New Kaufman Hall analysis shows margins remain below national averages;
Hospital leaders warn services and patient access at risk without policy action
January 27, 2026 (INDIANAPOLIS) — Indiana hospitals are facing a worsening financial outlook that threatens access to essential health services across the state, according to a new analysis prepared by Kaufman Hall for the Indiana Hospital Association (IHA).
The report reveals that Indiana hospitals continue to operate on razor thin margins—with a median operating margin of just 1.9% in 2025 through August, below the national median of 2.6% during that time. Meanwhile, operating income among Indiana hospitals fell 5.5% year-over-year, representing nearly $50 million in diminished resources available to support patient care. Further, modeling shows a high probability of $1 billion in annual losses for Indiana hospitals over the next three to five years.
“These findings make clear that Indiana hospitals are approaching a breaking point,” said Scott B. Tittle, president of the Indiana Hospital Association. “With the 8th lowest Medicaid reimbursement rates in the nation and rapidly rising costs, hospitals simply do not have the tools they need to continue providing the level of care Hoosiers deserve. Without meaningful policy changes, more hospitals—particularly in rural communities—will be forced to scale back or eliminate essential services.
Rural Services Already in Jeopardy
Indiana’s rural hospitals remain among the most financially vulnerable. Earlier this year, Greene County General Hospital was forced to shut down its obstetrics (OB) department—an essential service for families in the region—due to chronically inadequate reimbursement.
“We could no longer sustain the OB unit because Medicaid and commercial insurance pay so far below the actual cost of care,” saidBrenda Reetz, CEO of Greene County General Hospital. “This was a heartbreaking decision for our community. No hospital wants to cut services, but when reimbursement fails to cover even basic operating costs, we are left with no choice.”
Medicaid Shortfalls Straining Urban Providers
For urban safety net hospitals, the financial challenges are equally severe, driven in large part by Medicaid underpayment and shifts in payer mix.
“At Methodist Hospitals, Medicare and Medicaid make up 80% of our payer mix, and the reimbursement simply does not match the cost of providing care,” said Matt Doyle, president and CEO of Methodist Hospitals. “Our mission is to provide high quality health care to all those in need, but as more patients move into government coverage programs or go uninsured due to gaps in coverage, hospitals like ours struggle to maintain the level of services our communities rely on.”
Rising Costs Outpacing Revenue
The Kaufman Hall analysis shows expenses increased by 4.7% for Indiana hospitals in 2025, outpacing revenue growth of 4%. Labor expenses alone rose 4.2%, even after hospitals reduced reliance on more expensive contract labor by nearly 50%. Nonlabor expenses—including medical supplies and purchased services—also grew significantly.
“This report reflects what our teams see every day,” said Dr. Patrick McGill, president and CEO of Community Health Network. “We’re caring for patients with increasingly complex needs, as we face continued financial pressure. Over time, that limits our ability to invest, grow services, and retain caregivers. What’s at risk is our ability to provide access to care for the communities we serve.”
Emergency Department Visits Surge — Adding Pressure, Not Relief
Indiana emergency department (ED) visits grew 16.8% in 2025, far exceeding the national average of 1.4%, according to the report.
Even with high patient demand, many hospitals are still operating at a loss. This increase represents a major financial strain for hospitals because ED care is extremely resource intensive and costly to provide—requiring high staffing levels, complex clinical capabilities, and absorbing a disproportionate share of uninsured and underinsured patients
“We were the busiest we have ever been last year—and we still ended up with a negative margin,” said Mike Schroyer, president of Baptist Health Floyd. “That is not sustainable. Hospitals cannot continue absorbing these losses year after year. Legislative reform is urgently needed to ensure we can continue meeting the needs of our patients and our communities.”
Indiana Hospitals Continue Prioritizing Patient Affordability
Despite these challenges, Indiana hospitals continue prioritizing efforts to make care more affordable. According to the report, hospitals in Indiana provide more charity care than the national average, demonstrating a strong commitment to ensuring patients can access needed services regardless of their ability to pay.
Simulation Modeling Shows Severe Risks Ahead
To better understand future risks, Kaufman Hall conducted simulation modeling examining likely financial scenarios for Indiana hospitals over the next three to five years. The results show a high probability of more than $1 billion in annual losses for hospitals statewide, driven by continued underpayment, shifts toward government payer programs, and rising costs. Under the most likely scenarios,Indiana hospital operating margins are projected to fall to –3%, pushing many hospitals into severe financial strain.
These projections illustrate that, without intervention, Indiana hospitals will face increasingly untenable conditions—leading to further service reductions, workforce cuts, and potential consolidations.
Urgent Need for Legislative Action
IHA is calling on state and federal lawmakers to address the systemic challenges facing hospitals by:
- Modernizing Medicaid reimbursement rates
- Reducing administrative burdens and insurer-imposed delays and denials
- Ensuring hospitals can continue providing essential services, particularly in rural areas
- Supporting financial stability to prevent hospital closures and service reductions
“Indiana hospitals have demonstrated remarkable resilience, but resilience alone cannot fix a fundamentally unsustainable financial environment,” Tittle said. “We stand ready to work with our state and federal policymakers on solutions that will protect access to care for all Hoosiers.”
