Indiana physicians could face a changing Medicaid landscape as federal funding restrictions threaten a major revenue source supporting the state's health care system.

During an Oct. 27 financial meeting, Indiana Family and Social Services Administration (FSSA) Secretary Mitch Roob warned that reductions to the state's hospital assessment fee (HAF) could create significant budget challenges by 2032, potentially affecting Medicaid reimbursement, coverage and access to care.

“Physician reimbursement is directly tied to patient access,” Vice President of Government Affairs Savannah Neary said. “As Indiana navigates significant changes to its Medicaid financing structure, protecting adequate physician reimbursement is essential to ensuring physicians can continue serving Medicaid patients and Hoosiers can access the care they need.” 

Under the federal One Big Beautiful Bill Act, Indiana must gradually reduce its hospital assessment fee from 6% to 3.5% beginning in late 2027, with the reduction completed by late 2031.

The fee is a part of Indiana's Medicaid financing structure, which allows the state to generate additional federal matching funds and support hospital reimbursement. A portion of the revenue also helps finance the state's share of HIP, which provides coverage to hundreds of thousands of low-income adults.

During the fiscal year ending in June 2026, Indiana collected more than $2 billion through the hospital assessment fee and intergovernmental transfers. At the reduced 3.5% rate, collections would have been approximately $900 million lower.

“The December forecast will be critical in understanding the financial outlook for Indiana Medicaid's program,” Neary said. “We will be watching closely for potential changes to physician reimbursement, the proposed HIP 3.0 waive, and any decisions that could affect patient coverage and access to care.”

Reduced Medicaid resources could place additional pressure on reimbursement rates, particularly for practices and health systems serving large Medicaid populations. Reduced funding could also affect physician participation in Medicaid networks, specialty referrals and access to services in rural and underserved communities.

The anticipated funding reductions also raise questions about the sustainability of HIP. Federal funding currently covers 90% of qualifying HIP costs, and the state covers the remaining 10%. Hospital assessment fee revenue and cigarette taxes help support the state's contribution.

FSSA has separately proposed a HIP 3.0 waiver that would reintroduce certain patient cost-sharing requirements and allow enrollment caps under specified financial circumstances, subject to federal approval.

Changes to patient eligibility, coverage or cost-sharing could have implications for physicians, including coverage continuity, uncompensated care and administrative responsibilities. However, the projected hospital assessment fee reductions do not automatically translate into cuts to physician reimbursement or HIP eligibility. Those decisions would require additional state policy action.