Rural hospitals in Indiana are facing a crisis that could lead to more health deserts across the state, hospital leaders say. They cite financial factors that include:
• One of the country’s lowest base Medicaid rates.
• Provisions of last year’s major federal tax and spending law (often called the One Big Beautiful Bill Act) that will cut Medicaid reimbursement to Indiana hospitals by a projected $12.7 billion over the next decade.
• Payment delays and denials by insurance companies.
State officials and insurers dispute some of those factors.
And the state recently announced federal approval for a Medicaid overhaul that will provide larger increases for providers that keep commercial health care prices lower.
Indiana is also slated to receive $1 billion over five years from a $50 billion federal initiative called the Rural Health Transformation Program.
But the potential impact of those programs on Indiana’s rural hospitals is still unclear. Hospital leaders say they will not be a cure-all, and challenges will remain.
To illustrate the situation, the Indiana Hospital Association points to nine hospitals that have closed in Indiana since 2015. Sixteen obstetrics units have closed statewide over the past six years. And since last year, 13 of Indiana’s 52 rural hospitals — or 25% — have announced plans to consolidate, join larger health care systems or discontinue certain services, the association said.
“This is an unsustainable model, and now you see it is collapsing,” Johnson Memorial Health CEO David Dunkle said. “We’re on a precipice of disaster in this state if hospitals aren’t funded appropriately.”
Loss of services
Dunkle’s hospital in Franklin is one of two in the state that have announced plans this year to close their obstetrics units. The other is Greene County General Hospital, which closed its OB unit on Jan. 31.
Johnson Memorial Health’s OB unit has been operating since 1947. The hospital will deliver its last baby early next month, Dunkle said, because he could not justify financial losses that in recent years have added up to $2 million per year.
Unlike in other areas of the state, he said, Johnson County’s expectant mothers will not experience a maternity desert. Two hospitals — Community Health South and Franciscan Health Indianapolis — are just across the county line in Marion County.
“But I feel bad for those communities that don’t have access as close as the residents of Johnson County do,” Dunkle said. “This is a huge problem that the state of Indiana needs to do something about. We have to decide: Do we care about the health of mothers and children, or do we not?”
A 2023 study by the March of Dimes found that 23.9% of counties in Indiana are considered maternity care deserts. Four years ago, Indiana ranked seventh in the country in infant mortality, with 7.16 infant deaths per 1,000 live births.
A 2025 peer-reviewed study led by Julia Interrante, a University of Minnesota researcher focused on rural maternal health access, found that physician shortages, financial losses, clinical safety, liability insurance costs and nurse shortages were the most common reasons hospitals nationwide closed their OB units.
In Greene County, women giving birth are now traveling about 30 minutes to Sullivan or 45 minutes to an hour to Bloomington, Terre Haute and Vincennes, said Greene County General Hospital CEO Brenda Reetz.
Financial and workforce challenges led to the decision to shutter the hospital’s OB unit after more than 100 years, Reetz said. She has had an increasingly difficult time recruiting professionals to work in Linton, about 90 miles southwest of Indianapolis.
“Specialty nurses are hard to find,” Reetz said. “That’s partially one of our challenges … finding physicians and nurses that can maintain confidence in a rural community. It’s very hard to do.”
Steve Jarosinski, CEO of Pulaski Memorial Hospital in Winamac, said financial losses are why his hospital’s OB unit closed in early 2022. The hospital, about 100 miles north of Indianapolis, delivered only about 75 babies a year, and it could not maintain the unit’s nursing staff.
“Since then, it’s just been a domino effect of several hospitals around us, and I know certainly across the state, that have had to make the same decision,” Jarosinski said.
Trying to survive
Greene County General Hospital and Pulaski Memorial Hospital are two of Indiana’s 33 critical-access hospitals.
In the early 2000s, the federal government established a “critical access hospital” designation to keep the neediest rural hospitals afloat.
To qualify, hospitals need to have 25 or fewer acute-care, inpatient beds, be at least 35 miles from the nearest hospital, and provide around-the-clock emergency care. Hospitals with critical-access status can get a slightly higher reimbursement on Medicare services.
“We’re not just simply smaller versions of urban hospitals,” Jarosinski said.
Critical-access status, however, is not a panacea against the challenges faced by rural hospitals.
A report released in January by Chicago-based health care consulting firm Kaufman Hall examined the finances of 53 Indiana hospitals, both rural and urban. It found that financial pressures related to Medicaid reimbursement shortfalls and rising costs contributed to a median operating margin for those hospitals of just 1.9% last year through August. The national median was 2.6%.
Operating income among the Indiana hospitals also fell 5.5% year-over-year, which represented nearly $50 million in diminished resources to support patient care. During the same time, hospitals nationwide saw a 12% increase in operating income. The report also predicted that Indiana hospitals could experience $1 billion in annual losses over the next three to five years.
The report said Indiana’s base Medicaid reimbursement rate — which equals 57% of the price charged to non-Medicaid patients — is the country’s eighth lowest and has not changed in 30 years.
Griffin Reid, press secretary for Gov. Mike Braun, cited Indiana’s involvement in the federal Rural Health Transformation Program as evidence that the state is working to keep rural hospitals healthy.
“Rural hospitals are the backbone of Indiana’s health care system, and we remain committed to ensuring they have the support they need to thrive,” Reid said in an email. “In addition to our Rural Health Transformation investments, we’re actively exploring new ways to strengthen care in rural communities.”
But Indiana Hospital Association President Scott Tittle said Indiana’s rural hospitals face an “incredibly dire” situation.
Rural hospitals have long struggled to stay afloat, serving populations that are older, less healthy and less affluent than those of their urban counterparts.
Nationally, 146 hospitals in rural counties closed or were converted to non-acute care from 2005 to 2023, according to a study released by the U.S. Department of Agriculture last year. Those providing non-acute care are limited to primary and outpatient care.
“It’s incredibly hard to run a hospital in rural Indiana,” Tittle said. “A majority of the services being offered in hospitals in Indiana, especially rural hospitals, are all at a loss. And so hospitals have to cost-shift to the commercial side in order to make sure that they can maintain and keep their doors open.”
Getting paid
Hospital CEOs said getting claims approved by commercial insurers can be a battle of its own.
The Indiana Hospital Association’s Payor Scorecard found that, in 2025, Indiana hospitals delivered more than $717 million in care that went unpaid due to claim denials and delayed payments by insurers. That included claims that were processed incorrectly or subjected to prolonged appeals and resubmissions. The Indiana Hospital Association estimates that the unpaid care backlog statewide exceeds $1.6 billion.
In April, Greene County General Hospital served health insurer Anthem Inc. with a breach notice after six months of disputes over how insurance claims have been paid. In May, it filed another breach notice.
Reetz said commercial claims that were handled under an out-of-network framework resulted in payments hospital leaders believe are below what is required under the contract.
She declined to provide an amount for the underpayments but said they are in the “upper six figures” and that the situation dates back two years. She added that underpayments impact patient bills, hospital stability and access to care.
“It feels very intentional that they’re trying to overcomplicate the system, knowing that rural hospitals do not have the resources to sit and analyze every single claim,” Reetz said.
Insurance companies, however, push back on the notion that they are not quickly processing claims.
Jeff Blunt, a spokesperson for Anthem parent Elevance Health Inc., said the company processes 95.6% of hospital claims that include the information needed for review and payment within 14 days. It processes 99.1% of claims within 30 days, he said.
“Rural hospitals play an essential role in Indiana communities, and we are committed to working constructively with them, including through timely claims payment,” Blunt said in an email. “We also meet at least monthly with hospital partners to address concerns and resolve issues.”
Jon Levin, vice president of health care economics and policy research at the Employers’ Forum of Indiana, noted that the IHA’s Payor Scorecard said insurers denied or delayed about 2% of payments.
“Obviously, that is a challenge,” Levin said. “We don’t want to minimize that. But even an interest group that is very concerned about the health and well-being of hospitals found that was overall relatively low.”
Impact unclear
The Indiana Hospital Association has called on state and federal lawmakers to address hospitals’ challenges. Among the desired changes:
• Boosting Indiana’s Medicaid reimbursement rate
• Reducing administrative burdens and delays and denials by insurers
• Ensuring hospitals can continue providing essential services, particularly in rural areas
• Supporting financial stability to prevent hospital closures and service reduction.
“As I talk to my counterparts around the country, it is very hard to run a hospital in any part of the country, especially in rural America,” Tittle said. “I think what makes it exponentially harder in Indiana is just our historically low Medicaid rates.”
This month, Indiana officials said the state secured federal approval for Medicaid hospital payment reforms.
The plan focuses on updates to the Hospital Assessment Fee program (which helps fund Indiana’s Medicaid program) and the State Directed Payment initiative (which provides Medicaid reimbursements to hospitals).
The state will use HAF payments to secure a larger Medicaid match that would go to hospitals through increased reimbursements through the SDP initiative.
It also ties Medicaid reimbursement increases to hospitals’ average commercial prices. Hospitals that charge lower prices will receive larger Medicaid payment increases, while those with higher prices will receive smaller increases.
The Braun administration also announced an additional $177 million to support rural hospitals on top of the $1 billion Indiana will receive through the Rural Health Transformation Program.
“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,” Braun said in the announcement.
Hospital leaders are taking a wait-and-see approach on how much the overhaul will impact their finances.
“It was definitely a pleasant change in direction, but it’s still not a panacea,” Dunkle with Johnson Memorial Health said. “Is it better? Yes. Is it going to change direction for a lot of people? Is that the level of benefit? Probably not.”
Indiana’s application last year for a share of the Rural Health Transformation Program described a multiyear plan to stabilize struggling hospitals, expand essential local services and overhaul primary care in health systems across the state’s 64 rural counties.
States will receive annual allocations through the program. Half of the funding will be divided evenly among states with approved plans; the remainder will be awarded competitively based on need, program design and federal scoring criteria.
Dunkle said the program’s impact in Indiana will be determined by how the state allocates the funds.
“The money that’s coming to the state of Indiana, it is just a drop in the bucket compared to the amount of dollars that will not be coming into the state through the One Big Beautiful Bill over the next 10 years,” he said.
The law is expected to cut Medicaid reimbursements to Indiana hospitals by $12.7 billion over that time frame, according to the Washington, D.C.-based Urban Institute and the New Jersey-based Robert Wood Johnson Foundation.
Stephanie Hilton-Siebert, CEO of Marion Health in Grant County, said health care leaders in her region are working together to determine how the Rural Health Transformation Program can best help hospitals.
The $1 billion over five years probably will not have much impact, she said.
“I think it is a great start to a lot of initiatives,” Hilton-Siebert said, “but at the end of the day, it’s not going to save a rural hospital from either closing a service and or closing a hospital or being acquired by a system … it’s not going to save rural health care.”
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