Rural States Act Clears Path for Higher Medicare Payments in Alaska and Hawaii Starting 2026

The Ensuring Outpatient Quality for Rural States Act (or what we can call the Rural States Act) is a short, direct piece of legislation focused entirely on adjusting how Medicare pays hospitals for outpatient services in Alaska and Hawaii. Starting January 1, 2026, this bill allows the Secretary of Health and Human Services to boost payment rates for the non-labor costs of hospital outpatient departments (OPD) in these two states.

The High Cost of Doing Business

Think about what it takes to run a clinic or hospital in a remote area like coastal Alaska or a distant Hawaiian island. Everything from medical supplies to specialized equipment has to be shipped long distances, driving up the cost compared to, say, a hospital in Ohio. Medicare payments are usually split into two parts: labor (staff wages) and non-labor (supplies, equipment, utilities). This bill targets the non-labor portion, allowing the government to apply a cost-of-living adjustment (COLA) similar to what is already done for inpatient hospital services in these high-cost areas. This means hospitals in these states could get higher Medicare payments to cover those expensive supplies.

No Budget Balancing Required: The Key Detail

The most significant detail in Section 2 is that the Secretary is explicitly not required to make these adjustments "budget neutral." Normally, when Medicare increases payments in one area, they have to find a corresponding cut somewhere else to keep the overall budget balanced. This bill waives that requirement for these specific COLA adjustments in Alaska and Hawaii. For hospitals and patients in those states, this is great news: it means they can get the funding boost they need without the federal government having to reduce payments to hospitals in the lower 48 states to offset the cost. It aims to make OPDs financially viable in regions where operating costs are notoriously high, potentially improving healthcare access for residents there.

Who Pays for the Higher Price Tag?

While this is a win for healthcare providers and patients in Alaska and Hawaii, the lack of a budget neutrality requirement means the increased costs will be absorbed directly by the federal Medicare program. If the Secretary makes significant adjustments, this will translate into higher overall federal healthcare spending, which ultimately comes from taxpayers. It’s a classic trade-off: better funding and potentially better care access in high-cost, remote areas, but at the expense of a larger federal outlay. Since the bill uses the term “non-labor related portion,” there’s a medium level of vagueness regarding exactly how far the Secretary can stretch that definition—will it strictly be supplies, or could it include other operational costs? How that’s interpreted could significantly impact the final price tag.