Indiana Takes On Powerful Hospitals by Capping Prices They Charge Employers
“Government has to intervene, because healthcare is run like an unregulated utility,” Indiana’s GOP governor says of the state’s effort to regulate hospital prices.
Indiana Caps Prices Hospitals Charge Employers, With Tax Exemptions on the Line
Conservative Indiana is trying a liberal tactic to contain health costs: setting government price controls on hospitals.
Under a law enacted last year, five of Indiana’s largest nonprofit hospital systems may not charge patients covered by job-based health plans more than an established price cap. Hospitals that fail to keep prices below the threshold by 2029 risk losing their tax-exempt status — which would mean owing millions of dollars in state taxes.
Even before that penalty kicks in, the law requires these hospitals, which control nearly half the state’s hospital market, to offer direct-to-employer contracts — bypassing insurers — and to stay within price limits set by the state. Hospitals that don’t comply face a $10,000-a-day penalty.
Many other Indiana hospitals must comply with this provision beginning in September.
We decided to take a closer look at this initiative, because the idea of a Republican-controlled state expanding government regulations to attack healthcare costs seemed highly unusual.
Indiana’s law comes amid growing frustration with rising insurance costs and hospital prices, the biggest driver of growing healthcare costs.
Government price controls are nothing new in healthcare. Since the mid-1960s, the federal government has set prices it pays hospitals for treating Medicare enrollees, as states do for Medicaid patients. Those two government programs cover more than 135 million people nationwide.
But hospitals face no such government limit on what they charge for the more than 165 million Americans covered by employer-paid insurance.
Indiana isn’t the only state targeting hospital prices, but it’s a rare Republican-controlled state doing so. Vermont, which has a Democratic legislature and Republican governor, also limits how much hospitals can charge for people covered by employer plans. And Washington and Oregon, controlled by Democrats, have made similar attempts on a smaller scale, targeting state employee health plans.
For years, studies by research group Rand Corp. have found that Indiana hospital prices are some of the highest in the nation.
Hospital leaders and other opponents of price controls argue that the strategy doesn’t address the root causes of high hospital prices, such as rising labor, drug, and technology costs, and that the caps will force hospitals to cut services.
But Mike Braun, the Republican governor who helped muscle through the changes over the objections of the Indiana hospital industry, said the healthcare system is too broken to leave alone. “Government has to intervene, because healthcare is run like an unregulated utility,” he told KFF Health News.
Ashton Eller, a healthcare lobbyist for the Indiana Manufacturers Association, said the group generally opposes government price controls. But it believes this is a step in the right direction, he said.
“Is this a silver bullet that will bring down prices overnight? We don’t pretend it is,” he said.
