Hospitals in Indiana are facing significant financial distress, with operating margins falling to 1.9% in 2025 as national averages were 2.6% at the time, according to an analysis by Kaufman Hall for the Indiana Hospital Association, which represents more than 160 Indiana hospitals.
The report found that hospitals across the state lost $50 million in operating income year over year, down 5.5% and leaving less money available for patient care, equipment and facility reinvestments. The state’s emergency department visits also increased 16.8%, exceeding a national average of 1.4%.
“Indiana’s hospitals are facing a combination of significant pressures,” Scott Tittle, president of the Indiana Hospital Association, said during a Jan. 27 news conference. “Persistent workforce shortages and high labor costs, inflation affecting supplies, drugs and utilities and government payers, Medicare and Medicaid, that continue to reimburse well below the actual cost of care are causing significant strains on Indiana’s hospitals. At the same time, hospitals are being asked to invest more in access, quality workforce, behavioral health and rural extension services.”
The analysis found that Indiana hospital operating expenses increased 4.7% while revenue only increased 4%. Labor costs rose 4.2% despite facilities cutting their reliance on costly contract workers by almost 50%. Non-labor expenses climbed 5.7%, medical supply expenses grew 6.8% and purchased services jumped to 9.1%.
“This demonstrates a challenge and a headwind for hospitals in Indiana as they manage patient acuity and aging populations,” Erik Swanson, managing director for Kaufman Hall, said during the conference.
Gary, Ind.-based Methodist Hospitals, where 80% of patients have government insurance, reported a $27 million annual reduction in federal disproportionate share funding over the past three years.
Methodist Hospitals’ president and CEO Matt Doyle said during the conference that Medicaid currently reimburses hospitals at just 57 cents on the dollar, while Medicare covers 82 cents per dollar of care provided. Indiana’s Medicaid base rates haven’t seen increases in more than 30 years, Mr. Tittle said.
“There are very important federal and state programs to assist with facilities such as ours, which are considered a true safety net organization for the communities that we serve,” Mr. Doyle said. “Unfortunately, within the [One Big Beautiful Bill Act], there are additional planned reductions to provider tax programs that will further reduce Medicaid reimbursement to even lower levels. That means that Medicaid reimbursement could dip below that 57 cents on the dollar.”
The financial strain is also forcing hospitals to make difficult decisions. Linton, Ind.-based Greene County General Hospital will close obstetrics services Jan. 31, after more than 100 years of operations.
“It’s heartbreaking to hear the comments coming from our patients saying, ‘We’ve had three generations of our family delivered in this hospital, and now we can’t have our baby here,'” Brenda Reetz, CEO of Greene County General Hospital, said during the conference. “Why can’t they have their baby here? Because we get paid $6,000 for vaginal delivery and we get paid $13,000 per cesarean section. We deliver 70 babies a year. The cost of the physicians only, because we have to use contract labor, is about $1.7 million to cover a 24/7 obstetrics unit. It doesn’t take very much math skill to realize those numbers don’t break even. We were losing a ton of money.”
The hospital’s OB closure comes amid a national trend of maternity service closures. Becker’s reported 29 maternity service closures in 2025 and three so far in 2026.
At Baptist Health Floyd in New Albany, Ind., president Mike Schroyer said during the conference that it added 32 beds due to rising demand, with a need for 30 to 40 more. However, the hospital still saw a negative 3.7% operating margin in fiscal 2025, a $16.1 million loss despite increased patient volumes.
“This last year I had to close a couple of services because of our negative margins and the increased financial burden that we have,” Mr. Schroyer said. “We are looking at what we can cut, how we can be more efficient and we have already done a lot to decrease our overall cost.”
Looking ahead, Kaufman Hall performed a simulation exercise that found without intervention, Indiana hospitals could face nearly $1 billion in annual losses over the next three to five years, possibly dropping the statewide operating margin from 1.9% to negative 3%.
Patrick McGill, MD, president and CEO of Indianapolis-based Community Health Network, said during the conference that while he is a leader, he also sees patients weekly. It’s this dual role that allows him to see firsthand that if the negative financial trends continue for state hospitals, care delivery will be that much harder to provide.
“Costs are rising faster than revenues, margins are razor thin and policies are increasing,” he said. “The number of uninsured Hoosiers will intensify these pressures. Protecting access to care for Hoosiers will really require meaningful reforms, particularly in Medicaid rates and commercial insurance.”
