H.L. Mencken famously noted that “democracy is the theory that the common people know what they want, and deserve to get it good and hard.”
On May 6, 2025, Indiana’s Governor and General Assembly said, “Hold my beer,” implementing a new chapter in the Indiana Code as follows:
“SECTION 46. IC27-1-46.5 IS ADDED TO THE INDIANA CODE AS A NEW CHAPTER TO READ AS FOLLOWS [EFFECTIVE UPON PASSAGE]:
Chapter 46.5. Direct to Employer Health Care Arrangements
Sec. 1. As used in this chapter, ‘direct to employer health care arrangement’ means an arrangement between:
(1) a hospital;
(2) a hospital system;
(3) an Indiana nonprofit hospital system; or
(4) a narrow network of hospitals;
and an employer that provides health care benefits for covered services under an employee benefits plan.
Sec. 2. As used in this chapter, ‘full Medicare’ refers to the amount the Medicare program pays for a covered service, including all hospital-specific Medicare adjustments.
Sec. 3. (a) As used in this chapter and except as provided in subsection (b), ‘hospital’ means an acute care hospital licensed under IC 16-21…
Sec. 4. As used in this chapter, ‘hospital system’ means one (1) or more hospitals, all of which are related by direct or indirect common control or ownership.
Sec. 5. As used in this chapter, ‘Indiana nonprofit hospital system’ means a hospital system that:
(1) is organized as a nonprofit corporation or a charitable trust under Indiana law or the laws of any other state or country and that is: (A) eligible for tax exempt bond financing; or (B) exempt from state or local taxes;
(2) filed jointly one (1) audited financial statement with the Indiana department of health in the preceding calendar year; and
(3) has an annual net patient service revenue derived in Indiana of at least two billion dollars ($2,000,000,000), based on the hospital system's most recently submitted audited financial statement filed with the Indiana department of health…
Sec. 6. As used in this chapter, ‘narrow network’ means an arrangement that limits the hospitals that a covered individual may use to obtain covered services under an employee benefit plan.
Sec. 7. As used in this chapter, 'prices’ means the amounts that are paid for patient care services.
Sec. 8. As used in this chapter, ‘third party administrator’ means an individual or entity that performs administrative services for a direct to employer health care arrangement.
Sec. 9. (a) Beginning September 1, 2025, an Indiana nonprofit hospital system shall offer a direct to employer health care arrangement that is at or below a benchmark of two hundred sixty percent (260%) of full Medicare.
(b) The benchmark described in subsection (a) shall be calculated by taking the sum of:
(1) hospital inpatient facility prices; and
(2) hospital outpatient facility prices; expressed as a percentage of full Medicare.
(c) An Indiana nonprofit hospital system meets the requirements of subsection (a) by doing any of the following:
(1) Offering a direct to employer health care arrangement that is at or below a benchmark of two hundred sixty percent (260%) of full Medicare at each individual hospital within the Indiana nonprofit hospital system.
(2) Offering a direct to employer health care arrangement that is at or below a benchmark of two hundred sixty percent (260%) of full Medicare as an Indiana nonprofit hospital system.
(3) Participating in a narrow network of hospitals to offer a direct to employer healthcare arrangement that is at or below a benchmark of two hundred sixty percent (260%) of full Medicare...
Sec. 10. (a) Beginning September 1, 2026, a hospital that is not a part of an Indiana nonprofit hospital system shall offer a direct to employer health care arrangement that is at or below a benchmark of two hundred sixty percent (260%) of full Medicare.”1
Putting aside the numerous issues implicated by a legislative body forcing a commercial enterprise to deliver products and services that their customers may not want or need, Chapter 46.5 is a reminder that the road to hell is paved with good intentions.
Instead of being bewitched by the mythical Greek creature singing with beautiful voices, the Indiana General Assembly has been beguiled by the siren songs of Arnold Ventures and RAND Corporation, whose most alluring refrain is this:
“In 2022, across all hospital inpatient and outpatient services (including both facility and related professional claims), employers and private insurers paid, on average, 254 percent of what Medicare would have paid for the same services at the same facilities.”2
With the possible exception of “directionally correct,” there is no phrase that better reflects the imprecise thinking of health economy stakeholders than “percent of Medicare,” but until the passage of Chapter 46.5, the use of “percent of Medicare” as a lazy heuristic was just that. Given how few health economy stakeholders seem to understand the true meaning of the phrase, the members of the Indiana General Assembly are presumably unaware that the proper response to the phrase “percent of Medicare” is this: “Whose base rate?”
CMS helpfully explains:
“Section 1886(d) of the Social Security Act (the Act) sets forth a system of payment for the operating costs of acute care hospital inpatient stays under Medicare Part A (Hospital Insurance) based on prospectively set rates. This payment system is referred to as the inpatient prospective payment system (IPPS). Under the IPPS, each case is categorized into a diagnosis-related group (DRG). Each DRG has a payment weight assigned to it, based on the average resources used to treat Medicare patients in that DRG.
The base payment rate is divided into a labor-related and nonlabor share. The labor-related share is adjusted by the wage index applicable to the area where the hospital is located, and if the hospital is located in Alaska or Hawaii, the nonlabor share is adjusted by a cost of living adjustment factor. This base payment rate is multiplied by the DRG relative weight.”3