HB 1385

                                                             Introduced Version
           HOUSE BILL No. 1385
                 _____
              DIGEST OF INTRODUCED BILL
Citations Affected: IC 16-21.
Synopsis: Various hospital matters. Requires (rather than allows) the
development of programs designed to increase Medicaid
reimbursement. Specifies that the reimbursement rates for a state
directed payment program must be at least the Medicare
reimbursement rates. Requires the office of the secretary of family and
social services to perform a reconciliation of the capitation attributable
to the incremental hospital fee. Prohibits money in the incremental
hospital fee fund from being used to fund Medicaid. Amends the
permissible use of funds collected under the hospital assessment fee.
Removes language that allowed the hospital assessment fee to be used
to fund a state directed payment program that depended upon the
collection of the managed care assessment fee. Changes the definition
of "prices" concerning the hospital statewide average rate study and
pricing (study). Amends the requirements to conduct the study and the
date by which the study must be completed.
Effective: Upon passage; July 1, 2026.
                               Barrett
   January 8, 2026, read first time and referred to Committee on Public Health.
2026  IN 1385—LS 6824/DI 147
                                                                                       Introduced
            Second Regular Session of the 124th General Assembly (2026)
 PRINTING CODE. Amendments: Whenever an existing statute (or a section of the Indiana
 Constitution) is being amended, the text of the existing provision will appear in this style type,
 additions will appear in this style type, and deletions will appear in this style type.
   Additions: Whenever a new statutory provision is being enacted (or a new constitutional
 provision adopted), the text of the new provision will appear in this style type. Also, the
 word NEW will appear in that style type in the introductory clause of each SECTION that adds
 a new provision to the Indiana Code or the Indiana Constitution.
  Conflict reconciliation: Text in a statute in this style type or this style type reconciles conflicts
 between statutes enacted by the 2025 Regular Session of the General Assembly.
                   HOUSE BILL No. 1385
    A BILL FOR AN ACT to amend the Indiana Code concerning
 health.
     Be it enacted by the General Assembly of the State of Indiana:
1    SECTION 1. IC 16-21-10-5.7, AS ADDED BY P.L.216-2025,
2 SECTION 22, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
3 JULY 1, 2026]: Sec. 5.7. As used in this chapter, "state directed
4 payment program" means a payment arrangement under section 8.5 of
5 this chapter and authorized under 42 CFR 438.6(c) that allows
6 requires the office to direct specific payments to a hospital by the
7 managed care organizations that contract with the office to provide
8 health coverage to Medicaid recipients.
9    SECTION 2. IC 16-21-10-8, AS AMENDED BY P.L.216-2025,
10 SECTION 25, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
11 JULY 1, 2026]: Sec. 8. (a) This section does not apply to the use of the
12 incremental fee described in section 13.3 of this chapter. Subject to
13 subsection (b), the office may shall develop the following programs
14 designed to increase Medicaid reimbursement for inpatient and
15 outpatient hospital services provided by a hospital to Medicaid
16 recipients:
17      (1) A program concerning reimbursement for the Medicaid
 2026  IN 1385—LS 6824/DI 147
                                     2
1fee-for-service program that, in the aggregate, will result in
2payments equivalent to the level of payment that would be paid
3under federal Medicare payment principles.
4(2) A program concerning reimbursement for the Medicaid risk
5based managed care program that, in the aggregate, will result in
6payments equivalent to the level of payment that would be paid
7under federal Medicare payment principles, and up to any
8reimbursement approved under a state directed payment program
9set forth in section 8.5 of this chapter.
10     (b) The office shall not submit to the United States Department of
11 Health and Human Services any Medicaid state plan amendments,
12 waiver requests, or revisions to any Medicaid state plan amendments
13 or waiver requests, to implement or continue the implementation of this
14 chapter until the office has submitted a written report to the budget
15 committee concerning the amendments, waivers, or revisions described
16 in this subsection, including the following:
17(1) The methodology to be used by the office in calculating the
18increased Medicaid reimbursement under the programs described
19in subsection (a).
20(2) The methodology to be used by the office in calculating,
21imposing, or collecting the fee, or any other matter relating to the
22fee.
23(3) The determination of Medicaid disproportionate share
24allotments under section 11 of this chapter (subject to section
2511(d) and 11(e) of this chapter) that are to be funded by the fee,
26including the formula for distributing the Medicaid
27disproportionate share allotments.
28(4) The distribution to private psychiatric institutions under
29section 13 of this chapter.
30     (c) This subsection applies to the programs described in subsection
31 (a). The state share dollars for the programs must consist of the
32 following:
33(1) Fees paid under this chapter.
34(2) The hospital care for the indigent funds allocated under
35section 10 of this chapter.
36(3) Other sources of state share dollars available to the office.
37excluding intergovernmental transfers of funds made by or on
38behalf of a hospital.
39 The money described in subdivisions (1) and (2) may be used only to
40 fund the part of the payments that exceed the Medicaid reimbursement
41 rates in effect on June 30, 2011.
42     (d) This subsection applies to the programs described in subsection
 2026  IN 1385—LS 6824/DI 147
                                     3
1 (a). If the state is unable to maintain the funding under subsection
2 (c)(3) for the payments at Medicaid reimbursement levels in effect on
3 June 30, 2011, because of budgetary constraints, the office shall reduce
4 inpatient and outpatient hospital Medicaid reimbursement rates under
5 subsection (a)(1) or (a)(2) or request approval from the United States
6 Department of Health and Human Services to increase the fee to
7 prevent a decrease in Medicaid reimbursement for hospital services. If
8 the United States Department of Health and Human Services does not
9 approve an increase in the fee, the office shall cease to collect the fee
10 and the programs described in subsection (a) are terminated.
11     SECTION 3. IC 16-21-10-8.5, AS ADDED BY P.L.216-2025,
12 SECTION 26, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
13 JULY 1, 2026]: Sec. 8.5. (a) Subject to subsection (b), beginning July
14 1, 2025, or thereafter, the office may implement a state directed
15 payment program in which payments are made for inpatient and
16 outpatient hospital services as follows:
17(1) Subject to available state share funding and federal medical
18assistance available to the plan for coverage of plan participants
19described in Section 1902(a)(10)(A)(i)(VIII) of the federal Social
20Security Act in effect on January 1, 2025, the reimbursement rates
21for inpatient and outpatient hospital services under the state
22directed payment program: may be established at a rate greater
23than
24(A) must be at a rate that is at least the Medicare equivalent
25reimbursement rates, taking into account the amount of fees
26paid by the hospitals to receive Medicare reimbursement
27rates; and
28(B) but may not exceed the maximum reimbursement rates
29established by federal law.
30(2) The office may implement the state directed payment program
31through the establishment of classes of hospitals with different
32rates of reimbursement among the classes, as set forth in
33subsection (c), and in a manner that is consistent with federal law.
34(3) Before January 1, 2026, the office shall apply to the United
35States Department of Health and Human Services for the review
36and approval of a state directed payment program. The office may
37receive input from hospitals and other interested parties in the
38development of the documentation submitted with the application
39under this subdivision.
40(4) The office may not implement the state directed payment
41program without the approval of the United States Department of
42Health and Human Services. To the extent allowed by the United
 2026  IN 1385—LS 6824/DI 147
                                    4
1      States Department of Health and Human Services, the office shall
2      implement the state directed payment program on or after July 1,
3      2025.
4      (5) The office may not implement a fee under the state directed
5      payment program without the approval of the fee by the United
6      States Department of Health and Human Services, including any
7      waiver related to the fee, to fund the state share of the payments
8      under the state directed payment program. To the extent allowed
9      by the United States Department of Health and Human Services,
10      the office shall use the fee to fund the state directed payment
11      program on or after July 1, 2025.
12      (6) The office shall make payments under the state directed
13      payment program to managed care organizations that contract
14      with the office to provide medical assistance to Medicaid
15      recipients as follows:
16(A) Except as provided in clause (B), capitation payments at
17levels necessary to pay inpatient and outpatient hospital
18services at reimbursement rates equal to the reimbursement
19rates established under subdivision (1). The fee must be used
20to pay the state share of the part of the capitation payments
21that fund the portion of the reimbursement rates that exceed
22the reimbursement rates in effect on June 30, 2011. However,
23the fees collected under this section and sections 8 and 13.3 of
24this chapter may not fund the state share of the capitation
25payments of the managed care assessment fee under
26IC 27-1-50.3.
27(B) For plan enrollees described in section 13.3(b)(1)(A) of
28this chapter, capitation payments at a level sufficient to pay
29inpatient and outpatient hospital services at reimbursement
30rates equal to the reimbursement rates established by
31subdivision (1). The incremental fee shall fund the entire state
32share of these capitation payments. However, the fees
33collected under this section and sections 8 and 13.3 of this
34chapter may not fund the state share of the capitation payments
35of the managed care assessment fee under IC 27-1-50.3.
36    (b) The office may only implement a state directed payment
37 program under this section if the budget committee has conducted a
38 review of the state directed payment program.
39    (c) The classes of hospitals may be constructed as follows:
40      (1) Class 1 hospitals consist of critical access hospitals and rural
41      hospitals.
42      (2) Class 2 hospitals consist of a hospital licensed under
 2026  IN 1385—LS 6824/DI 147
                                     5
1      IC 16-21-2 that is not described in subdivision (1) and that is:
2(A) established and governed under IC 16-22-2, IC 16-22-8, or
3IC 16-23; or
4(B) an Indiana nonprofit hospital system that has a net patient
5revenue derived in Indiana of less than two billion dollars
6($2,000,000,000), as determined by the hospital's most
7recently submitted audited financial statement.
8      (3) Class 3 hospitals consist of psychiatric hospitals, rehabilitative
9      hospitals, and acute long term care hospitals and that are not
10      described in subdivision (1) or (2).
11      (4) Class 4 hospitals consist of any hospital not described in
12      subdivision (1) through (3) and that are subject to this chapter.
13    SECTION 4. IC 16-21-10-13.3, AS AMENDED BY P.L.216-2025,
14 SECTION 30, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
15 JULY 1, 2026]: Sec. 13.3. (a) This section is effective beginning
16 February 1, 2015. As used in this section, "plan" refers to the healthy
17 Indiana plan established in IC 12-15-44.5.
18    (b) Subject to subsections (c) through (e), the incremental fee under
19 this section may be used to fund the state share of the expenses
20 specified in this subsection if, after January 31, 2015, but before the
21 collection of the fee under this section, the following occur:
22      (1) The office establishes a fee formula to be used to fund the
23      state share of the Medicaid program or the following expenses
24      described in this subdivision:
25(A) The state share of the capitated payments made to a
26managed care organization that contracts with the office to
27provide health coverage under the plan to plan enrollees other
28than plan enrollees who are eligible for the plan under Section
291931 of the federal Social Security Act, including portions of
30the capitation attributed to a state directed payment program
31under section 8.5 of this chapter.
32(B) The state share of capitated payments described in clause
33(A) for plan enrollees who are eligible for the plan under
34Section 1931 of the federal Social Security Act that are limited
35to the difference between:
36(i) the capitation rates effective September 1, 2014,
37developed using Medicaid reimbursement rates; and
38(ii) the capitation rates applicable for the plan developed
39using the plan's Medicare reimbursement rates described in
40IC 12-15-44.5-5(a)(2), or higher reimbursement amounts for
41any state fiscal year for which the state directed payment
42program established under section 8.5 of this chapter is in
 2026  IN 1385—LS 6824/DI 147
                                     6
1effect.
2(C) The state share of the state's contributions to plan enrollee
3accounts.
4(D) The state share of amounts used to pay premiums for a
5premium assistance plan implemented under
6IC 12-15-44.2-20.
7(E) The state share of the costs of increasing reimbursement
8rates for physician services provided to individuals enrolled in
9Medicaid programs other than the plan, but not to exceed the
10difference between the Medicaid fee schedule for a physician
11service that was in effect before the implementation of the plan
12and the amount equal to seventy-five percent (75%) of the
13previous year federal Medicare reimbursement rate for a
14physician service. The incremental fee may not be used for the
15amount that exceeds seventy-five percent (75%) of the federal
16Medicare reimbursement rate for a physician service.
17(F) The state share of the state's administrative costs that, for
18purposes of this clause, may not exceed one hundred seventy
19dollars ($170) per person per plan enrollee per year, and
20adjusted annually by the Consumer Price Index.
21(2) The office approves a process to be used for reconciling:
22(A) the state share of the costs of the plan;
23(B) the amounts used to fund the state share of the costs of the
24plan; and
25(C) the amount of fees assessed for funding the state share of
26the costs of the plan.
27For purposes of this subdivision, "costs of the plan" includes the
28costs of the expenses listed in subdivision (1)(A) through (1)(F).
29 The fees collected for the purposes of subdivision (1)(A) through (1)(F)
30 shall be deposited into the incremental hospital fee fund established by
31 section 13.5 of this chapter.
32    (c) For each state fiscal year for which the fee authorized by this
33 section is used to fund the state share of the expenses described in
34 subsection (b)(1), the amount of fees shall be reduced by:
35(1) the amount of funds annually designated by the general
36assembly to be deposited in the healthy Indiana plan trust fund
37established by IC 12-15-44.2-17; less
38(2) the annual cigarette tax funds annually appropriated by the
39general assembly for childhood immunization programs under
40IC 12-15-44.2-17(a)(3).
41    (d) The incremental fee described in this section may not:
42(1) be assessed before July 1, 2016; and
 2026  IN 1385—LS 6824/DI 147
                                      7
1(2) be assessed or collected on or after the termination of the plan.
2     (e) This section is not intended to and may not be construed to
3 change or affect any component of the programs established under
4 section 8 of this chapter.
5     (f) The office of the secretary shall do the following:
6(1) Perform a reconciliation at the end of each state fiscal year
7to ensure that portions of the capitation rates attributable to
8the payment of the incremental fee under this section were
9appropriately and accurately calculated.
10(2) Not later than November 1 of each year, submit a report
11to the budget committee with the results of the reconciliation
12described in subdivision (1) for the preceding state fiscal year.
13     SECTION 5. IC 16-21-10-13.5, AS AMENDED BY P.L.216-2025,
14 SECTION 31, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
15 JULY 1, 2026]: Sec. 13.5. (a) The incremental hospital fee fund is
16 established for the purpose of holding fees collected under section 13.3
17 of this chapter.
18     (b) The office shall administer the fund.
19     (c) Money in the fund consists of the following:
20(1) Fees collected under section 13.3 of this chapter.
21(2) Donations, gifts, and money received from any other source.
22(3) Interest accrued under this section.
23     (d) Money in the fund may be used only for the following:
24(1) To fund the state share of the expenses listed in section
2513.3(b)(1)(A) through 13.3(b)(1)(F) of this chapter.
26(2) To refund hospitals in the same manner as described in
27subsection (g) as soon as reasonably possible after the beginning
28of the termination of the healthy Indiana plan.
29(3) To fund the Medicaid program.
30     (e) Money remaining in the fund at the end of a state fiscal year
31 does not revert to the state general fund.
32     (f) The treasurer of state shall invest the money in the fund not
33 currently needed to meet the obligations of the fund in the same
34 manner as other public funds may be invested. Interest that accrues
35 from these investments shall be deposited in the fund.
36     (g) Upon the beginning of the termination of the healthy Indiana
37 plan, money collected under section 13.3 of this chapter and any
38 accrued interest remaining in the fund shall be distributed to the
39 hospitals on a pro rata basis based upon the fees authorized by this
40 chapter that were paid by each hospital for the state fiscal year that
41 ended immediately before the beginning of the termination of the
42 healthy Indiana plan.
 2026  IN 1385—LS 6824/DI 147
                                    8
1    SECTION 6. IC 16-21-10-14, AS AMENDED BY P.L.216-2025,
2 SECTION 32, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
3 JULY 1, 2026]: Sec. 14. (a) This section does not apply to the use of
4 the incremental fee described in section 13.3 of this chapter.
5    (b) The fees collected under section 8 and the fees collected and
6 utilized under section 8.5 of this chapter may must be used only as
7 described in this chapter or to pay the state's share of the cost for
8 Medicaid services provided under the federal Medicaid program (42
9 U.S.C. 1396 et seq.) as follows:
10(1) Twenty-eight and five-tenths percent (28.5%) may to be used
11by the office for Medicaid expenses.
12(2) Seventy-one and five-tenths percent (71.5%) to hospitals to
13leverage federal funds to increase Medicaid reimbursement
14for hospitals.
15    (c) Subject to budget committee review, for any state fiscal year for
16 which the managed care assessment fee under IC 27-1-50.3 is assessed
17 in an amount that is at least equal to the net amount set forth in
18 subsection (b)(1), the fee may be used to fund a state directed payment,
19 as described in section 8.5 of this chapter.
20    SECTION 7. IC 16-21-18-3, AS ADDED BY P.L.216-2025,
21 SECTION 35, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
22 JULY 1, 2026]: Sec. 3. As used in this chapter, "prices" means the
23 amounts that are paid to and collected by a hospital for patient care
24 services, including the final amounts reimbursed by a health
25 insurance plan and paid by a patient.
26    SECTION 8. IC 16-21-18-4, AS ADDED BY P.L.216-2025,
27 SECTION 35, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
28 JULY 1, 2026]: Sec. 4. (a) The office of management and budget shall
29 develop a methodology to conduct the study of commercial:
30(1) inpatient hospital prices; and
31(2) outpatient hospital prices;
32 including using Indiana hospital pricing data from calendar years 2023
33 and year 2024 to determine Indiana's statewide average inpatient and
34 outpatient hospital prices.
35    (b) The methodology developed under subsection (a):
36(1) must utilize at least eighty-five percent (85%) of paid
37claims data from hospitals for the 2024 calendar year; and
38(2) may not utilize the price transparency files required under
3945 CFR 180 or 45 CFR 147.212.
40    (b) (c) The office of management and budget shall present the
41 methodology to the budget committee for review.
42    SECTION 9. IC 16-21-18-5, AS ADDED BY P.L.216-2025,
 2026  IN 1385—LS 6824/DI 147
                                   9
1 SECTION 35, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
2 UPON PASSAGE]: Sec. 5. (a) Before June September 30, 2026, the
3 office of management and budget shall conduct the study described in
4 section 4 of this chapter, using the methodology that was reviewed by
5 the budget committee.
6    (b) The office of management and budget shall submit a report to
7 the governor and to the general assembly in an electronic format under
8 IC 5-14-6 of the office of management and budget's findings under the
9 study.
10    SECTION 10. An emergency is declared for this act.
 2026  IN 1385—LS 6824/DI 147