This episode has three chapters. Each one answers a key question, and, bottom line, it all adds up to action steps directly and indirectly for many, including plan sponsors probably, community leaders, and also hospital boards of directors. Here’s the three chapters in sum.
For a full transcript of this episode, click here.
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Chapter 1: Are commercial insurance premiums rising faster than the inflation rate? And if so, is the employee portion of those premiums also rising, meaning a double whammy for employees’ paychecks (ie, premium costs are getting bigger and bigger in an absolute sense, and also employees’ relative share of those bigger costs is also bigger)? Spoiler alert: yes and yes.
Chapter 2: What is the biggest reason for these premium increases? Like, if you look at the drivers of cost that underpin those rising premiums, what costs a lot that is making these premiums cost a lot? Spoiler alert: It’s hospitals and the price increases at hospitals.
And just in case anyone is wondering, this isn’t, “Oh, chargemasters went up” or some kind of other tangential factor. We’re talking about the revenue that hospitals are taking on services delivered has gone up and gone up way higher than the inflation rate.
In fact, hospital costs have gone up over double the amount that premiums have gone up. Wait, what? That’s a fact that Dr. Vivian Ho said today that threw my brain for a loop: Hospital costs have gone up over double the amount that premiums have gone up.
Chapter 3: Is the reason that hospital prices have rocketed up as they have because the underlying costs these hospitals face are also going up way higher than the inflation rate? Like, for example, are nurses’ salaries skyrocketing and doctors are getting paid a lot more than the inflation rate? Stuff like this. Too many eggs in the cafeteria. Way more charity care.
Bottom line, is an increase in underlying costs the reason for rising hospital prices? Spoiler alert: no. No to all of the above. And I get into this deeply with Dr. Vivian Ho today.
But before I do, I do just want to state with three underlines not all hospitals are the same. But yeah, you have many major consolidated hospitals crying about their, you know, “razor-thin margins” who are, it turns out, incentivizing their C-suites to do things that ultimately wind up raising prices.
I saw a PowerPoint flying around—you may have seen it, too—that was apparently presented by a nonprofit hospital at JP Morgan, and it showed this nonprofit hospital with a 15.1% EBITDA (earnings before interest, taxes, depreciation, and amortization) in 2024. Not razor thin in my book. It’s a, the boards of directors are structuring C-suite incentives in ways that ultimately will raise prices.
If you want to dig in a little deeper on hospital boards and what they may be up to, listen to the show with Suhas Gondi, MD, MBA (EP404).
Vivian Ho, PhD, my guest today, is a professor and faculty member at Rice University and Baylor College of Medicine. Her most major role these days is working on health policy at Baker Institute at Rice University. Her work there is at the national, state, and local levels conducting objective research that informs policymakers on how to improve healthcare.
Today on the show, Professor Vivian Ho mentions research with Salpy Kanimian and Derek Jenkins, PhD.
Alright, so just one quick sidebar before we get into the show. There is a lot going on with hospitals right now. So, before we kick in, let me just make one really important point. A hospital’s contribution to medical research, like doing cancer clinical trials, is not the same as how a hospital serves or overcharges their community or makes decisions that increase or reduce their ability to improve the health and well-being of patients and members who wind up in or about the hospital.
Huge, consolidated hospital networks can be doing great things that have great value and also, at the exact same time, kind of harmful things clinically and financially that negatively impact lots of Americans and doing all of that simultaneously. This is inarguable.
Also mentioned in this episode are Rice University’s Baker Institute for Public Policy; Baker Institute Center for Health Policy; Suhas Gondi, MD, MBA; Salpy Kanimian; Derek Jenkins, PhD; Byron Hugley; Michael Strain; Dave Chase; Zack Cooper, PhD; Houston Business Coalition on Health (HBCH); Marilyn Bartlett, CPA, CGMA, CMA, CFM; Cora Opsahl; Claire Brockbank; Shawn Gremminger; Autumn Yongchu; Erik Davis; Ge Bai, PhD, CPA; Community Health Choice; Mark Cuban; and Ferrin Williams, PharmD, MBA.
For further reading, check out this LinkedIn post.
You can learn more at Rice University’s Center for Health Policy (LinkedIn) and Department of Economics and by following Vivian on LinkedIn.
Vivian Ho, PhD, is the James A. Baker III Institute Chair in Health Economics, a professor in the Department of Economics at Rice University, a professor in the Department of Medicine at Baylor College of Medicine, and a nonresident senior scholar in the USC Schaeffer Center for Health Policy and Economics. Ho’s research examines the effects of economic incentives and regulations on the quality and costs of health care. Her research is widely published in economics, medical, and health services research journals. Ho’s research has been funded by the National Institutes of Health (NIH), the Agency for Healthcare Research and Quality, the American Cancer Society, and Arnold Ventures.
Ho has served on the Board of Scientific Counselors for the National Center for Health Statistics, as well as on the NIH Health Services, Outcomes, and Delivery study section. She was elected as a member of the National Academy of Medicine in 2020. Ho is also a founding board member of the American Society for Health Economists and a member of the Community Advisory Board at Blue Cross Blue Shield of Texas. Ho received her AB in economics from Harvard University, a graduate diploma in economics from The Australian National University, and a PhD in economics from Stanford University.
05:12 Are insurance premiums going up?
05:59 What is the disparity between cost of insurance and wage increases?
06:21 LinkedIn post by Byron Hugley.
06:25 Article by Michael Strain.
06:46 How much have insurance premiums gone up for employers versus employees?
09:06 Chart showing the cost to insure populations of employees and families.
10:17 What is causing hospital prices and insurance premiums to go up so exponentially?
12:53 Article by (and tribute to) Uwe Reinhardt.
13:49 EP450 with Marilyn Bartlett, CPA, CGMA, CMA, CFM.
14:03 EP453 with Claire Brockbank.
14:37 EP371 with Erik Davis and Autumn Yongchu.
15:28 Are razor-thin operating margins for hospitals causing these rising hospital prices?
16:56 Collaboration with Marilyn Bartlett and the NASHP Hospital Cost Tool.
19:47 What is the explanation that hospitals give for justifying these profits?
23:16 How do these hospital cost increases actually happen?
27:06 Study by Zack Cooper, PhD.
27:35 EP404 with Suhas Gondi, MD, MBA.
27:50 Who typically makes up a hospital board, and why do these motivations incentivize hospital price increases?
30:12 EP418 with Mark Cuban and Ferrin Williams, PharmD, MBA.
33:17 Why is it vital that change start at the board level?
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