Indiana Law Targets Hospital Prices for Employer-Sponsored Health Plans

Indiana is implementing new measures aimed at addressing healthcare affordability by limiting the prices certain hospitals can charge patients covered by employer-sponsored health insurance. The effort comes amid concerns about rising hospital costs, which are widely viewed as a major contributor to increasing healthcare spending and insurance premiums.

Under a law enacted last year, five of Indiana’s largest nonprofit hospital systems, Ascension St. Vincent, Community Health Network, Franciscan Health, Indiana University Health, and Parkview Health, must keep prices below a state-established threshold or risk losing their tax-exempt status by 2029. The loss of that status could result in millions of dollars in state tax obligations.

The legislation also requires these hospital systems to offer direct contracts to employers, allowing employers to purchase healthcare services directly from hospitals without involving insurers. Hospitals that fail to comply with this requirement face penalties of $10,000 per day. Beginning in September, many other Indiana hospitals will also be required to comply with this provision.

Hospital pricing has drawn increased scrutiny because government payment rates already exist for Medicare and Medicaid, which together cover more than 135 million people nationwide. By contrast, hospitals generally face no government limits on what they charge individuals covered by employer-sponsored insurance, a group that includes more than 165 million Americans.

Indiana is not the only state pursuing measures to address hospital pricing. Vermont also limits what hospitals can charge patients covered by employer-sponsored plans. Oregon and Washington have adopted similar approaches on a smaller scale for state employee health plans. In Oregon, hospitals cannot charge the state employee plan more than twice the Medicare reimbursement rate for services. According to the information cited, the policy saved the plan more than $100 million during its first two years. Similar proposals have been introduced in Colorado and New York.

The upcoming Indiana price cap will be based on the statewide average for inpatient and outpatient hospital prices. Medicare rates will serve as the benchmark used to compare commercial hospital prices. By June 30, the state is expected to release a report showing average hospital prices and where individual hospitals fall within that range.

Research by Rand Corp. has for years found Indiana hospital prices to be among the highest in the United States. The most recent state report on hospital pricing, released in November, found that three of the five nonprofit hospital systems exceeded a voluntary benchmark when physician services were excluded from the analysis. When physician services were included, however, all five systems fell below the benchmark.

That finding has contributed to a debate over whether physician services should be included when calculating the new cap. Christopher Whaley, a Brown University economist who has co-authored Rand’s pricing reports, said including physician services could allow high hospital prices to be offset by comparatively low physician prices. Rand researchers found that while some Indiana hospitals are among the nation’s highest-paid, physicians in the state are among the lowest-paid.

Indiana Hospital Association President Scott Tittle argued that physician services should be included in the calculation, stating that they are part of the overall cost of care. He also said hospitals acquire physician practices in part to help maintain physician offices and preserve access to care. Despite objections from the hospital industry, Tittle said the state intends to exclude physician services from the cap calculation.

For employers, rising healthcare costs have created budgeting challenges and increased interest in alternative purchasing arrangements. Under the law, Indiana hospitals must offer direct contracts for a range of procedures priced at or below 260% of Medicare reimbursement levels. Doug Bawel, chairman of Jasper Holdings, said he expects the new pricing limits on direct contracts to improve employers’ negotiating leverage with hospitals.

The policy has also attracted attention beyond Indiana. While government price controls are more commonly associated with Democratic-led initiatives, Indiana’s effort has received support from some business groups that generally oppose such measures. Governor Mike Braun defended the law, saying, “Government has to intervene, because healthcare is run like an unregulated utility.”

Indiana has introduced legislative measures aimed at addressing hospital pricing practices that affect employer-sponsored health plans. The initiative reflects growing concerns about rising healthcare costs and the financial burden placed on employers and employees across Indiana.

The new law is designed to improve affordability while encouraging greater transparency within the healthcare system.

Indiana Addresses Rising Hospital Costs

Healthcare spending continues to increase nationwide, and Indiana policymakers are seeking solutions to help manage escalating hospital prices. Supporters of the legislation argue that excessive pricing can contribute to higher insurance premiums and increased costs for employers that provide health coverage.

By targeting pricing practices, Indiana hopes to create a more balanced healthcare marketplace that benefits businesses and consumers alike.