The bill’s author said many of these changes have been discussed for years, but this year they were “investigated and embraced” as a part of a larger Healthy Indiana Plan, or HIP redesign. (Abigail Ruhman/IPB News)
A House committee approved a bill that would make several funding changes to Indiana’s Medicaid expansion program. House Bill 1586 was supported by key health care stakeholders, such as the Insurance Institute of Indiana and the Indiana Hospital Association.
The bill’s author, Rep. Brad Barrett (R-Richmond), said many of these changes have been discussed for years, but this year they were “investigated and embraced” as a part of a larger Healthy Indiana Plan, or HIP redesign.
“This is where the public policy discussion ends and the fiscal discussions starts,” Barrett said.
Restructuring the Medicaid funding formula
The federal government funds most of the Healthy Indiana Plan, or HIP. Indiana currently funds most of its share of HIP through the Hospital Assessment Fee program. The Hospital Assessment Fee, or HAF, is a provider fee for Indiana hospitals that is then used to fund Medicaid reimbursements and administrative costs.
Lawmakers want to restructure how that program works with the goal of redirecting more money to small and rural hospitals.
Some federal funding models for small and rural hospitals can be unpredictable and take years to receive funding.
Stephanie Hilton-Siebert, president and CEO of Marion Health in Grant County, said her hospital is still waiting on reconciliation from the fiscal year 2021. That means it is operating with multiple years still open and the hospital does not know if it qualifies for the current federal program they are in
“We can't make up the multimillion dollars, whenever we don't qualify for this,” Hilton-Siebert said. “But we still take care of our community.”
Rural hospitals have been highlighting low Medicaid reimbursement rates as a threat for years.
Dr. Eric Fish, president and CEO of Schneck Medical Center, low Medicaid reimbursements are one of the factors contributing to the decline in the number of birthing centers across the state.
“The [Hospital Assessment Fee] redesign actually provides enhanced reimbursement for birthing hospitals as a public policy matter, by providing a discount on the HAF fees paid by those rural birthing hospitals,” Fish said.
In the 2024 fiscal year, hospitals paid an estimated $1.6 billion in Hospital Assessment Fees. That amount was used to leverage about $5.5 billion in federal funds.
The state keeps 28.5 percent of Hospital Assessment Fee Funds for administrative fees, equally about $300 million. The Indiana Hospital Association said through a complicated federal reimbursement process for Medicaid, hospitals receive about 57 percent of costs.
HB 1586 would establish the Managed Care Assessment Fee to boost the federal reimbursement to hospitals and cover 80 percent of their services costs. This would be a tax on insurance companies, which do not have a provider tax currently in Indiana.
The Managed Care Assessment Fee would generate enough to cover the cost that $300 million that is lost by the state taking out administrative fees from the Hospital Assessment Fee.
Tim Kennedy serves as general counsel for the Indiana Hospital Association. He said in order for this funding redesign to work, the state has to be able to implement it.
“We can figure out the law and we can figure out the numbers,” Kennedy said. “There's a third component to this — it's very important — which is to make it operational, to make it easy for FSSA to operate.”
Kennedy said that this would stabilize Medicaid and hospital funding. He also said this would continue to have very little fiscal impact on the state.
“The state of Indiana itself paid nothing into this program to fund this reimbursement,” Kennedy said.
The HIP program would continue to be funded by the federal government, the Hospital Assessment Fee, a cigarette tax, as well as the new Managed Care Assessment Fee.
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Braun administration supports, but raises concerns
Mitch Roob was appointed as the secretary of the Family and Social Services Administration under Gov. Mike Braun. He also served in this role under former Gov. Mitch Daniels when the original version of HIP was being implemented.
Rural hospitals have been asking for adjustments to the reimbursement model for years. However, Roob implied that this legislation was required following a federal court ruling that took away Indiana’s ability to charge premiums in the HIP program.
Roob said when paired with the Senate Bill 2 — the Senate GOP’s HIP overhaul legislation — HB 1586 will be one of the "pillars" for the next iteration of the HIP program, which he called “HIP 3.0.”
And Roob said he agrees with the creation of hospital classes, which is how the state will direct more funding toward smaller and more rural hospitals. He also highlighted the creation of the Managed Care Assessment Fee and the modernization of federal programs that can be unpredictable.
But Roob also laid out a series of concerns for the House Public Health Committee.
The first was with the reimbursement methodology, because the model is being phased out by the federal government in 2027. Kennedy, with the Hospital Association, pointed out that the bill accounts for this by already laying out how the program will go forward without interruption.
Roob also criticized the role of “industry committees.” The provider assessments would be managed by two committees: a hospital group and an insurance group. He said the hospitals would choose the hospital group representatives and the insurance companies would do the same for the insurance group.
“The hospitals, in this legislation, wish to be in—wish to be negotiating and accepting the terms of [U.S. Centers for Medicare & Medicaid Services] approval and determining program goals, data sources and timing of state directed payments,” Roob said. “This is outside of the scope of their current engagement. The hospital group has chosen to go down this path. It is a path which the Braun administration will not go down with them."
That isn’t how the hospital committee has been structured for more than a decade, Kennedy said. It consists of four representatives: the FSSA secretary or the secretary's designee, the budget director or the director’s designee, and then two other hospital representatives.
“[The two hospital representatives] come on to the committee by virtue of the Hospital Association's submitting a slate of candidates to the governor's office,” Kennedy said. “From that slate, the governor then selects those two. So it's a four-person committee. Ultimately, the governor is the one who decides who those hospital representatives are.”
Kennedy said the same approach would be used for the insurance group.
Roob also criticized the financial framework that the bill creates that would require any excess funds collected to stay within the Medicaid fund and not return to the general fund.
“The potential contribution of any excess fund is rather small compared to the nearly $5 billion the general fund will be required to send to Medicaid today, this year,” Roob said.
Roob also said the bill also creates new exemptions for existing the Hospital Assessment Fee program.
“While we do not philosophically disagree with this, the federal government frequently does, and federal law generally requires provider assessments to be broad in uniform,” Roob said. “Additional analysis will be required to ensure that this exclusion should not compromise our ability to implement these taxes.”
The legislation makes exceptions for physician-owned hospitals when it comes to paying Hospital Assessment Fees because they are often unable to receive Medicaid reimbursements. This means they often pay into a system that they are unable to see the benefit from.
The bill now heads to the House Ways and Means Committee for consideration.
Abigail is our health reporter. Contact them at aruhman@wboi.org.
