Medicare Advantage changes force Optum Health to pivot

CMS announced plans in March to implement Medicare Advantage risk adjustment changes phased in over the next three years, and Optum is adjusting.

CMS maintained the changes will slightly raise payments, and the average payment will increase 3.32% from 2023 to 2024. Some provider and payer groups opposed the changes, concerned they would lead to a funding cut for the program.

CMS also reported overall average star ratings dropped slightly for Medicare Advantage plans for 2024 after making changes in its methodology. The star ratings decline will result in CMS bonus pay cuts for some plans.

While these changes won't go into effect until next year, Optum Health, which is owned by UnitedHealth Group, is already making adjustments. Optum has more than 4 million members in fully accountable relationships and anticipates further growth. Many of the 2 million patients added to the fully accountable plans in the last two years have serious health challenges and few economic resources, according to Andrew Witty, CEO of UnitedHealth Group.

In the third quarter earnings call, Mr. Witty said 2023 has been "heavily influenced" by Medicare Advantage funding changes announced earlier this year.

"We're very appreciative of the three-year phase-in of the changes, which CMS ultimately decided to make," he said, as transcribed by The Motley Fool. "But obviously, those changes are essentially the equivalent to a price cut phased in over three years for the Medicare Advantage program."

Mr. Witty said Optum has used the last several months to focus on preparing for the next three years. UnitedHealth Group expects to add around 1 million Medicare Advantage members this year in public sector programs.

"So 2023 has all for us been about ensuring that we reengineer our cost base, that we refocus our benefit strategies to those things that matter most to patients, that we strengthen and invest in our ability to manage affordability of care going forward into the system and that we're taking full advantage of building the capabilities we have already begun to construct around our consumer engagement, our technology, digital-first capabilities and ultimately doubling down on our commitment to value-based care," he said.

The company aims to head into the next four years feeling strong about adjustments made and their adapted strategy and business readiness for the MA funding changes. Mr. Witty said the company is confident about being able to increase the number of patients within Optum Health into risk-based contracts, even those who have more complex care needs.

"We're very confident about the continued strength of that business," said Mr. Witty. "Make no mistake, Optum Health is having a very strong growth year and we're taking the opportunity this year to really ready ourselves and build strength for the next many years of that business."

Optum Health reported revenues jumped 29 percent in the third quarter, driven by the increased services offered to patients and higher complexity of care those services cover. Optum has also reported layoffs at some of its clinics earlier this year.

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