For decades, the price that a commercially-insured patient pays for hospital care has been set through bilateral negotiation between hospitals and insurers — a process that takes place almost entirely out of public view. The result, documented in successive RAND Corporation studies, is that commercially-insured patients in many states pay two, three, or even four times what Medicare pays for the same procedure at the same facility.
Indiana has decided it has had enough. In May 2025, Governor Mike Braun signed House Enrolled Act 1004 into law, making Indiana the first state in the country to pair a hard price ceiling for nonprofit hospital systems with a powerful enforcement mechanism: loss of state tax-exempt status. How that experiment unfolds will matter well beyond the Hoosier State.
Background: How Consolidation Built the Problem
To understand HEA 1004, it helps to know why prices for commercially insured patients deviated so dramatically from Medicare rates in the first place. The answer is not primarily inflation or the cost of advanced technology. It is market structure.
Over the past two decades, Indiana’s hospital market consolidated sharply. The state’s five largest nonprofit systems — Indiana University Health, Parkview Health, Franciscan Health, Community Health Network, and Ascension St. Vincent Health — grew by acquiring smaller independent hospitals, physician practices, and outpatient and ambulatory care facilities, steadily reducing the number of providers competing with them for commercially-insured patients in most regional markets. The pricing consequences were significant: a Ball State University analysis found that Indiana households in the most consolidated markets paid more than double per procedure compared with those in the most competitive markets.
The reason consolidation drove up those prices in Indiana is straightforward. Insurers have little choice but to include systems that cover substantial amounts of lives in their networks. Employers and workers will not sign up for insurance plans that exclude, for example, the only major hospital nearby. That gives a significant system substantial leverage in contract negotiations, which it can use to demand higher reimbursement rates from commercial insurers than it could obtain in a more competitive market. Empirical research confirms the pattern: one study found that hospital systems with 10% higher market share charge roughly $880 to $1,180 more per admission than a comparable competitor.
As a result of the higher prices caused by this healthcare consolidation, Indiana needed a solution to control hospital pricing. HEA 1004 is that solution.
What HEA 1004 Does
HEA 1004 has operated in two phases. First, the law directed the Indiana Office of Management and Budget (OMB) to study average 2023 and 2024 inpatient and outpatient hospital prices at Indiana nonprofit systems and to benchmark those prices as a percentage of Medicare reimbursement. That study will establish a statewide pricing average to govern future enforcement. OMB’s deadline to publish its findings is June 30, 2026, just two weeks away.
Then, beginning in 2029, any nonprofit hospital system whose aggregate average commercial prices exceeds that statewide average, expressed as a percentage of Medicare and adjusted annually for inflation, will lose its state nonprofit status for at least one year, exposing it to full state taxation—a potentially devastating outcome from the hospital system’s perspective. The cap is notably self-reinforcing: rather than setting a fixed Medicare multiple as the ceiling, it floats with the statewide average. As top-priced systems come into line, the average drifts downward, tightening the constraint on everyone else over time.
HEA 1004 also contains a provision that may be more immediately consequential than the 2029 cap: it requires every Indiana hospital to offer a direct-to-employer contracting arrangement capped at 260% of full Medicare rates, giving self-funded employers a statutory path around traditional insurer-negotiated networks. Large nonprofit systems were required to offer such arrangements as of September 1, 2025. Standalone hospitals have until September 1, 2026.
Enforcement and Legal Risk
The nonprofit status revocation mechanism is novel. Prior state pricing efforts like excise taxes, public reporting, and soft benchmarks created friction but rarely forced durable price reductions. Stripping a major health system of its tax-exempt status is a qualitatively different lever, with implications for bonding capacity, property tax liability, and community relations.
No hospital system has filed suit challenging HEA 1004, which is unsurprising as enforcement remains years away and the state’s methodology for calculating average prices is subject to change. The most plausible legal challenges, when they come, will likely center on the Contracts Clause. The five targeted systems hold multi-year commercial payer agreements that now face benchmarking against a state-defined retroactive average. Equal protection challenges are also possible, as the law targets only systems with $2 billion or more in annual net patient service revenue while leaving smaller nonprofits and all for-profit hospitals untouched.
A Growing National Movement
Indiana is not acting in isolation. In 2025, thirteen states considered reference-based hospital pricing legislation; Indiana, Washington, and Vermont enacted laws, with Indiana taking the most aggressive approach of the three. Colorado and New York have moved comparable legislation forward.
The proliferation of state bills reflects a growing national, and often bipartisan, consensus that commercial payers are being overcharged. This is no surprise, as the trend toward intense consolidation nationwide mirrors market dynamics in Indiana. As of 2024, according to the Kaiser Family Foundation, nearly half of all U.S. hospital markets were entirely controlled by one or two health systems. Healthcare consolidation, and its impact on commercial payers, has gone from a disputed empirical question to a widely accepted policy premise. That shift makes state intervention more politically durable than it would have been a decade ago. The situation in Indiana is particularly striking — a Republican legislature and a Republican governor opted for price caps, traditionally viewed as antithetical to free markets, as the best way to restore competition in healthcare.
The Upshot
HEA 1004 represents a meaningful inflection point in how states conceptualize their authority over commercial healthcare pricing, not merely as a transparency matter, but as a structural market intervention. The tax-exempt status mechanism, if it survives legal challenge and is actually enforced, represents a novel example of a state conditioning a major economic benefit on pricing behavior in the commercial health insurance market. And the direct-to-employer contracting requirement, already in effect, creates a statutory bypass of the insurer-intermediated market where Indiana’s dominant systems have maintained their pricing leverage.
A range of policy ideas once considered too radical to enact has become mainstream faster than most observers anticipated. Conditioning nonprofit status on pricing behavior is now a template that twelve other state legislatures examined in 2025 alone, and a model that hospitals, insurers, employers, and antitrust practitioners will be watching closely.
