Now is the time for action on healthcare prices
A debate has stirred for years in Indiana about what kind of public action is needed to bring down our state’s out-of-control hospital prices. In previous legislative sessions, elected officials have chiseled around the issue, passing legislation in hopes the healthcare market would fix itself.
After not seeing improvement, last year Speaker Huston and President Pro Tem Bray sent letters to the largest hospital-system and insurance company CEO’s asking them to work together to lower their high prices to the national average own their own, signaling that if they did not, they would be forcing policy makers to step in to protect Hoosier families and businesses. Indiana University Health was the only hospital system that committed in writing to lowering their prices to the national average by April 2025, and for that, we commend them. Disappointingly, the other hospital systems did not make this commitment.
Per the RAND 4.0 study published 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 healthcare market than any of our neighboring states.
This year is different from previous legislative sessions as members of legislative leadership have prioritized action on healthcare prices and are engaging with policy solutions that work to keep the price of healthcare services affordable. I thank Speaker Todd Huston, Senator Rodrick Bray and other policy leaders who are championing bold policies to respond to a growing crisis in our state. 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 healthcare services to the national average are just 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 (NASHP) Hospital Cost Tool is a new database composed of data from Medicare Cost Reports, which are reports developed and submitted by hospital executives themselves. 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 hospitals-systems for the past 11 years have consistently made higher profits than smaller hospitals.
Herein lies the issue with our healthcare market in Indiana. The Indiana 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 major hospital consolidation leading to a heavily concentrated, uncompetitive market. Legislators heard this first-hand 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 impacts Indiana worker wages.
An Altarum survey of 1,249 Indiana adults, conducted in October 2022, found that 72% of Hoosiers agreed or strongly agreed that “the system needs to change.” More than three in five respondents (63%) experienced at least one healthcare 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 caused by our ineffective hospital market is an urgent public policy question. We need high-quality, solvent hospitals, but Hoosiers also deserve the best possible value for the dollar we spend on medical care. There are bills before the Indiana 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 Senate Bill 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 Indiana State Representative Donna Schaibley, is a transformative bill in that in addition to including these two policies, this bill 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 healthcare 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 and this simply means that commercial prices can not be more than 2.6 times what hospitals are getting paid by Medicare for the exact same service. That seems reasonable. Why should Hoosiers be paying more than this?
This debate over what to do about high healthcare prices in our state has been ongoing for years, but thankfully Indiana’s legislative leadership have stepped forward with strong viable policies.
Gloria Sachdev, PharmD, serves as President, CEO, and Board Chair of the Employers’ Forum of Indiana.