Paying more for fewer services

Spending for same amount of health care rose 17.3% per person over 4 years

People who get health insurance through their employer are going to doctors and hospitals less, but they and their employers still are spending more money on health care.

The reason: Prices keep going up.

From 2012 through 2016, health care spending for commercial insurance plans increased by an estimated 17.3% per person in eastern Wisconsin, compared with 15% nationally, according to an analysis of insurance claims by the Health Care Cost Institute.

The cost of living in the same fouryear period increased by roughly 5%.

In short, health-care spending increased at roughly three times the inflation rate, even though people were using the same amount or fewer health care services.

“It’s becoming increasingly clear that our health-care spending problem is really a problem of prices,” said Hannah Neprash, a health economist and an assistant professor at the University of Minnesota.

That admittedly isn’t a surprise to anyone who has gotten a hospital bill.

But the analysis by the Health Care Cost Institute suggests that although health systems and physicians in eastern Wisconsin and nationally may be working to control costs and become more efficient, they also haven’t been reluctant to raise prices to maintain their profit margins.

From 2012 through 2016, prices in eastern Wisconsin increased by:

❚ 22.85% for inpatient hospital services.

❚ 16.76% for outpatient services.

❚ 16.71% for professional services, such as physician fees.

❚ 30.3% for inpatient surgery.

None of this bodes well for controlling health-care costs — which account for a significant part of workers’ total compensation and take a chunk out of their take-home pay.

The increases also suggest that the ability to rein in health systems’ prices is limited.

The willingness of health system CEOs to raise prices while acknowledging that health-care spending is on an unsustainable trajectory may be a vestige of the days of cost-plus reimbursement.

“That mentality lives on — the mentality that we have a certain level of costs for providing the services we provide and we are entitled to be compensated for those costs,” said Chapin White, a senior policy researcher in health economics at the nonprofit think tank RAND Corp.

“It is consistent with the noble mission of serving your community.” White added. “But it also is defying basic economic reality.

“We need to be able to have some control over how much we spend on hospital care as a society, and employers who are providing health benefits should not be on the hook for financing hospitals at whatever level hospitals think is appropriate.”

That mindset may be seen in the increase in what commercial health plans spent on inpatient surgery.

The number of inpatient surgeries fell 12.59% from 2012 through 2016, while prices increased 30.03% in eastern Wisconsin, based on the Health Care Cost Institute’s data.

As a result, total spending on inpatient surgery increased 13.66% in the four-year period.

“Here is a place where the entire payer community should be focusing,” said Dave Osterndorf, a consultant and chief actuary at Health Exchange Resources in Glendale.

Prices for surgeries done at a hospital historically have been high — and yet health systems still raised prices, he said.

The same trend can be seen nationally: The number of inpatient surgeries decreased by 16.01%, but prices increased 29.96%.

The price increases suggest that hospitals raised prices to offset — or, in this case, more than offset — the drop in the number of patients.

The Health Care Cost Institute’s data also show that one of the characteristics of the market in eastern Wisconsin is that the prices of physician and other professional services are far above the national average — 58.7% higher.

“We have a lot of specialists in this marketplace,” Osterndorf said.

At the same time, the higher cost is partly offset by lower utilization of those services.

That could indicate the physicians do a better job in managing complex patients, Osterndorf said.

A 2014 study done by consulting firm Milliman for the Greater Milwaukee Business Foundation on Health also found that physician fees in southeastern Wisconsin were almost 50% higher on average than in other Midwest markets for commercial health plans.

Brian Potter, senior vice president of finance and chief operating officer of the Wisconsin Hospital Association, said the Health Care Cost Institute’s methodology is not transparent.

He also noted that the study conflicts with one done by Milliman that found payments to hospitals from commercial health plans in southeastern Wisconsin increased an estimated 8%, compared with 14.4% nationally, from 2012 through 2015.

Hospital care accounts for 30% to 35% of commercial health plans’ total costs.

Without question, health systems provide certain valuable services at a loss — a requirement to maintain their nonprofit tax status — and always have a long list of needed services that they would like to provide.

And some hospitals lose money. For example, Wheaton Franciscan-St. Joseph and Columbia St. Mary’s Hospital in Milwaukee, both part of Ascension, and Aurora Sinai Medical Center lost money in 2016, the most recent year that information is available from the Wisconsin Hospital Association.

Other hospitals, though, are quite profitable. Froedtert Hospital reported net income of $138.7 million and Aurora St. Luke’s Medical Center and Aurora St. Luke’s South Shore reported net income of $172.7 million in 2016.

Health systems also spend heavily on services to generate additional revenue and protect their market share, and those services often increase their costs.

Economists are increasingly focusing on the pricing power held by some health systems and other health-care providers, citing the effect that consolidation has had on prices.

In other sectors of economy, companies typically can’t simply raise prices. Whether the same constraints exist in health care is a question.

“They really don’t get rewarded for holding prices down,” Osterndorf said.

Few people pay attention to price once they reach the deductibles in their health plans. And most of the cost of health care for workers is hidden in the form of lower wages.

“That is a diffuse and invisible price tag,” White said.

Speaking last summer at the annual symposium held by the Center for Sustainable Health Spending, White cited a study in Indiana that found that the prices that private health insurance plans pay for outpatient services can be four times or more than what Medicare pays for the same services.

The Health Care Cost Institute’s national data are based on medical claims for 39 million people under the age of 65 who get health insurance through an employer.

The medical claims are from insurance companies including Aetna, Humana, Kaiser Permanente and UnitedHealthcare.

The data, which came only from eastern Wisconsin, contain medical claims for about 31% of the people who get health insurance through an employer in the state.

UnitedHealthcare has the largest market share by far in eastern Wisconsin, particularly in the southeastern part of the state, and is a reasonable benchmark for the prices that commercial health insurers pay for medical services.

The trends in eastern Wisconsin also are largely in line with other parts of the country.

“You can pick most states and see the same things,” said John Hargraves, a senior researcher at the Health Care Cost Institute.

Price increases apply only to commercial health plans because Medicare and Medicaid both dictate the prices they will pay. And the Health Care Cost Institute is permitted to use the claims data but cannot disclose any specific prices negotiated between commercial health insurers and health systems.

“It’s hard to get your hands on useful price data for private health plans,” White said. “There’s just a lot of mystery in prices and price trends.”

The Health Care Cost Institute’s data, while not definitive, has become one of the best sources for trends in health care spending for employers and employees.

Neprash, the health economist at the University of Minnesota, described the Health Care Cost Institute as a “uniquely detailed source of data.”

Several states — including Minnesota, Massachusetts, Colorado, Oregon and Maryland — have claims databases that are tracking and reporting costs and prices. Maryland, for example, has a new website that discloses prices for specific services at specific hospitals.

Wisconsin also has a claims database but for now is tracking only the utilization of services.

Other studies also have pointed to higher prices as the reason the United States spends 50% more than any other developed country on health care.

The studies — including a 2004 paper titled “It’s the Prices, Stupid” — counter the widely held belief that the U.S. spends more on health care because people use more health care.

Americans overall use fewer services than people in other developed countries.

“It’s a story about prices,” Neprash said. “It’s not about how much health care we use.”

The number of inpatient surgeries fell 12.59% from 2012 through 2016, while prices increased 30.03% in eastern Wisconsin, based on the Health Care Cost Institute’s data. As a result, total spending on inpatient surgery increased 13.66% in the four-year period. Health systems also spend heavily on services to generate additional revenue and protect their market share, and those services often increase their costs.