The U.S. healthcare system has been undergoing its own stress test. Stakeholders are currently experiencing a variety of pressures with a primary focus on finances, including administrative costs. The COVID-19 pandemic is often used as a convenient delimiter for the emergence of these problems, but in reality, tensions were brewing long before now and were caused by a variety of factors. Medicare Advantage (MA) is facing the headwinds of these issues – and as a result, MA terminations are on the horizon. Although navigating these terminations may be challenging, collaboration is key. Working with the right experts can minimize anxiety and remove roadblocks related to entering this new and rocky territory.
The Evolution of Payer Struggles
The evolution from expert opinion to evidence-based care has been turbulent – more so than would be expected in a population of highly educated individuals, such as physicians and healthcare administrators. Evidence- and value-based care efforts that focus on patient outcomes and lower costs require the implicit understanding of financial stewardship for resources that are not infinite. Utilization management has often been used as a weapon for cost containment rather than a tool for care management; a punishing headmaster rather than a mentoring counselor. Yet utilization management seems to be the flashpoint for the current antagonism between providers and Medicare Advantage payers. The tenor of these conversations is becoming more confrontational as the percentage of the population enrolled in Medicare Advantage continues to rise, and consequently, so does the importance of the revenue stream from this line of business.
Healthcare Systems Are Taking Action
The push-back from healthcare systems has been strongly worded. Some of the rhetoric from individual providers has been downright inflammatory with comments such as, “If the insurance companies are for it, I’m against it.” There’s room for change and compromise on each side; this language is not helpful, but it is indicative of the level of frustration and distrust.
Therefore, let’s look closer at what is behind the attention-grabbing headlines announcing the newest healthcare systems dropping Medicare Advantage.
Most of these systems are not dropping all MA plans, just selected insurers’ plans. Some systems (although perhaps not these) even have their own MA plans. As mentioned, the percentage of system revenue related to government-sponsored healthcare is rising just as commercial coverage is decreasing. Medicare eligible beneficiaries preferentially choose MA and generally have a plethora of options from which to select. A study published in 2023 noted MA plans outperformed traditional Medicare in all but one of 11 selected HEDIS Quality metrics. Systems simply can’t afford to write off MA plans or the associated revenue.
Several health insurance companies have also recently begun scaling back MA offerings. There are some similarities between these announcements and those from health systems, though it is unclear whether they overlap. Humana and UnitedHealthcare appear to overwhelmingly be the most common insurers subject to termination, yet Humana has announced it is withdrawing from many markets, and it’s unclear if there is overlap. Across the board, MA plans are seeing increases in service utilization, and many are struggling with medical loss ratios (MLR) approaching 90% rather than the ideal 85%. The recent CMS rate announcement will further negatively impact MA plan and provider finances alike. However, these MA plans are pledging to maintain benefit levels as they attempt to manage finances.
Underlying Factors Leading to Health Systems’ MA Plan Cuts
- Utilization Management (UM)
- There seem to be fundamental misunderstandings when it comes to the biggest source of provider and MA plan friction: utilization management . The contentious atmosphere surrounding UM was on display in a recent statement from the American Hospital Association (AHA) saying, “Skyrocketing’ administrative costs and increasingly burdensome insurer policies are driving up care denials, straining hospital resources and delaying patient care.” The CMS UM regulations can be found in the Medicare Managed Care Manual. MA plans must follow these rules regarding benefits coverage, the length of time in which they must respond to a service request, and the clinical guidelines set forth in CMS’ National and Local Coverage Determinations. These guidelines, along with those from the FDA, MCG, InterQual, and individual plans’ policies and clinical practice guidelines, are widely disseminated and should be known to all providers. MA plans are not permitted to be more restrictive in their benefits than traditional Medicare and are regularly audited by the CMS.
- Failures in compliance can result in significant civil monetary penalties or even loss of the plan’s contract with the CMS and the ability to offer the plan. Program audits are announced with little warning, and are retrospective, allowing the plan no opportunity to alter behavior prior to the audit.
- Prior Authorizations
- Statistics demonstrate that up to 90% of prior authorization requests are ultimately approved. The single most common reason for a delay in approval or an adverse determination is lack of documentation by the requesting provider; the second most frequent reason is non-adherence to evidence-based practice. The Kaiser Family Foundation (KFF) found that, when appealed, 83.2% of adverse determinations were overturned and approved. The same study showed that only 7.4% of prior authorization requests were partially or fully denied. Since it is called out in the AHA statement, it’s important to know that only a physician can issue an adverse determination, not an administrative assistant, nurse, and certainly not an AI bot or machine learning algorithm. If providers are intellectually and academically honest and provide the documentation necessary to substantiate the service requested, consistent with the evidence-based standards of care, approvals will “fly” through the system.
- MA plans are similarly governed by the federal government’s prompt payment regulations. An MA plan must pay “95% of ‘clean claims’ within 30 days” and any other contracts between providers and MA plans must have a prompt payment provision that is mutually negotiated. If the MA plan fails to pay a clean claim within 30 days, they must pay additional interest on the claim.
- Understandably, providers desire to optimize their revenue cycle. Proper coding, clean claims, appropriate documentation, and prompt submission will contribute to this goal. Providers should be familiar with the Correct Coding Initiative.
- The MA program operates in a highly regulated environment and is driven by compliance. All the stakeholders need to understand their obligations.
- Operational Costs
- The importance placed on maximizing financial margins in healthcare must be balanced with the need to provide high-quality, safe care. Providers experience financial pressures from many areas of their businesses, including the supply chain, new brick and mortar construction projects, sales, and general and administrative costs. No business wants to be late on payroll; regrettably, we have seen this occurring even in healthcare. As cash decreases for many healthcare institutions, the necessity of closely managing the revenue cycle becomes even more pressing.
- The growing trend of healthcare systems terminating their relationships with MA insurers illustrates an understanding of the leverage they have as well. This is not a one-sided dynamic. The top three questions asked by individuals when considering an MA plan are: is my physician in your network; do you cover my medications; and is my hospital in your network? The answers to these questions often make the difference for a beneficiary choosing a health plan and empower providers when negotiating participation agreements.
- Mergers and Acquisitions
- We have seen significant merger and acquisition activity and consolidation in the healthcare sector as well. This “power in numbers” approach can be a very effective negotiation tool, allowing integrated systems the ability to achieve higher reimbursement rates than they would have been able individually. MA plans have “network adequacy” requirements and often need the hospitals as much as the hospitals rely on the plans for revenue. In fact, this approach is so powerful that California passed legislation regulating these mergers, recognizing that they are a major driver of rising healthcare costs and may be anti-competitive.
Moving Forward
There are 3959 Medicare Advantage plans currently available nationwide. On average, a beneficiary has the choice of 43 plans. Approximately 36 of those plan choices include prescription drug coverage through Part D. While the number of healthcare systems dropping MA plans is newsworthy and speaks to the current climate, most would not yet consider it a crisis. There is no question that finances are tightening for all stakeholders in healthcare as the demand for care continues rising. With the government controlling MA program funding, there is some constraint of the free-market forces that typically regulate supply and demand in other businesses. All parties in healthcare have a fiduciary responsibility to ensure the system’s viability. The good news is, the rules that govern these interactions, specifically in MA, are not secrets. It is the obligation of all stakeholders to know, understand, and abide by these rules; to be efficient and effective in operating their businesses; and to provide high-quality, high-value care.
About David J. Sand, MD, MBA, Chief Medical Officer – ZeOmega
Dr. Sand has a proven track record of success as a healthcare executive. From the beginning of his career as a solo private practice ENT surgeon to his experience in the government-sponsored arena, Dr. Sand has been involved in the U.S. healthcare system since 1979. He has led organizations in traditional Medicare and Medicaid, as well as Medicare Advantage and Managed Medicaid programs as the chief medical officer in startups, turnaround situations, and larger, well-established health plans. In his broad experience and tenure in healthcare, Dr. Sand assisted organizations in achieving the Quintuple Aim through innovation, sound business practices, and most of all, teamwork. He served as the chief medical officer for Medicare Advantage at Anthem BCBS, as well as multiple health plans across the country.
