MedPAC Proposes 4.3% Hospital Payment Increase in 2025

December 11, 2023

At its December meeting, the Medicare Payment Advisory Commission (MedPAC) discussed Medicare payment adequacy across provider settings and its draft recommendations to Congress on 2025 payment updates. In determining payment adequacy, MedPAC staff evaluated beneficiaries’ access to care, quality of care, access to capital, and Medicare payments and provider costs. Notably, MedPAC’s draft recommendations included hospital and physician payment updates that are greater than what current law requires. MedPAC will vote on final recommendations in January, which it will include in its March 2024 Report to the Congress.

MedPAC found that hospital payment adequacy indicators were mixed in 2022. While measures of beneficiaries’ access to care were positive, measures of quality of care and access to capital had both positive and negative results and Medicare payment-to-cost ratios were negative. Specifically, hospital all-payer margins decreased from 8.8% in 2021 to 2.7% in 2022, the lowest since 2008. Furthermore, Medicare margins fell from -6.1% in 2021 to -11.6% in 2022. All margins include the impact of COVID-19 relief funds. The decrease in Medicare margins was driven by higher-than-expected inflation and other factors, including the reinstatement of sequestration after a 23-month pause during the COVID-19 public health emergency. Based on its analysis, MedPAC proposed to update Medicare payment rates for acute care hospitals by 4.3% (the amount specified under current law—now projected to be 2.8%—plus 1.5%). This is an even greater increase than the update MedPAC recommended for 2024 (current law plus 1%). Additionally, MedPAC highlighted its March 2023 recommendation that Congress should redistribute existing disproportionate share hospital (DSH) 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 (an increase from last year’s recommendation to add $2 billion to the pool).

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

  • Physicians and other professional health services: 50% of the projected increase in the Medicare Economic Index (1.3%) plus additional payments to support Medicare’s safety net clinicians as described in the March 2023 report
  • Outpatient dialysis services: Current law (1.8%)
  • Hospice services: Eliminate update
  • Skilled nursing facilities: 3% reduction
  • Home health care services: 7% reduction
  • Inpatient rehabilitation facilities: 5% reduction