MedPAC Report Recommends 3.9% Increase to 2024 Hospital Payments and Safety Net Payment Reform

March 20, 2023

In its March report to Congress, the Medicare Payment Advisory Commission (MedPAC) recommended increasing 2024 hospital Medicare payments by 3.9% and overhauling supplemental payments to safety net hospitals.

The report examined hospital payment adequacy by assessing beneficiaries’ access to care, quality of care, providers’ access to capital and Medicare payments, and providers’ costs in 2021. MedPAC found that most payment adequacy indicators remained positive but continued to vary across hospitals, and some remained below pre-pandemic levels. Hospitals’ Medicare margin increased to -6.2% in 2021 but would have been -8.3% without Federal relief funds for COVID-19. Additionally, MedPAC projected that Medicare margins will decrease to -10% in 2023, driven by growth in input costs and the expected expiration of Federal COVID-19 funding. Therefore, MedPAC recommended an update to 2024 hospital payment rates by the amount specified under current law (currently projected to be 2.9% for operating payments and 2.4% for capital payments) plus 1%.

The report also detailed MedPAC’s recommended Medicare Safety-Net Index (MSNI), which would be used to redistribute current disproportionate share hospital (DSH) and uncompensated care (UC) payments. MedPAC identified perceived problems with the current Medicare DSH and UC payment methodology, including that the formula subsidizes low state Medicaid payments, provides supplemental payments only for inpatient services, and favors hospitals with few Medicare patients, hospitals with a low share of Medicare fee-for-service (FFS) cases, and hospitals with a high share of Medicare Advantage (MA) cases. The MSNI is the sum of 1) a hospital’s share of Medicare beneficiaries that are dually eligible for Medicaid or receive a low-income subsidy under Medicare Part D, 2) UC costs as a share of revenue, and 3) one-half of the Medicare share of inpatient days. Safety net payments would be distributed via a percent add-on to FFS inpatient prospective payment system (PPS) and outpatient PPS claims scaled in proportion to each hospital’s MSNI. MedPAC recommended that commensurate amounts for MA claims be paid directly to hospitals and excluded from MA benchmarks. MedPAC also recommended adding $2 billion to the MSNI pool each year to help maintain the financial viability of Medicare safety net hospitals.

MedPAC’s recommended change would shift safety net funding from hospitals that currently receive high UC payments but serve fewer Medicare beneficiaries to hospitals with a higher Medicare share of beneficiaries. This supports MedPAC’s goal that Medicare safety net payments should be used to support hospitals that care for large shares of low-income Medicare beneficiaries. To mitigate losses relative to the current DSH/UC distribution, MedPAC noted that Congress could phase in the policy over multiple years or implement a stop-loss policy so that no hospital would experience positive or negative changes of more than 5% in any one year due to the MSNI transition. GNYHA has modeled the MedPAC proposal’s impact on its member hospitals and is now incorporating additional methodological and technical details provided in the March report.