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Yay for MA? System CFOs Bittersweet on New CMS Rules

Analysis  |  By Delaney Rebernik  
   May 23, 2024

Medicare Advantage rate cuts are coming next year, but prior-auth provisions slated for 2026 could tide palmier payer partnerships.

CMS released finalized 2025 payment updates for the Medicare Advantage (MA) program on April 1, and the aftershocks were no joke: Confirmed cuts to base pay sent insurer share values plummeting 6–12% the next day.  

Under the final rule, which followed on April 4, average benchmark payments for 2025 MA plans stand to drop by 0.16%, as proposed at the start of the year.

The announcement comes on the heels of a January 17 final rule requiring MA plans and their federally facilitated insurance counterparts to streamline prior authorization processes beginning in 2026.

Despite widespread trepidation over what pay cuts could mean for already-tight margins, the recent MA moves, taken together, are cause for cautious optimism, says Denise Scoffic, chief financial officer, east region, at Mercy, a St. Louis, Missouri–headquartered health system with more than 50 hospitals and 50,000 team members across four states.

"We are encouraged," says Scoffic. "The key […] will be the accountability and enforcement."

Many feel slighted by 'slight' cut

CMS locked in a 2025 benchmark increase of 2.33% for MA plans, down from 2.44% in the January advance notice. The dip comes in part from adding Medicare fee-for-service spending data from the final fiscal quarter of 2023 to the equation. Next year also marks the second of a three-year phase-in of changes to the MA risk adjustment model.

All told, the decisions are a departure from CMS' typical practice of raising the final reimbursement from the proposed version, Reuters reports. They could also be a signal of waning support for the costly and denial-rife plans, albeit a tepid one in this presidential election year: Despite the immediate Wall Street backlash, the cuts are ultimately "slight," and federal payouts for MA plans are expected to increase by an average of 3.7%, or $16B, next year (also consistent with January's proposal).

But payers and providers are less than enthused.  

The leadup to the final rule's release saw insurers and other interest holders jockeying for 11th-hour rate bumps.

AHIP wrote in its advance-notice comments that the growth rate likely "will lead to benchmark changes that are insufficient to cover the cost of caring for 33 million MA beneficiaries in 2025," sentiments the insurer trade group reinforced in a press release once the rates were finalized.

For their part, providers "will have to absorb yet another round of payment reductions," said Jerry Penso, MD, MBA, president and CEO of the American Medical Group Association, in an April 3 statement. "I'm concerned plans will reduce their benefit packages to account for this cut, which will be detrimental to patients and providers."

Dismissing fears of steeper costs and diminished benefits, CMS says the rate policies "will provide continued stability to the MA market and MA beneficiaries." As proof, the agency points out that plan availability, enrollment, and benefit offerings have remained stable or grown in 2024, even with the 3.32% net impact this year representing a big drop from the 8.50% increase in 2023.

The picture of premium and benefit impacts could start to crystallize next month, when plans submit their bids for 2025 MA coverage, the Healthcare Financial Management Association reports.

The makings of a 'mutual growth' agenda?

The new MA rules could be a flashpoint in long-inflamed payer-provider relations.

"Profitability on Medicare Advantage plans has dropped significantly below fee-for-service payments" for many providers, Robin Damschroder, MHSA, FACHE, executive vice president and chief financial and business development officer at Michigan health system Henry Ford Health, recently told HealthLeaders.

As a result, many health systems have been retooling or terminating their MA partnerships, stoking "flames of conflict" that shifting regulatory winds are further fanning, says Richard F. Bajner, partner and payer and provider leader at Guidehouse.

But amid all the heartburn is hope for a new negotiating table—one with "mutual growth" on the menu—as early as next year.

"It's forcing the dialogue between payers and providers to shift," says Brian Fisher, Guidehouse's director of healthcare strategy, provider and payer. "It's becoming less transactional and more focused on, 'What are our demands and pain points that, on each side of the table, we need to solve for?'"

'26 prior-auth policies could pave a new path

New, good-sense prior authorization requirements could lay the groundwork for palmier provider-payer partnerships. "It will be a win-win if we can take out the excess work on both sides and really see that those regulations are enforced," Scoffic says.

In its January-released final rule, CMS says insurers must implement and maintain application programming interfaces to "improve the electronic exchange of health care data, as well as to streamline prior authorization processes." Additionally, the agency puts forth new process requirements for payers meant to ease administrative burdens and care delays, including:  

  • Turning around prior authorization decisions within 72 hours for urgent requests and seven calendar days for standard requests

  • Notifying providers of the specific reasons behind prior authorization denials  

  • Publicly reporting certain prior authorization metrics on their websites

Provider reception of the policies, many of which take effect January 2026, has been positive.

"The AHA commends CMS for removing barriers to patient care by streamlining the prior authorization process," said association President and CEO Rick Pollack in a statement.

For her part, Scoffic is hopeful the rule will cut through some serious red tape.

"We are not only losing millions of dollars of revenue every year, but there is also so much excess time being spent on Mercy's side—and I'm sure on the payer side—doing non-value-add work," she says. Major culprits of costly denials and appeals processes are two-midnight rule discrepancies, excessive prior authorizations, and AI-powered batch denials, she adds.

As they await implementation of the prior-auth rule—and petition government leaders for thoughtful enforcement—Mercy's managed care team members are chipping away at inefficiencies by meticulously tracking denials, as well as the system's impressive quality and cost efficiency metrics, Scoffic explains. 

All these numbers come in handy for leading "very frank conversations" with insurance partners (e.g., during peer-to-peer reviews or contract negotiations), she notes. "We're starting to see a few payers who are willing to automate that authorization process for specific common procedures." 

It's a point in favor of keeping all eyes on the big prize. "Our goal here is to get the patients the timely and appropriate care that they deserve," Scoffic says. "Those conversations, and putting that data in front of them, has shown some early successes."


Delaney Rebernik is a freelance editor for HealthLeaders.


CMS is busy making MA moves: Its 2025 payment updates for the program, released last month, finalize the "slight" reductions to average benchmark payments proposed earlier this year. The confirmed rates come on the heels of a January final rule that stands to streamline prior authorizations beginning in 2026.

Although the prospect of more pay cuts is causing agita among payers and providers alike, one health system CFO sees cause for cautious optimism, as prior-auth process improvements could help hospitals recoup big bucks they're spending today on so much red tape.

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