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MedPAC Proposes a 3.4% Hospital Rate Increase in 2026, $4B in Additional Safety Net Funding

December 16, 2024

At its December meeting, the Medicare Payment Advisory Commission (MedPAC) discussed Medicare payment adequacy across provider settings and its draft recommendations to Congress on 2026 payment updates. In determining payment adequacy, MedPAC staff evaluated beneficiaries’ access to care, quality of care, access to capital, and the relationship between Medicare payments and provider costs. Notably, MedPAC’s draft recommendations included payment updates for hospitals and physicians that are greater than what current law requires. The Commission will vote on final recommendations in January and will include them in its March 2025 Report to the Congress.

MedPAC found that hospital payment adequacy indicators were mixed in 2023. While measures of beneficiaries’ access to care and hospital access to capital were positive, measures of quality of care had both positive and negative results, and Medicare payment-to-cost ratios were negative. Although hospital all-payer margins increased from 2.7% in 2022 to 5.1% in 2023, Medicare margins fell from -11.9% in 2022 to -12.6% in 2023. All margins include the impact of COVID-19 relief funds. Based on its analysis, MedPAC proposed to update Medicare payment rates for acute care hospitals by the amount specified under current law (projected to be 2.4%) plus 1% in 2026. While this is a lower increase than the update MedPAC recommended for 2025 (current law plus 1.5%) due to a slight improvement in payment adequacy indicators, it is notable that MedPAC has continued to recommend increases higher than current law for the third consecutive year. Additionally, MedPAC reiterated its March 2023 recommendation that Congress should redistribute existing disproportionate share hospital and uncompensated care payments through the Medicare Safety-Net Index (MSNI) using the mechanism described in its March 2023 report, and add $4 billion to the MSNI pool. MedPAC stated that payments would increase by 4.6% with the combined rate update and MSNI recommendations.

MedPAC staff also presented the following draft update recommendations for other provider settings:

  • Physicians and other professional health services:3% (the projected Medicare Economic Index minus 1) plus additional payments to support Medicare’s safety-net clinicians as described in the March 2023 report
  • Outpatient dialysis services: Current law (1.7%)
  • Hospice services: Eliminate update
  • Skilled nursing facilities (SNF): 3% reduction
  • Home health care services: 7% reduction
  • Inpatient rehabilitation facilities: 7% reduction

In a separate session, MedPAC discussed its analysis of the Federal minimum nurse staffing requirements for rural and urban nonexempt facilities based on 2024 staffing levels. MedPAC defines “nonexempt” as facilities that do not meet the Centers for Medicare & Medicaid Services’ criteria of being in a labor market experiencing an acute workforce shortage. In their analysis, 53% meet the minimum 0.55 registered nurse (RN) hours per resident day (HPRD) standards. However, only 29% fully complied with the 2.45 nurse aide requirement. Overall, 59% adhere to the 3.48 HPRD threshold, which includes licensed practical nurses.

MedPAC then analyzed urban nonexempt facilities only. Beginning in May 2026, urban facilities must comply with two requirements: having an RN on-site 24/7 and complying with the total minimum 3.48 HPRD requirement. MedPAC’s analysis shows that 60% of facilities meet the total nurse staffing HPRD requirement, while 84% comply with the 24/7 RN requirement. However, when combining both requirements, a little more than half (53%) would fully comply with both requirements.

While MedPAC has not taken a position on the staffing requirements, committee members expressed concerns with the requirements as an unfunded mandate.