Bill threatens to revoke Indiana hospitals’ nonprofit status for overcharging patients

Republican Indiana House members this week filed a bill that threatens to strip hospitals of their nonprofit status if they overcharge for services.

The bill is part of mounting scrutiny by lawmakers of the prices hospital systems charge patients covered by commercial health insurance, typically provided by their employers.

The measure was authored by Rep. Martin Carbaugh, R-Fort Wayne, and co-authored by Reps. Ben Smaltz, R-Auburn, and Julie McGuire, R-Indianapolis.

“House Bill 1004 is another bill to address health care costs,” Carbaugh said in a written statement. “HB 1004 would ensure nonprofit hospitals act as nonprofit entities focused on delivering health care (by) trying to establish nonprofit status while narrowly defining and focusing on community benefits.”

The legislation would require nonprofit hospitals (though not county hospitals) to file a report each year by Nov. 1 with the Indiana Department of Health of aggregated data on billed services compared with the Medicare reimbursement rate for those same services. If charges at a nonprofit hospital exceed 200% of that rate at the time of the charge, the hospital would face forfeiture of its state nonprofit status.  

The bill also would subject nonprofit hospitals to an annual audit by the Indiana secretary of state and would require nonprofit hospitals to provide the entirety of the Schedule H (which includes community benefit) of its federal 990 form, making it available on the General Assembly’s website with redactions only for personal or private information.

In response, the Indiana Hospital Association said the state’s nonprofit hospitals provide $3.9 billion in total benefits every year to the communities they serve, which exceeds the value of their tax exemptions by $2.3 billion. The group added that these hospitals offer financial assistance to reduce patients’ expenses and, in 2023, provided $700 million in free care across the state, a 22% increase from the year before compared with an increase of 8% in national charity care.

“Health care is expensive across the board, and providers of every kind are struggling with workforce shortages, inflationary pressures and reimbursement challenges,” Scott B. Tittle, president of the association, said in a written statement. “Hospitals look forward to working with Rep. Carbaugh, the Braun administration and the entire Indiana General Assembly to find meaningful solutions for Hoosiers.”

Indiana University Health declined to comment on the bill. Ascension St. Vincent did not respond to a request for comment Wednesday afternoon.

Large hospital systems like IU Health, Ascension St. Vincent, Community Health Network and Franciscan Health are receiving increased scrutiny from lawmakers. This month, Sen. Travis Holdman, R-Markle, questioned whether the hospital systems are doing enough to make health care affordable while sitting on billions of dollars of net assets.

According to a press release issued Wednesday by Hoosiers for Affordable Healthcare, which praised HB 1004, several big hospital systems would need to make “massive price cuts to maintain their nonprofit status” under the bill, ranging from 23% to 40.8%. It specifically mentioned Parkview Health, IU Health, Franciscan Health, Deaconess Health System, Community Health Network and Ascension St. Vincent.

A recurring study updated in December by research group Rand Corp. found Indiana had the ninth highest hospital costs in the nation. The study found that in 2022 across all U.S. hospital inpatient and outpatient services, employers and private insurers paid on average 254 percent of the Medicare rate.

Another study, published in September in the Journal of the American Medical Association, analyzed data from Medicare costs reports to find that 2,927 U.S. nonprofit hospitals received $37.4 billion in total tax benefits in 2021. The study found the tax benefit is “highly concentrated among a small number of hospitals.”