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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowOfficials representing Indiana hospitals spoke out Tuesday against an Indiana House bill that would strip hospitals of their nonprofit status if they exceed certain price thresholds.
House Bill 1004 would require nonprofit hospitals—though not county hospitals—to file a report each year by Nov. 1 with the Indiana Department of Health showing 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, meaning it would have to pay applicable taxes. The bill would not take away a hospital’s federal nonprofit status with the Internal Revenue Service.
The IRS defines charity care as financial aid or “free or discounted health services provided to persons who meet the organization’s criteria for financial assistance and are unable to pay for all or a portion of the services.”
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.
Opponents of the bill said such a measure would punish nonprofit hospitals for even a single case of prices exceeding the requirement and that it would financially harm hospitals. At stake, critics said, is the ability of these Hoosier hospitals to stay financially viable and to provide the community benefit and charity care to those in need.
“For this bill, you can have 1,000 charges under 200% of Medicare, but if you had only one charge above 200% of Medicare, you lose your tax exemption,” Tim Kennedy, general counsel for the Indiana Hospital Association, told the House Public Health Committee. “Apparently you lose it forever, because there’s nothing in the document here that suggests that there’s a way to appeal it or to renew it.”
The measure is authored by Rep. Martin Carbaugh, R-Fort Wayne, and co-authored by Reps. Ben Smaltz, R-Auburn, and Julie McGuire, R-Indianapolis.
Carbaugh said the legislation seeks to set standard parameters for nonprofit hospitals: “As you dive deeper into the numbers, it becomes clear that our large nonprofit hospitals have the highest prices in our high-priced state.”
Gloria Sachdev, Indiana’s new Secretary of Health and Family Services, spoke in favor of the bill. She specifically cited average prices charged by the state’s largest hospital systems.
During her remarks, she cited the RAND study, which shows aggregate pricing for large systems Ascension St. Vincent, Indiana University Health, Community Health Network, Franciscan Health and Parkview Heath as being above 300% of Medicare for average inpatient facility charges. Aggregate outpatient prices were even higher, she said.
“They’re making huge profit margins off of the commercial sector,” Sachdev said
She said Medicare—which typically reimburses higher than Medicaid—was a good benchmark for the bill because the federal program considers inflation when setting reimbursement rates.
Before being appointed to her new role by Braun, Sachdev served as CEO of the Employers’ Forum of Indiana, which also spoke in favor of the bill Tuesday. Sachdev also was a board member of Hoosiers for Affordable Healthcare, which backs the bill. She has resigned from that position.
Representatives from two Indiana hospitals—Baptist Health Floyd in New Albany and Goshen Health in Goshen—spoke in opposition to the bill.
“My hospital (at) the beginning of last year was 236 beds. I just added 32 more beds, and it still is not enough,” said Mike Schroyer, president of Baptist Health Floyd. “I’m overflowing, because we have more and more people seeking our care that I’m running a negative operating margin right now, and by studies and data that I count we’re one of the lowest cost hospitals in the state.”
Randy Christophel, CEO of Goshen Health, said 200% of Medicare reimbursement is not enough to cover hospital costs.
No representatives from Indiana’s largest nonprofit hospital systems spoke at Tuesday’s hearing.
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.
Tuesday’s hearing was for testimony only. No committee votes were taken.
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The State can only control an entity’s status as a not-for-profit on the state level as it provides an exemption from state taxes, the IRS controls who is a not-for-profit entity overall. They are only looking at one indicator and not the big picture. As a state, Indiana ranks near the bottom when it comes to the health of the population; we Hoosiers like their tobacco and their fried food and hate exercise which only leads to higher healthcare bills. Also Medicare and Medicaid do not even begin to cover the true costs of healthcare creating the need to be dependant upon other sources of income to recoup the losses not covered by the government. Additionally no where does this address what hospitals have to pay for supplies and services, especially when it comes to pharmaceuticals which are controlled by the pharmaceutical companies and the pharmaceutical middlemen who grossly inflate their costs which then need to be passed along.
Something that the media never bothers to mention is that being paid at 100% Medicare rates is not sustainable for any entity, whether it’s a hospital or a doctor’s practice because Medicare pays such little reimbursement for services provided
Boo hoo
Don’t cry yet.. Wait until they become for profit, once for profit, they will change the way they collect unpaid obligations. Usually beyond a threshold (often 90-180 days), debt is sold or transferred to third-party collection agencies. These agencies contact patients often aggressively to secure payment.
Some hospitals report unpaid medical debt to credit bureaus, impacting the patient’s credit score. A 1-year grace period exists before medical debt appears on credit reports. This may have gone away during the Biden administration.
If debts remain unpaid, hospitals may sue patients for repayment. Winning a lawsuit allows hospitals to garnish wages or freeze bank accounts. Some hospitals place liens on patient property, preventing sales until the debt is cleared. For-profit hospitals tend to be more aggressive in collections than non-profits, since they do not have the same charity care obligations.
It’s important to recognize that hospitals are not the only entities influencing healthcare costs. Insurance companies, pharmaceutical firms, and medical device manufacturers also play significant roles.
Insurance Companies: In 2022, major health insurers reported substantial profits. For instance, UnitedHealth Group’s net earnings exceeded $20 billion, highlighting the profitability within the insurance sector. Health Insurance Companies have a
profit margin of approximately 3.3% to 3.4%.
Pharmaceutical Industry: Pharmaceutical companies consistently report high-profit margins. In 2022, Pfizer reported a net income of over $21 billion, underscoring the significant profits within the industry. On average pharmaceutical companies gross profit margin is approximately 76.5% with a Net Profit Margin: Around 13.8%. These figures indicate that pharmaceutical companies maintain substantial profitability compared to other industries.
Medical Device Companies: The medical device sector also sees considerable profits. Medtronic, a leading medical device company, reported a net income of approximately $4 billion in 2022. As an industry the medical device companies have a profit margin typically between 20 – 30%
Non-profit hospitals have a median operating margin that ranges from -0.3 to 4.2% and a median operating cash flow margin of approximately 4.9%
These figures illustrate that multiple sectors within the healthcare industry contribute to overall costs, and focusing solely on hospital pricing may overlook other significant factors and players.
Hospitals operate under extensive regulatory frameworks at both state and federal levels. Compliance with regulations such as the Health Insurance Portability and Accountability Act (HIPAA), the Emergency Medical Treatment and Labor Act (EMTALA), and various state-specific mandates requires substantial administrative resources. These regulatory requirements add to the operational costs of hospitals, which are not accounted for when comparing hospital charges to Medicare reimbursement rates.
While House Bill 1004 aims to control hospital costs by leveraging findings from the RAND study, it’s crucial to consider the broader context of healthcare financing. The RAND study has faced criticism for its methodology and for not fully accounting for the complexities of hospital funding. Additionally, focusing solely on hospital pricing without considering the roles of insurance companies, pharmaceutical firms, medical device manufacturers, and regulatory burdens may lead to policies that do not effectively address the root causes of high healthcare costs.
House Bill 1004 proposes revoking the state nonprofit status of Indiana hospitals if their charges exceed 200% of Medicare reimbursement rates. This initiative is partly based on a RAND Corporation study indicating that Indiana has the ninth-highest hospital costs in the nation. However, the application of the RAND study in this context warrants a critical examination, as it may not provide a comprehensive picture of healthcare financing.
The American Hospital Association (AHA) has expressed concerns about the RAND study’s methodology and conclusions. The AHA argues that the study fails to account for the chronic underpayment by Medicare, which does not cover the full cost of care. Consequently, hospitals rely on payments from private insurers to subsidize the shortfall. The AHA cautions that using the RAND study’s findings to inform policy decisions could jeopardize patient access to care.
Similarly, the California Hospital Association has criticized the RAND study for not fully explaining the variation between commercial and Medicare payments to hospitals. They contend that the study’s incomplete findings could lead to recommendations that harm patients and communities.
Given the complexities of healthcare financing, wouldn’t it be more effective to propose a comprehensive plan that addresses all cost drivers—including insurance companies, pharmaceutical pricing, medical device markups, and regulatory burdens—rather than solely targeting hospitals?