Employers offering health insurance coverage are closely analyzing hospital price data to get better prices for their employees, leading to tension with hospitals.
Hospital spending made up the largest share of national health expenditures at $1.3 trillion in 2020, and employers paid much of the nearly $409 billion of that spent by private insurers, according to the most recent data from the Centers for Medicare & Medicaid Services.
Data showing that employers pay hospitals significantly more than Medicare pays is resulting in employers pushing back on hospitals to rein in their prices. Employer health plans and health insurers are now required to make public their negotiated prices with hospitals, adding new pressure on employers to get the best prices for their employee coverage. That’s resulting in friction between hospitals and companies, as a clash between employer and hospital groups in Indiana shows.
“As we keep getting this information out in the public, employers are grasping it,” Marilyn Bartlett, senior policy fellow with the National Academy for State Health Policy, said in an interview. “The more transparency we get out there, the more this pushback’s going to come.”
Five Hospitals Leave Indiana Employers Group
In Indiana, a state where the Rand Corp. reports that employers pay some of the highest costs in the country relative to Medicare, five hospital systems have left the Employers’ Forum of Indiana since 2020, Gloria Sachdev, EFI’s president and CEO, said in an interview. The hospitals say they didn’t leave EFI because of the reports but because EFI is pushing for policies the hospitals believe are too heavy on government control.
EFI initiated the Rand reports in 2017 with funding assistance from Arnold Ventures and the Robert Wood Johnson Foundation, and the reports have consistently shown that employers throughout the US on average pay more than 200% of what Medicare pays to hospitals.
Sachdev authored an opinion piece for the Indiana Business Journal in May on Rand findings showing that Indiana employers paid the fourth-highest hospital prices in 2020 at 329% of Medicare rates, and the fourth-lowest prices for physician services at 126% of Medicare rates. She urged the state legislature to implement price ceilings for inpatient and outpatient hospital services.
Since 2020, Parkview Health in Fort Wayne quit EFI, followed by Community Health Network in 2021, hospitals that had ranked among the most expensive in the state, Sachdev said. In 2022, Indiana University Health, the state’s largest hospital system, as well as Franciscan Alliance and Ascension, also left EFI, she said.
The price transparency studies resulted in health insurer Anthem renegotiating its Parkview Health contacts, Sachdev said.
The hospital exits reduced EFI dues by $50,000, less than 5% of its budget, Sachdev said.
‘Advocating for Affordability’
“They’re unhappy with the policy work because we’re advocating for affordability and the results of the Rand studies,” Sachdev said, referring to the hospitals’ reaction to EFI. “We’re committed to price transparency.
EFI has advocated for policy changes in the state legislature, helping to win passage of legislation that curbed surprise billing, banned gag clauses under which providers and insurers agreed not to disclose negotiated rates, and required good-faith estimates of charges, Sachdev said. But EFI’s efforts to stop hospitals from charging more for services done in hospital settings than would be charged for the same service in a doctor’s office have stalled after hospitals pushed back, she said.
On July 1, health insurers and health plans sponsored by employers were required to post all their health-care data on negotiated prices under the transparency in coverage rule (RIN 1545-BP47), Sachdev noted. “Price transparency is here. They just need to embrace it,” she said of hospitals. “Employers and business coalitions are going to use price transparency more and more going forward.”
Brian Tabor, president of the Indiana Hospital Association, said in an interview that the Indiana hospitals didn’t leave EFI because of the Rand findings. He cited an EFI study of most of Indiana’s hospitals in September 2021 finding that the mean score for meeting hospital transparency requirements was 6.72 out of 8, where 8 is the best score.
Spokespersons for Indiana University Health and Parkview said in emails that they left EFI primarily because they found the employer group wasn’t making progress on improving health care in Indiana.
“All hospitals want to work more closely with employers” to reduce costs and improve quality, Tabor said. However, “The Forum is no longer an effective convener in a collaborative manner,” he said.
‘Not About Rand’
“It’s not about Rand,” Tabor said of the hospitals’ decision to leave EFI. He blamed EFI for a “strident tone, and I would say a very narrow, if not singular, focus on hospitals as the only ‘problem’ in health care.”
Fast-growing specialty drugs and drug prices are also an important part of health-care costs, said Tabor, who authored an opinion piece in the Indianapolis Business Journal in July, disagreeing with Sachdev’s call for site-neutral payments in which the same amount is paid for a service or procedure regardless of where it is done.
There are “many sites of care that exist in underserved and rural communities across the state, where it would not be economically viable to operate a physician office,” such as outpatient clinics that provide oncology services, he said. “Given the rates that government pays for those services, if it were not part of the hospital, and subject to all of the regulation and costs as those clinics are if they’re hospital-based, those services could not be provided.”
Tabor argued that Indiana’s low payments to physicians are a “distortion,” which is “not the fault of hospitals. Hospitals are subsidizing physicians because they are very poorly paid by commercial payers in Indiana.”
EFI should be using the Rand and other data to help businesses create tiered or narrow networks that give beneficiaries incentives to use high-value medical providers and set up direct contracting agreements between employers and providers, Tabor said. Parkview’s spokeswoman said that hospital has implemented direct-to-employer health-care agreements.
“The Forum has gone from being an advocate for transparency to advocating for much more heavy-handed government solutions,” Tabor said.
Tabor was also critical of Hoosiers for Affordable Healthcare, a group that advocates for lower hospital prices in Indiana, of which Sachdev is vice chairwoman. H4AHC has partnered with EFI in “attacks on hospitals while simultaneously rejecting transparency requirements for insurance companies,” Tabor said in his July 1 editorial in the Indiana Business Journal.
“All he wants to do is divert attention from the problem,” Al Hubbard, chairman of H4AHC, said in an interview. “All these hospitals have billions of dollars in the bank that they just invest in the stock market, in private equity, in venture capital. The bottom line is they overcharge.” Indiana hospitals should cut their prices to the national average or below, he said.
Hospital fact sheets posted on H4AHC’s website show fees for seven Indiana hospitals that are higher than national average hospital prices, as well as high profits and cash and investments.
Houston Group Reaches Out
Employer and hospital groups are dealing with similar concerns in Texas.
Chris Skisak, executive director of the Houston Business Coalition on Health, said he reached out to area health insurers and hospitals in 2021, mostly to no avail, to discuss why hospital prices are so high relative to Medicare rates.
“There’s a lot of pushback” from them on the employer-Medicare price disrepancies, Skisak said. However, the coalition is in discussions with St. Luke’s Health, one of three large health-care systems in the Houston area, he said.
Vivian Ho, chair in health economics at Rice University, sent a letter July 18 to the Texas House Select Committee on Health Care Reform, showing lower profit margins at St. Luke’s in 2020 than at the other large systems. “Employers and their workers are bearing the financial brunt of the high hospital prices that drive these profit margins,” she said.
Douglas Lawson, CEO of St. Luke’s Health, said in an interview that the cost of labor has gone up significantly over the last two years due to Covid-19, which “has put a lot of pressure on us on the rate side to be much more thoughtful, and, quite frankly, careful in what we negotiate with the payer community.”
Lawson authored an article in the Houston Chronicle July 3 saying that “patients who receive care in the St. Luke’s Health system, including Baylor St. Luke’s Medical Center, pay the most affordable rates in the area.”