CMS Proposes $1.4 Billion Increase for Hospitals Amid Growing Insured Rates

Regulatory authorities have introduced a significant proposal to allocate an additional $1.4 billion to acute care hospitals. This initiative includes a nationwide mandatory payment model designed to lower costs associated with joint replacements. Medicare has outlined a plan to improve reimbursement rates for inpatient hospital services by 2.4% in the coming year.

Despite the proposed increase, adjustments for the 2027 fiscal year will only result in a net growth of 1.2%. This factors in reductions in uncompensated care payments and outlier reimbursements for high-cost cases, according to CMS. Hospital associations have voiced concerns about these rates, arguing they fail to address financial challenges due to the rising number of uninsured individuals.

Charlene MacDonald, president and CEO of the Federation of American Hospitals, commented, "CMS’s proposed update is a step in the right direction but does not negate the compounding effects of rising inflation, record levels of uncompensated care, and a growing uninsured population." The proposed 2.4% increase includes a market basket update of 3.2%, reduced by a 0.8% productivity adjustment.

Additionally, payment reductions to disproportionate share hospitals are planned, decreasing by approximately $250 million in 2027. In contrast, payments increased by $2 billion in 2026. Analysts, like Ryan Langston from TD Cowen, consider this adjustment to be "relatively immaterial" for major for-profit entities like HCA Healthcare, Universal Health Services, and Tenet.

Further adjustments propose reducing excess outlier payments, as they exceeded forecasts in 2026. Should Congress extend the Medicare-Dependent Small Rural Hospital program, payments could surge by $400 million in 2027. This program, critical for rural hospitals with a substantial Medicare-dependent patient base, is set to end on January 1 unless legislative action extends it.

Ashley Thompson, senior vice president for public policy analysis and development at the American Hospital Association, criticized the proposal amid rising care demands and increasing costs due to a growing uninsured population. The CMS aims to expand the Comprehensive Care for Joint Replacement initiative into a mandatory nationwide system by October 2027, covering various joint replacement procedures.

While regulators foresee significant Medicare savings and preserved care quality through this initiative, hospitals express concerns over the mandatory nature. This could impose additional stress on resource-limited facilities. Thompson acknowledged CMS' goal to "expand the reach of value-based models" but suggested a phased or voluntary approach for infrastructure support and improved outcomes.