HEA 1004: Indiana Is the First State to Mandate Direct-to-Employer Contracting for Health Systems.

What Health Systems in Every State Need to Know Now.

Indiana’s mandate is already in effect. Other states are drafting their own versions. Here’s what every health system needs to understand — regardless of where you operate.

In early 2025, Indiana Governor Mike Braun signed House Enrolled Act 1004 into law, making Indiana the first state in the country to require hospitals to offer direct-to-employer health care contracts at or below 260% of full Medicare rates. The mandate isn’t a suggestion or a pilot program. It carries a $10,000-per-day penalty for non-compliance — and for Indiana’s largest nonprofit hospital systems, it is already in effect.

For health systems outside Indiana, the question isn’t whether this is your problem yet. Colorado and New York are already drafting similar legislation. What Indiana did first, other states are lining up to do next

The health systems that will navigate this well are the ones building direct contracting infrastructure now — before a compliance clock starts running in their state.

Note: Our company specializes in TPA services for direct-to-employer programs. Get in touch today.

What HEA 1004 Actually Requires

HEA 1004 creates two separate direct contracting mandates, each with its own deadline and scope:

Indiana Nonprofit Hospital Systems (Sept 1, 2025 — Already in Effect)

Indiana’s largest nonprofit hospital systems — those affiliated with major multi-hospital networks — were required to offer direct-to-employer contracts at or below 260% of Medicare as of September 1, 2025. Roughly five systems fall under this provision. A hospital system can comply by offering the arrangement system-wide, at individual hospitals, or through participation in a qualifying narrow network.

Standalone Hospitals Not Part of a Nonprofit System (Sept 1, 2026)

Independent hospitals — those not affiliated with a large nonprofit system — have until September 1, 2026. The compliance options mirror the large-system provision: offer direct contracts individually, as part of a system arrangement, or through a narrow network. Notably, the benchmark calculation for standalone hospitals is slightly broader, including professional fees in addition to inpatient and outpatient facility prices.

In both cases, the penalty is $10,000 per day per non-compliant hospital. The Indiana Department of Health conducts annual audits beginning October 1 of the respective compliance year.

The 260% Medicare benchmark matters because many commercial contracts — especially at large health systems in major metro markets — price significantly above that threshold. Compliance isn’t just a legal exercise. It requires a genuine pricing and contracting strategy.

Note: HEA 1004 applies specifically to nonprofit hospitals. For-profit hospitals and certain specialty facilities are not covered under these provisions. Additional sections of the law include broader reporting, benchmarking, and transparency requirements across all hospital types.

Why This Is a National Story, Not Just an Indiana Story

Indiana passed HEA 1004 in an era of growing employer frustration with hospital pricing. Large self-funded employers — particularly in manufacturing, logistics, and public sector — have been turning to direct contracting and reference-based pricing to regain control of health care costs. Indiana’s law formalized what employers have been trying to do on a voluntary basis.

Legislators in other states took notice. Colorado and New York both have pending legislation modeled on the Indiana approach. What starts as a regional story often becomes a national compliance requirement within a few legislative cycles.

The pattern is familiar to anyone who followed the hospital price transparency rules that began at the federal level in 2021. Indiana isn’t the last state. It’s the first.

What This Means for Health Systems Operationally

Direct-to-employer contracting sounds straightforward in concept. In practice, it requires infrastructure that most hospital systems haven’t built for this type of relationship. Getting compliant — and doing it well — means addressing several interconnected challenges:

Contract Structure and Legal Compliance

Direct contracts are not the same as standard commercial payor agreements. They require distinct legal frameworks, employer-facing terms, and pricing methodologies that map to Medicare benchmarks. Many health systems don’t have these templates or the internal legal bandwidth to create them from scratch.

Pricing Strategy at 260% Medicare

For health systems that have historically priced above 260% of Medicare in commercial contracts, this ceiling requires a genuine rethinking of how direct employer relationships are structured — including how to make them financially viable at the required rate levels.

Care Coordination and Member Experience

Employers entering direct contracts expect performance accountability that traditional commercial plans don’t require. That includes dedicated care navigation, transparent reporting, and defined quality benchmarks. Health systems need operational programs that can support these expectations.

Claims Administration and Network Access

Employees covered under a direct contract still need access to care beyond the contracting health system — for specialists, ancillary services, and out-of-network situations. Defining how wrap networks, third-party administrators (TPAs), and claims processing integrate into a direct contract requires coordination across multiple parties.

How Health Systems Can Prepare Before the Deadline

Indiana’s large nonprofit systems are already under mandate. Standalone Indiana hospitals have until September 1, 2026. And for health systems in every other state watching Colorado and New York move similar legislation forward, the runway to build this infrastructure — before a deadline exists — is now.

Key areas to address:

• Conduct a pricing audit against 260% Medicare benchmarks across service lines
• Evaluate or develop contract templates designed for direct employer relationships
• Identify a TPA or benefits partner with direct contracting experience
• Build or assess care navigation programs that can support self-funded employer members
• Create an employer-facing reporting package that demonstrates quality and value
• Engage legal and compliance teams early on contract structure and documentation requirements

BHPS Helps Health Systems Build Direct Contracting Programs That Work

BHPS has spent years building the operational infrastructure that direct contracting requires — connecting health systems, self-funded employers, TPAs, and care navigation programs into cohesive arrangements that benefit all parties.

For health systems facing HEA 1004 compliance or preparing for similar mandates in other states, BHPS provides:

• Direct contracting program design, including contract structure and pricing methodology
• TPA relationships and claims administration support
• Network access solutions that wrap direct relationships with appropriate supplemental coverage
• Care navigation and member engagement infrastructure
• Employer-facing reporting and quality benchmarking

Direct hospital contracting is becoming a permanent part of the health care landscape. Indiana just made it law. Other states are watching. The health systems that build this capability now will be better positioned — regardless of what state they’re in.

Sources & Further Reading

Indiana Code § 27-1-46.5-9, Indiana General Assembly (via Justia)
Indiana Code § 27-1-46.5-10, Indiana General Assembly (via Justia)
Employers’ Forum of Indiana — 2025 Indiana Legislative Healthcare Summary, May 2025
Indiana Hospital Association — Indiana Health Care Cost Laws Enacted Since 2020
HFMA — “Indiana Law on Hospital Pricing May Be a Bellwether”