Medicare Proposes 4.1% Increase in Hospital Payments by 2024, Safety Net Payments Overhaul

December 19, 2022

At its December 2022 meeting, the Medicare Payment Advisory Commission (MedPAC) discussed payment adequacy across provider settings and draft recommendations to Congress on 2024 payment update factors. In determining payment adequacy, MedPAC staff evaluated beneficiaries’ access to care, quality of care, access to capital, and Medicare payments and provider costs. The Commission will vote on its final recommendations in January.

MedPAC noted that hospital all-payer financial indicators generally remained positive in 2021, partly due to significant Federal COVID-19 relief aid. However, in recognition of Medicare margins remaining negative (-6.2%) and inflationary pressures on hospitals, MedPAC proposed to update Medicare payment rates for acute care hospitals by the amount specified under current law (projected to be 3.1%) plus 1%.

MedPAC staff also presented draft recommendation to redistribute Medicare disproportionate share hospital and uncompensated care (UC) payments (approximately $11.7 billion in 2019) through a safety net index (SNI) beginning in fiscal year 2024. As noted at previous meetings, MedPAC’s proposed SNI is computed as the sum of a hospital’s share of Medicare beneficiaries who are dually eligible for Medicaid or receive a low-income subsidy under Medicare Part D, UC costs as a share of revenue, and one half of the Medicare share of inpatient days. The draft recommendation would add $2 billion to the SNI pool in recognition of the impact of Medicare underpayments on hospitals serving large proportions of low-income Medicare patients. The payments would be distributed based on an add-on to fee-for-service inpatient prospective payment system (PPS) and outpatient PPS claims scaled in proportion to each hospital’s SNI. Commensurate amounts for Medicare Advantage (MA) claims would be paid directly to hospitals and excluded from MA benchmarks (similar to Medicare indirect medical education claims). The Commission generally supported the draft recommendation but expressed concern for hospitals in the bottom quartile of the SNI—including many public and teaching hospitals—that would be negatively impacted and advocated for exploring a significant transition or stop-loss policy. GNYHA is modeling MedPAC’s proposal to determine the impacts on our member hospitals.

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

  • Physicians and other professional health services: 1.25% (50% of the projected increase in the Medicare Economic Index) above the current law update of 0%
  • Outpatient dialysis services: Current law (projected 1.5%)
  • Hospice services: Current law (projected 3.1%)
  • Skilled nursing facilities: Reduce 2023 payments by 3%
  • Home health care services: Reduce 2023 payments by 7%
  • Inpatient rehabilitation facilities: Reduce 2023 payments by 3%

MedPAC’s other draft recommendations include the following:

  • Congress should enact a non-budget-neutral add-on payment to the physician fee schedule for services provided to low-income Medicare beneficiaries. The add-on payment should be 15% for primary care clinicians and 5% for non-primary care clinicians.
  • The Department of Health and Human Services (HHS) Secretary should require that ambulatory surgical centers (ASCs) report cost data. MedPAC did not draft a recommendation for an ASC payment update due to this lack of data.
  • The HHS Secretary should wage-adjust and reduce by 20% the hospice aggregate cap.