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S&P Global Ratings warns that hospitals are most vulnerable to the financial pressure of Medicare Advantage as enrollment surges.
The Medicare Advantage (MA) program recently achieved a milestone covering over 50% of Medicare beneficiaries.
“We also see future risks to providers if at some point CMS addresses the MA program’s higher-than-expected spending,” S&P Global said in a new report.
Why it matters: Many hospitals’ operating margins are still recovering from the disruptions from the Covid pandemic. S&P Global believes hospitals are the most vulnerable healthcare subsector because Medicare is typically at least a third of their revenue. Any financial tightening by MA plans could further harm margins.
Financial pressures prompted Scripps Health, a major Southern California healthcare provider, to terminate contracts with MA plans effective Jan. 1, 2024.
Headwinds for Providers: Two main factors drive lower margins healthcare providers see from MA-covered patients.
- MA plans are incentivized to tightly control healthcare service utilization. Therefore, they often require preauthorization of care, and the denial rates are high.
- Many MA plans pay providers on a longer cycle than traditional Medicare. The extended payment window further exacerbates a higher claims denial rate, which often requires providers to refile claims.
By the numbers: A Healthcare Financial Management Association survey of health system CFOs found that 19% of systems stopped accepting at least one MA plan last year.
- Another 61% said they have plans to drop an MA plan or are considering dropping coverage.
- Medicare Advantage payment problems may be particularly challenging for rural hospitals, which are at higher risk of closing.
What we’re watching: S&P Global’s analysis highlights the growing friction between healthcare providers and MA plan insurers that could affect care.
As the Medicare Advantage program grows, hospitals’ headaches about it will likely persist.
