Indiana Hospitals at a “Tipping Point” as $1 Billion Shortfall Looms
INDIANAPOLIS – Indiana’s healthcare landscape is reaching a critical tipping point. In a virtual news conference held Tuesday, the Indiana Hospital Association (IHA) released a sobering new report by healthcare analytics firm Kaufman Hall, revealing that hospital margins in the state are “fragile and anemic” compared to national trends.
The findings highlight a perfect storm of rising labor costs, persistent inflation for medical supplies, and government reimbursement rates that fail to cover the actual cost of providing care.
The “Fragile” State of Indiana Hospital Finances
According to the Kaufman Hall analysis, Indiana’s median hospital operating margin dropped to 1.9% in 2025—a direct contrast to national trends where margins have begun to stabilize. This decline resulted in a $50 million reduction in income available for hospitals to reinvest in patient care and facilities.
“This report is not a projection. It is a fact-based assessment of what Indiana hospitals are experiencing financially right now,” said Scott Tittle, President of the IHA. “Indiana’s hospitals are facing a combination of significant pressures: persistent workforce shortages, high labor costs, and inflation affecting supplies, drugs, and utilities.”
Key Findings from the Report:
Expenses vs. Revenue: Hospital expenses grew by 4.7% year-over-year, outpacing a 4% growth in revenue.
Medicaid Shortfalls: Indiana’s Medicaid reimbursement rates fall significantly below the national average.
Volume Shifts: Emergency Department (ED) visits have spiked as patients use hospitals as a “last resort,” while lucrative elective surgeries have shifted to outpatient surgery centers.
Future Projections: Without intervention, the report simulates a potential $1 billion reduction in income for Indiana hospitals over the next five years, which could push average margins to -3%.
Safety Net Hospitals at Risk
The financial strain is felt most acutely by independent and “safety net” organizations that serve Indiana’s most vulnerable populations. Matt Doyle, President and CEO of Methodist Hospitals in Northwest Indiana, noted that 80% of his patient base relies on government-funded Medicare or Medicaid.
“Currently, Medicaid covers 57% of the cost of providing care, and Medicare covers about 82%,” Doyle explained. “For every dollar of cost our organization spends on a Medicaid patient, we’re getting back 57 cents. It becomes more challenging during these difficult reimbursement declines to ensure access to all, regardless of their ability to pay.”
Doyle also highlighted the loss of approximately $27 million annually over the last three years due to changes in federal disproportionate share (DSH) funding, calling for urgent “technical fixes” in federal appropriations bills to restore those critical funds.
The IHA and hospital leaders are calling on state and federal policymakers to address the reimbursement gap and protect the nonprofit missions of these facilities.“Hospitals are being asked to invest more in access, quality, workforce, and behavioral health,” Tittle said. “But governmental payers continue to reimburse well below the actual cost of care, causing significant strains.”
About the Indiana Hospital Association
The Indiana Hospital Association serves as the professional trade association for more than 160 acute care, critical access, behavioral health, and other specialized hospitals in Indiana. IHA advocates on behalf of its members in Indiana’s General Assembly, U.S. Congress, and with multiple regulatory agencies at the state and federal levels. Dedicated to improving quality, patient safety, and Hoosiers’ health status, IHA holds numerous grants and facilitates collaboration among hospitals to improve outcomes. IHA also provides members with the data analytics that they need to ensure access to quality, cost-effective health care services across the state of Indiana. To learn more about IHA, visit IHAconnect.org.
