Hospitals to Legislature: Drop Dead
Note: This is a data enhanced version of my weekly column. The annotations are in bold italics.
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 Senator Bray and Representative Huston to seek compromise in one of the more vexing challenges the state faces. At issue is the broad monopolization of hospital services and the resulting hospital prices that make Indiana a national outlier on 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 CEO’s, 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 CEO’s 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 ‘Travel Nurse’ with an RN from January 1st to March 31st of this year was $36.00 an hour. But, over the same three months of 2020 the advertised pay averaged $40.00 per hour, and that doesn’t even include an adjustment for inflation. Today, Hoosier travel nurses are paid a dollar less per hour than the same RN’s nationwide. These data are from help wanted advertisements listed by a commercial aggregator of these data.
Note: These data come from Real Time Intelligence provided by JobsEQ. In addition to the wage data, it is interesting to examine the closure by week. These ad closures are largely interpreted as an indication of a hire. In the first 13 weeks of 2021 (Jan-Mar) there were 578 ‘closed’ ads for Travel Nurses (RN). In the first 13 weeks of 2022 there were 1,265 ‘closed’ ads for Travel Nurses (RN).
Also interesting to see what demand for Nurses (RN) are now felt by hospitals and other healthcare providers (this includes schools, the state government, and educational institutions, etc.). Using the same data source, I queried first ‘Travel Nurse” then “Nurse” and subtracted the “Travel Nurse” count from the total help wanted ads for nurses. Again, I only used RN’s, not critical care, LPN, etc. for comparison.
For some reason, last spring saw a significant spike in help wanted ads that did not transmit to the closure data from the previous graphic. I don’t have good time series data from which to provide some analysis of this. I have plenty of anecdotal data. Here are a few news stories about nursing staff quitting due to work conditions and salaries. First from HealthcareDive then WSJ, and finally Marketwatch.
I also received some anonymous mail with an enclosed letter from IU Health explaining why they weren’t giving bonuses in 2021. Given the recent report that IU Health donated $416 million to IU School of Medicine, apparently to mask their record profits in 2021, I’d imagine that IU Health has a labor problem on its hands.
The note that accompanied this, tells a pretty clear story. (Note to IU Health legal team, I have no idea who this person was, so save your FOIA nonsense, and that’s what I’m going to say under oath).
One might suppose that the CEO’s 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.
These data both from the Producer Price Index by Commodity. The first is Health Care Services: Hospital Inpatient Care and the seconds is Chemicals and Allied Products: Drugs and Pharmaceuticals. Both are monthly, seasonally adjusted, and indexed to January 1, 2020 the last month before the COVID recession.
The hospital CEO’s also blamed insurers for rising prices, claiming that insurance premiums are increasing at a pace greater than the associated medical spend. 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.
Same data, but substituting the PPI by Commodity: Insurance and Annuities: Health and Medical Insurance. Again, pretty clearly true that healthcare services nationally are outpacing price growth in medical care. I’m sure the brain trust at the IHA and these hospitals will argue that these national data don’t capture the Indiana specifics. They are right of course. One look at the 2021 profits of these not-for-profit hospitals will make it clear that the things are worse here than nationally.
It is almost like the Hospital CEO’s don’t really have command of the facts.
Not surprisingly, the CEO’s also complained in advance about the next Rand Corporation study that is due out 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 CEO’s 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 earned a profit rate in 2020 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 percent in its best quarter of that year.
To be fair, in the eyes of these hospital CEO’s 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 CEO’s Op-Ed piece. That would take too much space. But, to be fair balanced, they did have at least one good idea that I think the legislature should seriously consider. These CEO’s noted that public health spending in Indiana lagged the nation, and urged the legislature to spend more on public health.
This is a fine idea, and I urge Senator Bray and Representative Huston both 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 it 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, 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.