A reader of this blog recently sent me a research report from Ball State. In this study, the author, Michael Hicks, confirms conclusions reached by other solid researchers.
One such conclusion: sick people in Indiana are being fleeced by hospitals that are supposedly “nonprofit.”
Hicks began by admitting his preconceptions:
Several weeks ago, a concerned citizen sent me a financial summary of Indiana’s not-for-profit hospitals. He asked that I look into the issue of excessive profits by these systems. I was skeptical that the issue would be relevant. Profits are critical to an economy; they serve as a guide to pricing and investment decisions and reward the men and women who create value. The demonization of profits is a sure sign of unformed thought. Moreover, not-for-profit hospitals have explicitly chosen to forgo profits as part of their operations, so I doubted the financial summary would reveal anything important. I was mistaken.
What he found shocked him–and should shock us.
It turns out the not-for-profit hospital industry and their network of clinics is the single most profitable industry in Indiana. These profits are so large that when accumulated, they account for roughly 9 percent of the state’s total economy. As of 2017, this industry had accrued more than $27 billion, yes billion. Yet, the not-for-profit industry in Indiana pays virtually no taxes and invests almost none of those profits locally. That money is invested in Wall Street, not Main Street. However, they do charge Hoosiers a premium to access healthcare.
The numbers come from a Rand Corporation study conducted earlier this year that found hospitals in Indiana charging among the highest prices in the nation. Hicks noted that he had confirmed Rand’s data, and had compared the results with with the lack of competition in each healthcare market.
In places where there is little competition, such as Fort Wayne, consumers pay more than twice the cost for a typical medical treatment as they do in places with the most competition. This is how these hospitals accrued excess profits that are roughly 12 times larger than the entire state of Indiana’s Rainy Day Fund.
Hicks says that Hoosiers pay $819 more per person per year than the average American, and attributes that premium to the growth of monopoly power among the state’s not-for-profit hospitals. And he provides examples.
Parkview Hospital is the most blatant example. In one recent year, Parkview Hospital in Wabash earned a 48 percent profit rate. By comparison, Walmart, which also has a store in Wabash, had a profit rate of 3.12 percent that year. Parkview Hospital’s profit absorbed a full 4.1 percent of the county’s GDP (gross domestic product).
Using data from a ProPublica investigative website, I found IU Ball Memorial Hospital enjoyed a lavish 23.8 percent profits in that year. This was more than $100 million, or a full 2.5 percent of the county’s GDP. Despite this, the president of IU/BMH recently begged the city of Muncie to subsidize new luxury apartments so his doctors could live downtown. That subsidy will cost Muncie Community Schools more than $2 million, which just so happens to be about two days of profits at the not-for-profit IU Ball Memorial Hospital. There are literally dozens of other outrageous examples reflecting an appalling lack of governance at not-for-profit hospitals.
This situation is particularly hurtful for local governments that are already reeling from Mitch Daniels’ politically-brilliant and governmentally-destructive constitutionalization of property tax caps. As Hicks rightfully notes,
Local governments are also victims. The most profitable industry in our state pays no property tax and no income tax, but overcharges schools, city and county governments for healthcare.
Hicks ends his article with a warning to profiteering organizations–it can’t go on like this for much longer. As he says, it’s an open invitation to plaintiffs attorneys and politicians alike.
To place this in historical context, the profit rates at Indiana’s not-for-profit hospitals are larger than anything the Gilded Age robber barons were able to secure. In this observation is a final lesson. In the process of vetting this study with several colleagues, I shared it with one lifetime Republican and veteran of two GOP administrations. His response was simply that this is the single best argument for Warren/Sanders healthcare reform he had ever seen. He is not wrong, and that alone should prompt quick legislative, regulatory and legal action.
I wouldn’t bet on it.