FORT WAYNE — When Tom Frost received his medical bill from Parkview Health in 2013 following a severe motorcycle crash that had left him in a coma, the uninsured father of two couldn’t believe the charge.
The Fort Wayne nonprofit hospital wanted nearly $630,000.
An auditor hired by the family’s attorney eventually concluded, based on federal billing guidelines, the “fair and reasonable value” of the services Frost received actually amounted to just under $256,000, according to court records.
After a lengthy lawsuit, Parkview and Frost reached an outside settlement agreement for an undisclosed amount.
Those kinds of sky-high hospital bills are something a new Indiana law aims to end — and it’s taking an approach that no other state has tried.
UNTESTED TERRITORY
While states like Montana, Oregon and Washington have adopted hard price caps for certain health insurance plans, Indiana House Enrolled Act 1004 is using a more punitive tactic: Hospitals that charge more than the average state price for a service will have their tax-saving nonprofit status revoked.
Indiana’s nonprofit hospitals receive about $1.6 billion in total value of their tax exemptions, according to the Indiana Hospital Association.
That threat of losing nonprofit status applies only to hospital systems with $2 billion or more in net patient service revenue. That targets Indiana’s “Big Five” nonprofit networks — Indiana University Health, Parkview Health, Community Health Network, Ascension St. Vincent and Franciscan Health.
The Indiana law also sets in motion another first-of-its-kind approach requiring every hospital in the state to eventually offer a direct-to-employer plan that caps hospital prices at 260% of what Medicare pays, cutting out the need for traditional insurance coverage.
The new law approved last month by Indiana legislators has real potential to bring down healthcare costs in Indiana, argued Luke Messer, the director of the Indiana Business Health Collaborative, a partnership between Hoosier employers and health care industry stakeholders.
National healthcare analysis groups have all highlighted the law and are monitoring how the policies play out in the state’s healthcare market. But questions remain about how effective the untested approach will be to bring down prices.
“We’ll see over time whether it’s a workable approach,” Messer said. “But what we all want to see is lower prices, and I’m confident that working together we ought to be able to help make that happen.”
Hoosiers in 2020 paid just slightly more than the national average ($10,191 a year) for overall healthcare, including hospital costs, clinics and prescription drugs, according to an October report released by Indiana University’s Richard M. Fairbanks School of Public Health.
Hoosiers spend 10.7% of the median income on health care, which is lower than the national average, the study found. That’s not to say Hoosiers are getting a deal on healthcare, explained Aparna Soni, an IU health economist who co-authored the report.
“Healthcare spending is an issue across the country, but we don’t think that Indiana is uniquely higher than other states when it comes to healthcare spending on aggregate,” she said.
What is far higher is how much hospitals charge for services compared to Medicare. The state had the eighth-highest hospital costs in the nation, according to a December report by Los Angeles-based research group Rand Corp.
Nationally, employers and private insurers paid on average 254% of the federal Medicare rate for hospital inpatient and outpatient services. In Indiana, that rate sits at nearly 300%, the study found. Medicare payments generally aim to pay a hospital’s break-even costs for services.
Hospital spending in Indiana, like the rest of the country, makes up about a third of all healthcare spending, so policies aiming to bring down those costs make sense, explained John Hargraves, director of data strategy for the Healthcare Cost Institute, an independent research group.
Specifically targeting large nonprofit networks could be an especially impactful approach, since their status allows them to more easily consolidate and push out competing hospitals that could offer lower prices, he explained.
“I don’t think that’s a terrible idea to take a closer look and have regulations within that part of the hospital sector,” Hargraves said.
A NARROW APPROACH
But only focusing price caps on nonprofit health systems ignores the for-profit hospitals that sometimes charge well over 500% of Medicare, noted Judith Garber, a senior policy analyst at the Lown Institute, a nonpartisan healthcare think tank.
In 2022, there were a total of 130 hospitals in Indiana, of which 31 were for-profit, according to a 2024 analysis by statista.com.
“If the goal is to constrain outliers price-wise, restricting the bill to nonprofit hospitals only misses a huge opportunity,” Garber wrote in an analysis of the policy.
Setting price caps just for the state’s big nonprofit systems also puts them at risk of losing out on critical revenue needed to operate in the black, argued Scott Tittle, president of the Indiana Hospital Association.
Medicare and Medicaid patients combined make up anywhere between 65% to 80% of those hospitals’ total revenue, he explained. But Medicare reimburses on average only about 82 cents for every dollar the hospital spends on care. Medicaid reimbursements on average are only 57 cents per dollar.
Hospitals need to charge private patients more to make up for the deficit, according to Tittle.
“Hospitals in Indiana have to look to the commercial side in order to make sure they can keep their doors open,” he said.
Part of the new law could help hospitals get higher Medicaid reimbursements, reducing the need to charge private patients more. The bill gives authority to the state to negotiate with the federal health program to redesign hospital assessment fees levied by the state.
The change would allow hospitals to receive up to 80 cents per dollar on Medicaid. Thirty-eight states or territories have already enacted similar changes to maximize federal reimbursements, according to the Indiana Hospital Association.
“Indiana’s historically low hospital Medicaid base rates can be enhanced,” Tittle said. “ … That will go a long way to help increase those rates tremendously.”
Efforts by U.S. House Republicans to restructure Medicaid could stymie the state’s ability to negotiate for a better reimbursement rate. Two key committees this week approved measures that could slash billions of dollars from the federal health coverage for low-to-middle-income households.
“The proposals in D.C. right now are very concerning to us,” Tittle said, noting he traveled to Washington this month to discuss those issues with Indiana’s delegation. “ … There’s so much uncertainty right now.”
CUTTING OUT INSURANCE
A hidden culprit behind Indiana’s hospital prices might be the rising number of private-sector employees enrolled in self-insured plans, in which employers pay their employees’ health care expenses rather than purchasing coverage directly from insurance companies.
In Indiana, 66% of private sector employees are enrolled in self-insured plans — 20% higher than the U.S. average. That rate has steadily increased in Indiana over the past four years, while declining nationally and in all neighboring states, according to IU’s Fairbanks study.
It’s become an increasingly attractive option for even small- and medium-sized employers, since the plans are not subject to state insurance regulations like coverage requirements, enabling companies to save money, explained IU’s Soni.
The hangup: self-insured employers lack the market power to effectively negotiate prices directly with large health care providers, resulting in higher hospital prices compared to those enrolled in traditional insurance plans, the study found.
Indiana’s new law aims to curb that trend by requiring better access to a third type of health coverage: direct-to-employer plans in which companies contract with a hospital or network of hospitals. The arrangements bypass insurance companies to cut out administrative costs, hidden fees and rising premiums.
Although some hospitals have offered these arrangements for years, the first-of-its-kind statute requires every Indiana hospital to offer at least one direct-to-employer plan by Sept. 1, 2026. The law also requires hospitals to price cap the contracts at 260% of Medicare.
Indiana already has examples of the plans cutting down on costs.
The town of Plainfield saves $1.3 million annually through its direct-to-employer contract with Hendricks Regional Health, according to the hospital association. The plan includes advanced primary care services, employer-based clinics, direct-access mental health and school nursing.
The Indiana Business Health Collaborative will work to bring employers and hospitals together to accelerate the adoption of the new price-caped plans, noted Messer of the Indiana Business Health Collaborative.
“Bringing this to a statewide platform should help significantly to reduces costs,” he said.
In total, the Indiana law approved last month marks one of the most significant efforts in recent memory to curb rising healthcare costs, Messer argued.
Even so, it ignored other critical issues — like a growing physician shortage and Indiana’s subpar health outcomes — that continue to be roadblocks to affordable healthcare, according to IU’s Sori. Until lawmakers tackle all the variables at play in health costs, prices will likely only continue to climb, she argued.
“The discussion in Indiana historically still seems to focus on hospital prices, and that’s really only one piece of the healthcare puzzle,” Sori said. “There are many drivers of high healthcare costs in our state.”