Consulting firm Alvarez & Marsal has published a report based on a survey of 30 health system senior executives that paints a picture of how health systems are redesigning their Medicare Advantage (MA) strategies in the face of declining reimbursement, rising utilization, escalating denials, and increasing administrative friction. Travis Sherman, senior director with Alvarez & Marsal’s Health Industry Group, recently spoke with Healthcare Innovation about the MA Pulse Survey results.

Sherman specializes in strategy, value-based care and the success of entities operating under risk/value-based care reimbursement models. Before joining Alvarez & Marsal, Sherman was a director in the commercial healthcare consulting practice at Guidehouse Inc. There he led the firm’s PayVider solutions, focusing on the planning, implementation and optimization of risk entities, including ACO, CINs, MSOs, payer-provider joint ventures and alliances, provider-sponsored health plans and investor-financed clinical solutions.

Healthcare Innovation: Your new report, based on the survey with 30 senior execs, found them at an inflection point in terms of how they think about Medicare Advantage, with them saying that it now erodes stability, rather than being a lever for growth. Is that something that's been happening gradually or is it a fairly new phenomenon? 

Sherman: It’s certainly been a gradual change, and our observations as an advisory practice is what led us to conduct the survey. I think if you go back to the early days of the Medicare Advantage program, the typical way that a health system approached it was they saw it as a great thing for their organization. As seniors would age into Medicare, it was a way for them to gain access to these populations, maybe participate in some upside value-based care incentives, and maybe even get an edge over their competitors just because they have more insurance networks.

What we've seen happen in recent years is that financial pressure on the Medicare Advantage program has led to increased managed care activity, which has ultimately eroded the yields and the margins that health systems are seeing through their participation, thus resulting in this inflection point and this future discipline that we speak about in the paper.

HCI: Are the challenges different in different regions of the country, like urban vs. rural? I think I remember reading that there are no Medicare Advantage plans available in Vermont this year, for instance. 

Sherman: One of the changes that's occurred in the past couple of years has been the health plans themselves carving back some of their product offerings in terms of where they offer insurance. Can the health plan offer the product in that region successfully, and are providers in that region willing to take the insurance? While I can't speak specifically to numbers, we certainly have observed some carve-back in rural communities.

HCI: Your paper starts by identifying five structural pressures reshaping MA participation. Could we just walk through those briefly? For instance, pressure on reimbursement might be the top one.

Sherman: Yes, that’s right. Of the 30 organizations we surveyed, a significant number were anticipating financial strain from their participation in MA this year, and there were five main elements that contribute to that strain. The first is declining reimbursement. Six in 10 organizations said they were planning to be paid less than they expect in the Medicare Advantage program.

The second is operational strain and denials. 74% were expecting It to be harder to get paid, and 52% were expecting to have more of the care that they deliver to patients being denied by the insurers.

Next is growing patient financial pressure. Just over a third expected to see more patients taking on bad debt because they needed to collect more at the point of care.

The last trend is unfavorable utilization. For providers that are in value-based care risk based reimbursement models, they were expecting higher utilization in the program to also erode their margins. 

Health systems also participate in the traditional Medicare program, and when you when you're in traditional Medicare, you get paid 100% of the Medicare Fee Schedule. Most Medicare Advantage plans also pay 100% of the Medicare fee schedule, but because of increased denials and increased scrutiny on coding and increased delays in payment, what this report is saying is that six in 10 organizations are expecting much lower yields than that 100% of Medicare. So I may expect 100% but I get something far less. 

HCI: We frequently see regional reporting about breakdowns in negotiations between MA plans and health systems and all of a sudden the patients in those plans are now out of network at the major health system in their region, and this seems like a lose-lose for everyone involved, but it seems to be happening with increasing frequency. Are there ways that the health systems can move from being reactive in these situations to
being more intentional about the process? 

Sherman: I think given the many financial headwinds that health systems are experiencing, we're seeing an increased willingness to look at their payer relationships as a portfolio and say where is this relationship successful in creating financial gain for our organization as well as easy for our patients to work with us? 

On the other end of the spectrum, where are our relationships with payers eroding our balance sheets, requiring us to invest our capital and also making care a lot harder for our patients? So to that end, organizations are saying, what can we do differently to improve finances and patient relationships? I think that's what leads to organizations increasingly narrowing their participation with health plans and saying we want to move care to the payers that are treating us best, as well as treating their patients and members best. I think they're making efforts to negotiate fair and equitable deal terms. We're also seeing them take effort to align incentives through value-based care. So if the health plan gets a pay bump for doing quality well, we want the same pay bump because at the end of the day, it's providers delivering the care.

HCI: One thing the report mentions is right-sizing value-based care participation and scaling back unfavorable risk. So could this cool the participation in value-based care models overall?

Sherman: What we're seeing in the market, as well as what the survey told us, is that on one hand you're seeing organizations rationalize their participation in value-based care. On the other hand, organizations are also increasing it. Organizations are carving back participation where it's not favorable, and then they're doubling down on participation with a couple of strategic partners that strike the best deal with them.

HCI: One of the points that came up in the survey was establishing revenue cycle resiliency. For instance, 70% said they were investing in infrastructure to reduce denials, and 60% said they were investing to improve coding accuracy. So are we seeing a real automation focus in revenue cycle to address MA concerns?

Sherman: We are. There's been increased managed care activity in Medicare Advantage around denials and coding. I think that's invited two things to happen. One is health systems building the tools and creating the tools to better get the care they deliver approved, as well as to code more accurately the first time. It's also invited tremendous growth in the industry around technology that can help providers and payers do it for less money.

We're expecting good dividends and benefit for payers and providers alike, just by automating some of these processes. 

HCI: Well, could that apply to prior authorization, too? Are there regulatory changes or automation changes that could help the health systems with the prior authorization challenges they face now?

Sherman: The most immediate thing that's happening is that Medicare Advantage plans are being required to publish prior authorization rates, which from a transparency standpoint is going to be very powerful.

HCI: Are some health systems developing their own Medicare Advantage plans in response to these issues?

Sherman: if we step back, we should remember that all health systems have started from a very different place in Medicare Advantage. As you go back to the early roots in the program, a lot of organizations got in and started insurance companies. Given the most recent trends and the challenges, we're actually seeing  health systems maybe carving back their provider-sponsored health plans, and we've actually seen a number of closures in the past couple of years, as well as cutting or closing certain product lines at the same time. The survey did tell us that a number of organizations that have health plans that have scale behind them are the ones that are doubling down on their own insurance company as a way to mitigate working with larger insurers in their community. 

HCI: Your paper describes some phases of transformation in making this transition from reactive to proactive optimization around MA. Are there cultural issues that they have to address?

Sherman: Health systems are at varying levels of maturity in terms of thinking strategically about Medicare Advantage and how they're going to position in that market. But for every organization, we recommend starting with a diagnostic of their participation in the market, financial performance implications, and using that to level-set on what their options might be to improve financial performance and to better serve patients. It's what we'd call a rapid diagnostic cultural assessment, which really should result in a unifying plan for leadership to improve their position with Medicare Advantage plans. Phase two is focused on executing that plan, and phase three is focused on monitoring it and improving it.

HCI: Does their thinking about this issue also impact thinking about their size and whether they want to acquire more physician groups or think about mergers with other health systems?

Sherman: I recommend that doing this kind of diagnostic should be part and parcel of a health system’s strategic planning. Thinking about how you work with health plans should be completely interconnected with how you think about building your footprint and your services and your value proposition as a provider.