Lawmakers seek compromise on complex hospital pricing legislation

Indiana lawmakers have discovered this legislative session that performing major financial surgery on multibillion-dollar nonprofit hospital systems is a motley and entangled task.

House Bill 1004 grew from a slim four pages when introduced on Jan. 21 to a massive 133 pages when the Senate passed it April 15.

By comparison, the state budget bill—which appropriates money for state operations, K-12 and higher education, Medicaid and other services—is not much longer at some 175 pages.

Now, with just days left in the 2025 legislative session, lawmakers are looking for a compromise on a bill that’s transformation wasn’t only in size. Its multiple iterations have ranged from proposals that troubled hospitals to language that critics say barely does anything at all.

Welcome to the complex and politically charged world of health care.

On Monday afternoon, a four-member conference committee—including the bill’s author, Rep. Martin Carbaugh, R-Fort Wayne, and a Senate sponsor, Sen. Chris Garten, R-Charlestown—met briefly to formally launch the process of finalizing a bill.

They’re starting with the Senate passed version of the bill—approved 29-19—which threatens to strip Indiana’s largest nonprofit hospital systems of state nonprofit status if they exceed certain average price thresholds.

“Hospital prices and the rate at which they’ve grown have outpaced nearly every consumer good,” Garten, the Senate’s majority floor leader, told the Senate last week. “Friends, health care is not a free market.”

But the methods lawmakers are proposing to use to calculate what’s considered an excessive price have changed considerably throughout the course of the session, as has the time frame under which prices will be analyzed and the potential penalties hospitals could face if they run afoul of the law.

As originally authored by Carbaugh, HB 1004 was straightforward in its impetus: Scrutinize the prices Indiana nonprofit hospital systems charge patients who are covered by commercial health insurance, typically provided by their employers.

The debate quickly became more nuanced.

“The conversation we have with the General Assembly is to talk about how everyone has to play their part,” said Scott Tittle, president of the Indiana Hospital Association. “There are providers, there are payers, there are consumers, there are employers. It all funnels through back to the pricing component.”

Advocates of HB 1004 pointed to a recurring study updated in December by Los Angeles-based research group Rand Corp. that found Indiana had the ninth-highest hospital costs in the nation.

The study reported that in 2022 across all U.S. hospital inpatient and outpatient services, employers and private insurers paid on average 254% of the federal Medicare rate set for procedures. Those costs do not include physician charges.

The study found that in Indiana, those charges were 297% of Medicare.

HB 1004 tries to attack those prices by focusing on large nonprofit hospitals. But the debate among lawmakers this session has covered myriad other health care concerns, including questions about the health insurance market, free-market concerns over price limits and the plight of rural hospitals.

As introduced, HB 1004 said that if any of the charges at a nonprofit hospital exceeded 200% of the Medicare reimbursement rate at the time of the charge, the hospital would face forfeiture of its state nonprofit status.

For example, a Medicare rate for a procedure might be $6,000. At 200%, the hospital could charge up to $12,000 to private-pay patients without facing penalty.

Other versions of the bill pegged high prices to different percentages of Medicare—while the legislation under consideration as IBJ went to press stripped out the Medicare reference altogether, redefining high prices based on state averages.

Over time, various versions of the bill had differing punishments, as well. One early version, for example, threatened hospitals with significant financial penalties in the form of a new excise tax.

Focus on the Big Five

As passed by the Senate, HB 1004 uses state averages to determine what prices are excessive. That does not allow for national comparison and, given the billions in revenue from the state’s largest hospitals systems, means the hospitals under the bill will be scrutinized on average prices that they themselves heavily influence.

The bill calls for the Indiana Office of Management and Budget to—before June 30, 2026—conduct a study of inpatient and outpatient hospital prices from 2023-2024 to determine statewide average prices, to be reported as a percentage of Medicare reimbursement.

Then, each year starting June 30, 2027, the office will adjust the average price based on the medical Consumer Price Index.

Starting in 2029, a hospital system will lose its state nonprofit status if its aggregate average prices were not equal to or less than the state average, although it could re-establish nonprofit status by returning to compliance.

The bill’s pricing scrutiny targets hospital systems with $2 billion or more in net patient service revenue. In Indiana, that affects a group often called the “Big Five”—Indiana University Health, Ascension St. Vincent, Community Health Network, Franciscan Health and Parkview Health.

But the Senate-passed version of the bill disappointed one of the biggest backers of the original version of the legislation. The advocacy group Hoosiers for Affordable Healthcare said the most recent iteration would not bring hospital prices down to the national average.

“For six years, we have attempted to get the large nonprofit hospitals to reduce their prices to the national average. They have proven again and again they are not interested in being responsible stewards of their nonprofit status,” Devin Anderson of Hoosiers for Affordable Healthcare said in an emailed statement.

“We urge the General Assembly to keep working on legislation that demands national average pricing with savings going back to working Hoosiers and Main Street businesses.”

Hoosiers for Affordable Healthcare has been trying to rally individuals and business leaders to push for lower prices they say will only help the economy and help attract more companies to the state.

And, indeed, much of the support for the legislation has come from Hoosier employers frustrated with the high cost of paying for their workers’ health care benefits.

Andrew Berger, CEO of the Indiana Manufacturers Association, said many manufacturers in his organization have employees in multiple states and note that Indiana’s health care costs are higher.

“They’re paying a premium to employ people in Indiana,” Berger said. “That’s why we’re involved in this issue. It’s not just the company’s bottom line that’s impacted. It’s the economic vitality of the state.”

Michael Hicks, professor of economics and director of the Center for Business and Economic Research at Ball State University, said it costs about $6,000 more a year to provide a family of four with health insurance in Indiana than in Michigan or Ohio.

Many factors contribute to hospital prices and overall health care costs, and researchers evaluate costs using varying methods.

A report released last October by the Indiana University Richard M. Fairbanks School of Public Health found that Indiana’s total per-capita health care spending was nearly identical to the national average and similar to that of neighboring states. That calculation included spending on hospital care, physician services and pharmaceuticals.

The IU report, however, noted that Indiana stood out when it came to commercial insurance, a primary focus of HB 1004.

Hoosiers are 20% more likely than other Americans to be enrolled in self-insured health insurance plans. Under such plans, the employer takes the risk of providing coverage and pays its workers’ claims, as opposed to purchasing coverage where the insurer takes the risk.

“Self-insured employers lack the market power to effectively negotiate prices with hospitals,” the report noted, adding that the dominance of self-insured plans in Indiana might partially explain high hospital prices.

For example, Anthem Blue Cross and Blue Shield—the state’s largest insurer—might represent an employer as a fully insured customer or as a third-party administrator handling claims processing and other tasks. (Anthem, a subsidiary of Indianapolis-based Elevance Health, prints information about whether a plan is fully insured or TPA on the back of its membership cards.)

Prices may vary

Hoosiers for Affordable Healthcare commissioned an analysis of hospital charges in 2024 for high-volume claims and provided to IBJ its report of negotiated reimbursement rates from Anthem Blue Cross and Blue Shield and United Healthcare at specific hospitals. The report also included baseline Medicare rates from the U.S. Centers for Medicare and Medicaid Services.

A look at a common inpatient hospital charge—childbirth without complications (coded by Medicare as MS–DRG 807 vaginal delivery without sterilization/dilation and curettage and without complication or comorbidity or major complication or comorbidity)—shows Indiana hospitals with rates typically multiple times the adjusted Medicare rate.

At Indiana University Health’s Methodist Hospital, the PPO negotiated rate of $12,458 for Anthem was 304% of the Medicare adjusted rate, and the PPO negotiated rate of $14,111 for United Healthcare was 344% above the baseline rate.

PPOs—or preferred provider organization plans—are health insurance plans that offer a network of doctors and hospitals, called in-network providers. The rates listed as PPO rates are for in-network providers.

For the same birth at Community Hospital North, the Anthem rate was 234% above the Medicare rate, while United Healthcare’s was 217% above.

In many cases in the Hoosiers for Affordable Healthcare pricing data examined by IBJ, Anthem’s prices were higher than United’s, despite Anthem’s parent company, Indianapolis-based Elevance Health, having a 69% market share in Indiana, according to 2021 data from the Kaiser Family Foundation. Insuring more than 2/3 of the market should, in theory, give Elevance leverage to negotiate lower prices with providers.

“Anthem is focused on negotiating physician payment rates that continue to attract world-class doctors and specialists to Indiana, while decreasing hospital price trends to address our state’s position as the eighth most expensive in the country for inpatient care,” Anthem spokesperson Jeff Blunt said in an email.

“It’s critical to note that negotiated prices for a small number of selected services do not necessarily reflect the overall negotiated discount between the provider and health plan,” he said.

Community Health also cautioned against looking at a small selection of pricing and drawing conclusions. Spokesperson Kris Kirschner said in an email that “each situation is unique, and there is no ‘one price fits all’ answer.”

Said IU Health spokesperson Jay Kenworthy: “Government rates are below our costs.”

HB 1004 seeks to address low government reimbursement through a new State Directed Payment Program to enhance reimbursement for care provided to patients covered by Medicaid. The bill also seeks to enact a Managed Care Assessment Fee for additional funding to the state for Medicaid expenditures.

Hospitals also cautioned against looking at select individual charges instead of at overall pricing.

Fort Wayne-based Parkview Health officials told IBJ that when adjusted for inflation, employers and patients are paying 22% less at Parkview in 2025 than in 2020. “Most recently, Parkview also proposed further rate cuts for hospital services for commercial patients,” Dr. Jason Row, chief value transformation officer at Parkview Health, said in an email.

“Combined, these efforts mean that care at Parkview hospitals will cost less in 2028 than it did in 2019,” Row said.

In 2020, IU Health launched an affordability plan for management of commercial hospital prices, in part to “commit to fair and reasonable pricing.”

“IU Health’s care affordability plan has saved patients and employers over $1 billion in the last five years,” IU Health CEO Dennis Murphy said in an emailed statement. “We know more needs to be done and are working with policymakers to find solutions that won’t negatively affect access or quality of care.”

Despite such statements of cooperation, clarity about how to address hospital prices in the General Assembly is no easy task.

Still, lawmakers say they are undeterred.

“Somewhere between 40 and 45 states do it better than Indiana,” Garten, the bill’s Senate sponsor, said before casting his vote for HB 1004. “Why? Why is that OK?”