Medicare payment policy changes for 2027: Key signals from Kennedy hearings

Amid ample rancor, some of the rhetoric during congressional appearances Thursday by HHS Secretary Robert F. Kennedy Jr. had substantive implications for healthcare industry stakeholders.

During two House hearings to discuss his department’s proposed FY27 budget, Kennedy and members of the Ways and Means Committee and a subpanel of the Appropriations Committee touched on a few key policy points.

Payment models

Kennedy was asked about converting his Make America Healthy Again principles of preventive care to payment models through the Center for Medicare & Medicaid Innovation. For example, a bundled payment could promote prescriptions for healthy food, medically tailored meals, nutrition counseling and remote patient monitoring. Rep. Lloyd Smucker (R-Pa.) said he is set to release legislation that would codify some of those approaches.

“There’s growing evidence that they can really improve outcomes for patients with chronic disease,” Smucker said.

Consideration should be given to expanding Medicare coverage of medical nutrition therapy, said Rep. Carol Miller (R-W.Va.). Such reimbursement could be geared toward hospitals and federally qualified health centers that integrate dietitians and nutrition programs in care models.

Miller expressed concern with the prospective payment system for end-stage renal disease. She said the model, which amounts to a bundled payment, may discourage the development and adoption of new therapies, and touted legislation that would strive to better balance innovation and cost control.

Rural healthcare

Some discussion centered on the five-year, $50 billion Rural Health Transformation Program, which made its initial $10 billion allocation to the 50 states going into 2026. Proponents said the funding can stabilize rural hospitals while also supporting telehealth, AI and workforce retention.

Rural communities stand to be especially affected by consolidation in healthcare, said Rep. Jason Smith (R-Mo.), chair of the Ways and Means Committee. He said the committee “is focused on addressing consolidation and vertical integration in the healthcare industry to expand access and lower cost,” promising to conduct an upcoming hearing with health system executives (which perhaps would echo the one held recently by a House subcommittee).

Kennedy said expanded site-neutral payment policies can help “end the disparity between what’s paid to rural providers and what’s paid to urban providers, and hopefully dampen the appetite for consolidations that are destroying rural economies and rural healthcare.”

Kennedy also said he would try to accelerate the approval process for hospitals seeking to convert to rural emergency hospitals.

A recently introduced bipartisan bill would codify an adjustment to the Medicare area wage index in an effort to stabilize reimbursement for rural and low-wage hospitals. “Only Congress can fix [the issue],” Kennedy said, because of statutory budget-neutrality requirements for the wage index.

Smith touted the need for HHS and Congress to collaborate on changes to geographic reclassification policy under the wage index, saying excessive numbers of hospitals are reclassifying to higher-wage areas in search of a higher reimbursement rate.

Medicare Advantage

Payments to Medicare Advantage (MA) are 114% higher than those for the same services in traditional Medicare, according to statistics compiled by the Medicare Payment Advisory Commission and cited during the Ways and Means hearing. Rep. David Schweikert (R-Ariz.) said the gap equates to $1.75 trillion over 10 years and criticized health plan upcoding and corresponding risk-score inflation, with recently issued regulations purporting to partially address that issue going into 2027.

“How do we use Medicare Advantage, a managed care model, to have your vision of: They make a profit because [they] helped people be healthier? It may require a multiple-year enrollment so there’s a payoff for the investment,” Schweikert said to Kennedy.

CMS should do away with the MA risk adjustment model and the program’s Star Ratings, “and then design a system where, as [they] help the enrollee get healthier, they benefit,” he added.

Kennedy said MA is a positive force in the healthcare system, on balance, and the administration is taking steps to stanch upcoding.

Healthcare coverage

Regarding coverage rollbacks, Kennedy said there are no looming cuts to Medicaid because the One Big Beautiful Bill Act (OBBBA) slows spending growth in future years rather than decreasing spending. He said the pending cutbacks largely are about removing ineligible enrollees.

“Obviously, there’s tremendous waste in Medicaid,” Kennedy said.

Democrats said the impacts on constituents, such as the risk of coverage loss and increased financial strain, should not be downplayed.

“That mans fewer doctor visits, delayed care and more people showing up in already overcrowded emergency rooms,” said Rep. Mike Thompson (D-Calif.).

Rep. Max Miller (R-Ohio) noted he was one of 17 Republicans to vote to extend the Affordable Care Act (ACA) enhanced subsidies. A three-year extension passed the House but was not taken up by a divided Senate, allowing the higher subsidies to expire in 2026.

“I just want to go back home and be able to look at my constituents and just say, ‘This is what we’re doing. Here’s the plan,’” Miller said.

In response, Kennedy touted President Donald Trump’s healthcare plan to improve individual choice and competition through health savings accounts and an expansion of direct primary care, in tandem with catastrophic-coverage plans.

“We have to figure out a way, a plan, and actually incentivize good [health] behavior rather than bad behavior,” Kennedy said.

Prior authorization

The costs and benefits of a new layer of prior authorization in traditional Medicare came up during questioning about the first-year Wasteful and Inappropriate Service Reduction (WISeR) Model. The six-state pilot model implements AI-driven prior authorization for 17 services.

“President Trump said multiple times on the campaign trail that he would not cut Medicare, but this program does exactly that,” said Rep. Suzan DelBene (D-Wash.), whose state is in WISeR.

DelBene said the model thwarted one of her constituents from receiving a needed injection for a herniated disc.

“I think that’s a terrible outcome,” Kennedy replied. “It’s one that was not intended by the system. Obviously, the problem is there’s tremendous waste.”

He said that over a five-year period, annual Medicare reimbursement for skin substitutes increased from roughly $250 million to a range in the billions “because there was no prior authorization in the Medicare program.”

Adverse patient outcomes are happening “all because of a model put in place for no reason and doing exactly what you said shouldn’t happen, which is pitting patients and their doctors against massive companies,” DelBene said.

No Surprises Act

Smith pressed Kennedy to expedite publication of a final rule on the No Surprises Act’s independent dispute resolution (IDR) process. His hope is that the rule will ensure IDR more closely hews to the legislative language of the NSA, specifically in the criteria for determining arbitration outcomes when providers and insurers cannot agree on an out-of-network payment for applicable services.

In the minds of critics, including some legislators on both sides of the aisle, regulations dating back to the Biden administration overly emphasize the qualifying payment amount (QPA), i.e., the median inpatient rate for a given service in a particular market.

Although updated data shows providers already win most IDR cases, legislators say the NSA is meant to promote a system in which market-based negotiation determines fair value for out-of-network services, rather than a system that revolves around the QPA and IDR. If provider payments are undermined because of what’s perceived to be a skewed approach, the further result could be provider exits from networks or markets.

Said Smith, “Will you commit to me now to finalize this rule as it was written by Congress, as a top priority for your department?”

“We’re working as fast as we can to finalize that rule now,” Kennedy said.