Uncompensated Care Trends in 2026: What You Need to Know
The 2026 Inpatient Prospective Payment System (IPPS) proposed rule includes changes in several critical areas for hospitals, including uncompensated care (UCC) payments, Medicaid redeterminations, and 340B eligibility. These issues are directly tied to reimbursement and financial viability, making it essential for health care executives to proactively manage them.
Hospitals that can adapt to these changes with data-driven strategies based on audit trends and insights will be better positioned to thrive in an increasingly complex reimbursement environment.
Trends and Insights from Audits
Our federal fiscal year (FFY) 2019 through 2022 S-10 cost report comparison pre- and post- audit analysis found that hospitals experienced significant reductions in reported uncompensated care costs. For example, from 2019 to 2022, the average change to Worksheet S-10 Line 30, total uncompensated care, ranged from a decrease of $699,675 in 2019 to $431,466 in 2022. This indicates increased scrutiny by Medicare Administrative Contractors (MACs) on S-10 cost reports.
Changes in Line 30 UC
Key findings also include:
- Charity Care Adjustments. Charity care for uninsured patients saw an upward revision of 1.15% in 2022, but insured charity care decreased by 22.17%.
- Bad Debt Documentation. Hospitals reported consistent downward adjustments for bad debts, with a 3.48% reduction in 2022 alone.
These trends highlight the importance of accurate and thorough documentation. Hospitals must ensure their financial assistance and bad debt policies align with regulatory expectations to avoid unfavorable audit outcomes.
Analysis and Insights from the Proposed Rule
The 2026 IPPS proposed rule introduces several updates that could significantly impact hospitals' reimbursement strategies.
UCC Payment Pool Adjustments
The proposed rule continues to use Worksheet S-10 data to allocate UCC payments. As evidenced by previous audits, hospitals must prioritize the accuracy of this data to maximize reimbursement. In 2023, the national average UCC cost was $1.99 million, reflecting a 42.46% increase over the prior year. Factors such as Medicaid redetermination, hospitals reinstating bad debt policies at the end of the public health emergency, and updated financial assistance polices are contributing factors that lead to the increase of the UC payments.
Medicaid Redeterminations
The unwinding of continuous Medicaid enrollment has drastically impacted hospitals' Medicare Disproportionate Share Hospital (DSH) percentages. Our webcast, “Government Reimbursement: Hurdles, Trends, Audits, and More,” goes into detail about the decreases across the country related to the Medicaid percentage from the DSH calculation. As the unwinding process continued to unfold, the further into the process, the increased disenrollment from Medicaid. Nationally over 25 million people were disenrolled from Medicaid and, while 12 million were reenrolled during this same time period, the net result was a loss of Medicaid coverage for 13 million. Providers also need to be aware of the recent passage of One Big Beautiful Bill Act (OBBBA), which the Congressional Budget Office is estimating will result in 7.8 million Medicaid individuals losing coverage related to the new work reporting requirements.
340B Program Risks
A staggering 40% of hospitals that qualified for 340B in 2023 either lost eligibility or were at risk of losing it by 2024 according to our analysis. The most vulnerable facilities are those within 3% of the DSH percentage threshold. Hospitals must proactively address this by reducing care variation and focusing on high-Medicaid populations to protect their 340B status.
Why This Matters for Hospitals
The evolving regulatory environment outlined in the 2026 IPPS proposed rule carries significant financial implications for hospitals. Uncompensated care audits, Medicaid redeterminations, and 340B eligibility challenges create a trifecta of risks that hospitals must navigate effectively.
Key takeaways include:
- Financial Sustainability. With national UCC costs rising and audit adjustments becoming more stringent, hospitals must invest in robust data collection and reporting systems. Revisiting financial assistance and bad debt policies is essential to ensure compliance and maximize reimbursements.
- Medicaid Strategy. The end of continuous Medicaid enrollment has introduced volatility in payor mixes. Hospitals must monitor their DSH percentages in real time and explore strategies like expanding service lines for high-risk populations and strengthening Medicaid managed care organization (MCO) partnerships to mitigate reimbursement losses.
- 340B Optimization. The 340B program represents a critical source of savings for many hospitals. Facilities at risk of losing eligibility should focus on reducing outmigration, addressing care variation, and developing Medicaid referral networks to retain their status.
- Audit Preparedness. As MACs intensify audits of S-10 cost reports, hospitals must dedicate resources to audit readiness. This includes budget allocation for S-10 preparation, detailed transaction code reviews, and policy revisions in light of Medicaid redeterminations.
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For more information about uncompensated care reporting, Medicaid strategy, or 340B program optimization, contact your firm professional.