Indiana has enacted legislation aimed at lowering healthcare costs by allowing employers to negotiate prices directly with hospitals based on Medicare benchmarks. A key provision of the law, which goes into full effect on Sept. 1, requires 75 hospitals to offer deals to employers at rates no higher than 2.6 times what Medicare pays for the same services.
The legislation follows a 2017 study by the RAND Corporation, commissioned by the Employers Forum of Indiana, which found some large Indiana hospitals were charging three to four times Medicare rates. While insurers typically negotiate rates on behalf of employers, advocates for the law stated that businesses often lacked insight into how those prices compared to federal benchmarks. KFF reported that hospital prices for private insurance rose 30% over the last seven years.
The law includes a second, more stringent phase scheduled for 2029. Under this provision, large nonprofit hospitals must bring their prices below a specific statewide average or risk losing their nonprofit status, which would require them to begin paying taxes. Indiana Hospital Association President Scott Tittle stated that hospitals have voluntarily cut prices recently but are currently facing increased labor costs and Medicaid cuts.
The scale of potential savings is modeled on other states like Oregon, which reported a $107 million reduction in spending and a 25% drop in outpatient procedure prices after two years of similar caps. However, researchers such as Tony Lo Sasso of the University of Wisconsin noted that some hospitals in those states raised prices to meet the cap if they were previously below it. In Indiana, the 2029 deadline sets a precedent by using a hospital's tax-exempt status—worth significant annual savings for nonprofit systems—as a financial lever to enforce price averages.
What happens next depends on how insurers and hospitals implement these changes. On Sept. 1, the 2.6-times Medicare threshold for direct-to-employer deals becomes fully enforceable. By 2029, nonprofit hospitals must meet the statewide price average or face the loss of their tax exemptions. Unlike a similar law in Vermont, Indiana’s current statute does not explicitly require insurance regulators to verify that hospital price reductions are passed directly to patients in the form of lower monthly premiums.