In its June 2025 Report to the Congress, the Medicare Payment Advisory Commission (MedPAC) recommended reforming the physician fee schedule (PFS) payment updates and assessed ways to improve nursing home quality.
MedPAC recommended replacing the Medicare PFS updates under current law with an annual update tied to a portion of the growth in the Medicare Economic Index (MEI) to account for increases in input costs and inflation. The Commission argued that a more predictable, inflation-linked update should reduce financial uncertainty and ensure continued access to care for Medicare beneficiaries. MedPAC estimated that reforming the PFS updates would increase program spending by $15 billion to $30 billion over the next five years. In its March 2025 Report to the Congress, the Commission recommended replacing the current law update for PFS services with an update equal to MEI minus one percentage point for 2026. The June recommendation would permanently reform the PFS update for all future years.
MedPAC also recommended collecting timely data on clinician service costs to improve the accuracy of relative value units (RVUs) that determine the distribution of Medicare spending under the PFS. Specifically, MedPAC recommended that policymakers consider the following options: 1) use up-to-date clinician practice pattern data to more accurately reflect current indirect practice expenses, 2) consider alternative data sources to reflect how RVUs are allocated to categories, and 3) address overpayments for global surgical codes to improve payment accuracy. MedPAC will continue to monitor PFS trends and RVU calculations to guide future recommendations.
Additionally, MedPAC discussed care patterns of Medicare long-stay nursing home beneficiaries. Most nursing homes serve both long-term patients (primarily covered by Medicaid) and short-term rehab patients (primarily covered by Medicare). MedPAC remains concerned that the discrepancy between Medicare and Medicaid payment amounts incentivizes unnecessary hospitalizations for long-stay dual-eligible residents because residents that spend three or more days in the hospital become eligible for a Medicare-covered, higher-paying skilled nursing facility (SNF) stay upon their return. The Commission also raised concerns that current Centers for Medicare & Medicaid Services’ efforts to enhance nursing home care delivery through the nursing home survey inspections process, Five-Star Quality Rating System, and the SNF Value-Based Purchasing Program have not been effective. MedPAC highlighted two areas of interest for future research to enhance nursing home care: 1) placing a greater emphasis on staffing in the star rating system and 2) encouraging the broader use of institutional special-needs plans, given early evidence of reducing the use of inpatient care and emergency department visits and improving performance on some quality measures compared to other Medicare Advantage (MA) plans.
The report also covered several topics related to MA, including trends in MA supplemental benefits, differences in relative costs and payments for Part D plans and MA prescription drug plans, and utilization and quality of home health services accessed by MA enrollees. Finally, MedPAC discussed several initiatives to improve the measurement of rural provider quality and efforts to reduce beneficiary cost-sharing for outpatient services at critical access hospitals.