Former CMS administrator: Hospital-Medicare Advantage tensions 'a manifestation of an underlying broken system'

Hospitals and health systems around the country have recently ended some or all of their Medicare Advantage contracts, citing a variety of reasons such as reimbursement delays and the burden of prior authorizations.

"This battle between hospitals and MA is a manifestation of an underlying broken system in which everyone that gives care wants to give more, and everyone that pays for care wants to pay less," former CMS Administrator Don Berwick, MD, told Becker's.

Medicare Advantage is now the dominant form of Medicare in the U.S., with a projected 54% share by the end of 2024, or more than 33 million enrollees. As the private Medicare plans have grown to a larger portion of hospitals' payer mixes, contract disputes between carriers and providers have grown in tandem. In 2023, Becker's reported on at least 15 hospitals and health systems that dropped some or all of their Medicare Advantage contracts, a trend that has shown no sign of slowing in 2024.

"It's become a game of delay, deny and not pay,'' Chris Van Gorder, president and CEO of San Diego-based Scripps Health, previously told Becker's. "If other organizations are experiencing what we are, it's going to be a short period of time before they start floundering or they get out of Medicare Advantage. I think we will see this trend continue and accelerate unless something changes."

In 2024, Scripps' integrated medical groups went out of network with MA plans, a move that affected more than 30,000 beneficiaries in the region. Mr. Van Gorder said the health system was facing an annual loss of $75 million on MA contracts.

"It says something that places as distinguished as Scripps Health are saying that we can't carry on like this anymore," Dr. Berwick said. "It is a sign of a serious problem that needs fixing — the way in which insurance companies are dealing with hospitals." 

It's important to note that a view of the scope of the ongoing tensions between some hospitals and MA plans is murky due to a lack of data surrounding the issue. The country's largest insurer, UnitedHealthcare, told investors in January that the payer did not see more contract splits than usual in 2023, and the vast majority of disputes with providers were resolved without disruption to patient care. 

"We're working really hard on behalf of our clients, on behalf of patients, on behalf of government to make sure we're getting the very best cost associated for the care delivered," UnitedHealth Group CEO Andrew Witty said. "It's important that negotiation is robust." 

According to research published in January by FTI Consulting, contract negotiation disputes between payers and providers that were reported in the media increased 69% between 2022 and 2023. Among the 86 disputes that went public last year, 59%, or 51, involved Medicare Advantage contracts. Twelve disputes were exclusively about MA plans.

"Disputes between payers and providers continue to increase, with more individuals, families, and increasingly seniors being impacted due to a rising number of disputes involving Medicare Advantage plans," Citseko Staples Miller, managing director of FTI's healthcare and life sciences public affairs segment, told Becker's.

Among the most commonly cited reasons for issues between MA plans and hospitals are excessive prior authorization denial rates and slow payments from insurers. Some systems have publicly noted that most MA carriers have faced allegations of billing fraud from the federal government and are being probed by lawmakers over their high denial rates.

"Hospitals are definitely becoming more discerning about which Medicare Advantage plans they contract with, though it's not happening in every single market," Shannon Drotning, a market president at Providence Health Plan, told Becker's in January.

"We will ultimately pick a couple of [MA] partners going forward, and I think a lot of health systems are going to do this," Will Bryant, CFO of Chapel Hill, N.C.-based UNC Health, said during a November Becker's event. 

Despite tensions with some health systems, the Medicare Advantage program has bipartisan support in Congress and boasted a 95% quality satisfaction rating among enrolled members in 2023. Many systems also operate their own MA plans and are continuing to grow their reach within the program. Some have partnered with payers, grocers or other systems to launch plans in 2024.

"[Dropping MA] is a short-term trend that is going to backfire in a big way for these large health systems," Sachin Jain, MD, CEO of SCAN Group, told Becker's in October. "I would argue hospitals with less Medicare Advantage have made the wrong choice because these health systems traditionally have not done the work to get paid appropriately through coding and risk adjustment, and they haven't necessarily made the investments to succeed in the program. They're stuck in the middle or doing the opposite."

In April, CMS issued a final rule that aims to streamline Medicare Advantage and Part D prior authorizations, including ensuring consistency with traditional Medicare coverage guidelines. In January, the agency finalized another rule that will require MA carriers to approve urgent prior authorizations within 72 hours, and within seven days for standard requests. Payers will also need to publicly report prior authorization denial rates and provide specific reasoning for denied requests.

For Dr. Berwick, who is a health policy lecturer at Harvard Medical School, ongoing contract fights between some MA plans and hospitals is symptomatic of the lack of a true outcome- and population-based healthcare reimbursement system.

"MA plans put pressure on hospitals to accept lower payments, and some hospitals are able to absorb that — or they raise their market power through mergers and consolidation to shore up revenues. When an MA plan pushes back on those higher prices, it can be helpful to relieve pressure from hospitals that are overcharging," he said. "But there are a lot of other hospitals such as community and rural facilities that are under severe financial pressure, don't have the same market power, and suffer in the Medicare Advantage environment."

"To me, the untold story yet is about the physicians and nurses who don't feel directly tied to ongoing Medicare Advantage trends, but they are certainly immersed in a changing financial landscape. As venture capital, private equity and ownership of healthcare by private interests increases, it changes their worlds, what it's like to practice, their feelings about themselves, and the degrees of freedom they have to care for their patients. That chicken is going to come home to roost."

Becker's full conversation with Dr. Berwick is available to listen to here.

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