Market Trends Could Cause Issues for MA Plans, which Means Trouble for Providers

As providers struggle to navigate the various covered benefits and billing systems for Medicare Advantage (MA) plans,?recent regulatory and programmatic changes to the MA program can exacerbate challenges for already struggling providers. Plan changes compounded with the current unpredictable economic environment creates an imperative for providers to take a proactive approach. With 31.6 million Medicare beneficiaries at stake, the provider community needs to prepare to successfully navigate MA plans, helping ensure appropriate patient access to affordable healthcare.

?Key MA Changes and Associated Impact:

An Updated Risk Adjustment Model

MA plans receive a capitated payment from CMS based the projected expense for that population. Calculating the best prediction for future medical costs is accomplished through a system of risk adjustment. The HCC (hierarchical condition categories) system helps predict next year’s costs based on demographics and this year’s documented diagnosis of certain conditions.? Last year, CMS began rolling out HCC v28, a change from v24 – and expected to lower average risk scores by 3.12% once fully implemented.? While MA plans continue to benefit from other aspects of the reimbursement policy, this move is projected to reduce total payments to MA plans by $11 billion ?

Side note: Participating Medicare Shared Savings Program (MSSP) ACOs may also feel the impact of this change, but due to differences in methodology, the impact will be far lower and, in some cases, an ACO’s risk score could potentially rise. Contact Bryan Smith on LinkedIn for more information.

Star Ratings

Star Ratings for MA and Part D plans are intended to rate plans’ quality and include financial incentives to payers in the form of rebates and bonus payments. For example, plans with a 4-star or higher rating qualify for a 5% bonus payment. During COVID-19 and the Public Health Emergency, the Centers for Medicare and Medicaid Services (CMS) gave MA plans additional flexibilities ?around performance and reporting for certain Star Rating measures to help offset the negative impacts of the pandemic. The expiration of those flexibilities, combined with a change in calculation methodology has had an impact on overall Star Rating performance at the national level. In 2024, 31 plans earned a 5-star rating, a decrease from 57 in 2023 and 74 in 2022. The average star rating also fell in 2024 from 4.14 to 4.04.??

Earlier this month, on June 3, SCAN Healthcare won a lawsuit against CMS. The case revolved around CMS failing to adhere to its own Stars calculation methodology, impacting the 2024 Star ratings of current plans. With several similar cases still pending, this outcome is further complicating payers' Medicare Advantage participation strategies.

Star Ratings performance not only drives profitability of MA plans, but also their ability to offer rich supplemental benefits, which is key to attracting and keeping membership. Plans with high Star Ratings can increase the benchmark against which MA plans bid and the percent of rebate –the difference between the plan’s bid and their benchmark –which the plan can keep touse for supplemental benefits. A 4-star and higher plan receives 70% to be used on supplemental benefits, 3.5 stars receive 65% and 3 stars receive 50%. Lower rebate results is less available benefits for the member. Time will tell how CMS fully reacts to the lost lawsuit.

Denial Rates

As highlighted in Premier’s recent blog post, nearly 15 percent of all claims submitted to private payers for reimbursement are initial denied. This has become such a problem for providers struggling to get reimbursed by MA plans that 118 Premier Member organizations, ranging from large health systems to independent physician offices, sent a letter to CMS expressing concerns.?

Working with health systems, we have also observed contractual denials. Meaning the non-payments weren’t attributed to a function of the revenue cycle management or pre-authorization process, rather the contract as written doesn’t cover certain expected charges. Often these contract limitations are in error and reconciling is more challenging that fixing a simple denial request.

Increased Use of Medical Services & Costs

Perhaps the most impactful trend is that health plans experienced higher costs due to increased healthcare utilization in 2023. As a result, many payers and investors were expecting an increase in CMS rates for next year. Earlier this year, CMS announced a lower than expected increase – triggering a negative market reaction. “ Health insurance stocks plummeted… since investors were expecting more from the government, given recent history. Only once in the past 10 years have final rates not improved from regulators’ initial proposal, according to research from JPMorgan Securities analysts.” Health Insurance Stocks Fall on Final Medicare Advantage Rates (UNH, CVS, CNC) - Bloomberg

This is especially worrisome for many of the newer plans. Despite robust profits generated by MA plans, average profit margins are generally estimated to be below 5% (Reminder: plans are expected to spend 85% of revenue on beneficiary services and fund administrative costs and margin from the remaining 15% and investment income). Further, that margin is not evenly spread. ?Dean Ungar, Vice President at Moody's, put it succinctly, “Almost all the profits are in the big companies.”?

The past few years have seen a plethora of new MA plans coming to market, driven in part by the high valuations (partially driven by rapidly climbing risk scores) and an abundance of venture capital funds.? Many of these plans have yet to achieve profitability and these threats to profitability combined with a freezing of the capital markets may prove a challenge to their continued survival.

Implications

As plans struggle with these challenges, some direct action is likely necessary to determine impact to providers, members and the plans. Premier is hearing from multiple plans that discretionary spending and travel budgets have been frozen, but most plans cannot regain their margin from internal cost cutting alone.?

The impact on members can range from mild to significant. Larger plans may decide to exit unprofitable markets, leaving beneficiaries to find another plan or re-enter traditional Medicare.? Likewise, the supplemental benefits provided by plans will be highly scrutinized by payers, and it is likely that services with an unproven return on investment will be cut back.?

Additionally, it is likely that we’ll see payers identifying more opportunities for denials, increased preauthorization and other tactics proving financially beneficial for payer, but detrimental to both providers and members.

Another lever that payers have is a more contentious rate negotiation process. Due to the large MA footprint in certain geographies, providers have little negotiating power and often a need to accept these payers as a large piece of their payer mix. This can result in limited fee-for-service rate increases as well as less favorable risk arrangements in value-based care models.

How to Prepare

It is critical to keep hospital and providers in-network for MA plans, especially in these difficult economic times and as patients rely on community hospitals to accept their insurance.? Here are several action steps we recommend that can help:

1.???? Deep dive on contracts

Provider organization should complete an annual review of all contracts. Key language on denials and delays should be assessed and compared to current performance. Often techniques of delaying and denying care can be a function of a contractual definitions, not incorrect billing procedures. Because these denials are often unpaid, one resolution is in contracting to set the reimbursement process up for success.

2.???? Maintain position and strength on value-based care

Providers have significant financial opportunity by participating in value-based care, but should understand it is also an effective payer strategy of offloading risk to providers. As payers enter an especially challenging financial period, they are interested in shifting as much risk as possible. The structure of these agreements is critical to provider groups’ ability to achieve shared savings. Using MSSP as a benchmark, other value-base programs should have the same or more favorable terms (such attribution size and risk level).? Similarly, caution should be given to using any third-party risk arrangement methodology.

3.???? Advocacy

Premier has been engaged with CMS, advocating on behalf of our members.? We have drafted a letter to CMS expressing concerns over denials and other issues. All providers should engage with their state and national association to continue to advocate that payers ensure practices that benefit patients’ best interests.

?Takeaway

As MA plans change and with millions of people relying on MA, providers must adapt to keep care affordable. Lower star ratings, payment changes and increased healthcare costs make it harder for MA plans to stay profitable. This affects providers, too, with more challenges in getting paid and negotiating rates. To cope, providers need to review contracts carefully, focus on value-based care and advocate for patients' needs. By doing so, they can keep healthcare accessible and high-quality despite MA changes.