In its March 2025 Report to the Congress, the Medicare Payment Advisory Commission (MedPAC) recommended increasing the 2026 hospital Medicare payment rate by the amount reflected in the current law (projected to be 2.5%) plus 1%, redistributing disproportionate share hospital (DSH) and uncompensated care (UC) payments to hospitals through a new Medicare Safety-Net Index (MSNI), and increasing the MSNI pool by $4 billion.
MedPAC assessed hospital payment adequacy by evaluating beneficiaries’ access to care, quality of care, providers’ access to capital, and comparing Medicare fee-for-service payments to providers’ costs in 2023. MedPAC reported that while hospital all-payer margins increased from 2.7% in 2022 to 5.1% in 2023, Medicare margins were negative (-13% in both 2022 and 2023, exclusive of COVID-19 relief funds). These low margins reflect higher-than-expected input price inflation and declines in UC payments. MedPAC predicts that Medicare margins will continue to be approximately -13% for 2025 and 2026.
In 2023, MedPAC developed the MSNI to identify hospitals that serve low-income Medicare beneficiaries. MedPAC found the MSNI to be a better predictor of all-payer margins and risk of closure than the metrics used in DSH payments, and therefore, highlighted its previous recommendation to redistribute DSH and UC payments to hospitals through the MSNI and to add $4 billion to the MSNI pool in 2026.
Although MedPAC did not provide an official site-neutral payment recommendation as part of this report, it argued that Medicare should move toward site-neutral payments and referenced its June 2023 recommendation to align payment rates across ambulatory settings. Additionally, MedPAC stated that the current site-neutral policy adopted by Congress through the Bipartisan Budget Act of 2015 (BBA) has had a “modest effect” because it only applied to off-campus provider-based departments (PBDs) that were new as of the date of the BBA’s enactment. In 2019, the Centers for Medicare & Medicaid Services extended the site-neutral policy to clinic visits in all off-campus PBDs, effectively eliminating the grandfathering provision for these services. MedPAC estimated that extending the site-neutral cuts to all services in exempt PBDs would have reduced payments to hospitals for outpatient prospective payment system services by 3.2% in 2023 if applied in a non-budget-neutral manner. (MedPAC’s 2023 site-neutral payment recommendation was budget neutral.)
The March 2025 report also included payment update recommendations for physicians and other health professional services, outpatient dialysis facilities, skilled nursing facilities, home health agencies, inpatient rehabilitation facilities, and hospice providers. In addition, it recommended changes to improve beneficiaries’ access to inpatient psychiatric care and provided status reports on Medicare Advantage, the Part D prescription drug program, and ambulatory surgical centers.