Indiana secured federal approval to update its hospital assessment fee and state-directed payment programs, according to a May 15 news release.
Under the reforms, hospital assessments are maximized at the 6% federal limit, and assessments are based on net patient revenue. New revenue will go toward the SDP program.
Medicaid payment bumps will inversely correlate with hospitals’ average commercial rates. With the SDP tiers, public rural hospitals, critical access hospitals and some consent-decree hospitals will see the greatest Medicaid increases. The program has a nearly $1.9 billion cap for the year.
“By aligning Medicaid payments with real-world pricing behavior, Indiana is rewarding hospitals that keep care affordable and sending a clear signal that high commercial prices must come down,” Republican Gov. Mike Braun said. “These changes are a major step forward in our broader effort to restore affordability and accountability across the healthcare market.”
Along with the federal Rural Health Transformation Program’s $1 billion investment in Indiana, the reforms should open another $177 million to rural hospitals, the release said. Parts of the reforms are retroactive to July 1, 2025, while quarterly retrospective SDP program payments go back to Jan. 1, 2026.
“While Indiana’s specific approach is unique, the state is now joining more than 40 others that have taken this step to address chronic Medicaid underpayment by utilizing federal supplemental payments. This funding is certainly significant; however, it does not fully close the gap, and more work remains to ensure Medicaid reimbursement is sustainable long-term,” said Scott Tittle, president of the Indiana Hospital Association. “Importantly, this approach relies on hospitals stepping up — paying enhanced fees to draw down additional federal matching funds — while continuing the progress Indiana hospitals have made to lower prices and improve affordability.”
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