Indiana will exempt community health centers from a controversial new state policy that will eliminate most providers’ ability to generate 340B savings under Medicaid managed care.
The Indiana Family and Social Services Administration (FSSA), which oversees the state Medicaid program, is carving out federally qualified health centers (FQHCs) from its controversial proposal to “fully discontinue Medicaid reimbursement” for drugs purchased under the 340B program, the agency confirmed to 340B Report. FSSA’s broader policy change, which is set to take effect July 1, will apply to all other covered entities, including hospitals.
Indiana Medicaid Director Audrey Frenzel told 340B Report that FSSA is carving out FQHCs from the policy “to protect access to affordable medications for low‑income Hoosiers.”
“This decision is a direct reflection of Gov. Mike Braun’s [(R)] leadership and his clear direction that Indiana’s healthcare system must deliver high‑quality care at a cost families can afford,” she said in a statement. “The governor has made it a priority to ensure that every taxpayer dollar is used responsibly and effectively, and this carve‑out reinforces that commitment by supporting the essential community clinics that serve some of our most vulnerable neighbors.”
The exemption followed weeks of warnings from FQHCs and hospitals that the new policy would create “devastating” consequences for the state’s health care safety net. FSSA had announced the policy change in a Feb. 25 notice, and gave stakeholders until March 27 to submit feedback.
New Medicaid Policy
The Medicaid policy change 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—allowed the state Medicaid agency to determine whether 340B drugs prescribed to Medicaid managed care should qualify for 340B discounts or instead fall under the Medicaid Drug Rebate Program (MDRP), where the state collects the rebate. Braun signed the budget law 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 but allows providers to retain 340B savings on Medicaid managed care claims. FSSA’s change would also eliminate those managed care savings, allowing the state to instead collect manufacturer MDRP rebates on those claims.
State officials have argued the proposal would save the state’s Medicaid program an estimated $63 million annually. However, providers argued it would remove far more from the safety net than the state ultimately retains. They noted that Indiana would only retain about one-third of the additional rebate revenue, with the remaining two-thirds going to the federal government.
Both California and New York state have previously carved out all 340B drugs under Medicaid.
What They Said
Ben Harvey, CEO of the Indiana Primary Health Care Association, said he was “deeply grateful to Governor Braun for his leadership and for recognizing the critical role community health centers play in Indiana’s healthcare system.”
“This decision demonstrates a clear commitment to protecting care for the patients and communities that rely on health centers every day,” Harvey said in an April 23 release. “Governor Braun heard the concerns that were raised, engaged thoughtfully on the issue, and made the right decision for Indiana’s FQHCs.”
Harvey previously told 340B Report that FSSA’s Medicaid policy change would “gut 340B reinvestment at health centers” before health centers were later exempted.
Hospitals, which are not exempt from the policy, have also strongly criticized the policy.
Scott Tittle, president of the Indiana Hospital Association (IHA), told 340B Report that “IHA is very concerned about the state’s proposal to take 340B drug rebates under Medicaid from hospitals—a change added to the 2025 budget bill the night before the legislature adjourned without public discussion.”
“The 340B drug pricing program is a federal initiative that uses no state taxpayer dollars. Savings come directly from pharmaceutical companies and are reinvested by hospitals into essential services like behavioral health, cancer care, obstetrics and support for uninsured patients—and are subject to strict federal oversight,” he said in a statement. “Shifting these funds away from providers jeopardizes access to care, particularly for vulnerable Hoosiers, and could increase costs across the health system.”
Tittle added that his organization “thank[s] the Braun Administration for exempting out FQHCs, IHA urges the state to reconsider this overall harmful proposal and preserve the federal 340B drug program for all 340B qualified providers to strengthen Indiana’s health care system and protect patients.”
Tittle previously told 340B Report he was “concerned by the state’s proposal to take 340B rebates under Medicaid from hospitals.”
“The 340B program uses no state taxpayer dollars—the savings come from pharmaceutical companies exclusively—and is subject to strict federal oversight,” Tittle said. “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.”
