Medicare releases 2026 payment plan for hospitals; critics call it ‘insufficient’

Hospitals are getting their first look at Medicare's payment plans for inpatient care in 2026, and many are likely to be disappointed.

The Centers for Medicare & Medicaid Services is proposing a 2.4% increase in payments to hospitals for inpatient services in 2026. Hospitals say they need more support.

The Centers for Medicare & Medicaid Services is proposing a 2.4% increase in payments for inpatient services in 2026. The CMS announced its projections for its “Inpatient Prospective Payment System” rates Friday. The payment plans are the first since President Trump’s return to the White House.

The CMS said Friday it is also calling for a 2.6% increase in payments for long-term care hospitals next year.

Soumi Saha, senior vice president of government affairs for Premier Inc., said the Medicare proposals continue a string of inadequate support for hospitals.

“Premier remains deeply concerned that Medicare payments to hospitals are insufficient and threaten the long-term strength and resilience of American healthcare,” Saha said in a statement. “Year after year reimbursement rates ignore the basic tenets of Economics 101 - forcing hospitals to shoulder skyrocketing costs and jeopardizing their ability to keep doors open for the patients who rely on them.”

Saha also suggested Medicare must do more to ensure the viability of hospitals.

“If we continue to starve the healthcare system of necessary resources, we will only see more hospital closures, growing clinician burnout and extended wait times for patient care,” Saha said. “This is not a sustainable path forward. Hospitals must have the financial stability to invest in their workforce, advance innovation and promote long-term health and well-being.”

Ashley Thompson, senior vice president for public policy analysis and development for the American Hospital Association, said the group is “disappointed” with Medicare’s proposed payment for inpatient services. The hospital association is urging CMS to revise its plans.

“We are very concerned that this update will hurt our ability to care for our communities,” Thompson said in a statement. “Indeed, many hospitals across the country, especially those in rural and underserved communities, already operate under unsustainable financial situations, including negative margins.”

The hospital association said the 2026 funding proposal for long-term care hospitals also falls short. Thompson said the plan “would lead to continued strain on these providers as they care for some of Medicare’s sickest patients.”

The Federation of American Hospitals, which represents for-profit hospitals, said the CMS proposal doesn’t meet the needs of hospitals. The group said the payment proposal reflects the inflation formulas set by statute.

“The reality is that patient care still faces the twin problems of hangover cost increases from hyperinflation and the cumulative effect of inadequate payment over time from Medicare and Medicaid,” the federation said Friday.

“This is why it’s mission critical Congress protects Medicaid coverage by avoiding funding cuts as well as extends the enhanced tax credits to protect individual coverage, a lifeline for millions of Americans,” the federation said.

Hospitals have said for years that Medicare’s payments to hospitals fall short of covering their costs of providing care.

It’s important to note that this is CMS’ initial proposal, and the final decision on payment rates will come later this year. Last year, CMS initially proposed a 2.6% bump in payments for inpatient care for 2025, but later raised it to 2.9%.

Still, the Medicare proposal comes at a time when hospitals are increasingly anxious about federal aid in Washington.

Hospitals are worried about proposals from Republicans in Congress that could reduce funding for Medicaid. Academic medical centers have also criticized the Trump administration's move to reduce support from the National Institutes of Health.

Hospitals are also bracing for higher costs from tariffs on medical supplies. While President Trump has paused tariff hikes on most countries, the increases remain in effect for China, which produces many healthcare supplies and products hospitals use every day.

With uncertainty about the economy at large and the Trump administration looking to reduce federal spending across the government, hospitals may want to hold onto their cash and plan with the idea that they won’t be seeing big increases from Washington.

Health systems should find ways to trim expenses and try to grow their more profitable lines of business, says Kevin Holloran, senior director and leader of the nonprofit healthcare sector at Fitch Ratings.

“Prepare for the worst while hoping for the best,” Holloran says.

• Read more: Hospitals are facing what they dread: Uncertainty