States try new tactics to bring down high hospital prices

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Every year Jim Evans faces the challenge of keeping health care costs reasonable for the more than 400 teachers, custodians and bus drivers at Concord Community Schools. Evans, the chief financial officer for the Northern Indiana school district is trying something new this year — negotiating directly with a local hospital.

"We think that it could be significant savings," said Evans.

This is possible because of a new state law that goes into full effect on Sept. 1, requiring 75 hospitals to offer employers deals below a new price threshold. Instead of a specific number, it's a multiple of Medicare rates. The federal health insurance program for Americans 65 and older publishes standardized prices, and that has become a benchmark for Indiana and other states trying to control health costs.

"What the law did was it kind of changed the conversation in terms of how we look at pricing," Evans said. "Now it's up to us to take advantage of that."

Hospital prices are one of the main reasons why health care is so expensive. In fact one out of every two dollars of commercial health insurance goes to hospital care.

But most employers don't negotiate their own rates. Usually they hire an insurer who negotiates prices, but rarely have insight into how those prices compare to Medicare rates. For years employers have absorbed the increases — KFF, a nonpartisan health research organization, found prices hospitals charged private insurers went up 30 percent over the last seven years.

Indiana and other states including Vermont and Delaware have passed laws over the last few years to place upper limits on hospital prices for people with private health insurance.

Indiana puts employers at the center

"This is impacting wage growth," Randa Deaton, CEO of the Employers Forum of Indiana, said about employers struggling to absorb high hospital prices. "It impacts businesses, it's impacting our workers."

The Forum commissioned a study by the policy research organization RAND back in 2017 that found some large hospitals in Indiana were charging three to four times Medicare prices. Since then the Forum has pushed for 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."

In 2025, Indiana lawmakers enacted two major price reforms. The first requires hospitals to offer direct employer deals no more expensive than 2.6 times Medicare prices. These direct deals have grown in popularity nationwide because in exchange for more patients and faster payment, hospitals offer employers lower prices.

Parkview Health, one of the largest health systems in Indiana, has offered these kinds of arrangements for 30 years. Parkview's chief of commercial partnerships, Lainie Dean, expects the law to make them more popular.

"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."

These deals will likely add up slowly, hospital by hospital as employers start to choose the option. The 2017 RAND study found Parkview Health was among the hospital systems charging the highest prices in the state.

A 2026 state report shows Parkview and the other hospitals are already complying with the law, offering deals below this threshold.

Before Indiana, other states tested price caps on a smaller scale — starting with their own state employee health plans. Montana, North Carolina and Oregon were among the first.

Evidence on price caps

Researchers found that after two years under the price limit, Oregon saved over $107 million and outpatient prices per procedure fell by 25%. However, some hospitals that had been charging below the cap raised prices up to it.

Tony Lo Sasso, a health economist at the University of Wisconsin, worries this side effect could spread. He warns caps don't fix the underlying problems driving high prices — a lack of competition.

"You'll get that sugar high of price relief," Lo Sasso said, "But it's not going to be sustainable."

Focus on the nonprofits

The second provision of Indiana's price reform law kicks in by 2029 and has more teeth. If large nonprofit hospitals don't bring prices below a separate statewide average by then, they risk losing their nonprofit status — and they would be required to start paying taxes.

Indiana Hospital Association President Scott Tittle points to reports showing hospitals have voluntarily cut prices over the last three years.

But he warns these price reforms are hitting as hospitals are being squeezed by deep Medicaid cuts and increased labor costs.

"The increased cost of goods and services, the threat and then actual imposition of tariffs. And these are costs that our members have no control over," Tittle said. "Our members are certainly struggling on the ground."

Tittle adds, it's up to insurers to pass those savings on to patients. Patients will see immediate changes in the form of lower out-of-pocket costs for specific bills. But when it comes to monthly premium reductions the picture is more complicated, said John Sadtler, CEO of SIHO, a small, hospital-owned insurer in Indiana.

"That's a part of the equation, but that's not the whole equation," Sadtler pointed to expensive medications and people seeking more care as other factors that are contributing to high premiums.

Indiana's law doesn't require insurers to reduce premiums commensurate with hospital price reductions. Vermont's price cap law, also passed in 2025, does. It gives the state's insurance regulator the authority to ensure that lower hospital prices actually reach patients.

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