Enrollment in Medicare Advantage continues to soar. More than 33 million people are now covered by a Medicare Advantage plan, amounting to 54% of beneficiaries. While this growth is generally viewed as a positive, concern is mounting over program spending and potential waste. Medicare Advantage will account for 62% of Part A and B outlays in 2025, up from 38% in 2015.
A spate of regulatory actions over the past few years have been aimed at addressing this, ranging from a new risk adjustment model and tightening of Stars program rules to revamped reimbursement rates. These steps have created substantial headwinds for insurers who, in turn, continue to eye provider contracts as key levers to constrain cost growth.
Beyond downward pressure on reimbursement, providers express frustration with such administrative burdens as complex billing processes and denials. Many are concerned that reimbursement rates do not cover the full cost of participation. As a result, health systems are leaving Medicare Advantage — 61% of health systems surveyed by the Healthcare Financial Management Association said they are planning to or considering dropping out of one or more MA plan. Instead, they are limiting their serviceable market to patients covered under traditional Medicare, where most providers can at least breakeven financially.
But is it feasible to cut the cord on MA given the program’s steady growth? During our work with health systems across the country, we’ve identified a path forward, one that requires investment and fortitude. It’s a path that can produce durable profit pools that rise with MA growth.
Medicare Advantage is here to stay
Bipartisan support for maintaining the Medicare Advantage program seems soundly in place. The largest cohort of baby boomers are now aging into Medicare, expanding the eligible population to nearly 85 million by 2035; 64% of them are projected to enroll in Medicare Advantage. Policymakers are mainly focused on tightening the reins to chip away at perceived imbalances, not doing away with MA entirely.
As insurers recalibrate to ongoing regulatory changes, they do not always assess and prioritize the downstream impact on providers. Sometimes it is small things, like when the basis for defining risk adjustment gaps change, provider payments in pay-for-performance incentive programs may go down because providers don’t have the right list of gaps to track and manage in the new program. Some changes are more significant and deliberate, such as the decision to include the costs of expanded supplemental benefits under medical expenses which affects risk arrangement performance. This has had a major impact on provider finances, and provider awareness of this issue was alarmingly low at the time.
For their part, health system leaders need to zero in on strategies that can not only capture the growing MA population, but that can adapt in lockstep with policymakers and insurers.
Creating a durable MA business for providers
Performing in MA comes with additional requirements beyond just delivering good care, including tracking attribution, monitoring HEDIS scores, assessing gaps in care, increased coding and documentation, engaging with support services, and more. The traditional fee-for-service chassis is not built for this environment. Providers need to rewire their thinking and acknowledge that MA extends beyond care delivery. They need to look at it as a fundamentally different line of business. The rewards can be considerable, and we’ve seen providers realize a four-fold increase in contribution to margin when they make this pivot . Here are four strategic imperatives providers must embrace:
1. Define the right kind of risk: Revising value-based contracts to ensure fair payments and clear responsibilities is an essential first piece of the puzzle. Key decisions include determining the type of risk providers will take on, such as incentive payments, gainsharing, or risk sharing; identifying the populations they will serve like general enrollment, Medicare Advantage or Dual-Eligible Special Needs Plans; and defining the clinical scope of risk, including Part D and any exclusions. These three aspects are crucial for making value-based MA contracts more beneficial than traditional fee-for-service models.
It is well documented that providers are best served moving stepwise down the risk-bearing path, starting with lower risk levels and easier-to-engage populations. This principle got lost over the last five years as the pandemic disrupted utilization patterns, creating artificial successes in risk-bearing, and, most recently, painful losses that have left providers questioning their resolve to continue with the program.
Providers need to independently evaluate their current contracts and work with their payer partners to calibrate risk in a manner that matches their capabilities and tangible improvement plans. This requires careful modelling. The key is to take stock of performance, project and anticipate trends, and then make informed decisions about where and how to adjust the program. Providers taking this vigilant approach do see variability in yearly performance, but, in aggregate, have realized a profitable MA business.
2. Change relationships with payers: Future durability in MA for payers and providers necessitates a relationship reset. It’s cliché, but payer-provider partnerships need to become member and patient centric with mutual accountability. This requires accelerating information sharing and hastening key factors like attribution. It means agreeing on processes around coding and documentation to eliminate duplicative efforts. Greater coordination is needed across care management, disease management, utilization management, and care provision. And care solutions should go beyond typical office hours and appointment availability to avoid unnecessary urgent and emergency episodes for patients.
These are not easy to achieve given some of the tense contract negotiations that occur between payers and providers, but committing to something different and better is essential, and the stakes are sufficiently high to warrant material investments of time and resources to make this work. We have helped some payer-provider partners build these relationships with mutual accountabilities. For example, some of these partnerships embed data sharing requirements into their contracts, with penalties for both sides if the requirements are not met. One provider included contract language that the medical loss ratio target would increase if the insurer did not share attribution lists with them in a timely manner. They were able to make this demand in part because they regularly and reliably shared data with payers to support more accurate attribution. Revisiting these partnership agreements can create fundamentally more productive and efficient relationships.
3. Align care delivery: Traditional fee-for-service care delivery brings a strong focus on voluminous patient throughput and efficient referrals. However, this approach and orientation is insufficient when it comes to succeeding in MA. Primary care teams must be able to support longer annual wellness visits, screenings and clinical documentation, proactive care management, and after-hours availability and support. This is often foisted upon physicians and seen as extra work. But if contracts are well aligned, then care teams should have the funds and incentive to support these activities. Efficient and effective providers have mapped steps to the right members of the care team.
While primary care often is at the center of care model discussions, health systems must also take a hard look at their specialist networks. Establishing care compacts along key referral pathways can go a long way to resetting expectations and ensuring that key specialties are aligned to support the needs and goals of MA patients.
4. Invest in centralized capabilities: Strong data and analytical capabilities to track progress and calibrate patient management in real time, along with other operational and administrative enhancements, are necessary to be successful in MA. Centralized capabilities like care management, attribution management, patient outreach, coding and documentation, are also essential.
Providers have aspects of these capabilities already in place, but they are rarely tuned to the needs of the Medicare population or the specific aspects of their payer contracts. Although meaningful investments in these capabilities are often needed, leading providers have found that an accretive MA business more than offset the build costs.
It is worth acknowledging that investing in these capabilities often feels a bit awkward for provider leadership teams that are more comfortable conceptualizing hard assets that come with direct reimbursement. Investing in the capabilities required to succeed in alternative business like MA should receive the same level of consideration as investments in new service lines or facilities, with attention paid to costs, scalability, and revenue impact. Too often, leaders look at these capabilities as an appendage and added cost, and not as an asset that is critical to their success .
Serving the Medicare population will remain an imperative for most providers across the country, and MA is not going away. The good news is that there are profits to be made. Garnering them requires that providers embrace important changes to their operations. In our experience, intentional processes addressing the dimensions detailed here can mitigate the turbulence that many providers are experiencing and help them realize a profitable, sustainable, and durable MA business that supports the needs of their communities.