Indiana is putting hospitals on notice: Lower commercial prices or face financial consequences. A new state law enacted in July 2025 that goes into effect on Sept. 1 puts price caps on the state’s largest nonprofit health systems.
They are required to offer direct-to-employer contracts at or below 260% of Medicare. The hospital systems have until 2029 to bring aggregate inpatient and outpatient prices at or below a statewide average.
The five nonprofit hospital systems affected by the pricing provision are Ascension St. Vincent, Community Health Network, Franciscan Health, Indiana University Health, and Parkview Health. These systems control nearly half of Indiana’s hospital market.
If a hospital system violates that requirement, under the law it forfeits its nonprofit status for at least one year.
Molly Smith, American Hospital Association group vice president for Policy, said “Price caps don’t work. Hospitals and health systems have substantial experience with price setting through the Medicare and Medicaid programs, and the result is chronic underpayments to the tune of $100 billion annually.”
Smith further stated that if states cap commercial payments, hospitals will have fewer resources to maintain staffing, preserve essential services, invest in facilities and technology, and care for patients covered by Medicare, Medicaid or no insurance at all.
Indiana Gov. Mike Braun supported the pricing law over opposition from the hospital industry. Braun said, “Government has to intervene because healthcare is run like an unregulated utility.”
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The law comes as policymakers and employers continue to scrutinize commercial hospital prices. An analysis found that private insurance prices for hospital care rose 30% from April 2019 to April 2026, compared with a 21% increase in Medicare rates.
The law, House Enrolled Act 1004, states that Indiana nonprofit hospital systems must offer a direct-to-employer healthcare arrangement that is at or below a benchmark of 260% of full Medicare.
The benchmark is calculated using hospital inpatient facility prices and hospital outpatient facility prices, expressed as a percentage of full Medicare. For these hospitals, the benchmark includes hospital inpatient facility prices, hospital outpatient facility prices and professional fees for services provided by an employed qualified practitioner.
By June 30, 2029, an Indiana nonprofit hospital system’s aggregate average inpatient and outpatient hospital prices must be equal to or less than the statewide average determined by the Office of Management and Budget.
Indiana Hospital Association (IHA) Deputy General Counsel Laura Brown told Healthcare Finance News, “Indiana hospitals are committed to offering competitive direct-to-employer arrangements that help employers reduce administrative complexity, lower healthcare costs and ultimately improve health outcomes for their employees,” “Indiana hospitals are committed to affordability for employers and Hoosier patients. However, IHA remains concerned by the potential loss of nonprofit status for hospitals based on meeting an unknown statewide average commercial price in the future.” Brown said this does not take into consideration the uncertainty of rising cost pressures and other significant economic factors and government policies that will further threaten the financial stability of Indiana’s healthcare ecosystem.
In the middle of this debate, policymakers must balance the need to control costs with the need to ensure that hospitals have the resources they need to provide quality care, especially for island families in need.
Indiana’s law now puts those competing arguments into a state implementation process that includes direct-to-employer contracting, state price benchmarking, and potential consequences for nonprofit hospital systems that exceed the statewide average.