Medicare — the federal government’s health insurance program for Americans who are 65 or older or have certain disabilities — is the single largest payer in the U.S. healthcare system, making it a critical source of revenue for hospitals. While Medicare’s basic payment models are used nationwide, they do not always effectively account for the varying needs of different providers, and they lack mechanisms to drive quality improvement, medical education, and technology adoption.
Over time, the federal government has implemented a variety of payment adjustments and subsidy programs that work to fill these gaps. This fact sheet summarizes several types of Medicare payment adjustments and explores how they supplement the basic payment models.
References
1 Centers for Medicare and Medicaid Services. Disproportionate Share Hospital (DSH) | CMS. https://www.cms.gov/ Web site. https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/disproportionate-share-hospital-dsh. Updated 2026. Accessed Mar 16, 2026
2 Health Resources and Services Administration. 340B Drug Pricing Program | HRSA. hrsa.gov Web site. https://www.hrsa.gov/opa. Updated 2026. Accessed Mar 16, 2026
3 Centers for Medicare and Medicaid Services. Hospital Value-Based Purchasing | CMS. https://www.cms.gov/medicare/quality/value-based-programs/hospital-purchasing. Updated 2024. Accessed Mar 16, 2026
4 Centers for Medicare and Medicaid Services. Hosp. Readmission Reduction | CMS. https://www.cms.gov/medicare/quality/value-based-programs/hospital-readmissions. Updated 2026. Accessed Mar 16, 2026
5 Centers for Medicare and Medicaid Services. Hospital Acquired Conditions | CMS. https://www.cms.gov/medicare/quality/value-based-programs/hospital-acquired-conditions. Updated 2026. Accessed Mar 16, 2026
6 Centers for Medicare and Medicaid Services. Direct Graduate Medical Education (DGME) | CMS. https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/direct-graduate-medical-education-dgme. Updated 2026. Accessed Mar 16, 2026
7 Centers for Medicare and Medicaid Services. Indirect Medical Education (IME) | CMS. https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/indirect-medical-education-ime. Updated 2026. Accessed Mar 16, 2026
8 Centers for Medicare and Medicaid Services. Outlier Payments | CMS. https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/outlier-payments. Updated 2026. Accessed Mar 16, 2026
9 Centers for Medicare and Medicaid Services. New Medical Services and New Technologies | CMS. https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/new-medical-services-and-new-technologies. Updated 2026. Accessed Mar 16, 2026
10 Centers for Medicare and Medicaid Services. Separate IPPS Payment for Establishing and Maintaining Access to Essential Medicines | CMS. https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/separate-ipps-payment-establishing-and-maintaining-access-essential-medicines. Updated 2025. Accessed Mar 16, 2026
11 Centers for Medicare and Medicaid Services. PPS-Exempt Cancer Hospitals (PCHs) | CMS. https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/pps-exempt-cancer-hospitals-pchs. Updated 2024. Accessed Mar 16, 2026
