MedPAC is also recommending Congress redistribute existing disproportionate-share-hospital and uncompensated-care payments through the Medicare Safety-Net Index and add $4 billion to the MSNI pool.
“The MSNI funds would be distributed to hospitals across their (fee-for-service) and Medicare Advantage patients,” the group of Medicare policy experts wrote. “This recommendation would better target limited Medicare resources toward those hospitals that are key sources of care for low-income Medicare beneficiaries and are facing financial challenges.”
MedPAC said that in 2023, fee-for-service Medicare payment adequacy indicators for acute care hospitals were mixed. The commission said patient access to care remained good overall and hospitals’ all-payer margin was positive and improved, but quality indicators were mixed and FFS Medicare payments “remained well below hospitals’ costs.”
Hospitals’ fee-for-service Medicare margin was -13% in 2023. For “relatively efficient” hospitals — those that consistently achieved lower costs while still performing relatively well on a specified set of quality metrics — had a median Medicare margin of -2% in 2023. For 2025, MedPAC projects that hospital Medicare margins will remain stable at about -13% and relatively efficient hospitals’ margin will remain at about -2%.
The American Hospital Association said in January that it appreciates MedPAC’s recognition of the financial challenges hospitals face but “even after the recommended payment update, Medicare payments to hospitals would remain inadequate.”
The AHA is urging the commission to reexamine the utility of the “relatively efficient” measure as a key metric to evaluate the adequacy of Medicare payments to hospitals. The group is also urging MedPAC “to bring Medicare payments back to the level where they cover the cost of providing care and ensure patients have adequate access to care.”
Robert Nelb, director of policy at America’s Essential Hospitals, said the organization appreciates that MedPAC’s report acknowledges the inadequacy, “but we are concerned that the proposed Medicare Safety Net Index would unfairly redistribute vital disproportionate share hospital payments away from the hospitals that provide a disproportionate share of care to low-income patients.”
“MSNI uses flawed metrics and deviates from the long-standing consensus that safety net providers should be identified based on the share of all types of low-income patients they serve, including Medicaid and uninsured patients,” he said. We urge policymakers to develop a federal designation of safety net hospitals using better, evidence-based metrics, such as those included in the bipartisan Reinforcing Essential Health Systems for Communities Act.”
The Federation of American Hospitals said in a statement that Medicare payment updates to hospitals have not kept up with inflation.
“We support MedPAC’s hospital update recommendation for FY 2026 — but that still isn’t enough to make up for the significant losses hospitals face treating Medicare patients.”