Indiana officials are moving to eliminate providers’ ability to generate 340B savings on Medicaid managed care claims in a proposal that state providers say would be “devastating” for the state’s health care safety net.
The Indiana Family and Social Services Administration (IFSSA), which oversees the state Medicaid program, published a Feb. 25 notice stating it plans to amend the state’s Medicaid plan “to fully discontinue Medicaid reimbursement for drugs purchased under the federal 340B drug pricing program,” effective July 1. IFSSA is accepting comments on the proposal until March 27.
State officials have argued the proposal would save the state’s Medicaid program an estimated $63 million annually. However, providers argued it would strip far more from the safety net than the state ultimately retains, creating “devastating” consequences for state health care.
Key Context
The proposal stems from language included in an Indiana budget bill passed in May 2025, which gave the state broad authority to alter how 340B drugs are reimbursed under Medicaid managed care.
That provision—added in conference committee just one day before its final passage—authorized the state Medicaid agency to determine whether 340B drugs prescribed to Medicaid managed care should qualify for 340B discounts or instead be subject to the Medicaid Drug Rebate Program (MDRP), where the state collects the rebate. Gov. Mike Braun (R) signed the budget bill the same day he signed separate legislation establishing detailed new 340B hospital reporting requirements.
Indiana’s Medicaid plan currently requires Indiana covered entities to bill at the 340B acquisition price on Medicaid fee-for-service claims, while covered entities retain 340B savings on Medicaid managed care claims. IFSSA’s proposed amendment would also eliminate 340B savings under Medicaid managed care, allowing the state to instead collect manufacturer MDRP rebates on those claims.
Both California and New York state have previously carved out all 340B drugs under Medicaid.
Because Indiana is a Medicaid expansion state, the federal government covers around two-thirds of state Medicaid expenditures. As a result, the state would only retain around one-third of any additional MDRP rebate revenue, with the remaining two-thirds flowing back to the federal government. Indiana is also home to the headquarters of pharmaceutical giant Eli Lilly.
State Medicaid Policy
Indiana state officials have argued that the state’s current Medicaid structure results in foregone rebate revenue when 340B discounted drugs are used for Medicaid managed care plans.
During a Dec. 18 Indiana State Budget meeting, FSSA Secretary and Acting Medicaid Director E. Mitchell Roob Jr. said amending the state Medicaid plan to reimburse at actual acquisition cost for 340B drugs under Medicaid managed care would save the state an estimated $63 million annually. His office did not respond to a request for additional comment on the policy change.
Provider Pushback
Providers across Indiana are strongly opposing the amendment, arguing it would destabilize the state’s health care safety net by removing millions of dollars in 340B savings.
Alan Witchey, president and CEO of the Damien Center, an Indianapolis-based federally qualified health center (FQHC) look-alike that provides HIV/AIDS services, said the change would cause his organization to lose over $5 million in annual 340B savings used to provide HIV care.
“This is really devastating for the safety net system here in Indiana,” Witchey said in an interview with 340B Report. “There will be more low income people who do not get their medications and who do not get their medical care as a result of this.”
“It’s not as though the majority of these funds are going to go to our Medicaid system,” Witchey added. “Instead, the majority of these funds are going to go to the federal government. This is a bad business decision by the state that will really harm the safety net.”
Ben Harvey, CEO of the Indiana Primary Care Association, argued that the amendment would “gut 340B reinvestment at health centers, forcing cuts to services such as transportation for patients, subsidized labs and medication support that Medicaid and uninsured patients depend on, while delivering surprisingly little net benefit to Indiana’s budget.”
“For every $10 the state ‘saves’ by taking 340B savings, roughly $6–$7 is effectively given back to the federal government, leaving only about $3–$4 to the state,” Harvey said in an email to 340B Report. “The full $10 is removed from medically underserved communities where it’s currently used to expand access and stabilize care.”
Meanwhile, Melissa Mitchell, CEO of northern Indiana-based FQHC HealthLinc, argued the proposed change would be a “complete trainwreck.” She told 340B Report the amendment would cause HealthLinc to lose over $3 million annually in 340B savings used to fund non-billable patient services, clinical pharmacists and community health staff.
“Without those dollars from 340B savings, there is no other way for us to recoup that and make those positions affordable in our system,” Mitchell said. “We operate on incredibly thin margins.”
Scott Tittle, president of the Indiana Hospital Association, said he was “concerned by the state’s proposal to take 340B rebates under Medicaid from hospitals and FQHCs.” He argued that FSSA’s proposal “shifts those cuts onto Indiana hospitals and other 340B entities, jeopardizing access to care for Hoosiers and forcing providers to absorb even higher drug costs imposed by the pharmaceutical industry.”
“The 340B program uses no state taxpayer dollars—the savings come from pharmaceutical companies exclusively—and is subject to strict federal oversight,” Tittle said in a statement to 340B Report. “Eliminating the benefits of this program in Medicaid could reduce access in vulnerable communities and shift costs to commercial insurance, driving up premiums for employers and families statewide.”
