The secretary of Indiana’s Family and Social Services Administration wants to change how hospitals purchase discounted drugs for low-income patients — a controversial move critics say could jeopardize rural hospitals and clinics for low-income Hoosiers.
A proposed rule change introduced in February would eliminate access to a federal drug discount program known as 340B, which supporters say is a lifeline for rural hospitals and health clinics serving low-income patients.
Secretary Mitch Roob contends the program is being misused to subsidize hospital profits at taxpayers’ expense, without passing savings on to Medicaid patients as intended.
Leaders from several rural hospitals participating in the program say they operate with such thin margins that any loss in savings could result in cuts to cancer care, obstetrics and other services, without any nearby clinics to fill the gap.
Roob said in a statement to the Indiana Capital Chronicle that “no federal law guarantees hospitals the right to retain revenue derived from prescriptions funded by a taxpayer‑supported program. The proposed State Plan Amendment ensures that savings associated with Medicaid beneficiaries remain within the Medicaid program.
“Indiana’s objective is straightforward: to ensure 340B operates as intended and that Medicaid dollars benefit the individuals the program is meant to serve.”
What is 340B
Congress created the federal 340B Drug Pricing Program in 1992 for safety-net hospitals and clinics to purchase discounted drugs from pharmaceutical manufacturers.
Participating hospitals then bill commercial insurance or Medicaid for the full price of the drug.
The savings generate revenue hospitals can use to subsidize uncompensated care for uninsured patients or invest in critical services like obstetrics and cancer infusions. But critics allege some health systems are misusing the program — which has grown exponentially since its inception — to boost profits instead.
FSSA pursues reform
Roob introduced a proposed rule change in February to discontinue Medicaid reimbursements for Indiana hospitals and clinics under the 340B program.
Instead, the Office of Medicaid Policy and Planning would seek drug manufacturer rebates through a separate program — the Medicaid Drug Rebate Program.
If enacted, the rule will take effect July 1.
State officials estimate it could save Indiana around $60 million a year.
“The state’s trying to claw its way out of a financial hole,” said Eric Fish, president and CEO of Schneck Medical Center in Seymour. “That’s not right. We’re putting the state’s financial issues on the back of patients, and that’s fundamentally wrong.”
IHA_IPA_340B SPA Public Comments_3.24.26
The proposal follows other reforms enacted by lawmakers in recent years requiring hospitals and clinics to report how 340B savings are used.
These reforms coincide with rural hospital closures and $13 billion in federal cuts to Indiana hospitals over the next decade, according to the Indiana Hospital Association.
The association reports 16 rural obstetric wards have closed since 2020, pushing Hoosier women to travel further to deliver their children.
Thin profit margins at rural hospitals
Prior to 340B, Schneck Medical Center subsidized the cost of cancer drugs that weren’t covered by Medicaid, Fish said.
Now, it can purchase those drugs, which Fish said can cost in excess of $1 million, at a discount.
The savings offset the cost of providing care to uninsured and low-income patients. Fish said Medicaid reimburses hospitals 57 cents for each dollar spent on care.
Rural hospitals operate such thin margins that even a small hit — Fish estimates the hospital saves $1 million a year through 340B just for Medicaid patients, or $7 million overall including commercial insurance patients — can have a devastating effect on patient care.
“Then we start kicking people off (Medicaid) rolls,” he said, “that impact is only going to get bigger because people are not going to access care.”
Adam Thacker, CEO of Good Samaritan Hospital in Vincennes, said the “narrative has been that this is some slush fund for hospitals. It simply is not.”
Hospitals and clinics must provide a disproportionate level of care to uninsured or low-income patients to qualify, he said.
Still, a review of federal data by the Commonwealth Fund found exponential growth in the 340B program since its inception to include more than 53,000 care sites. The foundation provides independent research on health care issues.
Thacker said all savings at Good Samaritan, estimated at $3 million a year, are reinvested into the organization. That enabled the hospital to cover the cost of cancer infusions for a patient who otherwise would have had to forgo treatment.
He noted Good Samaritan started its own specialty pharmacy–the only one in the region–with 340B savings, so patients could start their medications sooner.
“We are providing care to an under-served population,” Thacker said. “I would take fixing our (Medicaid) reimbursement over the $3 million (in 340B savings) all day long, because it does not fill the gap.”
Catch-22
The proposal is a “catch-22” to state Sen. Ed Charbonneau, who chairs the Senate Health and Provider Services Committee.
Roob “came in and had a horrendous challenge in front of him,” Charbonneau said, “and he has done a masterful job to this point of getting our Medicaid spend under control.”
But Charbonneau is concerned the latest proposal will redirect savings from local inpatient care to the federal government, which he said will keep two-thirds of savings from the Medicaid Rebate Program.
Charbonneau said the Senate adopted legislation last year to increase transparency of how 340B savings are used, with the first report due April 1.
“Mitch Roob is a genius. Hopefully, he will make sense out of this whole thing, because right now it doesn’t make sense to me,” Charbonneau said.
Roob told ICC the 340B program was created to give low-income patients access to low-cost often life-saving medications — not increase hospital profits.
“Today, virtually all low‑income Hoosiers receive prescription coverage through Medicaid, funded by manufacturer rebates. Under the current structure, when patients fill a prescription at a 340B pharmacy, Indiana Medicaid does not receive the associated rebate, and the Medicaid patient doesn’t receive lower drug prices or lower bills, even as Indiana continues to have some of the highest hospital costs in the country.
“It is fundamentally unfair to ask Indiana taxpayers to subsidize hospital executive salaries and construction spending while also paying twice for the vital medications low‑income Hoosiers depend on.”
Indiana Capital Chronicle is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Indiana Capital Chronicle maintains editorial independence. Contact Editor Niki Kelly for questions: info@indianacapitalchronicle.com.