Medicare Advantage Rate Cut May Be Good News for Some Hospitals

The Centers for Medicare & Medicaid Services (CMS) recently announced a proposed rate cut of 0.95 percent for Medicare Advantage plans for 2016; the cut actually would result in an average rate increase of 1.05 percent after factoring in an expected increase in risk scores.


Investors were pleased. The proposed cut is smaller than expected and, based on CMS reversals of planned cuts in the past, the cut may not go forward at all. Humana, UnitedHealth Group and Aetna shares increased from 3 to 6 percent.


For hospitals the effect will be varied. Local and regional health systems that have partnered with or started their own health plans will see a direct, positive effect. CMS has reported that 70 percent of the Medicare Advantage plans it has approved since 2008 have been provider sponsored.


One health analyst commented that with the proposed rates, Medicare Advantage plans would be “a good bet” if the market situation is favorable for providers who want to start a health plan. Medicare Advantage plans have been seen as a desirable way to get into the managed care business. Plans with as few as 5,000 members have proven to be profitable.


For those that already have a health plan, it remains an attractive opportunity, especially if the care model is implemented effectively.


Providers would also be affected under the proposed rate rule by a provision that strengthens requirements for Medicare Advantage plans to have “accurate and updated provider directories.”


Additional provisions included in the rule include:


  • Full implementation of a new model for risk adjustment
  • Delay of a plan to alter payments based on whether beneficiaries are treated through an office or home visit
  • A cap on total payments to all Medicare Advantage plans, to take effect in 2017


As expected, insurance experts take issue with a cap on total payments, noting that CMS may not have the authority to set a cap.


(Source: “Amid Proposed Rate Cut, Medicare Advantage Insurers Surge,” HFMA Weekly, February 27, 2015)





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