MedPAC backs current law hospital payment update, seeks $1B boost for safety-net hospitals

Medicare’s hospital sector remains stable, with rising service use and improving financial indicators, according to data reviewed by the Medicare Payment Advisory Commission (MedPAC) at its Dec. 4 meeting. The Commission’s draft recommendation for 2027 would update hospital payment rates by the amount specified in current law and add $1 billion in targeted support for hospitals treating larger shares of low-income beneficiaries.

MedPAC staff walked commissioners through trends in access, utilization, margins, quality measures, rural emergency hospital conversions and site-neutral payment policies.

Access and utilization remain solid

MedPAC staff reported no indications of widespread access issues. In FY 2024, hospitals maintained 674,000 inpatient beds with 71% occupancy, while emergency department throughput averaged about 150 minutes. Hospital employment rose to 4.8 million workers.

Service use also grew. Inpatient stays reached 208 per 1,000 fee-for-service (FFS) Medicare beneficiaries — up 1.5% from 2023 — and outpatient encounters increased 4% to 3.0 per beneficiary.

Hospital supply stayed largely steady through FY 2024 and FY 2025. Eight more facilities closed than opened, most often due to low volume and higher operating costs, and several hospitals converted to rural emergency hospital (REH) status.

Quality mixed but generally stable

Risk-adjusted mortality improved to 7.4% in 2024, while readmissions rose slightly to 15.4%. Patient-experience scores were largely unchanged from 2023, though most measures remain a point or more below 2019 levels.

Financial indicators strengthened

All-payer operating margins reached 6.5% in FY 2024, supported by 340B remedy payments and slower labor-cost growth. Hospitals’ Medicare FFS margin improved to –12.1%, reflecting stronger outpatient drug revenue and easing labor pressures. Results continue to vary widely across facilities.

MedPAC’s review of “relatively efficient” hospitals — those that have historically performed well on cost and quality — showed their median Medicare margin improved to –1% in 2024. Projections suggest that by 2026, Medicare margins could reach –10% in aggregate and +1% among efficient hospitals, supported in part by an anticipated $1.8 billion increase in uncompensated-care payments.

Targeting support through MSNI

The Commission continued to support using the Medicare safety-net index (MSNI) to allocate safety-net dollars in place of current disproportionate-share and uncompensated-care formulas. MSNI includes:

• Low‑income Medicare share of volume.
• Uncompensated‑care costs as a share of all‑payer revenue.
• Medicare share of total volume (averaged down by half).

Staff said MSNI remains a stronger predictor of hospitals’ financial pressure than existing DSH metrics.

Draft 2027 recommendation

MedPAC’s slides listed the following draft recommendation:

“The Congress should: for 2027, update the 2026 Medicare base payment rates for general acute care hospitals by the amount specified in current law, and implement the Medicare Safety-Net Index (MSNI) described in our March 2023 report, with $1 billion added to the MSNI pool.”

Commission staff said the approach aims to sustain access, align payments with efficient hospital costs, and direct additional resources to facilities caring for larger shares of vulnerable patients.

Rural emergency hospitals

MedPAC also reviewed updated data on REHs, which operate 24/7 emergency departments but do not provide inpatient services. Eligible hospitals receive fixed monthly payments and 105% of standard OPPS rates for outpatient services.

By 2025, 44 facilities had converted to REH status. In 2024, they received more than $100 million in enhanced Medicare payments — including roughly $100 million from fixed monthly payments and $1.2 million tied to higher outpatient reimbursement.

Hospitals reported that Medicare Advantage plans generally mirror FFS outpatient rates but do not pay the fixed monthly allotment, despite its inclusion in MA benchmarks. MedPAC indicated that the discrepancy may require attention.

Continued discussion on site-neutral policies

Commissioners reiterated support for expanding site-neutral payment rules where services can be safely delivered across care settings. Current policies already apply to most services in non-excepted off-campus departments, expanded to clinic visits at excepted sites in 2019, and will apply to drug administration services beginning in 2026. Future policy areas could include clinic visits in on-campus outpatient departments and additional services in excepted off-campus locations.