States try new tactics to bring down high hospital prices

Indiana is the latest state to experiment with limiting what hospitals can charge, to try to get a handle on high health costs. utah778/Getty Images hide caption

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Every year Jim Evans faces the challenge of keeping health care costs reasonable for the more than 400 teachers, custodians and bus drivers at Concord Community Schools. Evans, the chief financial officer for the Northern Indiana school district is trying something new this year — negotiating directly with a local hospital.

This is possible because of a new state law that goes into full effect on Sept. 1, requiring 75 hospitals to offer employers deals below a new price threshold . Instead of a specific number, it's a multiple of Medicare rates. The federal health insurance program for Americans 65 and older publishes standardized prices, and that has become a benchmark for Indiana and other states trying to control health costs.

"What the law did was it kind of changed the conversation in terms of how we look at pricing," Evans said. "Now it's up to us to take advantage of that."

Hospital prices are one of the main reasons why health care is so expensive. In fact one out of every two dollars of commercial health insurance goes to hospital care.

But most employers don't negotiate their own rates. Usually they hire an insurer who negotiates prices, but rarely have insight into how those prices compare to Medicare rates . For years employers have absorbed the increases — KFF, a nonpartisan health research organization, found prices hospitals charged private insurers went up 30 percent over the last seven years.

Indiana and other states including Vermont and Delaware have passed laws over the last few years to place upper limits on hospital prices for people with private health insurance.