The House of Representatives’ Committee on Energy and Commerce wants to tackle rising health-care costs. Policymakers should consider how Indiana has recently handled the issue. Instead of imposing government price controls, which would only drive costs higher, Hoosier State lawmakers have embraced Personal Option, a patient-first approach that lowers the price of care through competition.

Indiana families pay some of the nation’s highest health-care costs. One 2017 study by the RAND Corporation found that Indianans on average pay 3.5 times more for care than Medicare. This heavy burden is driven in significant measure by the expense of hospital care. Hospital, physician, and clinical services make up more than 60 percent of health-care spending. A key reason why Indiana’s hospital prices are so high is because large hospitals have merged with competitors and become powerful regional monopolies. According to RAND’s study, the state’s hospital market is controlled by just six chains.

The problem is worse in Indiana, but the issue is nationwide. Over the past quarter-century, many major hospital chains have merged with competing providers and transformed into powerful monopolies. Since 1998, through nearly 1,600 mergers, thousands of independent hospitals have been absorbed. Today, the Federal Trade Commission considers 90 percent of hospital markets “highly concentrated.”

Hospital groups have also bought out competing physician practices and other outpatient facilities. Between 2013 and 2018, the share of hospital-owned physician practices more than doubled, from 14 percent to 31 percent. By 2020, more than half of physicians worked directly for a hospital or worked at a physician practice owned by a hospital.

As large hospitals increasingly dominate the health systems of communities, they have used their monopoly power to charge patients dramatically higher prices. An analysis by the Committee for a Responsible Federal Budget found that, after a hospital buys a physician practice, the price of various health-care services—including MRI scans, drug infusions, and chemotherapy—rises by two to three times their prior cost. Overall, the price of health-care services increases 14 percent after a hospital takes over a physician practice.

One of the reasons costs go up is because hospitals frequently engage in what is known as “dishonest billing.” This occurs when hospitals secretly reclassify a doctor’s office that they own as a hospital-based setting, so they can charge patients and taxpayers higher prices. When a hospital bills a patient’s insurer, it must report a federally required National Provider Identifier (NPI) number on the claim form to identify where the care took place. Many hospitals will use the same NPI number for care that happens at a doctor’s office or at the main hospital setting. This loophole allows hospitals to charge far beyond a fair rate for a doctor’s visit. One patient saw the out-of-pocket expense of her arthritis treatments rise over 1,000 percent after her outpatient clinic was acquired by a hospital.

Earlier this month, the Indiana legislature passed a proposal to end dishonest billing by requiring hospitals to disclose to insurers the location where care was performed. Insurers can now confirm that hospitals are appropriately billing patients, saving families and employers billions.

Meantime, back in Washington, the House Committee on Energy and Commerce held a major hearing on how to reduce health-care costs and boost competition in the system. During the hearing, members introduced a proposal that would end dishonest billing nationwide. Like Indiana’s proposal, this measure would require every facility within a hospital system to have its own individual identifying number. This will help insurers determine where patients receive care and crack down on facilities that engage in dishonest billing.

The committee also offered a proposal to bring similar reforms to Medicare. Currently, Medicare pays hospital-owned facilities two to three times more than independent physician offices when they deliver the same service, such as chemotherapy, cardiac imaging, and colonoscopies. This creates an enormous incentive for large hospital chains to merge with outpatient practices.

These reforms would deliver hundreds of billions in savings for families. The Congressional Budget Office estimates that site-neutral payments—ending Medicare’s policy of paying hospital-owned facilities higher rates than independent physician offices—will save taxpayers more than $141 billion over ten years. Doing so would also substantially reduce premiums and cost-sharing for Medicare beneficiaries by $94 billion, according to the Committee for a Responsible Federal Budget. In total, these changes could save patients and taxpayers anywhere between $346 billion to $672 billion over ten years.

Lawmakers in Washington should follow Indiana’s lead. Ending dishonest billing and requiring site-neutral payments would help make our health-care system more affordable, transparent, and tailored to the personal health-care needs of patients.

Photo: DNY59/iStock


City Journal is a publication of the Manhattan Institute for Policy Research (MI), a leading free-market think tank. Are you interested in supporting the magazine? As a 501(c)(3) nonprofit, donations in support of MI and City Journal are fully tax-deductible as provided by law (EIN #13-2912529).

Further Reading

Up Next