At its January meeting, the Medicare Payment Advisory Commission (MedPAC) voted on recommendations to Congress on 2026 payment updates. For the third consecutive year, MedPAC recommended payment updates for hospitals and physicians that are greater than what current law requires.
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 varied, and Medicare margins were negative and projected to remain negative. Hospital all-payer margins increased from 2.7% in 2022 to 5.1% in 2023, but Medicare margins fell from -11.9% in 2022 to -12.6% in 2023, including the impact of COVID-19 relief funds. Based on this analysis, MedPAC once again recommended updating Medicare payment rates for acute care hospitals by the amount specified under current law (projected to be 2.4%) plus 1% in 2026. MedPAC also reiterated its previous recommendation that Congress redistribute existing disproportionate share hospital (DSH) and uncompensated care payments through the Medicare Safety-Net Index (MSNI) as 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. Although the hospital recommendation passed, two commissioners voted against it because they believe that inpatient and outpatient hospital services require different resources and should be evaluated separately. MedPAC’s analysis of payment adequacy indicators was presented at its December 2024 meeting.
The commissioners also voted unanimously to approve the following update recommendations for other provider settings:
- Physicians and other professional health services: 1.3% (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: 3% reduction
- Home health care services: 7% reduction
- Inpatient rehabilitation facilities: 7% reduction
In a separate session, MedPAC discussed eliminating Medicare’s coverage limits on stays in freestanding, non-government–owned inpatient psychiatric facilities (IPFs). Under current law, Medicare limits access to freestanding IPFs to 190 days over the course of a patient’s life. It also reduces the number of covered inpatient days during the initial benefit period for new Medicare beneficiaries who received care at a freestanding IPF 150 days prior to their Medicare entitlement. All commissioners voted in favor of eliminating both limitations because:
- The original policy was implemented when inpatient psychiatric care was mostly provided by state- and locally run freestanding IPFs, which now compose a small and declining share of Medicare-covered freestanding IPF days
- Highly vulnerable low-income and disabled beneficiaries are most affected by the limits
The commissioners were interested in finding ways to better serve this vulnerable population and ensure high-quality care delivery in IPFs.
MedPAC also provided a status report on ambulatory surgical center (ASC) services. From 2022 to 2023, ASCs experienced growth in the following metrics: the number of ASCs, the share of beneficiaries serviced, and the volume of services provided. MedPAC’s analysis showed that ASCs were less likely to serve more medically complex and dual eligible beneficiaries when compared to hospital outpatient departments. ASCs are the only facilities that do not submit Medicare cost data, which limits the Centers for Medicare & Medicaid Services’ ability to set up an ASC-specific market basket and create payment rates that would accurately reflect relative costs. The commissioners suggested that future work should include comparing clinical risk for the beneficiaries having a procedure at a hospital versus at an ASC and incorporating safety net payments into the ASC prospective payment system via the MSNI. MedPAC is also likely to reiterate its recommendation that ASCs submit cost data.