Language buried in a COVID-19 stimulus relief bill passed in President Donald Trump’s first term is costing Indiana’s “safety-net” hospitals over $100 million per year in lost federal reimbursement payments.
But a new bill being carried by U.S. Sen. Jim Banks, R-IN, seeks to revert the changes and restore some of the lost Medicare Disproportionate Share Hospital (DSH) funding to health systems which serve high percentages of Medicaid and Medicare patients.
“When you start changing that funding mechanism, that starts impacting the care that Hoosiers get, and especially when you look at rural hospitals across the state, a number of rural hospitals are struggling,” said Eric Fish, President and CEO of Schneck Medical Center in Seymour.
Prior to 2023, the formula counted uninsured patients, those on Medicaid, and those who are dual-eligible with Medicaid and another provider. The changes—which were signed in 2021 and went into effect in 2023—no longer allow states to count the dual-eligible Medicaid patients when calculating DSH payments for hospitals.
According to data from the Indiana Health Coverage Programs, that tweak means care for almost 13% of Indiana’s 1.8 million Medicaid enrollees is no longer counted for in the DSH formula.
The bill authored by Banks and U.S. Sen. Kirsten Gillibrand, D-NY, would revert the formula back to count patients covered by both Medicare and Medicaid. It would also let states distribute unspent DSH funding from previous years.
Fish and other leaders of Indiana health systems say they’ve had to make difficult decisions as changes to the DSH funding formula have left some hospitals out tens of millions of dollars.
The impact has been most severe at safety-net hospitals, or health systems that serve a large portion of Medicaid patients. Fish said about 60% of Schneck’s patients are on either Medicaid or Medicare and the system received 43% less from DSH funding in 2023 than it did in years prior.
Methodist Hospitals in northwest Indiana has one of the highest share of Medicare and Medicaid patients in the state at approximately 80% and saw a $27 million in DSH funding cut in 2023. The health system reported an operating loss of approximately $46 million in 2024.
“We have this gap of that $25 million to $30 million that we had received previously to cover that cost that’s now no longer being funded at all,” said Methodist President and CEO Matthew Doyle. “And so that forces us to make different decisions…and in some circumstances, reduce labor.”
The story is similar at Richmond-based Reid Health, which received around $2.5 million in DSH reimbursements in the years leading up to 2023. But in the past two years, CEO Ben Wells said Reid hasn’t gotten any DSH dollars.
“A lot of rural hospitals operate in the red. For the last few years, we operated in the red. With hospital margins being so tight, every bit has a pretty significant impact,” Wells said, adding Reid’s 2024 operating loss was around $12 million.
‘Sense of urgency’
Hospital leaders say there’s a sense of urgency surrounding the recently-introduced legislation as time is running out to make up for losses in past fiscal years.
The good news for hospitals is the bill has bipartisan support, and similar language almost passed into law in late 2024 before getting attached to a larger health care bill which died.
Laura Brown, deputy general counsel with the Indiana Hospital Association, said the bill likely won’t pass in time to repay funds from the 2023 fiscal year. But if it passes before the end of 2025, it would make reimbursement under the new formula retroactive, so hospitals could recoup payments for 2024.
“We can’t go one more year without DSH hospitals receiving that historic DSH funding that they’ve always relied on,” Brown said. “That uncompensated care, it continues to be provided to those dually-eligible Medicare and Medicaid patients, it’s just no longer compensated fully.”
Hospital leaders who spoke with Inside INdiana Business emphasized the bill wouldn’t increase funding, it would give hospitals access to funding that’s already been allocated.
The concerns over DSH funding come as hospitals in Indiana brace for the loss of billions in Medicaid funding as a result of President Trump’s budget reconciliation bill. The budget reconciliation bill, which Banks voted to approve, doesn’t address DSH payments, but getting back a short-term boost will help.
“The cuts that we will be seeing to Indiana hospitals, particularly by the year 2032 when it’s fully into effect, those cuts will be devastating,” said Brown. “Helping to restore some of this DSH funding now is essential to help kind of weather that storm in the future.”