April 15, 2024

Behind The Medicare Advantage Contract Terminations

Long-standing tension between providers and payers over medical service reimbursement rates is reaching a new crescendo. The friction intensified in 2023 when a surge in hospitals opting to terminate their agreements with Medicare Advantage plans occurred.

An Upward Trend in Medicare Advantage Contract Terminations

Medicare Advantage plans, commonly known as Medicare Part C — managed by private insurers — are an alternative to traditional Medicare. However, healthcare providers have long voiced concerns that insurance payers frequently establish reimbursement rates below the actual cost of care, causing financial instability for providers.

In 2023, several hospitals terminated their Medicare Advantage contracts due to an inability to achieve fiscal viability in their relationships with the payer. Here are a few prominent cases:

  • Vanderbilt Health, headquartered in Nashville, Tennessee, went out of network with Humana's HMO Medicare Advantage plan in April 2023.
  • In August 2023, Cape Fear Valley Health made public its transition to an out-of-network status with UnitedHealthcare Medicare Advantage plans.
  • WakeMed, headquartered in North Carolina, disclosed that its facilities were no longer part of the Humana Medicare Advantage network as of October 2023.
  • Scripps terminated its Medicare Advantage contracts for Scripps Clinic and Scripps Coastal in late September, affecting 30,000 seniors. This decision impacted patients covered by prominent carriers like UnitedHealthcare, Anthem Blue Cross, Blue Shield of California, and Centene's Health Net.
  • Genesis Healthcare System, headquartered in Zanesville, Ohio, announced its plan to discontinue Anthem BCBS and Humana Medicare Advantage plans in 2024.

What are the reasons Providers end their MA contracts?

Medicare Advantage (MA) plans may seem like a sweet deal for enrollees, offering perks like gym memberships, dental coverage, and even medication coverage without an additional premium. These plans, managed by private insurers, are funded by government-run Medicare and prove profitable for insurers who retain a portion of payments before covering care costs.

But for providers, it's a different story. Here are the common reasons why they're terminating their Medicare Advantage (MA) contracts:

  • Excessive prior authorizations — Providers are drowning in paperwork trying to get prior authorizations, leading to frustrating delays in patient care and adding to their already heavy administrative workload.
  • Increased denials — Payers are saying "no" more often than not, making it a headache for providers to get reimbursed for services rendered and shaking their financial stability.
  • Slow payments — Providers are left waiting for payments from MA plans, disrupting cash flow and making it hard to cover basic operational expenses.
  • Reduced reimbursement rates — Payers are cutting corners with reimbursement rates that barely cover the cost of care. With inflation and labor costs on the rise, providers are feeling the financial pinch.

Besides, many MA carriers are under federal scrutiny for alleged billing fraud and facing investigations from lawmakers due to their high denial rates. This further erodes trust in the system and increases the burden on providers already grappling with a challenging landscape.

What Implications Does This Hold for Patients?

About 30.8 million eligible Medicare recipients are enrolled in Medicare Advantage plans, representing over half of the Medicare population. When hospitals opt to terminate their Medicare Advantage contracts, both the payer and the provider notify their existing patients in advance. This buffer time allows patients to explore alternative plans and make switches during Medicare's annual open enrollment period or return to Original Medicare. Additionally, patients can opt to remain with their existing Medicare Advantage plan and utilize out-of-network services if available.

But, patients transitioning from private Medicare Advantage plans to traditional Medicare may encounter unexpected challenges. Unlike Medicare Advantage plans, which often have lower out-of-pocket costs, original Medicare typically charges 20% coinsurance for medical care with no maximum limit. Individuals can purchase a supplemental insurance plan called Medigap to mitigate these costs. However, enrolling in Medigap outside of their initial enrollment period entails underwriting, and insurers can deny Medigap coverage based on pre-existing health conditions, such as diabetes or heart disease, or impose higher premiums - except in a few states.

The ongoing trend of contract terminations between Medicare Advantage plans and health systems is anticipated to persist unless there is a concerted effort to negotiate a mutually beneficial strategy that addresses the needs of both entities. Patients are at the receiving end of these decisions, and it's imperative to ensure they do not face disruptions that could potentially impact their care and access to essential services. Collaborative efforts must prioritize patient well-being to maintain the integrity of the healthcare system.

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