Local hospitals hold line on rates

The health care market in southeastern Wisconsin has changed significantly in the past decade, with hospitals overall becoming more efficient and keeping rate increases for commercial health plans at roughly half the pace of a national benchmark, according to a study released Thursday.

The study – which updates previous studies – found that the payments to hospitals from commercial health plans in the region increased an estimated 48%, or 3.3% annually, from 2003 through 2015.

That was less than half of the 101% increase in the national hospital component of the Consumer Price Index for the same period.

The study was the latest in a series on health care costs in southeastern Wisconsin done by Milliman Inc., a consulting firm, for the Greater Milwaukee Business Foundation on Health.

The study looked at acute care and specialty hospitals for adults in southeastern Wisconsin. It did not include Children’s Hospital of Wisconsin, psychiatric hospitals or rehabilitation hospitals.

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Hospital care accounts for 30% to 35% of commercial health plans' total costs, said Keith Kieffer, a management consultant with Milliman.

The study released Thursday found that hospitals in southeastern Wisconsin have continued to hold the line on rate increases for commercial health plans.

Hospital rates increased 1.9% on average in southeastern Wisconsin compared with a national average increase of 4.1% for the hospital component of the Consumer Price Index last year. And local rates increased an estimated 8% compared with 14.4% nationally from 2012 through 2015.

Columbia St. Mary’s and Wheaton Franciscan Healthcare, both part of Ascension, had the lowest hospital rates for commercial health plans last year, according to the study. Columbia St. Mary’s hospitals were on average 7% below the market, and Wheaton Franciscan’s hospitals were 6% below the market.

The spread in rates also has narrowed, with rates for all six health systems in the study within 7% of the market average.

“That’s an attribute of a competitive market,” Kieffer said.

The cost of hospital care in southeastern Wisconsin was higher than the national average in 2003.

Since then, health systems in southeastern Wisconsin have done a better job controlling hospital costs than their national counterparts.

Hospital operating costs in the region increased 20%, or roughly 1.3% a year, from 2003 to 2015.

By comparison, the Hospital Producer Price Index increased 40% and the Centers for Medicare and Medicaid Services’ Hospital Market Basket increased 57% in the same time period.

“The one thing that stands out is they’ve done a remarkable job in controlling their operating costs,” Kieffer said.

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Aurora Health Care, which had the highest operating costs in 2003, stands out in its success in controlling its hospital costs. The operating costs of the health system’s hospitals were only 2% higher in 2015 than in 2003, according to the study.

The slower increase in hospital rates and operating costs than national benchmarks may stem from the market becoming more competitive in the past decade.

One of the initial reports for the Greater Milwaukee Business Foundation on Health found that the health systems generally dominated different parts of the Milwaukee market.

Columbia St. Mary’s dominated Milwaukee's east side, for instance, while ProHealth Care dominated Waukesha County.

That changed when Aurora built hospitals in Summit and Grafton. Froedtert Health also has increased its presence in eastern Waukesha County. And Wheaton Franciscan has a stronger presence in the suburbs south of Milwaukee.

The study also noted that a larger percentage of hospitals' patients now are covered by Medicaid and Medicare, which pay far less than commercial health plans. The rates paid by Medicaid typically are far below a hospital's costs. And hospitals contend that they lose money on people covered by Medicare, though that can depend on a hospital's costs.

At the same time, hospitals' bad debt and charity care have decreased since the expansion of coverage through the Affordable Care Act.