Hospitals’ Medicare Advantage problem hits an inflection point

Be cautious in signing up for Medicare-c (Advantage) prgms,  These programs are provided by FOR PROFIT INSURANCE COMPANIES. An increasing number of large healthcare corporations are canceling their contracts with Medicare-C programs. Patients in these programs may find themselves having to change primary healthcare providers, hospitals, and other providers that they have a relationship with.

Hospitals’ Medicare Advantage problem hits an inflection point

As Medicare Advantage enrollment climbs to nearly 34 million people and the federal government implements new insurance policies, the scene has been set for tensions between hospitals and payers to intensify.

“The relationship between hospitals and managed care is strained at best right now,” Chip Kahn, president and CEO of the Federation of American Hospitals, told Becker’s. “[Insurers] are finding every way to not pay for the care that Medicare beneficiaries should receive. I don’t know how the issue gets worse — we’re at a critical stage, and I think CMS is sending those signals.” 

On April 1, CMS finalized a slight decrease in MA benchmark payments for 2025. The agency has also enacted stricter prior authorization rules this year and cracked down on when MA plans must cover inpatient care.

The health insurance industry has said the new rates will “put even more pressure on the benefits and premiums” of MA beneficiaries, a warning that individual insurers echoed in recent months.

“Payers know that they’re going to have to cut supplemental benefits, and premiums may even have to go up, but I wouldn’t want to be the first one to do it,” Scott Ellsworth, founder and president at Ellsworth Consulting, told Becker’s.

Mr. Ellsworth is a former senior insurance executive, overseeing large divisions at Centene, Optum and a BCBS plan throughout his career.

“Seniors have seen their benefits get better every year, but now we’re at an inflection point and the free lunch is over,” he said. “There is going to be a sharing of the pain. Providers have disproportionately shared the pain and now you’re seeing many of them say ‘enough is enough, we’re out.'” 

In 2023, Becker’s reported on at least 15 hospitals and health systems nationwide that dropped some or all of their Medicare Advantage contracts. Among the most commonly cited reasons are excessive prior authorization denial rates and slow payments from insurers. Some systems have noted that most MA carriers have faced allegations of billing fraud from the federal government and are being probed by lawmakers over their high denial rates.

“It’s become a game of delay, deny and not pay,” Chris Van Gorder, president and CEO of San Diego-based Scripps Health, told Becker’s in September. “Providers are going to have to get out of full-risk capitation because it just doesn’t work — we’re the bottom of the food chain, and the food chain is not being fed.” 

Scripps terminated MA contracts in January for its integrated medical groups, citing an annual loss of $75 million on its contracts with insurers.

In March, Bristol (Conn.) Health announced it was eliminating 60 positions, 21 of which are occupied and will result in layoffs. Its CEO laid blame on Medicare Advantage, saying, “All the nice-to-haves are being taken out by the lack of insurance payment and the lack of reimbursement.”  

In January, the Healthcare Financial Management Association released a survey of 135 health system CFOs, which found that 16% of systems are planning to stop accepting one or more MA plans in the next two years. Another 45% said they are considering the same but have not made a final decision. The report also found that 62% of CFOs believe collecting from MA is “significantly more difficult” than it was two years ago.

“Medicare Advantage net reimbursement right now is terrible for hospitals — our clients average about 85 cents on the dollar, and it’s only getting worse,” Mr. Ellsworth said. “MA is a race to the bottom and I would argue that we’ve hit that bottom. Payers are going to struggle with this too, but no one wants to be the first to blink.”

Medicare Advantage denials increased almost 56% for the average hospital from January 2022 to July 2023, according to data from a joint American Hospital Association and Syntellis report. The denials and inconsistent reimbursement led to a 28% drop in hospital cash reserves.

Both Mr. Ellsworth and Mr. Kahn noted that it isn’t feasible for most health systems to completely walk away from Medicare Advantage given that it now makes up more than half of the Medicare population. Instead, many hospitals are paring down contracts and looking for payer partners that align best with their financial objectives. Some systems are even exploring launching their own MA plan built in tandem with one insurer. Others have partnered with grocers or other health systems.

“We will ultimately pick a couple of partners going forward, and I think a lot of health systems are going to do this,” Will Bryant, CFO of Chapel Hill, N.C.-based UNC Health, told Becker’s in November. “They’re going to be the partners who act like partners and not who deny care in order to bolster their billions of dollars of quarterly earnings.”

Sachin Jain, MD, CEO of SCAN Group — one of the nation’s largest nonprofit Medicare Advantage companies — cautioned hospitals that dropping MA plans is a short-term trend that is “going to backfire in a big way for these large health systems.”

“You’re a nonprofit system saying you’re no longer going to accept the insurance that low-income people actually have,” he said. “We’ll see how that works out for you.” 

Dr. Jain said any public policy program is going to create unintended consequences, adding, “What I would say to anybody who’s critical about the program is that you’re right, but let’s fix that.”  

Former CMS Administrator, Don Berwick, MD, told Becker’s in February that the battle between hospitals and Medicare Advantage is a “manifestation of an underlying broken system in which everyone that gives care wants to give more, and everyone that pays for care wants to pay less.”

“To me, the untold story yet is about the physicians and nurses who don’t feel directly tied to ongoing Medicare Advantage trends, but they are certainly immersed in a changing financial landscape,” Dr. Berwick said. “As venture capital, private equity and ownership of healthcare by private interests increases, it changes their worlds, what it’s like to practice, their feelings about themselves, and the degrees of freedom they have to care for their patients. That chicken is going to come home to roost.”

Despite the tensions with hospitals, the MA program has bipartisan support in Congress and a 95% quality satisfaction rating among enrolled members in 2023. There are about 4,000 MA plans being offered this year nationwide, and MA members spend an average of $2,434 less on out-of-pocket costs and premiums per year compared to traditional Medicare enrollees.

“Medicare Advantage is very important, especially for low-income seniors,” Mr. Ellsworth said. “Hospitals need to acknowledge the reimbursement problem and proactively address their relationships [with payers] head-on.”

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