Dive Brief:
The Medicare Advisory Payment Commission, which advises Congress on Medicare policy, is recommending tying the rate of physician and other health professionals’ payment increases in 2026 to the Medicare Economic Index minus 1 percentage point, according to its annual report released Thursday.
Provider groups have been pushing MedPAC to tie payment increases to the MEI, saying rate increases need to better keep up with the costs of providing care. However, groups are split as to whether the recommendation goes far enough in addressing rising costs.
MedPAC also recommended Congress boost hospital payment rates by the amount specified in 2025 plus 1% in 2026.
Dive Insight:
MedPAC updates its payment recommendations annually by assessing providers’ costs and Medicare’s payments, as well as care access, supply and quality.
For 2026, the commission recommended payment updates above the current law for acute care hospitals, physicians and other health professional services. It held payment updates steady for outpatient dialysis providers and recommended payment reductions for hospice providers, skilled nursing facilities, home health agencies and inpatient rehabilitation facilities.
The commission once again suggested establishing safety-net add-on payments under the physician fee schedule for services delivered to low-income Medicare members. MedPAC began recommending the policy in 2023 and recommended it again last year. The commission estimated that physicians can expect an average of 3% higher Medicare payments with the safety-net add on in addition to the recommended base rate increases.
MedPAC also recommended removing a 190-day lifetime limit for treatment in freestanding psychiatric facilities, noting that as of January 2024 about 40,000 beneficiaries had exhausted coverage since their initial enrollment in Medicare. Beneficiaries outside of their coverage window were often disabled or low-income, according to the report.
The report also touched on the the popular Medicare Advantage program, noting continued concerns about favorable selection and coding intensity. The commission said MA insurers may attract healthier and lower-cost beneficiaries and upcode the medical needs of enrollees to seek higher reimbursement.
MedPAC estimates the federal government is paying approximately 20% more for MA beneficiaries than seniors in traditional Medicare — down from 22% last year — a difference that’s projected to cost $84 billion in 2025.
Although the commission voted unanimously to tie the physician fee schedule to the MEI, an annual measure of inflation for practices, the recommendation has received mixed reviews from industry groups.
The Medical Group Management Association, a provider group, called the recommendation lacking.
“The report acknowledges the rising costs and recent high inflation that medical groups have had to absorb, reflecting a growing consensus that the current track of yearly Medicare cuts coupled with a lack of an inflationary update is untenable,” said Anders Gilberg, senior vice president of government affairs for the MGMA in a statement Friday. “Still, it is critical to tie the Medicare inflationary update to the full MEI to more accurately reflect practice expenses — failure to do so would undermine the financial viability of medical groups nationwide.”
For years, provider groups have argued about appropriate compensation for Medicare, saying that reimbursements haven’t kept up with the cost of care. According to data from the American Medical Association, practice costs have risen 3.5% this year, while Medicare payment rates to physician practices have dropped 33% since 2001, adjusting for inflation.
Last year, providers were dismayed when MedPAC only boosted hospital payment rates by 1.5% above 2024 rates and base physician payment rates by 1.3%.
The American Hospital Association referred Healthcare Dive to the group’s comments in January on MedPAC’s draft proposal, when the hospital group said the recommendations on reimbursements for hospitals were likewise inadequate.
“Medicare only pays 82 cents for every dollar hospitals spend providing care to Medicare beneficiaries,” said Ashley Thompson, senior vice president of public policy analysis and development for the AHA. “We continue to urge the commission to start to bring Medicare payments back to the level where they cover the cost of providing care and ensure patients have adequate access to care.”
However, other groups backed MedPAC’s recommendation to tie payment increases to the MEI minus one percentage point.
Although the American Medical Association previously called the specific recommendation too conservative, the medical group said it now supports the proposal.
“Medicare is broken. Under the financial stress, burnout has become an occupational hazard for physicians,” AMA President Bruce Scott said in a Thursday statement. “As these cuts pile up year after year, more and more physicians are closing their practices, leaving patients without access. It just makes sense that payment must keep pace with increasing costs.”
The shift may be in part due to recent losses in Washington. Although provider groups spent the winter lobbying to reverse a 2.8% funding cut for 2025, a preliminary version of a funding bill released this week preserved the cuts.
Medical organizations wrote to members of the House of Representatives last week urging them to reconsider and protect the funding. Scott said the recommendations from MedPAC highlight the importance of action.
“We welcome MedPAC’s help in highlighting the danger of doing nothing. The status quo is not an option,” he said.
