Medicare Should Pay Docs More, Cut Nursing Home and Home Health Pay, MedPAC Says

The Medicare Physician Fee Schedule should increase each year tied to the rate of medical inflation, while payments for inpatient rehabilitation and home healthcare should be cut, the Medicare Payment Advisory Commission (MedPAC) reiterated Monday in its June report to Congress.

“To bring fee-for-service Medicare’s overall payment levels closer in line with providers’ costs, the commission … recommends slightly increasing (above current law) payment rates for the hospital outpatient and inpatient prospective payment systems and the Physician Fee Schedule, modestly decreasing payment rates for outpatient dialysis services and hospice services, and substantially decreasing payment rates for post-acute care providers (i.e., skilled nursing facilities, home health agencies, and inpatient rehabilitation facilities, which have high Medicare profit margins of 24%, 21%, and 17%, respectively),” the authors wrote, hearkening back to recommendations from MedPAC’s March 2026 report.

“We also recommend collecting cost-report data from ambulatory surgical centers to help inform decisions about annual updates to the payment rates for these facilities,” they added.

For Medicare Advantage (MA) plans, “the commission has recommended using geographic market areas” to better evaluate quality of care, the commissioners noted, adding that the CMS should “take additional steps to ensure that MA plans submit accurate and complete encounter data for services provided to MA enrollees.”

The commissioners also looked at payment levels in Medicare’s alternative payment models (APMs), a payment approach that gives practices added incentive payments to provide high-quality and cost-efficient care. Accountable care organizations (ACOs) are one of the more popular forms of alternative payment.

Commissioners applauded CMS for acting on some of the commission’s prior recommendations. Previously, “the commission has expressed concerns about spending targets that are periodically ratcheted down when ACOs become more efficient,” the authors wrote, referring to a 2022 MedPAC report recommendation. “CMS has taken steps toward addressing this concern by introducing a prospective growth rate for ACO spending targets for all ACO models.”

At a briefing with reporters last week, Paul Masi, MPP, MedPAC’s executive director, responded to a question from MedPage Today by discussing how the commission’s prior recommendations fit into the new report. Masi reiterated the commission’s suggestion that for fee-for-service Medicare, CMS should “move to something more like MEI [Medicare Economic Index, a level of medical inflation] minus 1%,” he said.

“Separately, the commission … highlighted its past recommendations to move towards site-neutral payments” and put a cap on out-of-pocket spending, while allowing the HHS secretary “flexibility to vary cost-sharing based on whether services are relatively higher or relatively lower value,” he said. Site-neutral payments would allow Medicare to pay the same amount for a service no matter where it was provided, an idea that hospitals have pushed back on.

The MedPAC report comes at a time when Congress has been trying to implement some of the commission’s ideas. A bill to tie Medicare physician payments to the MEI was approved in May by the House Ways & Means Committee but has yet to be considered by the full House.

The site-neutral payment issue also continues to bubble up. The Congressional Research Service issued a report on the topic in May, noting that “A December 2024 Congressional Budget Office analysis estimated that expanding site-neutral payment rates … could save more than $170 billion” from 2025 to 2034, with most of those savings — $157 billion — coming from applying site-neutral payments to all hospital outpatient departments and much of the rest coming from applying site-neutral rates for drug administration services and imaging services. In addition, implementing site-neutral payments would also reduce Medicare beneficiary copayments, since they are tied to the total amount Medicare pays for a particular service, the report said.