Indiana changes hospital payments to promote affordability
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Indiana has made major changes to the way it pays hospitals in an effort to make health care more affordable, taking a novel approach that officials have said is a first in the nation.
Why it matters: It's a real attempt at lowering Indiana's high hospital prices, something that could eventually lower costs for Hoosiers.
State of play: The state announced Friday that it had received federal approval for major updates to two policies — the Hospital Assessment Fee (HAF) program and the State Directed Payment (SDP) initiative.
- The state is maximizing HAF payments to secure a larger federal Medicaid match, which would then flow back to hospitals through enhanced reimbursements from the SDP program.
- How much hospitals receive under that model will depend on their commercial pricing.
What they're saying: "This funding is certainly significant; however, it does not fully close the gap, and more work remains to ensure Medicaid reimbursement is sustainable long-term."
How it works: The state-directed payment model directly links Medicaid increases to commercial prices — hospitals with lower prices receive larger Medicaid increases, while more expensive hospitals get smaller increases.
- In recognition of their tight margins and safety-net role, public rural hospitals, critical access hospitals and certain consent-decree hospitals will get the highest increases without being asked to cut prices.
- "This alignment of public payments with pricing behavior marks a major shift in Indiana's affordability strategy and is designed to move the market toward more reasonable, transparent commercial rates," the state said in a news release.
Yes, but: A state report released late last year found that four of Indiana's five largest nonprofit hospital systems were already hitting the pricing benchmark that the model is supposed to be incentivizing them to meet.
- The average commercial prices at Ascension Health, Community Health Network, Indiana University Health and Parkview Health were already under the goal of 265% of the Medicaid rate, meaning they'd receive the maximum state payment increase without having to make any changes.
- Franciscan Health's 271% rate would put them in the second tier, meaning the system would receive a 148% payment rate rather than the 155% of the others.
Zoom in: High reimbursement rates for rural hospitals are coupled with a $177 million investment to help stabilize safety-net providers that often operate with the thinnest profit margins and are struggling with the federal government's overhaul to the Medicaid program.
- "These reforms allow us to strengthen the hospitals that serve as the backbone of care for our communities, while finally addressing the commercial prices that have been driving up costs for Hoosier families," said Mitch Roob, Indiana's Family and Social Services Administration secretary.
What we're watching: Whether hospital prices, which have already been trending downward in the state, are noticeably impacted by the new policies.