Hospitals could face revenue hit if insurers play hardball over MA: report

Dive Brief:

• Hospitals could face increased revenue risks due to increasing enrollment in Medicare Advantage, according to a report released Tuesday by credit agency Moody’s Ratings.

• Insurers could negotiate more aggressive rates, increase claims denials and delay care authorization in the face of declining MA plan profitability. Consolidation in the MA market is expected to intensify the impact, as hospitals may have fewer options for contracts, Moody’s said.

• However, new rules from the CMS could mitigate some of the challenges posed by MA growth, according to the report.

Dive Insight:

MA plans have grown increasingly popular in recent years as seniors have been drawn to insurers’ supplemental benefits plans, like in-home support services. Under the program, the federal government contracts private insurers to manage seniors’ healthcare.

Nationwide, half of eligible Medicare beneficiaries were enrolled in MA plans as of last year. Enrollment is expected to increase to about 60% of all Medicare beneficiaries by 2030, as the last baby boomers reach retirement age, according to Moody’s. 

MA plans have historically provided value for hospitals. Moody’s found a 53% increase in median nonprofit gross revenue associated with MA from 2018 to 2022. 

However, that trend may be at risk, as insurers see a decline in profitability from the plans. Insurers may play hardball with hospitals to recoup their losses, according to the report. 

Insurers are becoming more aggressive because MA plans have become less profitable, Moody’s said. Insurers’ earnings per MA member dropped approximately 28% between 2019 and 2022, according to a Moody’s analysis. Insurers have said on recent earnings calls that higher medical utilization in MA has hurt their bottom lines. 

Hospitals could experience “revenue leakage” as insurers try to offset lower MA earnings. Insurers could delay or deny prior-authorization for treatment, delay approving post-acute care and change reimbursement contracts with hospitals, Moody’s said.

Between January 2022 and July 2023, MA denials increased by 55.7%, compared with a 20.2% jump in commercial insurance denials, according to a November report from the American Hospital Association and software company Syntellis. Denials exposed hospitals to greater levels of bad debt because patients were typically burdened with higher out of pocket expenses, Moody’s said.

Lower profitability has also caused some smaller MA players, including Cigna, to exit the market. Larger insurers could dominate the market and become “more aggressive” when negotiating MA and commercial rates, according to the report. Hospitals could have fewer options to shop around for contracts, especially in markets dominated by one or two insurers. 

Some hospitals have already begun terminating MA contracts. Pennsylvania-based WellSpan Health and North Carolina-based WakeMed severed ties with Humana, while Ohio-based Genesis Healthcare System went out of network with Elevance and Humana, according to the report.

CMS rules that seek to bring MA requirements in line with traditional Medicare could alleviate some risks to revenue, according to the report. The rules require insurers to cover an inpatient admission if the patient is expected to need hospital care for at least two midnights. 

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