MedPAC sees no broad Medicare Advantage hit to hospital finances

Recent growth in Medicare Advantage (MA) enrollment is not associated with an adverse impact on the finances of hospitals and post-acute care providers, based on findings of an observational study by the Medicare Payment Advisory Commission (MedPAC).

However, the shift of beneficiaries from traditional Medicare to MA is affecting providers operationally and could be skewing payment incentives, according to a chapter in the commission’s June 2026 report to Congress. During the 11-year span of the study, the share of Medicare beneficiaries enrolled in MA increased from 29% to 54%.

As expressed in interviews conducted as part of the study, MA concerns for hospital leaders include issues with claim denials, payment downgrades and administrative costs, along with delays in discharges to skilled nursing facilities and other post-acute care (PAC) settings.

What MedPAC found on Medicare Advantage hospital finances

Using data from 2013 through 2024 (excluding the pandemic years of 2020-2021), MedPAC compared the impact on hospital finances in geographic areas where MA enrollment grew rapidly with those where growth was limited.

MedPAC concluded that there is no statistically significant association between MA penetration and hospitals’ all-payer operating margins. All-payer data shows that a 10-percentge-point increase in market-level MA penetration was associated with a 0.5% drop in operating revenues and a 0.9% decline in costs, amounting to an increase in operating margin of 0.39 percentage points.

Referring to hospitals paid under the Inpatient Prospective Payment System (IPPS) and critical access hospitals (CAHs), MedPAC wrote, “Our estimates are consistent with aggregate trends that show that IPPS hospitals’ and CAHs’ all-payer operating margins have remained relatively flat or increased slightly from 2013 to 2024.”

Among the caveats noted in the report is that the financial impact likely varies substantially from one hospital to the next.

In addition, the findings merely show a correlation in the relationship between MA enrollment and hospital finances.

“Although we attempted to control for potential confounding factors, this analytic framework cannot isolate causal effects, and estimates should therefore be interpreted as associations,” MedPAC wrote.

Also, the report relies on all-payer margins as the key metric, given that hospitals do not separately report on MA margins.

Longer MA patient stays create operational and cost concerns

A finding with repercussions for hospital operations is that MA beneficiaries stay in inpatient settings for notably longer periods than comparable enrollees in fee-for-service (FFS) Medicare.

Average length of stay was 11.2% longer at IPPS hospitals and 11.8% longer at CAHs after controlling for factors such as the discharging hospital, services received, comorbidities and intended discharge site.

The difference broke down to roughly 5% longer for patients intended to be discharged to self-care, 8.4% for those discharged to home healthcare, 19.6% for those discharged to skilled nursing facilities (SNFs), and 32.3% for those discharged to inpatient rehabilitation facilities.

“MA plans, through activities such as prior authorizations, could slow beneficiary discharges to PAC and therefore increase the average amount of time that beneficiaries stay in hospitals,” the report states.

At IPPS hospitals, where payment is made on a per-stay basis, longer stays increase costs without a corresponding increase in revenues. Because CAHs are paid a per diem amount, “longer lengths of stay may result in higher revenues for CAHs, making it unclear the extent to which longer lengths of stays financially harm CAHs.”

How Medicare Advantage may affect uncompensated care payments

Hospitals that receive uncompensated care (UC) payments through their status as disproportionate share hospitals may benefit if they have a higher share of Medicare inpatient volume in MA, per the report.

MA plans typically match FFS Medicare’s UC add-on per stay. If an MA plan uses the IPPS pricer, the plan’s UC-related payment for a specific hospital is calculated by multiplying the hospital’s number of MA stays by the ratio of its FFS UC payments to its historical average number of FFS stays.

“As a result of this process, hospitals that have a higher share of their Medicare inpatient stays from MA patients rather than FFS patients benefit financially relative to other hospitals,” the report states.

All else equal, a 10-percentage-point higher MA share of Medicare inpatient volume was associated with a 15% higher estimated FFS UC add-on per stay, according to MedPAC.

“The targeting of current UC payments could be improved because the mix of FFS and MA patients affects the amount of UC payments hospitals receive instead of that funding being solely determined by more appropriate factors,” the report states.

MedPAC says Congress should consider reforms such as removing UC payments from MA benchmarks. CMS then would make UC payments directly to hospitals for both FFS and MA patients, similar to the approach used for indirect medical education (IME) payments. In tandem, the UC payment pool would be increased.

Medicare cost reporting should be enhanced

MedPAC says hospital cost-reporting should be upgraded to provide a better sense of how MA affects finances.

Worksheets could be added to cost reports to accommodate the computation of MA costs and revenues, according to MedPAC. Cost inputs could include MA inpatient days and MA charges by cost center, while MA revenue information could detail beneficiary cost-sharing, claims-based payments and other payments.

The commission acknowledged that its recommendations could raise the administrative burden on hospitals.

In addition, “Hospital cost-reporting principles have limitations, which would confound the comparison of hospitals’ FFS Medicare and MA margins.”

For example, administrative costs that stem from MA operations would not be captured.

Post-acute care providers face pressures from MA growth

PAC providers voiced similar MA concerns to those of hospital executives, reporting lower payment rates and higher administrative burdens. But as with hospitals, MedPAC found little evidence of negative impacts on margins, with small declines seen in both revenues and costs.

MA enrollment likely affects the finances of PAC providers more than those of acute care hospitals, MedPAC posited. One reason is that MA plans likely are more motivated to steer patients in post-acute care.

 “MA plans have a financial incentive to seek lower-cost settings for PAC placement when possible,” the report states. “In contrast, acute hospital care is generally less substitutable with care delivered in other settings.”

Modest declines were seen in SNF patient days in markets with high MA enrollment.

“Lower utilization under MA may reflect active care management that improves PAC efficiency rather than diminished access to clinically appropriate care,” the report states.

“At the same time, reductions in use do not automatically imply improvements in efficiency, and it is essential to ensure that beneficiaries have timely access to medically necessary PAC services.”