pays for the next two years; prohibits the state's non-profit hospitals from charging facility fees, which is a fee hospitals charge patients for care provided in outpatient and physician office settings that hospitals own or control; and a bill that encourages, but does not require, insurers to reduce prior authorization, the process of requiring physicians to receive approval from insurers before providing some services.

Other laws legislators championed after the session was over is a bill that requires pharmacy benefit managers (PBMs) — the middlemen between insurers, pharmacies and drug companies — to pass at least 85% of the discounts and rebates they receive to consumers.

"I think there were some tremendous steps forward," Bell said about the 2023 legislative session.

Not all think so, though.

Most vocal in opposition to much of what the state legislator has either proposed or enacted has been the Indiana Hospital Association, a statewide alliance of more than 170 of the state's hospitals. The organization believes hospitals have been unfairly targeted in recent legislative sessions

Its leader, Brian Tabor, has criticized the proposal to fine hospitals as "anti-free market" and would lead to lesser quality of care for patients. He also criticized some of the studies done on health care costs as biased since researchers received funding from Arnold Ventures, a philanthropy group that has spent hundreds of millions in grants toward efforts to reduce health care and drug costs.

An IHA study released in late 2022 warned of a "fragile" hospital industry dealing with rising costs due to inflation and a competitive labor market. According to the report by IHA, 20% of Indiana hospitals lost 20% or more of their days of cash on hand and 38% of the state's rural hospitals are at "immediate risk" of closure due to "continuing financial losses and lack of financial reserves to sustain operations."

Taken together, these challenges are incredibly daunting for our health care system, our patients, and our communities," Tabor said in a statement. "The perfect storm is brewing, and we must make sure hospitals and caregivers have the resources they need to provide access to the high-quality health care Hoosiers rely on — 24 hours a day, seven days a week."

Indiana's costs, concentration still high

RAND, a research and policy analysis nonprofit, for the last couple of years has been tracking the country's inpatient and outpatient costs relative to Medicare by compiling data from more than 4,100 hospitals in 49 states during the years of 2018-2020.

Its most recent publication, round four, was published in May 2022. The study found that Indiana ranks the seventh highest in the country with Hoosier employers and insurers paying 293% more than what Medicare would pay for the same services, a modest improvement from RAND's round three when the Hoosier state ranked sixth.

Only Minnesota (296%), Wyoming (302%), Wisconsin (307%), Florida (309%), West Virginia (317%) and South Carolina (322%) employers and insurers pay higher. Those in Alaska (149%), Hawaii (147%) and Washington (173%) pay the least compared to Medicare.

The national average in 2020, according to RAND, was 224%.

In addition, the state's nonprofit hospitals have seen double digit profit margins in recent years and are holding collectively tens of billions of dollars in reserves. Indiana University Health alone reported more than $8.5 billion in cash on hand in 2021.

Notably, the RAND study found little correlation between hospital cost and quality, though the study authors noted the data it used from Leapfrog Hospital Survey and Centers for Medicare and Medicaid Services are incomplete and don't capture the efficacy of prevention.

So why is Indiana's health care costs so high relative to other states?

The fact the state consistently ranks as one of the most unhealthiest and still has a high percentage of people who smoke tobacco in the country contributes, but researchers have also consistently pointed to one aspect: mergers and market concentration.

Indiana has six large hospital systems — Indiana University Health, Ascension, Community Health Systems, Franciscan Health, Community Health Network and Parkview Health.

According to an October report provided to the Indiana Legislative Services Agency by a group of health care economists from the School of Public Health at the University of California Berkeley, the 22 hospitals in Indiana that were part of a merger or acquisition from 2006 to 2015 had an average price increase for inpatient care that was 13.2% higher than those who were not involved in a merger or acquisition.

The report also found that the state's insurance industry is highly concentrated, with Anthem Blue Cross Blue Shield of Indiana averaging 45% market share in the state's top 15 MSAs. On average, the state's top three insurers had a combined market share of 67.7% across the 15 MSAs, ranging from 59.8% to 73.7%.

A separate study done in 2022 by the California college's Petris Center found that hospital mergers in Indiana were associated with a 10.6% increase in hospital prices.

The RAND study also found a positive correlation between mergers and an increase in prices. Researchers found that for every 10% increase in hospital market share there's a "statistically significant" 0.5% increase in a hospital's price relative to Medicare.

Both the RAND and the U.C. Berkeley studies are similar to findings found in 2019 by Ball State University's Center for Business and Economic Research.

In that study, researchers found Hoosier residents spend on average $746 per person more on health care each year than should be expected when factoring in demographics, health care access, smoking use and more. The study chalked up the discrepancy to the state's concentrated health care industry.

"Indiana's health care markets are so heavily and broadly monopolized that significant and immediate policy intervention is needed," the Ball State researchers wrote.

The increasing pressure on hospitals to reduce costs from the legislature has lead to some of the nonprofit systems to voluntarily act on their own.

IU Health announced in late 2021 that it would freeze its prices and work to be in line with the national average in cost by 2025.

Health Care Cost Oversight Task Force

Indiana legislators' actions come after years of studies showing Indiana pays some of the highest health care prices in the country and after hearing numerous complaints from large employers, such as Stellantis, who are dealing with year-over-year increases in health care costs.

Not only are the high costs a consumer issue — Hoosiers pay a little more than 14% of their wages on health care premiums, higher than the national average of 11.2% — but it's also an increasing burden on employers, who often shoulder 50% or more of the health care costs.

As such, high health care costs not only burden residents but could pose a hurdle for the state to attract new businesses and investments from existing ones.

Huston, in a September Wall Street Journal article, summarized some of Indiana's conservative business owners' and executives' growing frustration with health care in the U.S. and its complexities.

"When I have conservative Republican businesspeople telling me they support single payer so they can get out of this process, that concerns me," Huston said.

As part of HEA 1004, the Health Care Cost Oversight Task Force was created with the duty to "review and make recommendations concerning the cost of health care in the state and in comparison to other states."

The six-person committee, led by Republican State Sen. Chris Garten, met four times over the summer and fall, hearing from two dozen witnesses, ranging from economists, hospital executives and other leaders in the health care industry.

In November, the committee unanimously approved and published their final recommendations.

The seven recommendations are as follows:

* Specify that employers have full ownership and control over health claims data related to their covered lives.

* Allow employers to obtain an outside audit for health claims and provider payment data. In addition, third-party administrators, insurers or pharmacy benefits managers "shall not" charge a fee for such an audit.

* Prohibit "spread pricing" by PBMs where a managed care organization is charged more for a drug than what the PBM pays a pharmacy.

* Require health care entities seeking to merge and acquire another entity provide notice of no less than six months prior to the date of the merge to the state legislature's leadership. The General Assembly "should" consider applying this notice requirement only to mergers above a certain revenue/asset/market share or market share.

* Examine ways to standardize the prior authorization process, establish a penalty for inappropriate denials or delays and require insurers to provide explanations for those denials.

* Require PBMs, third-party administrators, employee benefit consultants and insurance brokers to act as fiduciaries.

* Require reporting for Indiana's physician reimbursement rates and professional services fees for the commercial market compared to a statewide average benchmark.

The committee's recommendations may serve as a blueprint for future legislative action.

Bell said Hoosiers For Affordable Healthcare would like to see the General Assembly continue to look at incentives it can offer hospital systems to reach the national average in cost, extend the ban on noncompete clauses to all health care workers and address the often burdensome and costly process of prior authorization.

"It just doesn't make sense in a state where costs are low and earnings are unfortunately low for hospital prices to be high," Bell said.

Whether anything health care related will happen in next year's shortened legislative session or at the busier 2025 legislative session is unclear, though based on what lawmakers are saying, more action on health care is likely to happen in 2025 or later.

Huston told numerous outlets in November during the Indiana Chamber of Commerce's annual legislative preview that the General Assembly would take on a lighter load in 2024 with less tackling of more controversial issues.

"We've had three aggressive sessions — three years, in which we've accomplished a lot," Huston said. "... We'll probably take a pretty measured approach on what we address."

Tyler Juranovich can be reached at 765-454-8577, by email at tyler.juranovich@kokomotribune.com or on Twitter at @tylerjuranovich.