Mike Packnett is accustomed to seeing Parkview Health near the top of lists.
The local nonprofit has amassed numerous quality-related awards in recent years, including this year being named one of the nation's 15 Top Health Systems by IBM Watson Health.
But the CEO was caught off guard last week when Parkview landed on a list of hospitals that charge the highest prices, based on a 60-page Rand Corp. study that compared prices private health insurance plans paid to almost 1,600 hospitals in 25 states from 2015 to 2017. The study ranks Indiana highest among states charging the most.
“Right now, we're still trying to understand all of the study. ... It's very complex,” Packnett said Friday during an interview with The Journal Gazette in Parkview's corporate headquarters.
Pricing information was gathered from participating insurance companies, self-insured employers and state-based all-payer claims databases. Indiana doesn't have any of the latter. Rankings were determined by comparing prices to Medicare reimbursement rates.
It's not surprising that hospitals charge more than Medicare pays because reimbursement rates are in the neighborhood of 85% of the cost of providing care, according to the American Hospital Association. Any provider that charged Medicare rates for all payers could not stay in business, losing money with every service performed, association officials say.
How much to charge for various procedures is up to each hospital's management to decide, based on the outcome of contract negotiations. The study found that Parkview's rates were almost four times what Medicare pays.
“We had no idea where we stood vs. others,” Packnett said. “It's been confidential information in the past.”
Traditionally, insurance companies don't want competitors to know the size of discounts they've negotiated with health care providers, Packnett said. As for the providers, they could run afoul of antitrust laws if they shared pricing strategies, he added.
Although Packnett was still getting a handle Friday on the Rand Report, he had concerns with how it was compiled and how people might interpret those results.
For one thing, of more than 400 insurance contracts in Indiana, only two were included in the study, Packnett said, and only three northeast Indiana employers shared data.
Overall, the data represented about 2% of the population with private insurance coverage. The report's authors admit “it is possible that estimates are not representative of the prices paid by the broader privately insured population.”
The American Hospital Association released a statement expressing concerns about the study, including its small sample size.
The Indiana Hospital Association's leader noted some factors that contribute to the state's relatively high health care costs. Indiana ranks highest in costs among those states studied by Rand, with combined inpatient and outpatient billing averaging about three times Medicare reimbursement rates.
Indiana University Health's prices average about 2.8 times Medicare reimbursement rates. Lutheran Health Network's prices average about 2.5 times.
Brian Tabor, president of the Indiana Hospital Association, said data should be adjusted to reflect the patient population's overall health.
“We are near the top of the list when it comes to the percentage of smokers, cancer deaths and the obesity rate,” he said in a statement. “We've ranked at the bottom on what we spend on public health for decades. Poor health exacts a human toll and a financial one.”
“Reining in costs is complex and will take the collective effort of all of us – insurance companies, drug companies, hospitals and employers,” he said. “Hospitals are fully committed to bending the cost curve and delivering the highest quality care to Hoosiers.”
Parkview for years has worked with employers to find ways to reduce costs, said Jeanné Wickens, Parkview's chief financial officer.
But to be effective, Parkview must access data about health care usage by that specific workforce, she added. Typically, insurance companies guard that data.
Wickens has worked with about 15 employers who have met as the Thought Leadership Forum the past year. Each of the participating employers uses Parkview's Signature Care preferred provider health plan, which gives Parkview access to usage statistics.
Among the programs participants use to reduce employees' need for health care services include offering incentives to manage pre-diabetes and allowing workers to see providers while sitting in their employer's office via video technology.
The Rand Corp. describes its report as offering employers a bargaining chip when negotiating health care costs. But, it says, that might not be enough. It recommends “state or federal policy interventions to rebalance negotiating leverage between hospitals and employer health plans.”
Packnett says the best way to lower costs is for providers, employers and insurance companies to work together to find ways to decrease the need for health care services.
Simply cutting into Parkview's 5% annual profit margin would have widespread repercussions, including reducing its ability to recruit top-notch staff, buy the latest technology and maintain facilities at the highest level, he said. Patients would suffer in that scenario, he said.
“We call it the nickel,” he said. “Everybody in leadership knows we need to make a nickel on every dollar. We think that's a fair return.”