With most state legislatures convening for their 2026 sessions in January, healthcare pricing regulation could be positioned as a defining priority. The enactment of hospital pricing legislation in Indiana, Washington and Vermont in 2025 has created momentum for similar proposals nationwide. The 2026 legislative session represents a critical inflection point where state-level commercial rate regulation could either expand further or face political challenges. Variations on the Indiana model could be explored in other states, potentially establishing a nationwide patchwork of commercial price caps, which could eventually converge into a framework for Federal policy.
The U.S. health economy represents approximately 17.6% of national GDP, totaling $4.9T in 2023. Commercial insurance reimbursement amounts exceed Medicare and Medicaid rates, with commercial spending growing by 11.5% from 2022 to 2023, compared to 8.1% and 8.0% for Medicare and Medicaid, respectively.1 This trajectory of healthcare spending is unsustainable, catalyzing increasing public frustration and making healthcare costs a central political issue, with the next major election cycle likely having healthcare reform and affordability at the forefront.
In 2022, the Congressional Budget Office (CBO) identified three policy approaches to address commercial rate inflation: enhanced price transparency, increased provider competition and direct commercial price caps.2 While transparency requirements and competitive market reforms currently dominate policy discussions, Federally mandated commercial price caps have materialized. States routinely operate as experimental laboratories for policy innovation, testing interventions before they reach the Federal level. When state reforms show measurable success, they often catalyze complementary Federal frameworks.
In 2025, thirteen states considered legislation that would establish reference-based hospital pricing requirements, with Indiana, Washington and Vermont enacting laws. The Indiana approach represents the most aggressive state-level intervention in commercial healthcare pricing, establishing price caps tied to nonprofit status eligibility. After considering similar legislation in 2023, the Indiana General Assembly enacted HB 1004 in May 2025, which establishes a study of commercial hospital prices to inform future inpatient and outpatient hospital price caps for nonprofit hospitals.3
Indiana's initial price cap proposal was introduced in 2023, when early iterations of HB 1004 included penalties for nonprofit hospitals that priced services above 260% of Medicare. As the bill moved through the Senate, lawmakers replaced the 260% concept with a benchmarking study to calculate nonprofit hospital system prices as a percentage of Medicare. In 2024, policy advocates urged the Indiana General Assembly to adopt a 260% and add penalties, but that proposal was not enacted. The enacted version of HB 1004 in 2025 requires the Indiana Office of Management and Budget to conduct a study of average inpatient and outpatient rates in 2023 and 2024 at Indiana nonprofit hospitals. Starting in 2029, a hospital system will lose its state nonprofit status if its aggregate average prices are not equal to or less than the state average, which will be annually adjusted based on the medical Consumer Price Index. Ultimately, the law will require nonprofit hospitals with above-average prices to adjust prices to be at or below the state average, which inevitably will lower the market average. Hospital systems can re-establish nonprofit status by returning to compliance with the state average pricing threshold.
Given the potential traction that similar policies could have as soon as 2026, understanding the downstream financial implications is crucial for all hospitals and health systems.
National all-payer claims data, along with Trilliant Health’s Provider Directory and health plan price transparency dataset, were leveraged to analyze commercial reimbursement scenarios for select Medicare Severity–Diagnosis Related Group (MS-DRG) codes at an Indiana hospital. At the MS-DRG level, Anthem negotiated rates were examined. Using Medicare IPPS data, the reimbursement amount was calculated at a theoretical rate of 260% of the corresponding Medicare reimbursement rate. Procedure volumes were estimated to calculate revenue losses under each reimbursement scenario.
The financial impact of price caps would vary significantly across service lines and procedure types. Analysis of actual and capped rates for select MS-DRGs at an Indiana hospital reveals substantial revenue compression under a 260% Medicare cap scenario (Figure 1).
Using coronary bypass with cardiac catheterization procedures as an example, a health system performing 500 procedures annually would experience a substantial reimbursement reduction. At current negotiated rates of approximately $88,999 per case, reimbursement would total $44.5M (Figure 2). Under a 260% Medicare cap scenario with negotiated rates reduced to approximately $37,044 per case, total reimbursement would decline to $18.5M, representing a reduced payment of $25.9M for this single procedure. Using non-cervical spinal fusion procedures as an example, a health system performing 1,100 procedures annually would experience a substantial reimbursement reduction. At current negotiated rates of approximately $82,182 per case, reimbursement would total $90.4M. Under a 260% Medicare cap scenario with negotiated rates reduced to approximately $72,778 per case, total reimbursement would decline to $80.1M, representing a reduced payment of $10.3M for this single procedure. This illustrates how commercial rate caps would fundamentally alter hospital economics even for high-complexity, high-acuity services that require significant capital investment and specialized clinical expertise.
The CBO estimates that even a 1% reduction in healthcare rates could lower total commercial health insurance premiums by $13B by 2032. While immediate Federal action remains unlikely in the current Congress, these policy projections signal growing focus on affordability and financial sustainability within the healthcare system. The question facing policymakers is not whether commercial rates warrant scrutiny, but rather which regulatory mechanisms can effectively balance cost containment with continued access to high-quality care delivery.
HB 1004 in Indiana represents a fundamental shift in government regulation of healthcare costs. Since the introduction of prospective payment via MS-DRGs in 1983, hospitals and health systems have operated under price caps, but those caps have been adjusted based on a variety of market- and hospital-specific factors.
What is contemplated by Indiana’s HB 1004 is both arbitrary and inflexible. Likewise, the penalty for noncompliance with HB 1004 is at best indirectly related to the noncompliant behavior, and the legality of punishing tax-exempt hospitals for following their fiduciary duties of prudent financial management by maximizing revenue is an interesting question for the Indiana Attorney General. Moreover, it remains to be seen whether the loss of tax-exempt status for failure to comply with price caps is a universal deterrent to Indiana health systems, as the increased “freedom to operate” may offset the financial impact of paying property taxes.
Regulatory noncompliance is common in the health economy, with thousands of hospitals paying penalties for violating readmission thresholds for the past 15 years and thousands of hospitals failing to report post-discharge mortality in accordance with CMS regulations. Similarly, numerous health systems have steadfastly refused to comply with hospital price transparency regulations, choosing to pay penalties for noncompliance, while dozens of health insurers have yet to comply with provider directory standards under the No Surprises Act. Because one of the most valuable benefits of being a tax-exempt hospital is eligibility to participate in 340B, the impact of 340B reform may be determinative in whether an Indiana health system decides to comply with the price cap benchmark when it takes effect in 2029.
The concentration of pricing pressure on tax-exempt hospitals is particularly significant given their substantial role in the U.S. healthcare system. These organizations operate under community benefit obligations and tax-exempt status predicated on providing charitable care and community health services. However, Federal scrutiny of nonprofit hospital tax status has been increasing, with questions about whether community benefit justifies tax exemption given the substantial commercial revenues and executive compensation at many nonprofit systems.4
In a scenario where commercial prices are capped by state and eventually Federal government, every stakeholder must consider and prepare for implications of reduced yield. Addressing commercial healthcare pricing requires policymakers to adopt a comprehensive approach. Logically, mandatory price caps will result in regression to the mean for hospital prices, which in turn would theoretically result in increased focus on differences in quality among providers with similar pricing. Practically, it is likely that the mandatory price caps will result in a reduction in healthcare access and services, reflecting the extent of longstanding cross-subsidization across hospital service lines and patient populations.
While commercial rate caps might reduce employer premium costs in the short term, they could simultaneously destabilize healthcare delivery infrastructure if hospital operating margins continue to erode. Health systems should implement financial planning scenarios that account for various regulatory outcomes and assess operational viability under constrained revenue scenarios, as well as perform sensitivity analyses on the impact of changes in investment income.
Without meaningful stakeholder engagement and careful policy design, the growing momentum toward commercial price regulation will continue to generate financial uncertainty, uneven access and potential market disruptions. Whether through state legislation or eventual Federal intervention, every healthcare organization must ensure it is strategically positioned for a future where pricing flexibility is substantially more constrained than historical norms, with Indiana's 2029 implementation serving as a crucial test of this regulatory approach.