Between 2019 and 2022, average margins for Medicare Advantage (MA) plans decreased from 4.9% to 3.4%, largely driven by increases in utilization rates after the COVID-19 public health emergency.1 While persistently high utilization continues, recent CMS policy changes will further stress plan profitability in 2024 and 2025. In calendar year (CY) 2024, CMS began phasing in a new risk adjustment model and clarified how Medicare fee-for-service (FFS) policies like the Two-Midnight rule should apply to services provided to MA members. In CY 2025, the agency finalized a payment update that plans believe is insufficient relative to anticipated costs for the coming year.2,3
Health insurers are pursuing a variety of actions to improve margins in their MA business line. These include strategically exiting unprofitable counties, paring member benefits, negotiating lower provider rates, and increasing use of prior authorization and other revenue cycle tactics that decrease the effective yield of negotiated rates to providers. Plans will use strategic market exits and benefit paring judiciously given the negative impact on enrollment numbers.
The increased use of revenue cycle tactics will likely be broadly applied by MA plans. Thus far, a small but increasing number of providers have left MA plan networks due to revenue cycle and payment issues,4 but this does not appear to have impacted network adequacy for the plans involved. Further, while CMS and Congress are increasing scrutiny of MA plans, this has not discouraged claims processing practices that delay, deny, or decrease the effective yield of payments to provider organizations.
Healthcare providers can ill afford this. Fitch’s 2024 median operating margin for not-for-profit hospitals is projected to be 1.5%.5 This is well below pre-pandemic norms, leading some ratings agency analysts to question whether this is the new normal. Given that MA beneficiaries account for over half of all Medicare discharges,6 even this depressed level of financial performance may be difficult to achieve for healthcare organizations that are unable to effectively respond to MA claims processing tactics.
How to Respond: Revenue Cycle “Blocking & Tackling” Is Key
To defend and improve margins, healthcare providers must have strong controls in place and continually look for revenue cycle management performance improvement opportunities that address MA claims processing tactics that deny payment or decrease the effective yield. Successfully doing this requires providers to focus diligently on key “blocking and tackling” revenue cycle activities. Supporting these activities, CMS has recently provided guidance clarifying provisions of the 2024 MA final rule and created a centralized provider complaint process.
Provider organizations that realize higher yields from negotiated rates tend to manage performance from a foundation consisting of three “blocking and tackling” activities:
Maintain a Payor Scorecard: Without granular data on each plan’s performance, it is challenging to know where to focus performance improvement activities. Strategic provider organizations use a payor scorecard to identify the reasons why net revenue collected from “problem plans” is less than the anticipated contracted amount. This data then allows for more detailed root cause analysis of the problems to devise remedies.
Metrics typically tracked on payor scorecards include first-pass payment, average days to payment, initial denial rates, appeal success rates, and an indication of how frequently the MA plan is following Medicare FFS rules as required. As discussed below, CMS has recently issued frequently asked questions (FAQs) and updated its complaint process to improve MA plan compliance with the FFS rules.
Know Your Contracts: Hospitals that understand their contracts with MA plans have more leverage to help ensure the plans adhere to the contracts’ requirements. While having access to the contract for a detailed review is important, many successful organizations also create a payor matrix that provides a “cheat sheet” of key details that revenue cycle staff can use to quickly identify when a plan is not adhering to the contract. Typical items included in the matrix are covered services, negotiated reimbursement amounts and carve-outs, services requiring prior authorization, and appeal rights, time frames, and processes.
Meet With Plans Regularly: The payor scorecard data coupled with a detailed understanding of the contracts can help providers identify where there are issues with MA plans. Having a monthly standing call with each plan’s provider representative allows organizational leaders to discuss and resolve these issues in a timely manner. Beyond resolving immediate issues, these discussions can identify language in the contract that needs to be clarified during renegotiation.
In larger organizations, these conversations typically include the managed care function, revenue cycle (integrity), finance, and the plan’s provider representative. Therefore, it is important for the revenue cycle and contract management functions to have a strong working relationship and communications process.
It is also crucial that these conversations occur in smaller organizations. This is a significant time commitment for the individual who negotiates and handles managed care contracts—typically the CFO or CEO. However, the potential increase in revenue resulting from a strong contract compliance and payment variance and management process makes this a worthwhile investment of time.
Leverage CMS Tools to Improve MA Plan Accountability
CMS is increasingly aware of provider concerns about some MA plans’ efforts to delay or deny claims payment. In response to these concerns, CMS issued FAQs providing additional detail on the provisions of the CY 2024 MA rule that clarified the requirement for plans to follow the Medicare FFS payment and coverage criteria. CMS also created a revised provider complaint process that allows the agency to better track and follow up on issues. Provider organizations should incorporate both documents into their MA revenue cycle processes and managed care workflows.
- Use the FAQs: On February 6, 2024, CMS issued responses to 14 FAQs related to coverage criteria and utilization management requirements finalized in the CY 2024 MA rule. Among other things, these FAQs further clarify requirements related to how plans apply the Two-Midnight criteria, use algorithms to deny admissions, and determine if an individual is eligible for post-acute care, as well as when plans may use internal coverage criteria when making medical necessity determinations for basic benefits. Provider organizations have used these FAQs to successfully support appeals of inappropriate payment denials or downgrades. In some instances, organizations have proactively attached a copy of the FAQs to claims that include items plans frequently contest inappropriately. The American Hospital Association (AHA) made the FAQs available to its members on February 7 in a member alert.
- Revised Provider Complaint Process: CMS recently created a new form and process for providers to file complaints against MA plans related to claims issues. The agency intends for the new process to encourage MA plans to address disputes with providers in a timely manner. Additional details on the complaint process are available here.
Revenue Cycle Improvement Requires Focus & Consistency
Despite CMS’ recent scrutiny, many MA plans will increase the use of revenue cycle tactics that delay and deny payment to manage ongoing margin pressure. In response, provider organizations need to focus diligently on the revenue cycle “blocking and tackling” activities, e.g., maintain a payor scorecard, understand contracts, hold standing calls with plan representatives to address issues, that will help them address claims denials and payment delays in a timely manner. If you have questions or need assistance improving MA contract performance, please reach out to a professional at Forvis Mazars.
- 1“Medicare Advantage Profitability is Declining, Moody’s Says,” healthcaredrive.com, January 30, 2024.
- 2“Biden Administration Finalizes Modest Cut to 2025 Medicare Advantage Rates,” healthcaredive.com, April 2, 2024.
- 3“RE: Advance Notice of Methodological Changes for Calendar Year (CY) 2025 for Medicare Advantage Capitation Rates and Part C and Part D Payment Policies,” ahip.org, March 1, 2024.
- 4“23 Health Systems Dropping Medicare Advantage Plans | 2024,” beckershospitalreview.com, September 5, 2024.
- 5“The Financial State of the Not-for-Profit Hospital Sector: Key Takeaways From the Latest Medians,” hfma.org, August 22, 2024.
- 6“Medicare Advantage in 2024: Enrollment Update and Key Trends,” kff.org, August 8, 2024.