Medicare Advantage: Financial Viability and Healthcare System Challenges

Medicare Advantage, now covering over 35 million beneficiaries, is pushing health systems to reassess its financial viability. In recent years, approximately 90 hospitals and health systems have ended some or all Medicare Advantage contracts. By 2026, at least 15 systems have severed ties with one or more plans, causing around 2.9 million enrollees to change plans as these offerings exit the market, according to a JAMA study.

Scripps Health in San Diego withdrew from most Medicare Advantage contracts as of January 1, 2024, impacting around 32,000 beneficiaries. Facing annual losses of $75 million, Scripps reported improved financial outcomes post-exit, with no quarterly losses and potential ratings upgrades. Outpatient use declined slightly, but inpatient numbers remained stable as many patients switched back to traditional Medicare with supplemental plans.

This strategic move by Scripps suggests that the feared significant patient volume loss might be less severe for healthcare systems with robust market positions. Yet, average hospitals lacking market leverage may not find this approach feasible. Health industry executives view maintaining loss-inducing contracts as unsustainable, predicting more systems may exit these programs.

Experts highlight the low-profit margin associated with Medicare Advantage as a core issue. Unlike diversified insurers, most health systems cannot afford to maintain slim margins tied to Medicare Advantage. The substantial upfront infrastructure investment often hinders the shift away from these plans due to concerns over patient volume loss.

Providence Health has advocated renegotiating Medicare Advantage terms. It recently went out of network with UnitedHealthcare's MA in California, citing reimbursement and administrative concerns. CEO Erik Wexler called for federal reforms to enhance system performance and patient access.

The Mayo Clinic exercises strategic contracting with Medicare Advantage plans to sustain network involvement, notably adjusting agreements with major providers like Humana and UnitedHealthcare. This selective contracting method aims to manage network affiliations without compromising patient care continuity.

Similarly, Ascension is reevaluating its Medicare Advantage partnerships amidst administrative challenges and claim rejections. CEO Eduardo Conrado stressed the need for renegotiation to align program objectives more closely with intended outcomes, emphasizing timely payments and reduced administrative burdens.

These dynamics in Medicare Advantage adjustments hold significant implications for patient care. While traditional Medicare offers an alternative, transitioning can be complex. Seniors seeking Medigap coverage might face premium hikes or denial, particularly those with chronic conditions, adding risk in times when stable healthcare access is essential.

Even with its growth, Medicare Advantage presents financial challenges for health systems amid rising operational costs and reimbursement pressures. As these trends persist, the viability of remaining with the program under current terms is under scrutiny. Healthcare systems are reevaluating long-term strategies, with potential reforms possibly reshaping provider engagement with Medicare Advantage, impacting patient access and system sustainability.