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The Federal Trade Commission’s (FTC) vote to ban noncompete agreements is set to have an outsized impact on the health care sector, empowering clinicians and raising anxiety among private practices who worry it will compound staffing problems.

The FTC voted 3-2 last month to ban all current and future agreements preventing workers from going to competitors or starting a competing business after they leave a job. The rule is set to go into effect on Sep. 4, though the U.S. Chamber of Commerce has already sued to stop it.

Shortly before the rule came out, FTC Chair Lina Khan told reporters that of the 26,000 comments her agency received on the proposed rule, “a pretty significant chunk were from health care workers in particular.”

“Even for workers who, you know, make a decent living, their view was that at the point of signing these contracts, they did not actually have bargaining power,” she said.

In its announcement, the FTC said eliminating noncompete clauses is expected to lower health care costs by $194 billion over the next 10 years.

Lisa Stand, director of policy and regulatory advocacy at the American Nurses Association, said her group was pleased with the rule and surprised by “how strong it is.”

“It absolutely will make job mobility easier,” Stand said. “We’re nurses, and we think that ultimately this is good for patients as well, as there is more sort of robust competition for clinical talent and an expanded access to more choices of provider and provider setting.”

But some private practices worry not enough thought has been put into how a change like this will affect the care they provide to patients.

Jack Feltz is a practicing OB-GYN as well as president and CEO of Lifeline Medical Associates, a practice of roughly 200 physicians providing care to patients in New Jersey and Delaware.

Employees at Feltz’s practice, including himself, are asked to sign noncompete agreements. He acknowledges that noncompetes can be onerous on workers but argues that private practices will be less capable of competing with larger hospital systems without them.

“It truly unbalances the ability of those organizations, especially private practices which are already under siege and being decimated by hospital employment, for them to be able to maintain and be able to compete with hospitals that have no restriction on noncompetes,” said Feltz.

He warned that large health systems will soon be more able to poach not only physicians, but their private practice patients as well.

According to the American Medical Association, 37 percent to 45 percent of physicians are under noncompete agreements. While they are common, Feltz noted noncompete agreements aren’t always enforced. He said his own practice has let former employees out of their agreements due to external issues.

Lynn Rapsilber is co-founder and CEO of the National Nurse Practitioner Entrepreneur Network, a nonprofit that helps nurse practitioners start their own businesses. According to Rapsilber, everyone from large health systems to small practices is “competing for that patient” who she believes is the main beneficiary of this rule.

From a business perspective, Rapsilber agrees there is value in contractual agreements that former employees won’t take patients or mailing lists from a practice. The main “problematic” issue she sees in enforcing noncompete agreements is the geographic stipulations they place on health care workers, limiting where they can practice after leaving a job.

“For the consumer, this is great news because there’s going to be more opportunities for choice in their health care provider if there’s more opportunity for people to open up their own practices and to be able to serve the community,” she said. “That’s going to enhance competition, which will actually in the long run lower prices and increase quality.”

Labor experts argue that getting rid of noncompetes will also relieve physicians of an additional challenge amid an increasingly monopolized industry.

According to John August, director of health care and partner programs at Cornell University’s Scheinman Institute, noncompetes have become “a big issue” in health care as physicians’ practices are being taken over by large health systems.

“A lot of physicians are thinking of leaving their practices that they’ve spent many years building and then only to see them taken over by larger and larger corporations and feeling very, very dissatisfied in their employment situation and wanting to leave and finding these noncompete clauses,” August said.

The new rule would allow many of these physicians to leave after their practice is absorbed — with some caveats depending on what type of entity it is.

Some larger hospital systems may gain an advantage by being excluded from this rule. The FTC has limited jurisdiction over nonprofits, and about half of all community hospitals in the U.S. are nonprofits, according to the American Hospital Association.

As Fierce Healthcare recently reported, FTC Commissioner Rebecca Slaughter acknowledged there would be health care workers the rule would “struggle to reach” due to their employment at nonprofit hospitals.

Climate change is bound to majorly impact every health plan on the planet, but payers don’t have to be left stranded. Getting an early start on climate change planning before it gravely threatens health plans is the best option for insurance businesses to not be left high and dry.

“The climate crisis is a health care crisis,” says Baylis Beard, director of sustainability for Blue Shield of California., “As insurers, we are part of the healthcare industry, which means we have a responsibility to decrease our emissions and use our voice to lead the way to a more sustainable, healthier future.”

Climate change will impact payers in three key ways: high utilization, high costs, and weather-related events that will affect healthcare workers.

HIGH UTILIZATION

Creating a Plan

Payers should develop climate change response plans to focus on their high-risk areas, the areas that will eventually cost them the most to cover. That might include implementing digital care and telehealth solutions. Payers can create ways for consumers to educate themselves about high-risk areas, possible health effects, precautions to take, and resources available to them if they are located in a high-risk area. By leveraging care-management platforms, payers can provide information like inclement weather alerts and educational content to allow their members to stay informed in an accessible way.

Keeping track of member health will play a greater role as climate change advances, particularly with seniors and the Medicare Advantage population. Studies show that seniors in particular will be greatly affected: “Among other alarming facts, heat-related mortality for people above age 65 has increased by more than 50% in just the past 20 years,” according to a report from the Patient Safety Network.

Research

High-risk areas might not always be easily identifiable, and this may take some research to create an accurate response plan.

For example, California experiences frequent wildfires, and long-term exposure to smoke inhalation kills thousands each year. However, according to one study , only about 1,700 of the 6,300 deaths that occurred each year from smoke inhalation between 2006 to 2018 occurred in the West. This study shows that wildfire smoke had the most prevalent effects in the East because of how fast the smoke traveled. The point: don’t make assumptions without looking at all the data.

“Much of the research on the effects of climate change on health has been done with clinical data to understand health outcomes,” said Blue Shield of California’s director of sustainability Baylis Beard, “but the impact on healthcare utilization and costs is less understood.”

In order to uncover the true cost of climate change for health insurance, payers should focus on using science and evidence-based strategies. An article by the Patient Safety Network states: “Evidence-based strategies are required to accelerate healthcare decarbonization and avert the worst predicted harms to health and healthcare systems.”

Further, insurers can collaborate with climate change researchers and weather institutions to create comprehensive plans that take into account a vast array of climate data.This avenue can ensure the most accurate results can be reflected when payers analyze the financial impacts.

HIGH COSTS

Perhaps the biggest and most obvious effect of climate change will be higher costs. High utilization leads to high costs for payers, but what will also step into the spotlight? Supply chain malfunctions.

The United States’ healthcare sector emits about a quarter of total global healthcare emissions. In other words, the U.S. healthcare industry uses a lot of energy, and transports a lot of supplies. Climate change will bring about disasters that are very difficult to prepare for in this sector.

For example, a tornado that ripped through a Pfizer drug warehouse in North Carolina in July of 2023 destroyed medications as well as pharmaceutical raw materials, exacerbating the shortage of drugs used in surgery and cancer treatment.

Payers can work with outside organizations to create communication plans on how they will handle these events. But they must make sure the select the right partners. “We play a role in creating the right incentives in the value chain and choosing sustainable partners,” said Beard.

CLIMATE CHANGE AFFECTING HEALTHCARE WORKERS

The biggest issue in healthcare is the labor shortage. Climate change will worsen this. Extreme heat and weather will affect certain occupations more than others.

For example, studies show that climate change will have a big effect on emergency response workers. The Journal of Emergency Medical Services published an article stating: “Prolonged heat waves strain EMS staff and resources, emphasizing the need for strategic planning and collaboration with other agencies.”

Payers should collaborate with their health systems to ensure there are resources for these workers when they feel strained. Along with EMS workers, doctors and nurses facing intense burnout from high volumes of patients after weather-related events will also increase. Implementing AI and automation to cover tedious tasks and mitigate stress is one tactic that can help.

VIRTUAL CARE

Virtual care is going to play an even bigger role as the climate crisis worsens. The healthcare industry has already gotten a jumpstart on this type of care because of the COVID-19 pandemic. Telehealth and virtual care have been shown to decrease emissions as well as water use. While virtual care can have its limitations, including broadband issues and limited access to technology, it can provide care when physical access to a health system is just not possible. Payers should look at updating their virtual care models and implementing new forms of virtual care. For example, Blue Shield of California has implemented a new virtual care platform that connects members with virtual primary care services for patients to access providers via mobile phone, tablet, or personal computer.

“This virtual care platform also helped provide critical health care services to a town badly damaged by the Camp Fire where many residents were forced to drive long distances to see a doctor,” Beard said.

THE OPPORTUNITY TO LEAD

Health insurers can take the lead on climate change in several ways.

For instance, the Boston Consulting Group suggests that “Insurers should collaborate with climate research and university institutions and should assist governmental and academic institutions in climate-health policymaking discussions.”

Health plans can look to create new insurance products and specified insurance models to address climate change health effects. Payers can explore implementing wider disease coverage and climate specific products. Looking to other countries may also help in generating new ideas. For example, Japan has implemented heatstroke insurance in response to climate change, costing members roughly 70 cents a day; in a single day they sold about 7,000 policies in June 2022.

Payers should also focus on underserved populations, as these groups often experience the worse climate change effects while contributing the least to pollution and carbon emissions. Collaborating with other institutions and agencies could be beneficial in this implementation.

Payers can also look to generate new opportunities by establishing health services that go beyond insurance. Climate change is already having an impact on payers’ portfolios, and this is a great way to diversify. Partnering with private equity firms to expand care delivery and creating tools for optimizing emergency-room triage and resource allocation are a couple of options that payers can explore.

In 2023, publicly traded health insurance companies in the US experienced continued growth, with total GAAP revenue increasing by 10.4% to $1.07 trillion. However, a new report from AM Best suggests that future profitability may face challenges as government programme returns to normal levels.

Titled “Revenue Grows but Margins Are Pressured for US Publicly Traded Health Insurers,” the report highlights that half of the 10 insurers studied reported double-digit premium growth in 2023, led by Oscar Health, Inc. with a 46.9% increase.

The overall population also saw a 28.5% rise in investment income. Net income reached $45.3 billion, marking a 6.8% increase from 2022, following a 12.5% surge the previous year.

The report attributes pressure on Medicare Advantage (MA) earnings to reduced reimbursement rates from the Centers for Medicare & Medicaid Services, alongside increased medical claims and utilisation. Medicaid managed care business is experiencing a significant decline in enrolment, potentially leading to a worsening risk pool as eligibility redeterminations are finalised.

Kaitlin Piasecki, Industry Research Analyst, AM Best, noted: “With medical costs continue to rise across the United States, insurers have been raising premium rates and are likely to continue doing so in 2024 to maintain favourable earnings.”

“Overall earnings for companies solely operating government programmes could be challenged in 2024, but these companies should remain profitable,” commented Jason Hopper, Associate Director, Industry Research and Analytics, AM Best.

“Medical management of those with chronic conditions, as well as quality programmes and related bonus payments, will be extremely important for sustained earnings for these health plans. For plans operating in all business segments, commercial business margins will become a greater focus given the likely earning declines in Medicare Advantage and Medicaid managed care,” further added Hopper.

Drugmaker price hikes that have occurred in tandem with ongoing drug shortages have not only created headaches for both hospitals and providers — but also jeopardized patient access to care, according to an analysis published May 22 by the American Hospital Association.

Inflation has not been the sole factor driving up prices, either. Between January 2022 and January 2023, the prices for about 2,000 drugs "increased faster than the rate of general inflation, with an average price hike of 15.2%," the report states.

The combination of drug shortages and price increases that outpace inflation led to around 85% of hospitals reporting to the AHA that their hospital has been critically or moderately affected, with 99% reporting that their hospital experienced a drug shortage in 2023.

In 2023, hospitals saw the highest number of drugs in shortages in 23 years, another report found.

Responding to the changing pharmaceutical supply landscape and either acquiring alternative medications, renegotiating contracts or identifying new suppliers raises what hospitals typically spend on drugs by about 20%, the AHA found.

"Though the problem of high drug prices is not a new issue for hospitals and health systems, the rate at which drug prices are increasing combined with the problem of drug shortages is becoming unsustainable for the field and having a direct impact on patient outcomes," the report reads. "Higher drug prices and increasing drug shortages mean more costs for hospitals and health systems to bear, further stretching their limited resources and ultimately jeopardizing patients' access to needed care."

Here are three more notable findings from the AHA:

• Generic drugs account for around 83% of drug shortages.

• The median annual price for new drugs went up 35% from the year before to $300,000 in 2023.

• The 15.2% average increase in drug prices in 2023 was equivalent to an average increase of $590 per drug.

Breaking Up Health Care Monopolies: Examining the Budgetary Effects of Health Care Consolidation

View the video here: https://budget.house.gov/hearing/breaking-up-health-care-monopolies-examining-the-budgetary-effects-of-health-care-consolidation

The Medicare program represents a sacred promise to America’s elderly and disabled citizens. The Medicare Fee-For-Service (FFS) program, introduced as part of the Great Society in 1965 to mirror a Blue Cross Blue Shield commercial market standard, covered hospital and physician benefits separately. As the private health care market evolved, policymakers introduced private plans into Medicare, followed by the Medicare Risk Program and the integration of health maintenance organizations, eventually leading to today’s Medicare Advantage (MA) program.

This article addresses the history of the Medicare program and the current debate around the recent MedPAC estimate of MA overpayments. We propose nuanced analytical considerations to ensure accurate coding, address favorable selection, and foster a holistic policy future for Medicare.

A Program In Evolution Since 1965

With the intent to create a program serving the changing needs of beneficiaries, various administrations and Congresses oversaw the design of benefits, addressing evolving medical practice and patient complexity. In the 1950s, hypertension was only newly being treated, with national treatment guidelines first issued in the 1970s. Powered by epidemiological research and pharmaceutical innovation, prescription drugs became a norm within medical practice, and, by 1986, 84.7 percent of Medicare HMO enrollees received prescription drug benefits. Driven by an increasingly diverse population, policymakers and analysts recognized the programmatic agility of MA, which, for example, allowed benefit design that better served beneficiaries in long-term care and provided home and team-based care for multi-morbid individuals.

Recognizing that customization—not standardization—coupled with plan quality transparency was critical to caring for an increasingly diverse population, policymakers created special needs plans and later added a quality star rating system to grade MA plans as part of the Patient Protection and Affordable Care Act. Subsequently, regulators have worked to improve ratings accuracy in response to analytical concerns. Given that the star rating quality bonus system does not apply to FFS Medicare, quality bonus incentives thus financially favor the MA program, the FFS Medicare plan lacks a quality rating, and beneficiaries cannot easily compare the two formulations of Medicare.

Simultaneous fiscal pressures drove commercial insurers to implement cost-control strategies via networks, utilization review, and employee cost shifting. States and the federal government faced similar pressures, motivating the evolution of FFS payment to risk-adjusted capitation as part of the volume-to-value transition supported across Democratic and Republican administrations.

Facing the pressures of fixed incomes and limited finances, just over half of all seniors today elect MA with its financial protections and enhanced benefits. The FFS program has become increasingly expensive for beneficiaries via premiums for Part B, Part D, and Medigap (exceeding $183 monthly); MA has become an appealing alternative by serving as an affordable Medigap plan coupled with no-cost or low-cost Part D coverage.

Recent Policy Questions And The Need For Analytical Rigor

With over 30 million elderly, disabled, and impoverished Americans turning to MA, analytical rigor in assessing MA’s value and performance compared to FFS Medicare is an absolute requirement. Analyses must integrate insights and data across academia, the policy community, government, and industry, all aimed at equalizing the evaluation and treatment of MA and FFS Medicare. This section responds to MedPAC’s recent analysis claiming $83 billion in MA overpayments as a result of greater coding intensity in, and favorable selection into, MA.

Coding Intensity Differences

While MA plans are likely overfunded, approaches to developing estimates of coding intensity and favorable selection must validate policy models by connecting them to real-world business and clinical operations. Coding intensity differences, a longstanding MedPAC concern, derive from different payment methodologies in FFS Medicare versus MA. In FFS Medicare, specific providers are paid based on relative value units while hospitals are paid based on diagnosis-related groups (DRGs). In FFS, providers are not incented to capture all diagnosis codes that accurately reflect a member’s health condition. In MA, health plans are paid on a per-member, per-month base capitation rate, risk-adjusted for health status. This incents MA plans to more accurately code disease prevalence, incidence, acuity, and complications.

Such differing incentives create problems when policy experts seek to do programmatic comparisons between FFS Medicare and MA. These coding intensity differentials stem from three potential components. First, outright fraudulent coding remains a concern given ongoing cases of plans adding diagnoses unsupported by medical documentation. A second, related concern is diagnostic upcoding, wherein complexity is falsely enhanced to drive payment. The third component is clinically appropriate diagnostic coding intensity, the reciprocal of FFS undercoding.

Regarding the third component, consider the case of a Medicare beneficiary with diabetes and cardiac, renal, and ophthalmic complications. In FFS Medicare, physicians and hospitals may capture only a portion of these diagnoses to justify the provision of a specific service. In contrast, an MA plan that bears full underwriting risk has an incentive to capture all of these diagnoses as a means of assessing the full cost to cover all beneficiary benefits. In this setting, policymakers must address chronic FFS undercoding, a problem acknowledged but not yet measured and accounted for in the MedPAC analysis of FFS versus MA spending.

While the first two examples of coding intensity differences represent MA plan “overpayment” in the sense that people normally use that word, the third—clinically appropriate coding—does not. Stringent CMS regulations and Medicare Risk Adjustment Data Validation (RADV) audits would greatly minimize the first two components. The recent MedPAC analysis of coding intensity in MA does not differentiate between, measure, or account for these three factors driving coding intensity. Thus, with FFS undercoding unaccounted for and the three components of coding intensity all lumped together as overpayment, the MedPAC analysis likely overestimates coding intensity effects.

With an eye towards solving problems and improving measurement, policymakers and regulators should measure all components of coding intensity via chart audits comparing large samples of FFS and MA beneficiaries, using them to address overpayment. Other drivers of policy consternation, like in-home health risk assessments, pose a regulatory opportunity to require two years of data as MedPAC recommended and go a step further by transforming what is functionally a data-harvesting visit into a meaningful, more convenient clinical encounter for elderly or disabled beneficiaries. CMS has begun to address challenges in MA coding through an appropriately muscular approach to implementing RADV audits, updating Medical Loss Ratio guidance, and attempting to target problematic coding practices.

Favorable Selection

Finally, favorable selection within the MA program has been a longstanding concern. Historically, bad actors have engaged in tactics ranging from deterring sicker beneficiaries through third-story sales seminars to targeted advertising designed to drive healthier enrollment. This has inspired enhanced oversight and a series of regulator- and policymaker-driven reforms: CMS designed policy interventions to address real-world market problems and now reviews all plan marketing materials, operationalizing existing regulations regularly updated through marketing guidelines.

MedPAC’s recent updated estimate of MA favorable selection violates several analytical norms, including the use of a non-peer-reviewed comparator model and the inclusion of beneficiaries enrolled in employer-group waiver plans (EGWPs). EGWPs are not available to the general public and are not subject to CMS plan bidding requirements for MA and prescription drug benefits.

In addition, for unclear reasons, MedPAC’s recent model excludes beneficiaries with end-stage renal disease (ESRD), despite MA penetration of ESRD Medicare beneficiaries rising from 27 percent in 2020 to 47 percent in 2022, nearly approaching the MA general market share of 51 percent. While there is undoubtedly health status variation among ESRD beneficiaries, caring for this population is generally costly, with evidence suggesting that the MA’s required maximum out-of-pocket benefit is highly attractive to many ESRD Medicare beneficiaries—resulting in likely negative selection for MA plans. Furthermore, growing MA enrollment in D-SNPs—special needs plans for beneficiaries who are dually eligible for Medicare and Medicaid, another high-cost population—and the Medicare trustees report denoting decreasing FFS costs per beneficiary due to this trend raise questions about the real-world validity of the recent MedPAC favorable selection model.

While invariably there is some favorable selection in MA, the program’s integrated benefits likely result in negative selection into the program. For example, a Wakely report concludes that, if the mandatory MA maximum out-of-pocket (MOOP) limit of $7,550 were included in FFS Medicare, FFS spending would be 2.8 percent higher. A desire for a MOOP limit likely drives some high-cost beneficiaries into MA, but this factor is unaccounted for in MedPAC’s recent program comparison methodologies, which thus likely overestimate the effect of favorable selection.

To ensure accurate measurement of favorable selection across FFS Medicare and MA, selection effects must be examined bidirectionally. As the example of ESRD beneficiaries demonstrates, models, including MedPAC’s, must undergo stress-testing with subsets of Medicare populations in order to ensure internal validity. Finally, MedPAC’s model and other models must be externally validated by connecting them to real-world business practices. As the historical and recent actions of CMS’ work to address favorable selection demonstrate, externally validating models in this fashion guides policymakers and regulators to focus regulatory policy on issues that harm Medicare beneficiaries.

Considerations For Future Analytical Work And Program Policy

While it is clear that MedPAC’s new model is incomplete and likely overestimates coding intensity and favorable selection effects through unaddressed analytical questions, the model also fails to distinguish overpayment from differential payment. Given a purported overpayment of $83 billion for beneficiaries enrolled in MA versus FFS, if that entire amount represented plan profit, UnitedHealthcare and Humana, representing nearly 47 percent of enrollees, would presumably reap $39 billion/year in excess spending. However, Humana reported $102.6 billion in annual revenues and $4.3 billion in earnings before interest, taxes, depreciation, and amortization (EBITDA) across all insurance lines for 2023; UnitedHealth Group reported annual revenue of $372 billion with $32 billion in EBITDA. Thus, the $39 billion in excess spending would represent more than the two companies’ combined pre-tax income across all lines of insurance business, suggesting that the health plans are losing money on their remaining lines of business—an unlikely scenario.

Just as not all differential payment is overpayment, neither is all differential payment contributing to plan profits. In fact, MA uses $2,328 in rebates per beneficiary annually to deliver additional benefits, meaning $69.8 billion (84 percent) of purported overpayments go toward reduced A/B cost-sharing, premium reductions, a prescription drug plan, and other supplemental benefits. MA thus attracts beneficiaries who are unwilling or, more worrisome, unable to purchase Medigap plans. Consequently, blind cuts in MA, versus targeted policy improvements that equalize the treatment of MA and FFS, would hurt the many poor and minority beneficiaries in the program and damage long-standing efforts to improve health equity.

Instead, future policy analyses of MA and FFS spending must be holistic. In addition to analyzing statutory program spending, analysts must consider component-by-component costs and the cost to both taxpayers and beneficiaries for the construction of a holistic health benefit package in both the FFS and MA programs. This could include analysis of taxpayer/beneficiary costs and induced demand as MA plans buy down Parts A and B beneficiary cost-sharing versus the much greater induced demand from FFS beneficiaries with Medigap, as nearly three-quarters of beneficiaries with Medigap are without any cost sharing.

Policymakers should also look to equalize the treatment of MA and FFS Medicare, promote value-based care, and differentiate between good and bad actors. If policymakers are concerned that MA is coded differently than FFS, regulators should look to improve coding accuracy for both programs. Solutions could include using artificial intelligence to crawl charts as a means of equalizing payment. In conjunction, policymakers could budget for thorough chart audits of FFS and MA populations to better measure differential coding. Other policies could include promoting site-neutral payments, competitive telehealth pricing, and tech-assisted and tech-driven solutions that reduce cost and expand access.

If MA program spending driven by inflated, formulaic benchmarks is a primary concern, policymakers could also consider staged reforms to Medigap plans, long a focus for programmatic reform; they could address the previously mentioned induced demand in FFS Medicare, driven by a lack of cost sharing created by Medigap, through the implementation of value-based insurance design in Medigap plans. Other policy alternatives worth exploring include larger geographies for plan bidding or benchmark reform through competitive bidding inclusive of FFS Medicare, with rigorous consumer protections such as grandfathering and risk corridors to protect vulnerable beneficiaries. To combat overpayments due to star ratings, policymakers and regulators could eliminate double-bonus counties (counties with high MA penetration and low FFS Medicare spending receive double bonuses) and steward the creation of a uniform quality ratings program for both FFS and MA.

To address high drug costs, regulators could mirror best practices in Medicaid and use managed care tools to implement value-based contracting for revolutionary new therapies. To better support consumers, regulators should improve the plan finder to help provide beneficiaries with more transparent cost and benefits information. Finally, with an increasingly complex Medicare population and changing delivery system, policymakers should support a diversity of beneficiaries through modernization and mass customization versus product or benefit standardization.

Indiscriminate, across-the-board program cuts would harm the millions of elderly and poor beneficiaries enrolled in MA. Policymakers should undertake a “measure twice, cut once” ethos, internalizing consumer protection as a core principle. Creative, contemporary policy solutions that preserve the strengths and minimize the weaknesses of the MA program should be coupled with simultaneous improvements to FFS Medicare, as the two programs are inextricably linked. While MA is imperfect, population-based payment provides the flexibility to meet the varying needs of America’s increasingly diverse population while creating a long-term framework for continuing the transition from volume to value.

Authors' Note

We would like to acknowledge the years of hard work on implementing and improving the Medicare Advantage and Part D Prescription drug programs by Jeffrey Kelman, MD, MMSc, the former Chief Medical Officer of CMS whose curiosity and skepticism inspired us all.

Kenny Kan is Chief Actuary of Horizon BCBS, which operates MA plans. The views expressed are the authors’ own and not necessarily those of their employers or affiliations.

Senate Finance Committee Chair Ron Wyden, D-Ore., and Ranking Member Mike Crapo, R-Idaho, released a white paper May 17 outlining policy concepts regarding pay reform for Medicare physicians. The paper highlights areas that could undergo reform, including: creating sustainable payment updates to ensure clinicians can own and operate their practices; incentivizing alternative payment models that reward better care provided at a lower cost; how Medicare measures quality care; improving primary care; supporting chronic care benefits in Medicare fee-for-service; and ensuring continued telehealth access.

Click here to view the white paper: https://www.finance.senate.gov/imo/media/doc/051723_phys_payment_cc_white_paper.pdf

Medicare Advantage is the dominant form of Medicare, and questions loom for payers, providers and policymakers alike in the year ahead.

Enrollment in the program has doubled in the last 10 years, and over half of Medicare beneficiaries are enrolled in an MA plan in 2024. At the same time, a number of headwinds are converging on MA this year.

The public-private partnership is a major income generator for insurers, but as CMS tightens reimbursements, and audits and medical costs rise, it may not be the cash cow it once was. On top of this, many hospitals are fed up with Medicare Advantage. Several hospital executives have spoken out against delayed and denied payments from Medicare Advantage insurers, and some have even gone as far as to tell their patients to avoid the plans altogether.

Still, the program is as popular as it's ever been among beneficiaries. How the future shapes up for Medicare Advantage — and Medicare as a whole — depends on how providers, insurers and lawmakers act on key issues facing the program.

Here are 10 key questions for the future of Medicare Advantage:

1. How long will hospitals put up with denied payments?

A growing chorus of hospital leaders have criticized Medicare Advantage plans, often citing problems with denied care and delayed payments.

In September 2023, San Diego-based Scripps Health dropped all Medicare Advantage contracts, a move affecting 30,000 older adults. Scripps is one of the largest health systems to stop doing business with MA entirely.

"It's become a game of delay, deny and not pay,'' Scripps Health CEO Chris Van Gorder previously told Becker's. "Providers are going to have to get out of full-risk capitation because it just doesn't work — we're the bottom of the food chain, and the food chain is not being fed."

In the second half of 2023, at least 15 hospitals and health systems moved to drop some or all Medicare Advantage plans. Though a small portion of hospitals are done with MA altogether, many others are raising complaints, saying payment delays and denials from the plans are getting worse.

A survey published in April by the Healthcare Financial Management Association and Eliciting Insights found 62% of hospitals CFOs surveyed said collecting payments from MA plans is "significantly more difficult" than it was 2 years ago.

2. What other options do hospitals have?

While a few hospitals are dropping the program, Medicare Advantage enrollees now account for more than half of Medicare beneficiaries — meaning it's not feasible for most hospitals to cut ties with MA completely. Rates of Medicare Advantage enrollment vary widely by county and state, but for many hospitals, going out-of-network with all MA plans would mean losing a significant portion of patients.

Bristol (Conn.) Health CEO Kurt Barwis said delayed payments from Medicare Advantage plans were a major factor behind the system's workforce reduction. In March, Bristol Health announced it would cut 60 positions across departments, 21 of which were occupied. Over 60% of the system's Medicare patients are enrolled in MA, Mr. Barwis told Becker's, making it clear that dropping MA plans is not on the table.

"The reason it's not an option is I have an older community, and they need care," Mr. Barwis said. "If you look at the rules, and the disruption it would cause in the community, I'm not sure I can face the community if I was to use that as one of my approaches."

Hospitals have tried other approaches to address their Medicare Advantage pain points without cutting ties with plans completely. Some have opted to pare down the number of insurers they contract with to the ones that best align with their financial goals.

Will Bryant, CFO of Chapel Hill, N.C.-based UNC Health told Becker's the system will pick a few Medicare Advantage payers to work with moving forward, prioritizing "the partners who act like partners" and do not "deny care in order to bolster their billions of dollars of quarterly earnings." He said he expects many other health systems to do the same.

Some hospitals are opting to create their own Medicare Advantage plans. Morgantown, W.Va.-based WVU Medicine is a majority owner of Peak Advantage, a health plan that launched in 2021 with two other West Virginia health systems as co-owners and expanded into Medicare Advantage at the start of 2024.

WVU Medicine launched Peak Medicine in 2021, and began offering plans to its employees in 2023. It expanded to Medicare Advantage at the beginning of 2024.

Albert Wright Jr., president and CEO of West Virginia University Health System, told Becker's that ownership of the plan has resulted in a "true mindset change" for the organization.

"You start to think about everything you do as both the payer, provider," Mr. Wright said.

Peak Health should feel like the easiest Medicare Advantage plan for WVU physicians to work with, Mr. Wright said. The system has not dropped any external Medicare Advantage plans, but may pare back the number of plans it works with over time.

"We probably want to work with three or four that we have good, agreed-upon relationships with," Mr. Wright said.

3. What is the future of prior authorization?

As complaints about delayed and denied Medicare Advantage payments intensify, CMS has taken action on prior authorization.

In 2021, more than 35 million prior authorization requests were submitted on behalf of MA enrollees, according to KFF. Rates of prior authorization requests vary widely between insurers, from 2.9 requests per enrollees in Anthem plans, to 0.8 requests per enrollees in Kaiser Permanente plans. On average, 11% of prior authorization requests were denied by MA plans in 2023.

New regulations took effect at the start of 2024, clarifying MA plans must follow coverage guidelines set by traditional Medicare. If there are not clear guidelines for services covered by traditional Medicare, MA plans can develop their own internal guidelines, based on widely used clinical guidelines, that must be publicly accessible. The rule also prevents plans from imposing any prior authorization requirements in the first 90 days a member is enrolled.

In alignment with these regulations, CMS took further action in February and issued guidance to Medicare Advantage plans around the use of AI and prior authorization. MA plans can use algorithms to support coverage decisions, but any algorithm or AI-based tool must be compliant with the agency's coverage decision requirements. Algorithms can be used only to help predict length of stay for post-acute services and not as the basis for terminating coverage, CMS said.

The guidance follows controversy and questions about the adoption of AI in health insurance decision-making. In 2023, three major insurers — UnitedHealthcare, Humana and Cigna — faced lawsuits alleging they used AI or automated algorithms to wrongfully deny members care. At the time of this article's publication, the lawsuits are ongoing. Some lawmakers have expressed concern CMS's guidance around AI does not go far enough.

Even after enactment of the new prior authorization regulations at the start of 2024, hospitals have asked CMS to do more with health insurers that make it less cumbersome to collect payment for services. In March, over 100 hospitals and health systems signed onto a letter asking the agency to do more on Medicare Advantage denials. The providers requested CMS collect more data on claims denied by Medicare Advantage plans and take enforcement action against plans not following the coverage rules set out by Medicare. The systems also asked CMS to bar MA plans from delaying or denying claims approved through electronic prior authorization.

4. How will the two-midnight rule shake up hospitals' relationship with MA?

New regulations took effect at the beginning of 2024 that could increase the reimbursement hospitals receive from MA plans, but present challenges for how hospitals document inpatient care.

The rule specifies plans must provide coverage for an inpatient admission when the admitting physician expects the patient to require hospital care for at least two midnights. The rule means hospitals need to up their documentation of patient stays, Ronald Hirsch, MD, vice president of regulations and education group at R1 Physician Advisory Services, told Becker's in June.

"MA plans are theoretically going to have to pay for a lot more inpatient admissions, so they're going to audit a lot more," Dr. Hirsch said.

On an April 26 call with investors, HCA Healthcare CFO Bill Rutherford said the rule seems to be having a "moderate benefit" on the health system's inpatient volume. Other hospital executives have said the rule has had little effect on inpatient volumes or revenue.

5. Has MA lost its luster for insurers?

While hospitals' frustrations with MA grow, insurers are facing another set of challenges in the program, which no longer promises the same level of profitability it once did for for-profit insurers.

In January, Moody's analysts wrote that the program "seems to be losing some of its luster." According to Moody's, earnings in Medicare Advantage shrunk by 2.1% from 2019 to 2022, despite premiums and membership growing by 40% in the same time period.

In the second half of 2023 and early months of 2024, insurers warned of rapidly rising costs among the Medicare Advantage population, driven in part by pent-up demand from the COVID-19 pandemic. Humana, the second-largest Medicare Advantage insurer, reported a $541 million loss in the fourth quarter of 2023, driven by what executives called unprecedented increases in medical costs.

With headwinds in the Medicare Advantage market, Moody's noted Elevance Health and Cigna, which have a smaller portion of their business in Medicare Advantage, are becoming more attractive to investors. Cigna finalized a deal to sell its Medicare Advantage business to Health Care Service Corp. for $3.3 billion in January.

In May, CVS Health executives said they expected the MA business to lose money in 2024, and braced for a decline in members in 2025. Still, the company remains bullish on the long-term outlook for MA.

"The current environment does not diminish our opportunities, our enthusiasm, or the long-term earnings power of our company," CVS Health CEO Karen Lynch said in May. "We are confident that we have a pathway to address our near-term Medicare Advantage challenges."

6. Will MA benefits be cut back?

Though some challenges around costs appeared to abate in the early months of 2024, insurers are also facing a tougher rate environment from CMS. In April, the agency finalized rules that would trim benchmark payments.

Benchmark payments are the amounts CMS pays MA plans per beneficiary. In addition to the cut, the agency is phasing-in risk-adjustment coding changes from 2024 to 2026. Insurers have argued the changes amount to a cut in payments for Medicare Advantage.

In response to the government's rate changes, many major Medicare Advantage insurers have indicated they will cut supplemental benefits, increase premiums for Medicare Advantage beneficiaries, or pull back from certain markets to account for the tougher funding environment. Humana executives said in an April 24 call with investors that it is eyeing exiting certain markets in response to the CMS rates, for example.

Scott Ellsworth, founder and president at Ellsworth Consulting, told Becker's that 2024 marks a turning point, in that older adults have seen benefits in MA get better every year until now.

"Now we're at an inflection point and the free lunch is over," he said. "There is going to be a sharing of the pain. Providers have disproportionately shared the pain, and now you're seeing many of them say, 'Enough is enough, we're out.'"

7. Are supplemental benefits working?

Virtually all Medicare Advantage plans offer hearing, vision and dental benefits — coverage not included in traditional Medicare, according to KFF. Many also offer over-the-counter drug benefits, meal support and reduced cost-sharing compared to traditional Medicare plans.

While the offering of such benefits are widespread, utilization of them is less clear. CMS lacks data on how often supplemental benefits are used in the program, according to a 2023 report from the Government Accountability Office. In January, CMS issued a request for comments on improving transparency in the program, including greater data collection on supplemental benefit use.

Supplemental benefits are one draw for beneficiaries to join MA. Medicare Advantage may also cost less than other coverage options. Given that nearly all traditional Medicare beneficiaries rely on supplemental coverage to address out-of-pocket expenses not covered by the traditional Medicare program, the appeal of MA's supplemental benefits and cost-effectiveness becomes increasingly apparent.

One proposed solution to problems plaguing Medicare Advantage is to make traditional Medicare benefits on par with MA, Don Berwick, MD, who served as CMS administrator during the Obama administration and is a current health policy lecturer at Harvard Medical School in Boston, told Becker's.

The idea has gained and lost steam in Congress. Bipartisan legislation to add dental, vision and hearing benefits to original Medicare coverage was introduced in 2023, but stalled.

"It should be cost neutral to beneficiaries as to which they choose," Dr. Berwick said. "The money needed to improve traditional Medicare would be readily accessible by clawing back the excess subsidies that have accumulated for Medicare Advantage."

8. Can CMS curb overpayments?

The government spends more on Medicare Advantage beneficiaries than comparable enrollees in fee-for-service Medicare, according to the Medicare Payment and Advisory Commission.

Two factors account for this disparity, according to MedPAC, which advises the U.S. government on Medicare. The first is favorable selection. Medicare beneficiaries who use fewer healthcare services tend to self-select into MA plans. The second factor driving disparities is coding intensity. Medicare Advantage plans are paid based on beneficiaries' risk, so plans are incentivized to document more diagnoses in patients' records.

In 2024, the federal government will spend $83 billion more on Medicare Advantage beneficiaries than if they were enrolled in fee-for-service Medicare, according to MedPAC. The commission also estimated MA will increase Medicare premium costs by $13 billion in 2024.

Insurers decried MedPAC's estimate, which industry groups said did not account for differences between the fee-for-service and Medicare Advantage population. Mike Tuffin, CEO of industry group AHIP, said the estimates are based on "speculative assumptions" and "overlook basic facts about who Medicare Advantage serves and the value the program provides."

MedPAC also estimates that coding intensity will be 20% higher in Medicare Advantage than in fee-for-service in 2024.

An October 2022 report from The New York Times found nearly every major insurer has been accused of fraud by a whistleblower or by the federal government.

In addition to higher coding intensity, the federal government has investigated several payers for intentional upcoding — making patients appear sicker than they are on paper to receive more reimbursement from the government.

In October 2023, Cigna agreed to pay $172.3 million to resolve allegations it violated the False Claims Act by submitting incorrect Medicare Advantage patient data to CMS to receive higher reimbursements.

Other insurers, including UnitedHealthcare and Elevance Health have faced similar allegations.

CMS is also toughening its audits of overpayments. In January 2023, the agency finalized a rule that will allow it to recoup more dollars from Medicare Advantage plans through audits. CMS estimates it could collect $650 million in clawbacks in the first three years the rule is in effect and $400 million each year after. The rule is being challenged in court.

9. Does MA deliver better outcomes?

Medicare Advantage has yet to deliver on yield savings for the government, and evidence is inconclusive as to whether the program is tied to superior outcomes and care.

Medicare Advantage and traditional Medicare are mostly the same when it comes to outcomes, according to a 2022 literature review from KFF. Neither program consistently outperformed the other on quality outcomes across 62 studies reviewed.

MA enrollees were more likely to report having a usual source of care and receive preventive wellness services. Traditional Medicare enrollees with supplemental coverage were the least likely to report cost-related problems, according to KFF, but traditional Medicare enrollees with no supplemental coverage were most likely to report an issue affording care.

Medicare Advantage beneficiaries may spend less overall on their healthcare costs than their counterparts in traditional Medicare. Fee-for-service Medicare members spend about 7% more on average for healthcare compared to Medicare Advantage members, according to a 2023 study published by AHIP.

10. What's the future of traditional Medicare?

Despite the challenges, Medicare Advantage is set to keep growing.

The Medicare Advantage program has ballooned from 14 million enrollees in 2013 to 31 million in 2023. Continued growth of the program is expected, according to estimates from KFF. Six in 10 Medicare beneficiaries are expected to be enrolled in an MA plan by 2030.

Medicare Advantage and traditional Medicare beneficiaries generally express high-levels of satisfaction with their care, with few major differences between the programs, according to KFF.

If Medicare Advantage keeps growing, and beneficiaries remain satisfied with their coverage, what's the future outlook for traditional Medicare?

CMS Administrator Chiquita Brooks-LaSure said it's "critical" that beneficiaries continue to have a choice between traditional Medicare and Medicare Advantage.

Michael Chernew, PhD, chair of the Medicare Payment Advisory Commission, said although MA was not designed to be the dominant form of Medicare, its growth reflects the value beneficiaries are getting from the program.

"That said, I think the trajectory of growing enrollment we're on is unstable, for a bunch of reasons that are sometimes mathematical, just the way that the benchmarks are set," Dr. Chernew said in January.

MedPAC has proposed several policy items the commission says will slow spending in Medicare Advantage, including overhauling the way CMS calculates its payments to MA plans to make them closer to fee-for-service rates.

One possibility is that, at this rate of enrollment, traditional Medicare could "be atrophied significantly," in the years ahead, Dr. Berwick told Becker's. In this scenario, only the patients most undesirable to MA insurers could be enrolled in traditional Medicare.

"The benchmarks for Medicare Advantage are basically based on the expense pattern of traditional Medicare, so the whole financing calculation system is put in jeopardy by the dominance of Medicare Advantage," he said. "I would like to see Medicare Advantage slowed or stopped right now, or at least forced to have better carriers."

Medicare Advantage patients might be in for a rude awakening as CVS plans to get rid of 10 percent of its plans.

CVS Health made the decision to cut the Aetna health insurance plans in an effort to prioritize profit margins, company leaders revealed this week.

"The goal next year is margin over membership," CFO Thomas Cowhey said. "Could we lose up to 10% of our existing Medicare members? It's entirely possible. And that's okay, because we need to get this business back on track."

After releasing the company's first-quarter earnings, CVS was $900 million below its health care benefit predictions on medical costs, with $400 million lost due to heavy outpatient service utilization.

Currently, CVS is the third largest Medicare Advantage insurer in the country, with the company saying it had 4.2 million enrollees as of April. If 10 percent of its current plans are exited, that would leave 420,000 beneficiaries needing to switch to a different plan or go without coverage.

"With rising medical costs outpacing government reimbursement increases, CVS is prioritizing profit margins over membership growth for its Medicare Advantage plans. However, this strategy could impact benefits and plan availability for many retirees," Michael Ryan, a finance expert and founder of michaelryanmoney.com, told Newsweek.

Earlier this year, the Biden administration said it would be cutting next year's payments to Medicare Advantage plans by 0.16 percent, adding onto the financial pressure CVS and other insurers are feeling at the national level.

Ryan said the decision to cut plans is logical as medical costs keep climbing and seniors seek out more care than years previous as more Baby Boomers retire. At the same time, 2025 Medicare Advantage payment rates do not look like they will cover the increasing expenses.

"CVS has bluntly said the new rates are insufficient 'to cover overall cost trends,'" Ryan said. "So they're taking steps to recover profit margins, targeting a 4-5 percent margin for their Medicare plans by 2025."

Insurers often first target supplemental benefits like fitness memberships and over-the-counter medication allowances, so CVS is likely to look at those first. However, some counties might be axed altogether if they can't be profitable, Ryan said.

"And we can't rule out premium increases to make the numbers work," he said.

Still, if CVS wants to be sustainable in the long run, it will need to still be able to retain and attract new members.

"I don't think CVS wants to gut their Medicare Advantage plans to the point of being uncompetitive," Ryan said. "They're banking on efforts to better capture members' health conditions and boost risk-adjusted reimbursement rates down the line. Insurers have to continually re-evaluate and rebalance their models as medical inflation, regulations, and reimbursement rates shift."