A recent study conducted by researchers from the Center for Business and Economic Research at Ball State University indicates that Indiana’s healthcare system is alarmingly out of control. The monopoly power of nonprofit hospitals has increased the financial burden on Hoosier families and likely contributed to poorer healthcare outcomes in the state. According to the study’s lead author, Michael J. Hicks, PhD, strengthening the enforcement of antitrust laws and imposing taxes on the billions in accrued profits held by these “nonprofit” providers may help restore competition in the healthcare industry. In the past two decades, Indiana has seen a nine-place decline in healthcare rankings.
Monopolization of the Indiana Healthcare Market
Nonprofit systems dominate the market for healthcare services in Indiana, exhibiting signs of monopolization. The state or federal government may grant healthcare providers or facilities not-for-profit status for the benefit of the public. It is expected that these healthcare providers will not pursue monopoly power in the market and the tension between providing optimal care and seeking profits will be eliminated.
Market competition typically serves to drive prices down and quality of service up. Granting nonprofit status to healthcare providers in Indiana, however, may have backfired. The increased concentration of nonprofit providers has caused healthcare costs in the state to soar. In the most highly-concentrated markets, nonprofit hospitals averaged an astounding $82 million in profits in 2015 alone. Hospitals in the least concentrated markets averaged about $2.3 million in profits that year.
Studying the Profits Accrued by Not-For-Profit Providers
The Ball State University study sought to provide a financial summary for nonprofit hospitals in Indiana and examine the degree of competition within the state’s healthcare market. To this end, the study analyzed:
- The profits accrued by nonprofit hospitals
- The change in personal consumption expenditures for healthcare and non-healthcare items and services
- The average healthcare expenditures per resident
- The healthcare outcome ranks versus relative spending per person
- The profit rate of nonprofit hospitals compared to unaffiliated hospitals
Based on the data analysis, the study found that the monopolization of Indiana’s healthcare market is adversely affecting consumer expenditures and healthcare outcomes. In 1998, Indiana residents paid an average of $330 less for healthcare services than the average American. By 2017, Indiana residents were spending $819 more for healthcare services than the average person in the U.S. Over 85% of the nonprofit hospitals in Indiana brought in profits that exceeded the national average for all hospital types that year. Between 1998 and 2017, however, the state fell nine places in the national ranking of state healthcare outcomes. Additionally, the study points out that healthcare costs are significantly higher in less competitive areas than they are for patients in areas with more competitive healthcare markets.
The Study’s Limitations
There are limitations to the study’s analysis. Some who have taken issue with the study’s findings suggest it relied on limited sub-state data regarding personal consumption expenditures and that it lacked adequate data to perform a thorough test across all types of inpatient services. Further, the study utilized hospitals’ Form 990s. Since these forms can contain inaccuracies, opposition to the study’s findings suggests using audited financial statements would have provided more accurate data. The study also neglects to take into account the approximately $2.5 billion that not-for-profit hospitals provide in training, financial assistance, and other community benefits each year.
Recommendations for the Restoration of Healthcare Market Competition in Indiana
To combat the growing monopolization of the state’s healthcare market, and address the resulting economic and policy problems, Dr. Hicks concluded the study with three recommendations. The proposed resolutions include imposing taxes and restrictions on the accrued profits held by the state’s nonprofit hospitals for the benefit of the public. Further, the study recommends taxing nonprofit healthcare providers who earn profits at rates akin to those of the state’s for-profit providers and facilities. The revenues from these taxes, based on the proposal, would be returned to the state’s health and educational services.
Additionally, the study proposes restoring competition within the nonprofit hospital and healthcare markets in Indiana. This might be accomplished, by imposing pricing transparency policies for all healthcare providers, eliminating certificate of need and local non-compete clauses, enforcing antitrust laws, and creating legislation that requires horizontal and vertical disintegration of these markets. The study’s recommendations aim to realign Indiana’s healthcare market with the state code and return it to a previously observed level of competition. This, in turn, would benefit Indiana’s economy as well as patients and families within the state.
According to Dr. Hicks, a $27 billion settlement pool exists alongside an abundance of compelling evidence demonstrating anticompetitive behavior by nonprofit hospitals. Dr. Hicks states that with an experienced trial lawyer, schools, municipal governments, and Indiana businesses who have paid healthcare expenses in the state could recover substantial sums. Patients who have suffered malpractice injuries as a result of the diminished quality of medical care in Indiana may be able to recover compensation as well.