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Shift to Medicare Advantage Ratchets Up Pressure on Hospitals

Analysis  |  By Bruce Japsen  
   February 14, 2019

The move to private Medicare Advantage takes hospitals further away from fee-for-service medicine, putting pressure on these providers to improve quality and health outcomes or risk being excluded from insurer networks.

Hospitals are seeing an unprecedented number of patients covered by Medicare Advantage as health insurers take on a larger role in administering health benefits for aging baby boomers. 

The swift move to private Medicare Advantage also takes hospitals and health systems further away from fee-for-service medicine, ratcheting up pressure on these providers to improve quality and health outcomes or potentially be excluded from insurer networks as part of value-based models that are proliferating.

"Hospitals will have a hard time not playing ball with MA plans," says Andrew Kadar, managing director and partner, healthcare services, at L.E.K. Consulting in San Francisco. "MA plans will continue to encourage a higher quantity of value-based care reimbursement arrangements that align their provider partners to MA plans' quality, revenue, and cost incentives."

Cigna just this month said more than half of its Medicare and commercial payments to providers are made through "alternative payment arrangements in the company's top 40 markets."

MA enrollment increases

Meanwhile, the Centers for Medicare & Medicaid Services has projected Medicare Advantage enrollment will reach an "all-time high" in 2019 with 22.6 million Medicare beneficiaries amid unprecedented growth. And industry analysts like L.E.K. Consulting project Medicare Advantage enrollment will rise to 38 million, or 50% market penetration by the end of 2025.

The market shift is already being felt at hospitals across the country. Bill Rutherford, chief financial officer at HCA, said "about 38%, 37% of our Medicare book, if you will, is managed."

"We've seen that grow pretty steadily over the past several quarters," Rutherford told analysts on the company's fourth quarter earnings call last month of Medicare Advantage. "We've been dealing with growing MA in most of our markets, so we think it will continue to grow."

Medicare Advantage plans contract with the federal government to provide certain extra benefits to seniors than traditional fee-for-service Medicare, such as disease management, nurse help hotlines, vision and dental care, and wellness programs. And regulations are changing to allow for more supplemental benefits like adult day care and caregiver support services.

What this means for hospitals

To prepare for the expanded supplemental benefits, hospitals taking payment from MA plans need to offer an array of outpatient services having already made large investments in primary care, urgent care, surgery centers, home health, and hospice.

"Hospitals and health systems that control a large portion of the care continuum will be at an advantage if managed appropriately," Kadar said. "MA plans will increasingly partner with hospitals and health systems that have the HCIT infrastructure needed to actively manage care and share detailed data and reporting."

Related: Medicare Advantage Plans Could Cover Meal Deliveries Next Year

Health insurance companies that sell Medicare Advantage increasingly use narrow networks to limit choices of doctors and hospitals to their preferred lists, which could leave hospitals out. "MA plans will continue to offer new products, including HMOs with narrow networks of curated providers who demonstrate to the MA plan that [they] provide high-quality care at a low cost," Kadar said.

These health insurers are also weaving more measures into contracts to make sure hospitals and other providers deliver care in the right place, at the right time, and in the right amount.

Health insurers and MA

Aetna and UnitedHealth Group are also paying out more than half of their reimbursements to providers via value-based contracts as they take on greater share of seniors choosing Medicare Advantage. UnitedHealth had nearly 5 million Medicare Advantage enrollees at the beginning of the year from the 4.4 million a year ago. Aetna's parent, CVS Health, will release its latest MA enrollment later this month when it reports fourth quarter earnings.

UnitedHealth points to its own provider services company as an example. UnitedHealth owns Optum, a health services unit, that is focusing on outpatient care in doctor practices and urgent care centers that compete directly with hospitals and health systems in dozens of markets.

"In care delivery, our clinical leaders are applying clinical decision support based on evidence-based guidelines that promote better health and ensure the right care at the right time in the right method," Andrew Witty, CEO of Optum, the healthcare services business of UnitedHealth said during the insurer's fourth-quarter earnings call last month. "We achieved significantly lower total medical cost by keeping people healthier and avoiding unnecessary hospital use, which translates to up to 30% lower cost for our Medicare Advantage patients relative to original Medicare." 

How do hospitals compete with insurance companies?

Analysts say hospitals and health systems have several opportunities that don't necessarily involve forming their own insurance companies to compete with health insurers.

When going up against the likes of UnitedHealth, which owns Optum; or CVS Health, which owns Aetna; and Humana, which has clinics, doctor practices, and home care, providers that have ownership of their own MA plans could have an advantage if they offer services that rivals in their communities do not have as a way to compete.

Health systems also have an opportunity to compete with the payers by partnering with an insurer's rival. "Providers who wish to continue to serve MA patients will need to take a proactive approach to partnerships, as each one is complicated and an MA plan's network management team has limited bandwidth to negotiate with multiple provider parties," L.E.K.'s Kadar said.

Providers can also consider an end run by working on direct-contracting relationships with employers, a business that could counter any potential loss of Medicare business.

"Hospitals and health systems that can't become an MA plan themselves can either direct contract with employers for particular services or join with another hospital and health system that needs a broader network or more geographic coverage to offer an MA plan," Kadar said. "The provider can also become a center of excellence so that an MA plan has to include them in their network at more favorable rates to ensure the MA plan has a marketable network."

Bruce Japsen is a contributing editor for HealthLeaders.

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