Indiana law caps hospital prices at 2.6 times Medicare rates

Indiana employers prepare to negotiate direct hospital deals

Jim Evans, chief financial officer for Concord Community Schools in northern Indiana, said he plans to pursue a direct hospital deal this year for the roughly 400 teachers, custodians and bus drivers his district covers. “We think that it could be significant savings,” Evans said. “What the law did was it kind of changed the conversation in terms of how we look at pricing. Now it’s up to us to take advantage of that.”

The law sets the threshold as a multiple of Medicare rather than a fixed dollar amount. Medicare’s standardized prices have become a benchmark for Indiana and other states trying to control health costs.

Randa Deaton, CEO of the Employers Forum of Indiana, said rising hospital prices are impacting businesses and workers. “This is impacting wage growth,” Deaton said. “It impacts businesses, it’s impacting our workers.” The Employers Forum commissioned a 2017 study by the research organization RAND that found some large Indiana hospitals were charging three to four times Medicare prices. The forum has since pushed for what Deaton called a slate of reforms to increase transparency and limit prices. “People have exhausted a lot of the low-hanging fruit for improving care and driving affordability,” Deaton said. “We’re moving to the next set of levers.”

The 2025 law contains two main provisions. The first, effective Sept. 1, requires 75 hospitals to offer direct employer deals at no more than 2.6 times Medicare prices. Direct-to-employer arrangements have grown in popularity nationwide because hospitals offer employers lower prices in exchange for more patients and faster payment.

Parkview Health, one of Indiana’s largest health systems, has offered direct deals for about 30 years. Lainie Dean, Parkview’s chief of commercial partnerships, said the new law is already generating interest. “We’re getting a lot of reach-outs in all areas of direct-to-employer product offerings,” Dean said. “We actually see this growing significantly.” A 2026 state report shows Parkview and other Indiana hospitals are already complying with the new threshold. The 2017 RAND study had identified Parkview among the systems charging the highest prices in the state.

Indiana is not the first state to test such limits. Montana, North Carolina and Oregon were among the earliest to apply caps on a smaller scale, beginning with their own state-employee health plans. Researchers found that after two years under the price limit, Oregon saved more than $107 million and outpatient prices per procedure fell by 25 percent. The Oregon experience also documented a side effect: some hospitals that had been charging below the cap raised their prices up to it.

Tony Lo Sasso, a health economist at the University of Wisconsin, said the side effect could spread. “You’ll get that sugar high of price relief,” Lo Sasso said. “But it’s not going to be sustainable.” Lo Sasso argued the caps do not address the underlying cause of high prices — a lack of competition among hospitals.

The law’s second provision takes a different approach. Effective by 2029, large nonprofit hospitals that have not brought prices below a separate statewide average could lose their nonprofit status and be required to begin paying taxes.

Indiana Hospital Association President Scott Tittle pointed to reports showing hospitals have voluntarily cut prices over the past three years. But he said the price reforms are arriving as hospitals face financial pressure from deep Medicaid cuts, increased labor costs, and the threat and reality of tariffs. “The increased cost of goods and services, the threat and then actual imposition of tariffs,” Tittle said. “And these are costs that our members have no control over. Our members are certainly struggling on the ground.”

Whether patients see direct savings is less clear. John Sadtler, CEO of SIHO Insurance Services, a small hospital-owned insurer in Indiana, said lower hospital prices are part of the premium equation but not all of it. “That’s a part of the equation, but that’s not the whole equation,” Sadtler said, pointing to expensive medications and patients seeking more care as other contributors to high premiums.

Indiana’s law does not require insurers to reduce premiums by the amount of any hospital price reduction. Vermont’s price-cap law, also passed in 2025, does. The Vermont law gives the state’s insurance regulator authority to ensure that lower hospital prices reach patients.