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Summary of "Hospital Prices in Indiana: Findings from an Employer-Led Transparency Initiative"

Core Content

This report, authored by Chapin White, provides an analysis of hospital prices in Indiana from 2013 to 2016, focusing on the costs paid by large, self-funded employer-sponsored health plans. It aims to enhance transparency in hospital pricing, enabling employers to make informed decisions and advocate for their employees.

Main Points

1. Employers and Price Transparency

• Large employers sponsor health plans that cover about half of the U.S. population.
• These employers often lack detailed information about the prices they pay for health care services.
• Price transparency is essential for employers to negotiate better value and reduce costs.

2. The Employers' Forum of Indiana (EFI)

• EFI is a multistakeholder, employer-led coalition aiming to improve the value of health care for payers and patients.
• EFI initiated this study to provide detailed price data to its members, who are large employers.
• The study used claims data from these employers to calculate relative prices for hospital services.

3. The Hospital Market in Indiana

• Indiana has six major hospital systems, with Indiana University Health (IU Health) being the largest.
• The hospital industry is dominated by not-for-profit hospitals, with small market shares for for-profit and government hospitals.
• Hospital prices have been linked to geographic variation and the growth of spending among privately insured individuals.

Key Findings

1. Relative Prices of Hospital Services

• Relative prices are calculated using Medicare as a benchmark.
• The relative price is the ratio of the amount actually paid to the amount that would have been paid using Medicare's price-setting formulas.
• This approach allows for detailed facility and service-level comparisons.

2. Variation in Hospital Prices

• From 2013 to 2016, employers and their employees paid $695 million in claims to community hospitals in Indiana.
• Inpatient services accounted for $336 million, with a mean allowed amount of $23,400 per stay.
• Outpatient services accounted for $359 million, with a mean allowed amount of $1,300 per service.
• Simulated Medicare payments for the same services totaled $255 million.

3. Relative Price Trends

• The overall relative price was 2.72, indicating that if employers had used Medicare's payment formulas, they would have paid $440 million less.
• Relative prices have been increasing over time.
• Prices vary significantly between hospitals and hospital systems, especially for outpatient services.

4. Hospital Systems and Pricing

• Large hospital systems generally receive higher prices compared to smaller ones.
• Five large systems dominated the upper end of the price distribution, with Parkview Health having exceptionally high prices.
• Independent hospitals and small systems had lower relative prices.

Methodology

1. Data Source

• Data were obtained from 120 hospitals that submitted claims for services provided to employees of participating employers.
• These employers represent around 225,000 covered lives, including employees and dependents.

2. Price Calculation

• Prices are calculated using a relative pricing model based on Medicare benchmarks.
• For inpatient services, the formula used is:
  Medicare price = base rate * case-mix adjustment * hospital adjustment + outlier
• For outpatient services, cost-plus reimbursement is used:
  Medicare price = allowable costs * 101

3. Numerical Example

• A simplified example of relative price calculation is provided using data from Hospital A.
• The relative price was calculated as $20,000 (actual price) divided by $10,000 (Medicare price), resulting in a relative price of 2.00.

Limitations

• The study only includes data from employers who chose to participate, representing about 7% of Indiana's population with employer-sponsored coverage.
• Claims data were not available for smaller facilities, limiting comparisons between them.
• Prices could not be compared across health plans or between self-funded and fully insured plans.
• There may be inaccuracies in the mapping of provider identifiers to Medicare Provider Numbers (MPNs), and some hospitals may not be accurately assigned to systems.

Conclusion

• The report highlights the importance of price transparency for employers seeking to improve the value of health care.
• It demonstrates that detailed price data can inform strategic decisions in health benefits and provider contracting.
• The findings suggest that hospital consolidation and monopoly power may be contributing to higher and increasing prices.

Intended Audiences

• Employers who participated in the study and provided claims data.
• Other employer groups, such as the Pacific Business Group on Health.
• Health benefit managers at large, self-insured firms.
• Policymakers and researchers interested in price transparency.

References

• The report references several studies and organizations, including the Health Care Cost Institute, the Centers for Medicare and Medicaid Services (CMS), and the Robert Wood Johnson Foundation (RWJF), to support its findings and methodology.