FARGO — North Dakota faces challenges in sustaining a health care system burdened by growth in hospital expenses, salaries and operating expenses that are among the nation’s highest.

A recent study, which examined health care costs over the past decade — with a primary focus on hospitals — found that utilization of hospital services outpaced nationwide averages in certain categories, including patient days and the average length of stay.

The report, by JWHammer and Horizon Government Affairs, is the most extensive examination of hospital factors that drive health costs ever done in North Dakota — and is a pioneering cost study on the national level, state Insurance Commissioner Jon Godfread said.

“This is a first-of-a-kind anywhere in the country in terms of the state-level data we got,” he said.

North Dakota hospitals' operating expenses grew 7.9% per year between 2010 and 2018. Special to The Forum
North Dakota hospitals' operating expenses grew 7.9% per year between 2010 and 2018. Special to The Forum

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Among the key findings of the 150-page report, recently presented to the Legislature’s Interim Health Committee, of the factors driving rising hospital costs:

  • Per-capita hospital expenses in North Dakota were the highest in the nation in 2017 and the growth rate of about 10% per year since 2010 was among the nation’s highest. Per-unit costs rose 6.5%, outpacing utilization growth — outpatient visits, inpatient days, etc. — of 1.5%.

  • Operating expenses in North Dakota hospitals grew by 7.9% per year from 2010 through 2018, well above the national average of 4.5% per year. It was the third-highest growth rate among states, behind South Dakota and Alaska, and in 2018 surpassed the District of Columbia to become the nation’s highest.

  • The average length of a hospital stay in North Dakota once held roughly constant at 4.7 to 4.8 days — but increased to 5.5 days between 2010 and 2019, a growth rate among the highest in the nation.

  • Average salaries per full-time equivalent were the eighth-highest in the nation at $87,640 in 2019. Average hospital salaries in North Dakota grew by 2.9% per year, above the national average of 2.1%.

  • Hospital beds per 1,000 people in 2017 was fifth-highest in the nation.

North Dakota ranked near the top in many categories involving hospital revenues and expenses, Godfread said.

“That’s not always a bad thing,” he said. Still, he noted North Dakota led in certain cost categories, including per-capita costs. “Is that where we want to be?”

North Dakota hospitals' operating revenues grew 7.4% per year between 2010 and 2018. Special to The Forum
North Dakota hospitals' operating revenues grew 7.4% per year between 2010 and 2018. Special to The Forum

Increasing costs drive up health insurance premiums, especially for those who buy coverage on the individual market, Godfread said.

“It’s getting difficult for a lot of people to afford,” he said.

Other findings

Despite ranking high in many hospital cost and utilization categories, the study concluded that North Dakota’s health insurance premiums are relatively modest. Researchers attributed that to an insured population that skewed a bit younger — and therefore less costly — and to high-deductible plans that reduce premiums but raise out-of-pocket costs.

The study estimated the cost of deductibles at more than $4,000.

The prevalence of high-deductible plans raises a critical question, Godfread said. “Do I have true access to health care? That’s a significant out-of-pocket cost.”

Growth in private insurance payments increased at a faster rate than Medicare by a factor of 30% over the decade, a sign that insurers pay hospitals enough, he said. “It’s tough to maintain with this kind of growth.”

In the individual health insurance market, premiums in North Dakota increased 10% from 2014 to 2018, compared to 14% in South Dakota and 13% in Minnesota. In 2018, monthly premiums in the individual market were $447 in North Dakota, compared to $494 in South Dakota and $450 in Minnesota.

Administrative expenses for health insurance ranked near the bottom nationally for North Dakota, but rose 16% from 2014 to 2018, compared to a drop of 4% in South Dakota and a rise of 2% in Minnesota.

Legislators will want to take a deep look at the factors behind hospital costs, while wanting to maintain access to care, said Rep. George Keiser, R-Bismarck, chairman of the Interim Health Committee.

“Those are key areas that we need to follow up on,” with an eye toward policy solutions, he said.

The findings that average hospital salaries rank near the top, however, wasn’t a surprise, he said. North Dakota must pay a premium to attract physicians and other health care professionals.

“Getting folks to come to North Dakota is not as simple as getting folks to other areas of the country that are more popular,” Keiser said. Bozeman, Mont., for example boasts skiing and fly-fishing opportunities that make it appealing.

“You may be willing to go there for less money,” he said. Wages are hospitals’ largest expense, the study found. Wages and benefits grew about 7% per year between 2010 and 2019, a period that saw employment growth of about 3% per year and wage and benefit growth of about 4%.

Presentation of the study, which required extensive data collection and analysis, was delayed by the coronavirus pandemic. Hospitals were busy, making it difficult to provide information to researchers on time, then the meeting had to be postponed until last week because of a COVID-19 outbreak within the Legislative Council, Keiser said.

As a result, the committee won’t have time to prepare bill drafts suggested by the study, although legislative proposals by the North Dakota Insurance Department and individual lawmakers are possible, he said.

Asking why

For his part, Keiser would like to see legislators authorize further study to determine why certain hospital costs and utilization trends are unusually high to guide policy responses. Although extensive, he said, the scope of the study didn’t include identifying root causes.

“I feel strongly about that,” he said. “It just makes sense. We need to ask the question why and try to find the answers to that.”

Tim Blasl, executive director of the North Dakota Hospital Association, supports a follow-up study to dive into the details.

“There really weren’t any sort of answers,” he said. “No reasons on why the numbers are what they are. That was my disappointment with the report.”

Higher hospital utilization reflects patient demand, Blasl said. “That’s not something we can control,” he said. “That’s just people accessing the health care system. Some years that could be up, some years that could be down.”

North Dakota’s hospital system still relies heavily on the traditional “fee-for-service” model, in which providers simply bill for what they do — a practice that lacks incentives to restrain utilization and control costs, the study concluded.

“Based on our interviews, the state seems mostly stuck in a fee-for-service reimbursement regime, with providers competing to offer lucrative elective surgeries and insurers concentrating on holding down reimbursement rates across the board, with little regard for value of specific providers or patient outcomes from various care patterns,” the study said.

But North Dakota isn’t unique in that regard, the study noted. Still, the lack of telehealth capacity may be a sign of market “lethargy” or “stagnation,” failing to produce the “sort of dynamism we expect from competitive systems.”

The coronavirus pandemic might help to spur innovation, however. The study noted that telehealth visits became much more common during the pandemic and likely will become more prevalent in the future.

As a largely rural state with vast areas lacking population density, North Dakota faces challenges in maintaining a health system that is more focused on delivering value, the study’s authors wrote:

“A key question for North Dakota is: Are competitive markets in health care possible? If so, can we strengthen them? If not, can the state work with health care providers and insurers to approximate competitive-style outcomes in a more collaborative system? What degree of public transparency and/or cooperation could lead to more dynamic outcomes without falling into the trap of over-regulation?”

Greater transparency, allowing consumers to compare the cost and outcomes of health services, will help to restrain health costs, Godfread said. “For the average consumer to get access to what this is is nearly impossible,” he said.

Some states are implementing “right-to-shop” reforms, an avenue worth exploring for North Dakota. “That helps give the consumers more control,” he said.

Policymakers are trying to encourage a faster shift toward managed care, with incentives for both providers and patients to achieve greater value and more cost-effective care, with a greater emphasis on prevention, he said. “We’re trying to drive towards that,” he said. But that will in part require people to adopt healthier lifestyles.

“It’s just really hard to move that needle,” Godfread said.