Indianapolis, Indiana.
Indiana is trying a new strategy for controlling health benefits costs: limiting what the biggest nonprofit hospital systems in the state can charge employers for care.
A new law will require the state's five biggest nonprofit hospitals owners to offer employers a direct-to-employer health care arrangement that provides average prices that are at or below a benchmark of 260% of the full Medicare charges.
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A hospital can meet the employer direct-contracting price requirement by providing the contracts directly to employers or by participating in hospital network that provides the price-capped contract option to employers.
Hospitals are supposed to start offering employers the price-capped option by Sept. 1.
Related: Hospital price transparency: Is it pushing prices down?
By June 30, 2029, the big nonprofit hospitals are supposed to offer patients prices that are less than or equal to the statewide hospital price average.
Nonprofit hospitals that have above-average prices may lose their nonprofit status for at least year, according to the bill text.
Gov. Mike Braun, a Republican, signed the bill creating the law earlier this month.
The history: Indiana lawmakers developed the price-cap strategy in response to RAND studies showing that the gap between what employers pay for hospital care and what Medicare pays is wider in Indiana than in the rest of the country.
In 2022, for example, Indiana employers paid 309% of what Medicare paid for inpatient facility charges. For the United States as a whole, the average ratio was 253%.
For outpatient care, the average employer-to-Medicare ratio was 370% in Indiana and 299% in all states.
Public health researchers at the University of California, Berkeley, argued in a 2022 analysis that Indiana hospital prices are unusually high partly because mergers and acquisitions have reduced the level of competition in the state's hospital market.
Medicare-linked reference-based pricing: At least six states — Colorado, Montana, North Carolina, Nevada, Oregon and Washington — limit non-Medicare-patient-price-to-Medicare-price for at least some types of non-Medicare patients, according to the National Academy for State Health Policy.
The laws limit prices at some hospitals.
In Montana, North Carolina and Oregon, the groups of patients eligible for the price limits are enrollees in public employee health plans.
In Colorado, Nevada and Washington state, the patients eligible for the hospital price limits are enrollees in "public option plans," or the equivalent of state employee health plans that are open to individuals who buy coverage through a state's Affordable Care Act exchange.
The Indiana law appears to be the first to make Medicare-linked reference based pricing available to ordinary private employers' health benefits plans.
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Allison Bell
Allison Bell, a senior reporter at ThinkAdvisor and BenefitsPRO, previously was an associate editor at National Underwriter Life & Health. She has a bachelor's degree in economics from Washington University in St. Louis and a master's degree in journalism from the Medill School of Journalism at Northwestern University. She can be reached through X at @Think_Allison.
