INDIANAPOLIS – Hospitals in Indiana will see a 5 percent cut in Medicaid reimbursement rates next year and programs meant to help the elderly stay in their homes will be curtailed as part of $34 million in spending reductions announced Tuesday.

The Indiana Family and Social Services Administration will cut $13.6 million, including not filling vacancies and consolidating Division of Disability and Rehabilitative Services offices.

The hospital Medicaid change will save $10.6 million, and an additional $9.8 million will come from scaling back several initiatives and negotiating lower rates with vendors.

"The reductions we are announcing today cut spending without cutting vital services," Secretary Anne Murphy said. "Our commitment is to the 1.2 million Hoosiers that receive benefits from us, and the cuts announced today will not take away from our clients receiving the benefits to which they are entitled."

The cuts were made in response to repeated shortfalls in state tax collections.

The Indiana Hospital Association released a statement saying that Medicaid payments often amount to less than 50 cents for every dollar of care provided and that the growing gap is unsustainable.

"These cuts represent a significant blow to the ability of Indiana’s hospitals to serve their communities. Hospitals will be forced to make difficult decisions about what types of services they can provide," said Douglas Leonard, president of the association.

"We understand that the economic downturn has contributed to dramatic revenue shortfalls for our state government and that tough fiscal decisions must be made. Like the state, hospitals are also hurting – we are treating more Medicaid and uninsured patients and seeing fewer patients with better-paying commercial health insurance."

Mike Schatzlein, CEO of Lutheran Health Network, said he has been following the issue closely because St. Joseph Hospital has a disproportionate number of Medicaid patients and expected a cut.

"The state does have a significant budgetary issue, … and from their perspective, the money isn’t there," he said. "We will have to tighten our belts, but we are not going to deny anybody care."

Schatzlein said the larger issue of concern to him is the difficulty in getting patients approved for Medicaid in the first place under the troubled privatization system that Gov. Mitch Daniels canceled effective in December.

"We need to fix this eligibility thing," he said. "All I know is the patients can’t get qualified and we can’t get paid for those services, so that is a bigger concern for me."

In another area, FSSA decided to end the Naturally Occurring Retirement Communities pilot program. In five areas with high concentrations of senior citizens – including Huntington – the program paid for projects meant to make it easier for the elderly to stay in their homes, including home repairs.

Holly Saunders, executive director of the Huntington County Council on Aging, said she found out several weeks ago that the state was discontinuing the program. She agreed with the move but disliked that the state had approved funding and then rescinded it a week later.

"We’re in a recession, and it’s unfortunate, but hard decisions have to be made," she said.

FSSA also will cap the Residential Community Assistance Program – another effort aimed at helping senior citizens stay in their homes by providing room and board assistance.

Marcus Barlow, spokesman for the agency, said 1,400 Hoosiers accept help from this state-funded program and will continue to receive services, but no new clients will be accepted.

Steve Smith, president of the Indiana Health Care Association, said he expects more cuts to come, including possibly to funding for nursing homes.

"We dodged a bullet, but I am in no way confident that we will continue to dodge it," he said.

nkelly@jg.net