Apr 4, 2024 - Health

Hospital and insurer battles over Medicare Advantage set to grow

Illustration of a medical red cross formed by a one hundred dollar bill and a Medicare Advantage insurance card.

Illustration: Annelise Capossela/Axios

Tensions between hospitals and Medicare Advantage insurers are poised to keep growing as the program gets larger and the federal government takes a harder line on health plans.

Why it matters: How hospitals and insurers respond to financial threats could ultimately affect the care received by more than half of seniors now enrolled in the program — whether it means reduced benefits, fewer provider choices or higher costs.

  • Some providers have already taken the extraordinary step of terminating their contracts with MA plans, and survey data suggests many more are considering doing so in the near future.

State of play: Hospitals have been sounding the alarm about an uptick in MA plans denying claims, paying less than what providers bill for, and taking too long to review requests to authorize care, which they say is wreaking havoc on revenue streams.

  • This comes on the heels of inflation and labor shortages, which increased costs for hospitals around the country.
  • "Health systems get paid an awful lot less in government programs versus commercial, so given the historic inflation that a lot of providers have had to incur, it's become unacceptable for a lot," said Whit Mayo, a senior managing director at Leerink Partners.
  • At the same time, insurers say their costs are going up as seniors use more care.

The Biden administration has taken an increasingly tough stance on MA, which experts have long said is overpaid compared with the traditional program.

  • Earlier this week, the administration announced it would stand firm on a planned cut to health plans' base payments in 2025, which TD Cowen called a "worst-case scenario" for insurers.
  • To maintain profitability, analysts say, plans will have to either extract higher payment rates from the government, find ways to pay for less care, drive harder bargains in negotiations with providers, contract with fewer providers or reduce benefits offered to enrollees.
  • Earlier this year, the administration clarified rules around when MA plans must pay higher inpatient rates for hospital care, which addresses what hospitals say has become a huge issue and could end up benefitting them at the expense of insurers, STAT reported. The administration has also tightened rules around preauthorization of care.
  • "[Insurers] are trying to spend as few funds on the patients as they can. This is a game they have decided to play, which minimizes their payment to hospitals and other providers," said Chip Kahn, president of the Federation of American Hospitals.

The big picture: The conflict has been long-simmering.

  • The aging of the U.S. population has meant that more and more Americans are covered by Medicare, which pays providers a lot less than commercial insurance does, even when administered by private insurers.
  • And while insurers have experienced years of growth into new markets, that era of expansion is largely over, said Raymond James analyst Chris Meekins. That means insurers have to figure out how to retain their profits within existing markets.
  • "Now we're not having as much of a conversation about making the pie bigger," Meekins said. "We're talking about how the pie gets divvied up."

By the numbers: A recent survey of health system CFOs by the Healthcare Financial Management Association found that 19% of health systems stopped accepting one or more MA plan last year.

  • More than 60% said they have plans to or are considering dropping coverage this year.
  • Medicare Advantage payment problems may be particularly painful for rural hospitals, which are already disproportionately at risk of closing.

What we're watching: The sheer size of the Medicare Advantage program means hospitals' headaches around the program are unlikely to go away.

  • Around 60% of seniors will be enrolled in an MA plan by 2030, Moody's Ratings predicted in a recent note.
  • "The shift to MA will increase healthcare providers' reliance on large commercial insurers, elevating the insurers' influence and negotiating strength," Moody's analysts wrote.
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