Health systems have been fleeing Medicare Advantage (MA) plans over the past year-plus, and the trend shows little sign of abating.
We wrote about this same topic in November 2023, and since then, tensions between hospitals and MA plans have only intensified. According to the HFMA Health System CFO Pain Points 2024 report, 19% of health systems have already stopped accepting at least one MA plan, and a staggering 61% are either planning to terminate their MA plan contracts or actively considering it.
These statistics highlight a growing dissatisfaction among providers, which payers must work to understand and address if they want to avoid further disruption to their networks. As these tensions continue to gain momentum on the national stage, payers need to be proactive in their provider relations strategies or face intense pressure and scrutiny from key network providers.
Without action, payers could see more hospitals withdrawing from the MA market, ultimately resulting in network adequacy issues that could eliminate the ability to offer MA plans altogether.
Understanding the Provider Perspective
Providers are increasingly frustrated with unfavorable MA reimbursement levels and the administrative burdens associated with these plans. From a business standpoint, it is unsustainable for hospitals to continue participating in a line of business that consistently produces financial losses. While providing care to vulnerable populations in the community through MA may be the “right thing to do,” the financial strain it places on hospitals may ultimately jeopardize access to care for all patients.
As more health systems recognize this risk, they are approaching MA plans with the intention of terminating contracts. However, these terminations—and the resulting contention—can be avoided. By working collaboratively with providers and addressing the three considerations below, payers can make MA a mutually beneficial, sustainable product partnership.
1. Assess the Entire Book of Business
Payers must recognize that the commercial volume they bring to a health system is critical to offset the losses incurred by the provider through MA participation. Often, the margin provided by “status quo” commercial reimbursement is not enough to cover MA financial shortfalls. To make MA business worthwhile for providers, payers that underwrite commercial membership should:
- Increase commercial rates to providers to offset MA losses.
- Drive commercial volume to high-value providers through steerage, marketing partnerships, or financial incentives.
This combination of commercial rate subsidization and thoughtful volume initiatives better equips providers to navigate the financial constraints associated with MA and improves the likelihood of continued provider participation.
2. Justify Participation in MA Plans
Health systems are becoming increasingly selective about which MA plans they accept, often passing on payers that do not offer a competitive commercial product capable of balancing the books. If a payer offers only MA, those rates should be sufficient for the hospital to generate a positive margin. Some MA-specific health plans face the possibility of being replaced by competitors offering higher MA rates or a more balanced book of business. To retain provider relationships, MA-only health plans must ensure their financial proposition is attractive enough to justify the participation of key market providers.
3. Address the Reality of "Effective Rates"
Providers are becoming more aware of the difference between the contractual allowable rate and the effective rate they receive from MA plans. While a contract may state that a plan pays 100% of Medicare, the reality is often quite different. Factors such as denials, pre-authorization delays, payment discrepancies, and administrative burdens can reduce the true value of the contract to well below the 100% threshold.
To address this, payers must:
- Reduce administrative complexities by aligning claims adjudication logic with original Medicare guidelines.
- Increase MA reimbursement rates to ensure the effective payment yields are at least 100% of Medicare after the payer applies its own policies and claims adjudication rules.
Payers that fail to meet the 100% threshold risk losing key provider partnerships, which could lead to network adequacy issues and beneficiary access problems.
A Path Forward
As MA continues to grow in popularity, payers and providers must collaborate more effectively to ensure the sustainability of these plans. Payers that proactively address provider concerns—by balancing commercial and MA reimbursement, streamlining administrative processes, and offering competitive rates—will be better positioned to maintain strong networks and deliver high-quality care to MA beneficiaries.
With thoughtful adjustments and transparent collaboration, MA payers and providers can create a partnership that works for both sides, ultimately benefiting the healthcare system and the patients it serves.
In an upcoming blog post, we’ll explore the payer perspective and examine how payers are navigating the complexities of balancing cost control with maintaining strong provider relationships.
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Edited by Emily Johnson
