May 22, 2023

Here’s how new laws could lower Indiana residents’ health care costs

Karolina Grabowska/Pexels

Karolina Grabowska/Pexels

Indiana lawmakers tried to chip away at health care costs this legislative session by introducing five bills that directly take aim at industry giants. Only two of the bills crossed the finish line after months of debate and testimony from industry experts and lobbyists. 

It was no small feat because Indiana’s economy is heavily reliant on the health care industry, which makes up nearly 15 percent of the state’s gross domestic product –– second only to manufacturing –– according to a report produced for Biocrossroads.

During hours of testimony, health care industry leaders warned lawmakers of the fallout that could ensue from some of the bills they proposed –– including hospital closures, layoffs, curtailed services and soaring insurance premiums. On the flip side, patient advocacy groups reminded them of the potential to cut spending and save billions of dollars in health care costs. 

Now that session has ended, here’s a look at where lawmakers landed and what it means for people in Indiana. 

A ban on noncompete agreements for some physicians

Lawmakers had high hopes for reining in hospital practices they say contribute to soaring health care costs in the state. 

The results were mixed. One measure – Senate Bill 7 – took aim at the use of noncompete agreements in labor contracts for physicians. 

One in five U.S. workers has a noncompete agreement, which means if they leave their job or get laid off, they’re likely to have restrictions on where they can go next. When doctors are bound by noncompetes, it could mean they have to leave their community or change fields to work for another hospital. 

Lawmakers passed Senate Bill 7 after it was significantly watered down from its original version. The bill, which Gov. Eric Holcomb signed into law, takes effect July 2023 and bans noncompete agreements for primary care physicians only. This leaves dozens of other medical specialists vulnerable to such restrictive covenants. 

This new law could mean that primary care physicians will be more likely to continue practicing in their communities even if they change employers. 

But noncompete agreements for other specialties could force other physicians out of the state if they want to change employers, since Indiana has only a handful of large health systems. This could leave entire communities with lapses in access to specialized care.

Another disturbing downside to noncompetes is that they can make physicians think twice before advocating for their patients' care and safety, said Dr. Jonathan Jones, the president of the American Academy of Emergency Medicine. 

This can happen if, for example, concerns about hospital finances influence decisions regarding patient care. Or, as took place at the height of the COVID-19 pandemic, if doctors speak up for not having appropriate personal protective equipment.

“If I speak up against a potential injustice, one, I might lose my job, but to get a new job, I'm going to have to physically move. I will have to uproot my family, my wife or my husband. I'm going to have to enroll my children in a new school,” Jones said. “So this has an incredibly chilling effect on the ability of physicians to speak up.” 

Hospital leaders have lobbied against the bill throughout the session. 

They said that banning noncompetes would drive physician wages up at a time when hospitals are already struggling financially. Small rural hospitals also said that noncompetes help them stay afloat by limiting the chances of their doctors being poached by big health systems with deep pockets. 

“If they are unable to keep their physicians that they've invested in, that they've spent money to train, that they've recruited, we do think that this problem of physician shortages may be exacerbated,” said Chad Golder, the American Hospital Association’s deputy general counsel.

Cracking down on hospital billing practices

Lawmakers passed a provision in House Bill 1004 that will ban “facility fees” – extra charges hospitals sometimes tack onto medical bills even when a service has been provided at a location off the hospital’s main campus. 

The measure takes aim at the state’s five biggest nonprofit health systems: Indiana University Health, Ascension, Franciscan Health, Parkview Health and Community Health Network. 

The original bill proposed fines to hospitals if they charged higher than a certain benchmark, originally set at 260 percent of what Medicare would pay for the same service. This has been scratched out of the bill. The new law will only require the state to collect information when a hospital charges higher than 285 percent of Medicare, starting in November 2024.

Still, groups that advocated for the bill see it as a step in the right direction.

“It's a really big win for Hoosiers,” said Gloria Sachdev, the president of the Employers Forum of Indiana. “My hope is that hospitals will voluntarily reduce their prices” below that 285 percent benchmark. 

But hospital leaders warn of unintended consequences.

“Indiana hospitals collectively had a negative 2 percent margin in 2022, and this year has been even more challenging for many facilities,” said Brian Tabor, the president of the Indiana Hospital Association. “Some are just barely hanging on right now.”

Tabor said that with the new laws, there would be “more impacts to be felt this year.” He said his group is particularly concerned about a reduction in the availability of obstetric services across the state.

“With so many hospitals struggling, the targeting of a few systems this session will continue to have harmful impacts on access across the state because these are the organizations that support, and even rescue, facilities on the brink,” Tabor said.

Tabor and other hospital leaders told Indiana lawmakers that the state hasn’t done enough to address issues that cause hospitals to struggle financially. That includes the state’s low reimbursement rates for services provided to patients on Medicaid, the state-federal health insurance program for low-income people.

Lower drug prices at Indiana pharmacies

Besides hospitals, lawmakers addressed other pieces of the health care puzzle that contribute to the state’s high costs. They succeeded at passing a bill almost unscathed from its original version that could reduce drug prices for Indiana consumers. 

Senate Bill 8 requires pharmacy benefit managers or PBMs –– the middlemen between drugmakers, insurers and pharmacies –– to pass at least 85 percent of the rebates and discounts they receive on to consumers. 

PBMs leverage the big networks of health insurers and millions of patients they represent to negotiate lower medication prices. 

“In this convoluted drug pricing system where, rather than drug makers pricing their medicines to sell as is, they price medicines as a starting point for negotiating with insurance companies and PBMs,” said Antonio Ciaccia, president of the consulting firm 3 Axis Advisors and CEO of the drug pricing research nonprofit 46brooklyn Research.

“As a result, we're stuck paying big big bucks for artificially inflated list prices. And unless we, as consumers, get access to those discounts, we're in essence overpaying.”

Indiana residents should start seeing reduced drug prices at pharmacy counters once the law takes effect in July. But that will mainly impact patients who purchase name-brand drugs.

“A good example would be for a product like insulin. You have a vial of insulin that can run for a couple of hundred dollars list price. But the manufacturer might only be bringing in around $35 to $40 after all the discounts are tabulated,” Ciaccia said.

With the new law, much of that difference should be passed on to the patient, he said, which would bring the cost down significantly.

People who are on generic drugs, which are typically cheaper and interchangeable with other alternatives on the market, will likely not see much savings.

A costly insurance practice isn’t going away

On the health insurance side, lawmakers had hoped to crack down on a practice insurers rely on to control costs called “prior authorization.” 

The process requires physicians to obtain approval from the insurance company before providing certain health services to patients to ensure they get paid. Physicians and nurses say this process can be labor-intensive and slow, causing delays in care and sometimes an increase in health care costs. 

Lawmakers failed to see through House Bill 1003, which would have limited the prior authorization practice. Instead, they included a provision in another bill that encourages, but does not require, insurers to reduce prior authorizations.

Contact WFYI health equity reporter Farah Yousry at fyousry@wfyi.org. Follow on Twitter: @Farah_Yousrym.

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