Amended bill would hit nonprofit hospitals with excise tax over high prices

Indiana Statehouse

The Indiana House’s Public Health Committee amended a bill Tuesday that threatens to strip hospitals of their nonprofit status if they exceed a certain price level, raising the penalty threshold and adding language that would create a new hospital facility fee excise tax.

As filed, House Bill 1004 would have forfeited the nonprofit status of hospitals with charges exceeding 200% of the Medicare reimbursement rate at the time of the charge. The bill would not remove a hospital’s federal nonprofit status with the Internal Revenue Service.

In its amended form, which the committee passed 9-2, the threshold for hospitals to lose their state nonprofit status was increased to 300% of Medicare reimbursement. The bill also institutes a limit for facility fee charges—265% of Medicare reimbursement—and creates the new excise tax to penalize hospitals found to be charging patients over that threshold.

“It’s still a work in progress,” said Rep. Martin Carbaugh, R-Fort Wayne, who authored the bill. “But I like the direction that we’re heading.”

The measure is co-authored by Reps. Ben Smaltz, R-Auburn, Julie McGuire, R-Indianapolis, and Mitch Gore, D-Indianapolis.

In testimony last month, the Indiana Hospital Association and representatives from Indiana hospitals had said the bill would have punished hospitals for even a single charge above 200% of the Medicare rate, and that the price threshold would not provide hospitals with enough profit margin to fulfill their health care mission.

HB 1004 centers on the prices hospital systems charge patients covered by commercial health insurance, typically provided by their employers. A recurring study updated in December by research group RAND Corp. found Indiana had the ninth highest hospital costs in the nation.

Carbaugh said that the amended bill focuses on hospital facility fees because Indiana’s are among the highest in the nation.

Under the amended bill, state nonprofit hospitals would face the excise tax if a patient with commercial insurance is charged a hospital facility fee that exceeds 265% of the Medicare facility fee for the same service.

Under the bill, after Dec. 31, hospitals would face the penalty each time a qualifying patient faces a facility fee over that threshold. For 2026, the excise tax would be 33% of the charged fee. In 2027, the tax penalty jumps to 66% of the amount of the hospital facility fee charged.

“In 2028, those facility fees essentially would be capped at 265% because it would be 100% fee after that,” Carbaugh said. “Any fees collected would go 75% to Medicaid funding and 25% to rural healthcare workforce initiatives.”

Rep. Cindy Ledbetter, R-Newburg, voted in favor of the amendment but also said she believed more was needed to address issues affecting the cost of health care in Indiana.

“If the physician reimbursement rates were higher, there would be less to subsidize for employers, and the lower physician reimbursement rates is what’s making it so difficult for providers to remain in their own practice,” Ledbetter said. “I’m not sure this bill is going to get us where it needs to be related to health care, but I definitely want to be a team member, and I want to see this move forward and progress, but I really think we need to find a way as a state to increase competition in the insurance space.”

Committee chair Rep. Brad Barrett, R-Richmond, said he agreed with Ledbetter and added that the amendment to raise the price threshold should help protect smaller rural hospitals.

“I very highly doubt that this exact wording will be the way this bill crosses the finish line,” Barrett said, “but I think we’re moving in a good direction.”