Finding common ground: How payers and providers can align interests on Medicare Advantage

What’s trending: Four ways to navigate issues at the core of disputes

In the past year, a growing chorus of disputes has risen between health systems and Medicare Advantage plans. So far this year, 15 health systems have finalized terminations with Medicare Advantage plans. These disputes have ranged from health systems ending a single plan’s contract to terminating the entire portfolio of Medicare Advantage contracts.?

While conflict between payers and providers is hardly new, the volume is telling. It points to a confluence of compounding pressures currently facing both health systems and health plans. Organizations that find common ground can create a more amicable and mutually beneficial outcome for each other and the patients who rely on them.?

Why it matters:

Medicare Advantage is more popular than ever—with more than one-half of the US’ rapidly growing Medicare-eligible population enrolled in one of these plans. Simultaneously, payers and providers are facing greater pressures than ever before as they seek to serve this population.

Much is at stake for organizations to deal with two Medicare Advantage issues at the center of these disputes:

1.? Payment rates are perceived as unfavorable. Many health systems do not believe reimbursement from Medicare Advantage plans is sufficient to cover costs. Contracted rates may be on-par with Traditional Medicare rates, but once prior authorizations and denials are factored in, the final reimbursement is often lower. The increasing rate of denials magnifies the impact, as Medicare Advantage denials increased 56% from January 2022 to July 2023 (compared to 20% for commercial plans). ??

Given the choice of participating with certain Medicare Advantage plans and not others, providers are increasingly scrutinizing this low-reimbursing volume and looking at private negotiations to solve for shortcomings.

2. Prior authorization creates a clinical and administrative burden. Health systems that are terminating Medicare Advantage contracts cite prior authorization requirements as one of their primary frustrations. A recent MGMA survey found that 89% of providers say prior authorization is “very or extremely burdensome.”

The total cost of prior authorizations to the healthcare system exceeds $1 billion each year, with 85% of that cost borne by providers. But of the 46 million prior authorization requests submitted to Medicare Advantage plans, only 7.4% (3.4 million) were fully or partially denied.?Meanwhile, delays in approval can tie up resources, resulting in lost revenue opportunity for providers and delayed care for patients.?

What’s next:

While these issues are challenging, four actions can help payers and providers successfully navigate them:

1. Establish common goals. Both parties need to start with a shared foundation. These principles are important ones upon which to base negotiations:

• Medicare Advantage is the payer of choice for many seniors.
• Both parties have a common goal to improve the health of the communities they serve.
• Managing unnecessary cost/utilization and clinical variation across both Traditional Medicare and Medicare Advantage is central to fulfilling this mission.?
• The current approach to addressing medical spend is leading to network terminations. It is detrimental to all parties and unsustainable.

2. Evolve the contracting construct. Payment rates are an exacerbated tension point in Medicare Advantage when health plans apply prior authorizations and denials to a Traditional Medicare payment chassis. Rather than using utilization management as the primary blunt instrument to manage costs, the two parties should focus on partnership structures in which payers support providers in avoiding unnecessary spend. They should also recognize revenue drivers, such as Star rating attainment and accurate clinical documentation.

Because medical cost savings reduce revenue for the health system, the two parties could explore opportunities to reduce cost outside the health system, such as through pharmacy or skilled nursing facilities. For utilization within the health system’s walls, the two parties could find common ground by focusing on low-value care, clinical variation, or waste.?

3. Leverage data to change the perspective and role of utilization management. While an evolved contracting construct will help address payers’ medical cost concerns, it’s unlikely that utilization management as a cost control measure can ever completely disappear. However, using data collaboratively can inform a more moderated approach that addresses both parties’ concerns.

For instance, plans and providers could start with analyzing prior authorizations. This might include identifying the volume of prior authorizations, conducting segmentations (e.g., type of clinical service and provider), determining the denials by segmentation, and quantifying the impact to payments and administrative loads. This analysis will help both parties understand the value of prior authorizations and make joint determinations on when these areas are necessary and when they might be relaxed.?

This information will also help both parties align on a monitoring process. For plans to relax prior authorization requirements, they will need assurances that this will not result in unnecessary care or spikes in utilization. A better understanding of prior authorization drivers and outcomes, and assurances on joint monitoring, can create middle ground for relaxing these requirements.?

4. Value the impact of termination. Although possible, few instances of contract terminations will create an optimal outcome for either payers, health systems, or patients. For instance, Medicare Advantage terminations may artificially restrict access to volumes that provide contribution margin to the health system. Similarly, a health plan may significantly harm its ability to sell a product and manage it profitably if it terminates a provider. Both parties must inventory and quantify risks to all parties to understand the true impact of taking this step.?

The current contracting approach is unsustainable—resulting in network terminations and disruption for patients. While both parties should consider each other’s financial concerns, aligning on common goals will move conversations toward productive outcomes.

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