Stinting on care, paying less

Medicare Advantage insurers pay less than traditional Medicare. More providers are crying, "No mas."

I am starting to doubt the explosive growth in seniors opting for insurer-run Medicare Advantage plans will continue much longer. Many may quit to return to traditional fee-for-service Medicare during the enrollment season that ends on December 7th.

Last year, more than 31 million seniors signed up for privately-run Medicare Advantage (MA) plans, most of them attracted by their low- or no-monthly upfront premiums. More than half of Medicare beneficiaries are now enrolled in an MA plan.

But that surge could come to a screeching halt next year because of the growing number of hospital systems and affiliated physician practices that are refusing to sign contracts with MA insurers, which they accuse of paying less than traditional Medicare rates. The move means seniors in MA plans who continue to receive clinical care from facilities now deemed “out of network” will be dunned large co-pays.

The latest refusal came last month from Scripps Health, the largest health care provider in San Diego County. Scripps CEO Chris Van Gorder told MedPage Today that negotiations with MA payers broke down due to low reimbursement, frequent denials, and high administrative costs. “We have been forced to withdraw from those plans due to annual losses that exceeded $75 million,” he said.

The move left over 30,000 MA plan members in the county scrambling to find new providers. It’s either that or jump ship to rejoin traditional Medicare and purchase supplemental plans.

However, that switch back could be thwarted for anyone who has been in an MA plan for over a year and never had supplemental coverage. Insurers that sell traditional supplemental plans are allowed to deny coverage under those circumstances. (Such plans pay some or all of the co-pays and deductibles in traditional Medicare.)

Jumping off the MA train

Scripps is only the latest large provider refusing to play ball with MA insurers. Last year, the Mayo Clinic sent notices to its patients in Florida and Arizona that it was no longer in network with MA plans. They encouraged their patients to rejoin traditional Medicare with a supplemental plan.

Scripps Health flagship hospital in La Jolla (photo courtesy Scripps Health)

Smaller systems are also jumping off the MA train, including the Southeast Georgia Health System; Chillicothe, Ohio’s Adena Regional Medical Center; Corvallis, Oregon’s Samaritan Health and the Stillwater (Oklahoma) Medical Center. Two months ago, Louisville-based Baptist Health Medical Group refused to agree to terms dictated by Humana's Medicare Advantage plans. Humana is based in Louisville.

NBC News’ Gretchen Morgenson recently reported how small rural hospitals are being squeezed by MA plans, forcing some to contemplate going out of business. “They don’t want to reimburse for anything — deny, deny, deny,” said Kenneth Williams, the physician-CEO of Alliance HealthCare, which serves rural Holly Springs, Mississippi. The hospitals are forced to eat the cost of services their physicians deem critical but MA plans refuse to reimburse.

It’s not as if traditional Medicare rates are lucrative for hospitals and physician practices. The federal program pays on average about 40% of what employers with private insurance pay for the same service. The Medicare Payment Advisory Commission’s March report showed hospitals on average registered an 6.2% loss on their Medicare patients in 2021, and that was after the huge infusion of cash provided by the federal government during the Covid pandemic.

While CMS pays providers less than their cost of care, the agency pays MA insurers about 104% of what the average beneficiary costs the agency through traditional fee-for-service. (That percentage used to be higher.) A study that looked at what MA paid hospitals in its early days (2009 through 2012) found those rates were 5.6% below traditional fee-for-service Medicare payments, a number that rose to 8% less if the plan did not involve narrowed networks.

Those lower rates guarantee solid profit margins for MA insurers. For instance, Humana, which gets 83% of its revenue from MA, reported a 5% pre-tax profit margin in the first nine months this year. By contrast, Centene, which gets more than half of its revenue from Medicaid managed care and only 5% from MA, reported a margin that was 40% lower.

Stinting on care?

There is also growing concern about the methods MA insurers use to deny care. Prior authorization, where insurers can deny coverage for services they deem inappropriate or where they believe a cheaper alternative is available, has become a major irritant for physicians and hospitals, whose staffs must devote thousands of hours annually to justify their recommended courses of treatment.

Some prior authorization can be justified by the fact that there is a tremendous amount of waste in the system — unnecessary tests and procedures that line the pockets of providers, or are ordered as a defense against potential lawsuits for missed diagnoses. But there is growing concern that prior authorization is being used to simply deny care to patients in need.

Today, an eye-opening report (subscription required) by Stat reporters Casey Ross and Bob Herman detailed how the largest insurer in the country, UnitedHealth Group, uses a computer algorithm to cut off care for patients recovering from hospitalization in a skilled nursing facility. The algorithm uses medical records to predict how many days the average patient in recovery will need in a SNF. Former employees told the reporters “missing the target for patients under their watch meant exposing themselves to discipline, including possible termination, regardless of whether the additional days were justified under Medicare rules.”

The algorithm was developed by NaviHealth, which is now owned by UnitedHealth, but was a start-up launched by Tom Scully, the former head of CMS during the George W. Bush administration. Its operating officer is Pat Conway, who served at CMS during the Obama administration.

The story, which company officials denied, alleged executives at UnitedHealth “have sought to almost entirely subordinate clinical case managers’ judgment to the computer’s calculations. That has resulted in inflexible coverage decisions that legal experts say may violate longstanding case law and regulations that government Medicare benefits.”

The reporters based their allegations on interviews with at least three whistleblowers, two of whom asked to remain anonymous. But one, Amber Lynch, an occupational therapist and former NaviHealth case manager, said she was fired earlier this year for failing to meet performance goals set by the algorithm. “That is not why I went into health care,” she said. “I went into health care to help people, not to say, ‘Well, we’ve got all the money, see you later.’”

In a statement, UnitedHealth said, “The assertions that NaviHealth uses or incentivizes employees to use a tool to deny care are false. Adverse coverage decisions are made by medical directors and based on Medicare coverage criteria, not a tool or a performance goal tied to any single quality metric.”

Private insurers own their patients’ claims data. They do not provide CMS with complete encounter data for the Medicare beneficiaries who join MA plans, so it is virtually impossible to doublecheck the validity of their prior authorization decisions.

As we enter the age of artificial intelligence and algorithmic decision-making in health care, Medicare Advantage may become the proving ground for what insurers will do with that mountain of data. If what these reporters say about UnitedHealth is true, it doesn’t bode well for patient care.