Hospitals across Indiana are experiencing growing financial pressure, with median operating margins dropping to 1.9% in 2025 well below the national median of 2.6%. The findings come from a Kaufman Hall analysis conducted for the Indiana Hospital Association, which represents more than 160 hospitals statewide.
According to the report, Indiana hospitals saw operating income decline by $50 million compared to the previous year, a 5.5% drop that has reduced funds available for patient care, capital investments, and facility upgrades. At the same time, emergency department visits surged by nearly 17%, far outpacing the national increase of about 1.4%.
Indiana Hospital Association President Scott Tittle noted that hospitals are facing overlapping challenges, including workforce shortages, rising labor expenses, inflation-driven increases in supply and utility costs, and reimbursement rates from Medicare and Medicaid that fall well short of the actual cost of care. He added that hospitals are simultaneously being asked to expand investments in access, quality initiatives, behavioral health, workforce development, and rural services.
The analysis also showed expenses growing faster than revenue. Operating costs rose 4.7% while revenue increased only 4%. Labor costs climbed 4.2% despite hospitals cutting their use of high-cost contract labor by nearly half. Non-labor costs increased even more sharply, with medical supply expenses rising 6.8% and purchased services jumping over 9%.
Kaufman Hall Managing Director Erik Swanson explained that these trends reflect the growing complexity of care delivery, particularly as hospitals manage higher patient acuity and aging populations.
Some hospitals are feeling the strain more acutely. Methodist Hospitals in Gary, Indiana where roughly 80% of patients rely on government insurance reported losing $27 million in federal disproportionate share funding over the past three years. Leadership there highlighted that Medicaid currently reimburses only about 57 cents per dollar of care, while Medicare covers roughly 82 cents. State Medicaid base rates, according to association leaders, have not been meaningfully increased in decades and face further reductions under the One Big Beautiful Bill Act.
Financial pressures are also driving service reductions. Greene County General Hospital announced the closure of its obstetrics unit after more than a century of operations, citing unsustainable costs tied to low reimbursement and reliance on contract physicians. The decision aligns with a broader national pattern of maternity care closures.
At Baptist Health Floyd in New Albany, hospital leaders reported adding beds to meet rising demand, yet still posted a negative operating margin of 3.7% in fiscal 2025, resulting in a $16.1 million loss. Despite higher patient volumes, leadership said continued cost pressures have forced difficult decisions about service reductions and efficiency efforts.
Looking ahead, Kaufman Hall simulations suggest that without policy or funding changes, Indiana hospitals could collectively face nearly $1 billion in annual losses within the next three to five years, potentially pushing statewide operating margins into negative territory.
Healthcare leaders warned that if current trends persist, access to care across Indiana could become increasingly difficult to sustain. They emphasized that meaningful reform particularly around Medicaid reimbursement and broader insurance policy will be critical to protecting patient access statewide.
Source: Becker’s Hospital Review
Madeline Ashley (analysis based on Kaufman Hall data for the Indiana Hospital Association)
