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Indiana hospitals take great pride in providing world-class care to every person who walks through their doors 24 hours a day, seven days a week. As hospitals strive to deliver the highest level of service to all patients, mounting pressures on the state’s health care system are putting patient access at risk.
Our member facilities face growing financial challenges that have been exacerbated by the pandemic. Statewide, Indiana hospitals operated on a negative two percent operating margin last year due to inflation and rising costs of drugs, labor, supplies, and equipment. In 2023 and beyond, many are facing difficult decisions about which services they can continue to provide to remain viable.
While the cost of delivering care rises, government reimbursement remains flat, at best. And throughout the state, 83% of all hospitals have nearly 70% of their inpatient days paid by Medicare or Medicaid. This creates major challenges in Indiana, where hospitals’ historically low Medicaid base rates have not been raised in over 30 years. Indiana hospitals pay approximately $1.5 billion in annual fees to the State to fund programs that help make Medicaid more sustainable, but these fees continue to increase at an alarming rate—45% in the past three years—and are no longer financially manageable for some of the state’s most fragile hospitals.
Even with so-called “supplemental” payments to leverage federal funding, Indiana Medicaid still covers only 57 cents on the dollar of the average hospital’s costs of providing care. This shortfall is even more significant considering nearly one in three Hoosiers is enrolled in Medicaid and that the program covers about half the births in Indiana.
Statewide, Medicaid underpayment results in approximately $2.7 billion in unpaid costs to hospitals each year. For our members to keep their doors open, these losses must be shifted to Hoosiers with private insurance, creating a “Hidden Health Care Tax” on employers and consumers. Lawmakers have rightfully prioritized lowering health care costs, but sustainable progress requires that we address cost shift to private insurance because of insufficient state Medicaid payments.
Increasing Medicaid funding is imperative, and it can be done responsibly. Policymakers in neighboring states like Kentucky and Illinois have successfully enacted policies to raise their reimbursement levels just in the last year. In the recently passed biennial budget, the Indiana General Assembly invested in raising rates for some individual providers like physicians and dentists, but there is more work to do. Without immediate financial support, larger Medicaid shortfalls will only exacerbate the emerging trends of service reductions and facility closures. IHA stands ready to work with policymakers at every level on responsible, long-terms solutions that will preserve access and reduce the hidden health care tax that comes from cost-shifting. 