CMS Expands Medicare Payment Reforms and Medicaid Financing Overhaul
The Centers for Medicare & Medicaid Services (CMS) recently released its 2026 Medicare payment rules, focusing on site-neutral payment reforms in Medicare and outpatient services. These reforms aim to reduce payment disparities between hospital outpatient departments and physician offices or ambulatory surgical centers (ASCs), promoting cost efficiency and patient-centered care.
Key changes include repealing the inpatient-only list and expanding procedures allowed in ASCs, expected to lower costs and reduce incentives for hospital consolidation. CMS also proposes payment parity for drug administration across settings and changes to Medicare skin substitute reimbursements to curb excessive spending on low-value products. Adjustments to Physician Fee Schedule rates aim to support independent practices and reflect current procedure times, while some hospital payments may be tied to Medicare Advantage negotiated prices. Stronger price transparency requirements for hospitals are also proposed.
Paragon Health Institute launched a dedicated webpage and multiple factsheets for the One Big Beautiful Bill (OBBB), providing detailed summaries and addressing misconceptions. The OBBB legislation, supported by Congressional Budget Office estimates, includes reforms targeting Medicaid financing practices, particularly state reliance on federal funds and the use of provider taxes and intergovernmental transfers to fund Medicaid. This practice, described as money laundering of state funds, has expanded as federal Medicaid spending has increased, while actual state revenue used for Medicaid has remained flat. The OBBB aims to restore program integrity, limit financing gimmicks, and save an estimated $366 billion over the next decade.
CMS also released Part D bid information for 2025, revealing a significant rise in the National Average Monthly Bid Amount due to the Inflation Reduction Act's impact on Part D plan costs. The act capped out-of-pocket costs for beneficiaries but increased insurer liabilities, leading to higher premiums subsidized by the federal government. The Biden administration created a Part D demonstration program subsidizing insurers by billions annually to offset these costs. CMS plans to reduce these subsidies by about 42% following the program's initial phase, signaling a gradual rollback intended to protect taxpayers. These developments highlight fundamental challenges and destabilization risks in Medicare Part D requiring further policy attention.
Overall, the CMS payment reforms and the OBBB Medicaid provisions reflect ongoing efforts to enhance Medicare and Medicaid program efficiency, financial sustainability, and alignment with patient needs. The changes address payment distortions, inappropriate spending on low-value services and products, and structural financing issues in state Medicaid programs. However, ongoing monitoring and policy adjustments will be essential to ensure these initiatives achieve their objectives without unintended consequences. The upcoming OBBB virtual discussion aims to further explore these themes, implementation challenges, and future reform considerations. This newsletter coincides with Medicaid's 60th anniversary, underscoring evolving program dynamics and reform needs over time.