A debate has stirred for years in Indiana about the kind of public action needed to bring down our state’s out-of-control hospital prices.
In the previous legislative sessions, elected officials have chiseled around the issue, passing legislation in hopes the health care market will fix itself. After not seeing improvement, last year House Speaker Todd Huston and Senate President Pro Tem Rodric Bray sent letters to the largest hospital-system and insurance company CEOs, asking them to work together to lower their prices to the national average, signaling that if they did not, they would be forcing policy makers to step in to protect Hoosier families and businesses.
Indiana University Health is the only hospital system that is committed in writing to lower its prices to the national average by April 2025. For that, we recommend them.
Disappointingly, the other hospital systems did not make this commitment.
Per the RAND 4.0 study published in May 2022, Indiana employers and their employees paid 292% of the prices hospitals charge Medicare for the same services, placing the state seventh-highest in the country for total hospital prices (hospital inpatient, outpatient and physician payment ).
The result is a more expensive health care market than any of our neighboring states.
This year is different from previous legislative sessions as members of leadership have prioritized action on health care prices and are engaging with policy solutions that work to keep the price of health care services affordable. I thank Huston, Bray and other policy leaders championing bold policies to respond to a growing crisis.
It has taken a great deal of data, education and effort to get us to this point.
Prohibiting physician non-compete clauses, preventing hospitals from charging higher rates at physician office clinic visits, and seeking to statutorily lower the price of health care services to the national average are a few of the policies on the table in the 2023 legislative session. Legislative leaders know that Indiana hospital prices, especially those of our larger hospitals, are much higher than those of surrounding states.
The National Academy for State Health Policy Hospital Cost Tool is a new database composed of data from Medicare Cost Reports, which are developed and submitted by hospital executives. These figures reveal that Indiana’s largest hospital systems are profitable and have substantial cash/investment reserves. Diving deeper into this database, we see that the largest hospital systems for the past 11 years have consistently made higher profits than smaller hospitals.
Herein lies the issue with our health care market in Indiana. The market produces high prices that workers and employers pay, especially among the larger health systems. That is the way our system has been designed, with a major hospital consolidation leading to a heavily concentrated, uncompetitive market.
Legislators heard this firsthand from authors of a Petris Center study in an October 2022 pre-session presentation.
These higher prices are a tax on Indiana businesses and directly impact worker wages.
An Altarum survey of 1,249 Indiana adults, conducted in October 2022, found that 72% agreed or strongly agreed that “the system needs to change.” More than 3 in 5 respondents (63%) experienced at least one health care affordability burden in the past year.
This data point is key. Shockingly, one in six Hoosiers has medical debt in collections, per the Urban Institute.
How to address the challenges is an urgent public policy question. We need high-quality, solvent hospitals, but Hoosiers also deserve the best possible value for the dollars we spend on medical care. There are bills before the General Assembly that will maintain that balance while improving the market structure, increasing competition and lowering prices.
Bills like Senate Bill 6, which bans hospital facility fees charged at doctor’s office visits, and SB 7, which would put an end to non-compete clauses in physician contracts for some hospitals, are a great start.
House Bill 1004, authored by Rep. Donna Schaibley, is a transformative bill in that, in addition to including these two policies, promotes price transparency and creates a statutory guardrail for hospital prices. Specifically, larger nonprofit hospitals that charge commercial prices (which are paid by employers and their employees) more than 260% of the Medicare prices for the same health care services would be required to pay a penalty. That penalty would help fund Indiana’s Medicaid obligations for low-income Hoosiers.
This reference-based pricing will go a long way to keeping prices to the national average. The 260% is the national average per the RAND 4.0 study. This simply means that commercial prices cannot be more than 2.6 times what hospitals are getting paid by Medicare for the same service. That seems reasonable.
Why should Hoosiers be paying more than this?
This debate over what to do about high health care prices in our state has been ongoing for years, but thankfully Indiana’s legislative leadership has stepped forward with strong viable policies.
Gloria Sachdev is president, CEO and board chair of the Employers’ Forum of Indiana.