MedPAC Recommends 4.3% Hospital Payment Increase in 2025

January 29, 2024

At its January meeting, the Medicare Payment Advisory Commission (MedPAC) voted on recommendations to Congress on 2025 payment updates across Medicare provider settings. In determining payment adequacy, MedPAC staff evaluated beneficiaries’ access to care, quality of care, access to capital, Medicare payments, and provider costs. MedPAC’s recommendations included hospital and physician payment updates that are greater than what current law requires. MedPAC will include its recommendations 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. Medicare margins fell from -6.1% in 2021 to -11.6% in 2022. All margins include the impact of COVID-19 relief funds. MedPAC recommended updating Medicare payment rates for acute care hospitals by 4.3% (the amount specified under current law—currently projected to be 2.8%—plus 1.5%).

GNYHA’s summary of MedPAC’s December 2023 meeting provides additional information on MedPAC’s payment adequacy analysis. MedPAC also highlighted its March 2023 recommendation that Congress redistribute existing disproportionate share hospital (DSH) and uncompensated care payments through its proposed Medicare Safety-Net Index (MSNI) as 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). Two commissioners abstained from the vote over concerns that the inpatient and outpatient prospective payment system updates are grouped together in the recommendation, while the rest voted to approve the recommendation.

MedPAC also voted to recommend updates for other provider settings:

  • Physicians and other professional health services: 1.3% (half of the projected increase in the Medicare Economic Index) above the current law requirement of a 0% update, 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 (IRFs): 5% reduction

Additionally, MedPAC presented its work to improve the accuracy of IRF payments by moving towards an average-cost case-mix-group weighting methodology and a status report on ambulatory surgical centers (ASCs) in which MedPAC highlighted its standing recommendation to require ASCs to submit cost data. MedPAC will include these topics in its March 2024 report.