Assessing Responses to Increased Provider Consolidation: Indianapolis Health Care Market Case Study Analysis: The Indianapolis Health Assessing Responses to Increased Provider Consolidation Care Market June 2019 Sabrina Corlette, Katie Keith, and Olivia Hoppe Rising health care prices have increased concerns about hospital and health system consolidation among Hamilton Boone policymakers, regulators, employers, and other purchasers Marion Hancock of health coverage. Although merging hospitals and Hendricks * Putnum Johnson health systems claim they can achieve greater efficiencies Morgan Shelby through their consolidation, the economic literature almost Brown universally finds that hospitals that merge have prices above those of surrounding hospitals.1 And increases in * Indianapolis hospital prices have been a key factor driving the growth of commercial health insurance costs over the past decade.2 As prices have risen, employers have shifted an ever greater share of the costs to employees. Over the past ten years, the average worker contribution for family Background, History, and Methodology coverage has increased faster than the average employer This study defines the Indianapolis, Indiana region to contribution (65 percent vs. 51 percent). Indeed, employee include Marion County in the center of Indiana as well contributions have risen almost 300 percent since 1999.3 as nine surrounding suburban counties: Boone, Brown, Further, the increased negotiating clout of a concentrated Hamilton, Hancock, Hendricks, Johnson, Morgan, provider sector influences payers’ ability to maximize Putnam and Shelby. value-improving practices, such as alternative payment models, quality improvement, and transparency efforts. Indianapolis has four major health systems with flagship In a series of six market-level, qualitative case studies, centers in downtown Indianapolis: Indianapolis University we assess the impact of recent provider consolidations, Health (IU Health), Ascension’s St. Vincent Health (St. the ability of market participants (and, where relevant, Vincent), Community Health Network (Community), and regulators) to respond to those consolidations, and Franciscan Alliance’s Franciscan Health (Franciscan). effective strategies for constraining cost growth while Indianapolis is also home to a safety net hospital, the maintaining clinical quality. Our case studies focus on Sidney and Lois Eskenazi Hospital, as well as a children’s the commercial insurance market, though we recognize hospital. that providers and insurers are often operating in multiple The four major hospital systems in Indianapolis offer markets, including Medicare Advantage, Medicaid a full array of inpatient services and do not appear to managed care, and the Affordable Care Act (ACA) have carved out clinical niches such as cardiology or marketplaces. We do not attempt to quantify the effect orthopedics, as was documented in our Syracuse, New of provider consolidation in these markets, such as York, case study.4 Historically, the hospital systems through provider rate or premium changes. divided the city into four informal geographic quadrants. This case study focuses on the Indianapolis, Indiana IU Health predominantly operated in the central and health care market. For findings from the other studied western part of the city, St. Vincent in the northern part, health care markets (Detroit, Syracuse, Northern Virginia, Community in the south, and Franciscan in the southeast. Asheville, and Colorado Springs), visit https://chir. However, in recent years these health systems have georgetown.edu/projects-pubs/coverage-affordability/. expanded beyond the city limits, acquiring physician - 1 - Assessing Responses to Increased Provider Consolidation: Indianapolis Health Care Market groups, building facilities in the surrounding suburbs, and Another recent study found that each of the four major acquiring other independent hospitals around the state. nonprofit hospital systems in Indiana had overall profit margins of at least 10 percent with Franciscan showing Until 1995, Indiana had a Certificate of Need (CON) the highest, a 20 percent margin.11 This is much higher law, which required state regulatory review of any new than in other markets such as Chicago and New York, hospital construction. That law’s repeal paved the way where total profit margins are -0.8 percent and -1.2 for extensive building of new facilities by health systems percent, respectively. throughout the region, particularly in the affluent suburbs to the north of Indianapolis.5 Between 2000 and 2011, Indiana’s residents also tend to be less healthy than the region experienced a 17 percent increase in staffed those in other states. Indeed, the percentage of residents inpatient beds.6 in “fair” or “poor” health, once in line with the national average, has increased 2.5 percentage points to 20.6 Indianapolis physicians tend to be employed by the percent since 2013 while the US average has remained four major hospital systems, with few truly independent relatively steady around 18 percent.12 While health specialty practices remaining. In 2017, UnitedHealth status is a factor in the state’s high health care spending, Group acquired one of Indiana’s last remaining evidence suggests that the primary driver of costs is independent physician practices, American Health provider prices.13 Network, for $185 million. The group has become part of United’s OptumCare division, which has over 20,000 To assess the varying ways in which insurers have physicians operating in 13 states.7 responded to provider consolidation and market power in Indianapolis, we conducted an environmental scan, a On the insurer side, the statewide Anthem BlueCross literature review, and interviews with ten national experts BlueShield (Anthem) plan has the greatest commercial and regulators. Additionally, we interviewed thirteen market share, with UnitedHealth Group a distant second. Indianapolis-area providers, insurers, large employer IU Health Plans also offers commercial market plans. The purchasers, and expert observers. Indianapolis-based Indianapolis insurance market has become steadily less interviews occurred between November 15, 2018 and competitive over time, witnessing departures by local January 18, 2019. and national insurers alike, including M Plan, MDwise, ADVANTAGE Health Solutions, Principal, and Humana.8 Descriptive Analysis: Anthem is not only the largest insurer in Indianapolis, but Three Market Sectors its headquarters in the city makes it one of the largest 1. Hospitals, Health Systems, and Physicians employers. Indianapolis is home to other large employers, With its four major health systems, one might expect most of which have self-funded health benefit plans, Indianapolis to have a competitive provider market. Yet such as Eli Lilly and Company, CNO Financial Group, and respondents reported the opposite: that Indianapolis Simon Property Group. Indiana employers jumped into faces increasing vertical and horizontal consolidation. the high deductible health plan (HDHP) trend earlier and Historically, each of the four health systems—St. Vincent, more aggressively than employers in other markets; as a IU Health, Franciscan, and Community—carved out result, Indiana employees have higher deductibles than geographic “mini-monopolies” within boundaries that the national average.9 were respected by the other health systems. This meant that the health systems often did not compete in a given The high cost of health care in Indianapolis and Indiana region of the metro area. more generally has been well documented. In 2016, the RAND Corporation was commissioned by the Employers’ This trend abated about 10 years ago as health systems Forum of Indiana to study hospital prices in an ongoing went on a building boom and rapidly acquired physician transparency initiative.10 The RAND study has called practices and additional hospitals across the state. The attention to the high commercial prices charged by new construction has included the proliferation of micro- Indiana’s hospitals, with the major Indianapolis health hospitals, stand-alone emergency rooms (ERs), and new systems charging three to five times Medicare rates. - 2 - Assessing Responses to Increased Provider Consolidation: Indianapolis Health Care Market specialty facilities (such as cardiac hospitals), in addition 2. Insurers to full service hospitals. Some respondents acknowledged Anthem, which has its headquarters in Indianapolis, that such facilities in theory would be welcome is dominant in the commercial employer market, with innovations if they served as lower-cost options, but that UnitedHealthcare a distant second. The two compete many charge higher ER rates for outpatient services or the primarily for large business accounts and to serve as TPAs same prices as larger hospital facilities, meaning there are for large, self-funded employers. Together, Anthem and no cost savings. UnitedHealthcare “probably account for 90 percent of our market,” observed one expert. Many, though not all, observers attributed the building boom in part to the repeal of Indiana’s CON law in Efforts by smaller players to enter the insurer market 1995. This allowed health systems to build new facilities have generally been unsuccessful. ADVANTAGE Health essentially unfettered. Construction was prioritized in Solutions, which was owned by St. Vincent and St. Francis, wealthier suburbs where there is already hospital capacity, dissolved in 2016 after garnering about five percent of the such