INDIANAPOLIS — The State of Indiana has secured federal approval for major updates to the Hospital Assessment Fee (HAF) program and the State Directed Payment (SDP) initiative—reforms that modernize Medicaid hospital financing, strengthen the state’s safety-net, and use targeted financial incentives to promote affordability across the entire health-care market.
Governor Mike Braun has made clear that Indiana must confront its historically high commercial hospital costs and restore affordability for Hoosier families and employers. From his first days in office, the Governor has directed state agencies to redesign payment systems so that public policy rewards hospitals that keep prices reasonable and pressures those with inflated commercial rates to bring costs down. Today’s announcement delivers.
“Affordability has been a priority for my administration from day one, and every reform we pursue has to move Indiana toward a healthcare system that works for Hoosier families—not against them. 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. These changes are a major step forward in our broader effort to restore affordability and accountability across the healthcare market,” said Governor Mike Braun.
“These reforms allow us to strengthen the hospitals that serve as the backbone of care for our communities, while finally addressing the commercial prices that have been driving up costs for Hoosier families. By tying Medicaid payments to real pricing behavior, we’re ensuring that taxpayer dollars support affordability, not excess,” said Secretary Mitch Roob. “Our priority is clear: ensure that Medicaid dollars are used transparently and responsibly, support hospitals that operate efficiently and in service to their communities, and create a health-care environment where affordability is an expectation—not an aspiration.”
Historic Investment in Rural Hospital Stability
As part of these reforms, Indiana will deliver an additional $177 million in new support to rural hospitals, recognizing their essential role in ensuring access to care for communities that often face the most limited healthcare options. This targeted investment strengthens the hospitals that operate with lower prices and tighter margins—and that serve as lifelines across large portions of the state.
Coupled with the $1 billion Indiana received through the federal Rural Health Transformation Program, these investments constitute the largest increase in rural health funding in Indiana’s history. The combined resources will stabilize rural providers, protect essential services, and ensure that Hoosiers in every corner of the state benefit from a stronger, more sustainable healthcare system.
Using Medicaid Rates to Drive Down Commercial Prices
Indiana’s commercial hospital prices remain among the highest in the nation, placing significant pressure on families, employers, and local governments. At the same time, the
state ranks among the top states for Medicaid reimbursement. This imbalance has contributed to an affordability crisis that Governor Braun has prioritized addressing.
The newly approved SDP model directly links Medicaid increases to each hospital’s Average Commercial Rate (ACR):
- Hospitals with lower commercial prices receive larger Medicaid increases.
- Hospitals with higher commercial prices receive smaller increases.
- Hospitals that already keep prices affordable—often rural, county, or safety-net facilities—receive strong support without being asked to cut prices.
This alignment of public payments with pricing behavior marks a major shift in Indiana’s affordability strategy and is designed to move the market toward more reasonable, transparent commercial rates.
Protecting Critical Hospitals, Pressuring High-Price Systems
Many rural and community hospitals already charge lower prices but operate on tight margins. Indiana’s reforms intentionally increase resources for these vital safety-net providers, ensuring they can maintain essential services.
Larger systems with historically high commercial prices, however, face lower SDP increases, creating sustained financial incentives to reduce their charges over time. The model rewards affordability and applies pressure where it is most needed.
How the SDP Tiers Work
Indiana’s SDP tiers group hospitals by commercial price levels and sets Medicaid increases accordingly:
- Class 1 (158%) — Highest increase for public rural hospitals, critical access hospitals, and certain consent-decree hospitals.
- Class 2A–2C (145–155%) — Strong increases for hospitals at or below statewide average prices.
- Class 2D (125%) — Smaller increases for high-price hospitals.
- Class 3 (120%) — Baseline increases for psychiatric hospitals and facilities without calculated ACRs.
The result is a transparent, measurable system that expands support for affordable providers and incentivizes cost reductions among high-price systems. Hospital Assessment Fee (HAF) Modernization
Federal approval retroactive to July 1, 2025, allows Indiana to:
- Maximize assessments at the 6% federal limit
- Shift to an assessment based on net patient revenue
- Maintain compliance with updated exemptions and tiering
- Allow county hospitals to contribute via intergovernmental transfers (IGTs)
- Continue supporting HIP 2.0 and enhanced rates up to Medicare-equivalent levels
- Direct new revenue toward the SDP program
- Maintain increased assessment levels through October 1, 2026
State Directed Payment (SDP) Program
Effective January 1, 2026, the SDP:
Is capped at $1.866 billion for CY 2026
Raises Medicaid payments to 120–158% of the current fee schedules
Applies to HIP, Hoosier Healthwise, and Hoosier Care Connect
Issues with quarterly retrospective payments
