Hospital Add-on Payments Are Associated with Variation in Medicare and Commercial Payments

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ID: 329679
2026
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Abstract
Abstract Introduction Medicare is the largest payer of hospital services in the U.S. Under the inpatient prospective payment system, hospitals receive “base” and “add-on” payments that are adjusted for geographic and hospital-specific factors to reflect differences in costs. Variation in Medicare payments has received little attention, as research has primarily focused on commercial price variation. The relationship between Medicare and commercial payment variation is also not well understood and a topic of considerable controversy. Methods We used 2023 data from the Centers for Medicare and Medicaid Services’ Inpatient Prospective Payment System Impact File to estimate standardized Medicare base and final payments to inpatient prospective payment system hospitals in the U.S. Results We found that Medicare final payments vary more than base rates across both hospitals and states due largely to add-on payments. Commercial prices are positively correlated with Medicare add-on payments. Conclusion Our study highlights the importance of add-ons in driving variation in Medicare payments, potentially influencing variation in commercial prices.
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Authors Roslyn C. Murray, Andrew M. Ryan, Christopher Whaley
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Journal Health Affairs Scholar
Year 2026
DOI
10.1093/haschl/qxag258
URL
https://doi.org/10.1093/haschl/qxag258
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