The Medicare Payment Advisory Commission (MedPAC), which advises Congress on Medicare policy, recommended a 1% base rate increase above current law to both hospital inpatient services and outpatient services for 2026.
With that increase, the overall increase would be 4.6% based on the current projected hospital market basket increase of 3.6% for 2026.
Analysts at Macquarie Capital noted that a hospital rate increase would have a positive impact on ambulatory surgery centers, including larger operators like Surgery Partners.
“Hospital margin has benefited from a normalized labor environment, strong state supplemental payments, higher utilization and favorable policy impact,” analysts Tao Qiu and David Ko wrote. “We think a robust Medicare rate increase would help sustain the tailwind.”
Indeed, capital trends for hospitals show promising signs, MedPAC reported. Hospitals’ total margin increased to 6.4%, driven largely by investment income. And borrowing costs for hospitals increased by less than such costs increased in the general market, with hospital bond yields rising to 4.4% in 2023.
Medicare fee-for-service (FFS) beneficiaries saw an increase in both inpatient and outpatient utilization in 2023, with outpatient services growing by 2.4%.
MedPAC noted its own 2018 recommendation regarding the creation of an outpatient-only hospital, given that inpatient volumes at some rural hospitals had significantly declined.
“Isolated, rural towns still need local emergency care,” they wrote. “An outpatient-only hospital could accommodate markets that need emergency care but have little inpatient volume.”
The proposed solution could serve markets with a demand for emergency care but minimal inpatient volume. These outpatient-only hospitals would rely on fixed monthly payments to cover fixed costs, while fee-for-service payments would help cover marginal costs, they wrote.
Congress has discretion to act, revise or disregard MedPAC’s proposals.
“MedPAC proposed a similar rate increase above current law last year, but CMS is required to implement statutory updates unless the Congress intervenes, to which we attach a low probability,” the Macquarie analysts wrote.
Analysts with another firm, Stephens, believe that the change in presidential administration will widen the divide between MedPAC and the Centers for Medicare & Medicaid Services (CMS).
“Importantly, we believe that MedPAC’s policy and reimbursement recommendations will likely have reduced alignment/correlation with Trump’s prospective CMS as compared to the departing Biden CMS,” they wrote.
