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The Journal Gazette

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Friday, October 11, 2019 1:00 am

Blame government, not greed, for health care cost crisis

Dr. William Cast

Dr. William Cast wrote this on behalf of Northeast Indiana Citizens for Healthcare Excellence.

On Oct. 2, The Journal Gazette printed “Cost of not-for-profit care,” a column by Ball State economics professor Michael Hicks. Sadly, the article was more a polemic than the sober analytic presentation one might expect from an academic.

While some of his calculations may be supported by facts both national and local, others are distorted. For example, in Hicks' full paper, published Sept. 25 by the Center for Business and Economic Research, Parkview's Wabash Indiana Hospital is listed as showing a 2015 profit of 49% – obviously out of line. This figure could not possibly relate to operating profits. Instead, it relates to a one-time accounting entry bringing Wabash onto Parkview's books at market value.

Such a variance deserved an appropriate academic footnote, for those of us who are not accountants, to explain that the data from IRS Form 990 did not reflect profit. Distortions such as this throw doubt on the accuracy of other calculations. And, hyperbolic conclusions such as Hicks' reference in his column to “Gilded Age robber barons” are more appropriate for a tweet than a professorial column.

In limited space, I'll try to make sense of the tangled mess that is our health care system. I'll repeat a favorite phrase: No matter how thin you make a pancake, there are always two sides.

First: This is both a national and local problem. Hospitals are heavily regulated and must accept whatever Medicare and Medicaid pay. For most hospitals that depend on Medicare, that leads to red ink. That shortfall is made up by higher payments from insurers – private payments.

And so in 2019, you see hospitals in poorer neighborhoods, mostly rural and inner cities, closing. Once-prestigious Hahnemann University Hospital, which served Drexel Medical School in the heart of Philadelphia, announced closure this year.

Another effect has been to force mergers of weaker hospitals with stronger.

Locally, Parkview's Wabash, Whitley, LaGrange, Huntington and Noble hospitals have new and improved facilities; Randallia has been remodeled and physicians hired. It may not have been the wished-for solution of each community, but without a strong flagship partner, the economic fate of each small hospital was at risk. And since profits from highly technical treatments often support treatments that are provided at a loss, the more expensive equipment becomes concentrated in fewer locations.

Our government's Department of Health and Human Services has encouraged this modern Robin Hood scheme. Until payments truly reflect costs of providing services, crazy differences will exist between Medicare and payments that are negotiated, without patients' input, with each insurer at different rates.

Competition is the primary restraint, as imperfect as it is in health care.

Hospital income is lumpy, with slack and busy seasons, and booms and recessions. It is easy to forget that in 2008-09, Parkview slowed investment and even considered halting construction because of a down economy. Yes, the past decade has been exceedingly good for many hospitals, including Parkview and Lutheran but not St. Joseph's and not most of the other inner-city and rural facilities. Even good times cannot overcome low payments due to poor demographics.

Don't forget regulatory risk. For example, the Affordable Care Act's proposed increase in insurance income for rural and urban hospitals did not materialize – and support for hospitals such as St. Joseph's was cut. And legislative mandates – for emergency and disabled patient access, for HIPAA, for compliance, for providing records, etc. – are not funded. Health systems must comply with 629 regulatory requirements, and an average-sized community hospital spends nearly $7.6 million annually to comply with federal regulations – all paid for by profits.

A great business has the ability to scale; that is, it can earn the same percentage of return from every additional invested dollar. Hospitals can earn profits, but they don't scale. Acquiring a rural hospital may (or may not) provide a profit, but not equal to the profit of investment in expanding neurosurgery and spine treatments. But, there is a limit to expanding any group of procedures.

Be careful what you wish for. All of this is allowed by the government.

It is certainly true that a cotton ball should not cost $1.13 and a single Tylenol pill should not cost $15 at the bedside. And unfortunately, there is no single hospital price. Each treatment and procedure results in a bundle of charges; the bundle is then coded and each negotiated with private insurers. The result is that, like airline seats, every patient may pay a different price and have a different bill for the same procedure. Parkview is hiring 20 additional employees to answer patients' cost inquiries. The totality of these factors separates profitable from struggling hospitals.

Ask yourself, is government regulation the path to solution? Would a government solution have resulted in new facilities and physicians in Wabash and Noble counties? Would access to care and better quality result?

When an economic downturn comes, we all want our hospitals to have cash on their balance sheets. Drugs, equipment and labor are expensive, and costs do not go away. We agree with Hicks that more competition would make things better.

I won't defend excess profits, but there are reasons why some hospitals do well and others fail; that needs attention. We want prices to come down from fair competition between a growing IU Health and a successful Lutheran Health Network. I'm reluctant to believe that more regulation, more legislation and more lawsuits will solve the problem.