States are stepping up healthcare oversight and regulation

They say that nature abhors a vacuum, and, apparently, U.S. healthcare doesn’t care for one much, either. Because in the absence of federal legislation and regulation, many states are stepping in to fill the void.

“States are prioritizing healthcare in the absence of any type of federal leadership or any type of federal action,” said Natasha Murphy, M.S.P.H., director of health policy at the Center for American Progress, a left-leaning think tank in Washington, D.C.

There are, of course, stark differences between Republicans and Democrats on dozens of issues, but on many healthcare issues, the partisan lines are blurred and wavy — or parties have ended up on the same side. State action on healthcare has occurred in both Republican- and Democratic-controlled states. “It’s not a red or blue state issue. It’s very much bipartisan,” said Brock Ingmire, M.A., assistant vice president at MultiState, a government relations firm headquartered in Arlington, Virginia. One possible drawback to states wading into healthcare is a patchwork of rules and regulations that will further clog the healthcare sector with administrative costs.

According to the National Conference of State Legislatures, at least 42 bills in 21 states and the District of Columbia were enacted in 2025 to address healthcare competition and consolidation. Law firm Kutak Rock says that 26 states enacted legislation to regulate pharmacy benefit managers (PBMs) last year.

States “are increasingly stepping into healthcare regulation in response to ongoing critical challenges,” such as hospital consolidation and reconfigured business models, with the aim of improving healthcare quality and outcomes while reducing the cost of care, said Nicole Liffrig Molife, J.D., a lawyer in the health and life sciences practice of Latham & Watkins.

The driving force behind such moves tends to be “affordability for consumers and what makes sense for consumers at the end of the day,” Ingmire said.

A survey by Mercer found that employers expected healthcare costs to jump by 6.7% this year, with the average cost per employee topping $18,500.

As healthcare costs continue to climb, “it continues to be challenging for employers and families to pay healthcare premiums and out-of-pocket costs,” said Jeremy Vandehey, J.D., who, as a consultant to the Milbank Memorial Fund, directs the Peterson-Milbank Program for Sustainable Health Care Costs. Individuals with commercial insurance pay much higher prices for their healthcare than people who have Medicare or Medicaid coverage, Vandehey explained. “States have delved deeper into [regulation] because there hasn’t been a federal solution,” he said. “They see more of a role they can play.”

Already, dozens of states have bills pending this year to regulate some aspect of U.S. healthcare. “This year, it is at the forefront of quite a few legislative sessions,” Murphy said. Interest in state-level regulation of PBMs may recede somewhat after Congress passed PBM reform legislation in early February 2026, which President Donald Trump signed into law.

Indiana sets the pace

One state receiving accolades for its recent efforts is Indiana. State legislators there introduced 10 bills aimed at healthcare costs, and six were enacted. The legislative action in Indianapolis has been driven by the Employers’ Forum of Indiana, an employer-led healthcare coalition. The organization commissioned a hospital price transparency study from Rand that found that employers in Indiana were paying some of the highest hospital prices in the country. Even today, Indiana faces the ninth-highest prices in the U.S., with employers paying 300% of what Medicare would pay for the same services, Randa Deaton, the forum’s CEO and president, said in an email. The forum worked to educate policymakers on the impact that high healthcare costs had on employers and their employees and urged them to support reforms to improve affordability.

“Most employers are not large enough to tackle healthcare problems alone. They must work collectively to impact the market reforms needed to drive increased competition and accountability,” Deaton said.

The forum’s efforts helped push Indiana lawmakers to undertake a number of regulatory reforms. Some of the key changes included banning healthcare providers from levying “facility fees” for services provided outside the main facilities and requiring third-party administrators and PBMs to provide access to data and act in the best interest of health plan sponsors.

Another measure would revoke the nonprofit status of the five largest nonprofit hospitals in the state if their pricing is not below the state average by 2029, Deaton explained.

Indiana is also poised to become the first state to prohibit health insurers from imposing financial penalties on hospitals that use out-of-network providers, BenefitsPro reported. The move was approved during this year’s legislative session and is expected to be signed into law by Gov. Mike Braun, a Republican.

Concern about consolidation

In many cases, legislatures and governors are targeting hospitals and other providers consolidating into large health systems, and the effects of those health systems on competition. “Consolidation is a key driver” in pushing up healthcare prices, Vandehey said. Many areas of the country have just one dominant health system, and that market concentration can result in higher prices than in areas where providers compete on price. “At the end of the day, healthcare is local,” he said.

One consequence of consolidation is that states are demanding more transparency around mergers and acquisitions. Murphy wrote a report released earlier this year titled “How States Can Combat Health Care Consolidation and Corporate Conflicts of Interest.” One of her points is that the Federal Trade Commission and the Department of Justice review only a small percentage of transactions, focusing on the largest deals. But smaller ones can, in the aggregate, transform local markets. Murphy noted that many private equity acquisitions and vertical integrations escape review because they do not meet federal reporting thresholds. States are stepping in with increased oversight of mergers and acquisitions and private equity activity in healthcare. Some states are now requiring that a company that is planning to acquire another one notify the state’s attorney general in advance, Ingmire said.

Last year, New Mexico approved a law that allows the New Mexico Health Care Authority to review and approve mergers, acquisitions and changes of control involving hospitals and other providers, Murphy wrote in her report. Oregon passed a law that limits private equity investment in a certain market and prohibits corporations from controlling clinical operations. Meanwhile, a new law in Maine placed a one-year moratorium on hospital purchases by private equity investors or real estate investment trusts.

More PBM oversight

PBMs have also come under a great deal of state-level scrutiny, while federal legislation stalled despite bipartisan support and Trump’s occasional swipes at the industry. Arkansas enacted a law prohibiting PBMs from owning or operating pharmacies, a measure that would upend the industry. The measure was scheduled to go into effect this year, but the large PBMs and their trade group, the Pharmaceutical Care Management Association, have successfully tied it up in court. One of their main legal arguments is that the law violates the Commerce Clause, which gives Congress the power to regulate interstate commerce.

Colorado has passed a law that changes how PBMs are compensated, so the amounts they are paid are no longer tied to the price of a particular drug. Instead, the state is moving to a flat-fee model in an attempt to prevent PBMs from favoring higher-priced medications, said Lisa Kimbrough, a senior manager at MultiState. Meanwhile, Utah has passed a bill that requires insurers to ensure their PBM rebates are either passed through to consumers at the point of sale or used to reduce premiums or increase benefits for health plan enrollees.

Across the healthcare spectrum, the regulatory efforts by states “show no signs of slowing down,” Liffrig Molife said. Murphy doesn’t anticipate a serious attempt at federal healthcare regulation any time soon, particularly with the midterm elections looming. “Unfortunately, it’s hyperpartisan nationally. So much onus has fallen onto the states.”