Medicare Advantage 2027: Navigating Margin Pressure and Market Change

LISTEN TO THE EPISODE:

 

Daniel Marino:

Welcome to Value Based Care Insights. I am your host, Daniel Marino. In today's episode, we're going to talk about Medicare Advantage and dive into some of the… some of both the challenges that we're seeing, and especially as we prepare for 2027. Just a lot of continued changes, both in terms of how we're structuring a lot of the economics around Medicare Advantage, as well as then how we're taking care of our patients. Obviously, Medicare Advantage continues to be one of the most important forces that are… that are really driving what we're doing in healthcare. CMS continues to emphasize the fact that they want to get out of managing Medicare beneficiaries, and patients are either going to go to Medicare Advantage, or they're going to go to an ACO. I don't know if they're going to hit the 2030 mark, but certainly that is a goal. At the same time, there's a lot of pressures that healthcare organizations are struggling with. I think in terms of really being able to manage the risk, the investment, the economics and the revenue associated with Medicare Advantage, as well as then just managing the overall cost structure. Not to mention all the administrative challenges that Medicare Advantage is really causing a lot of our healthcare partners. And as well, many of the larger healthcare systems have chosen not to participate in Medicare Advantage. So there's a lot of challenges that I see as we enter into 2027.

Well, I'm really excited to have with us today somebody who's been on the program many times, a great friend, somebody I've known for a while, excellent and a true expert in payer strategy, contracting, and certainly Medicare Advantage. Cliff Frank is president and founder of Healthcare Management Solutions. He's had more than 30 years of experience working with payers, hospitals, CINs, around different levels of managed care contracts, and has done a great job of really understanding where the market, where the industry is going, and to advocate for many of his clients. Cliff, welcome to the program!

 

Cliff Frank:

Thanks, Dan. Great to be with you again.

 

Daniel Marino:

So, Cliff, let's start with kind of understanding where Medicare Advantage is and some of the things that we see as we enter into 2027. You know, for the last decade, Medicare Advantage has had some pretty strong growth. And, you know, there's been, I think, initially, some successes. I think we've heard less and less of that over the last say, you know, year, 18 months. I think certainly with denials going, increasing, the administrative burdens that have been placed on organizations. But yet we still see that Medicare Advantage is growing, and this is still a big initiative from commercials. What do you see as we head into 2027? Maybe you can frame where some of the payers are as they start to think about positioning their products and positioning them not only with the patients, but really within the provider community.

 

Cliff Frank:

So there's, like, 3… Cross currents that are running through the marketplace in Medicare Advantage, and it… the theme is the struggle for margin. Either the health plans margin or the provider's margin. But there's… there's… it's scratch and claw out there now. What has happened… is that CMS is kind of not turned off, but certainly cut back some of the money spigot. And so for the last couple of years, health plans haven't been making a ton of money like they used to in Medicare Advantage with the emergence of the new V28.

 

Daniel Marino:

28 HCC coding, yeah.

 

Cliff Frank:

Yeah, the coding, you know, now they actually have to manage care instead of manage risk scores. Denials are going nuts.

 

Daniel Marino:

They are going absolutely crazy. I can't tell you how many conversations I have with revenue cycle leaders, with CEOs related to just the cost associated with managing these denials of Medicare Advantage.

 

Cliff Frank:

Well. And then what Aetna has done, what IBX in… and Anthem are doing, and some others, they have actually gone so far as to say, if you're… Inpatient admission Is less than 5 days, we're just going to pay you observation rates. Period. And then if you don't like it, you can appeal it.

 

Daniel Marino:

Right.

 

Cliff Frank:

I mean, that's totally extra contractual. And it costs, I mean, imagine you come in for a three-day stay, you have back surgery, and the hospital, you know, you've got $50,000 worth of time and implants and other costs, and now you're going to get $3,200 for an observation? It’s nuts!

 

Daniel Marino:

It doesn't make any… it doesn't make any sense. So do you think is the driver of some of this, Cliff? You know, obviously, the payers are interested in their margin, right?

 

Cliff Frank:

Without question.

 

Daniel Marino:

In commercial, they're you know, they they've done well in that regard. Medic in Medicare Advantage, it's been it's been less. But it seems to me that through the process of managing some of these denials, they're using this to squeeze the costs and maybe to influence, bring down the cost trend, if you will, right? They need to be able to do that as opposed to really working with the providers around creating efficiencies of care. And trying to put in place and collaborate with them to determine where the care should be around the risk levels of the patients. They're asking the providers to provide all this information around risk, HCC coding and so forth. But to me, it just doesn't seem like it's being aligned with what the business model is supporting.

 

Cliff Frank:

Oh, the disconnect starts at the top. Aetna CEO came in and said, you know, why do providers hate us? We got to fix that. We need to be good partners to each other. And then they turn around and whack, you know, all these one through five day stays with this new policy that they implemented nationwide January 1. I mean, the contradictions here are really aggravating and as a result you have a good number of health systems say we're out we're just not doing this anymore. Now, they're not necessarily firing all Medicare Advantage. But they are starting to pick and choose between good partners and bad partners.

 

Daniel Marino:

What's the role of the regional plans versus the national plans as it's related to this? Because I've seen in some of the markets that we've worked with. The regionals have been a little bit more flexible and be able to, for instance, working through pre-authorizations. I mean, one plan we're working through, certain procedures, they're not even requiring pre-authorizations anymore.

 

Cliff Frank:

Yeah, I think the regional plans, you can at least sit down with them, medical director to VPMA, and have a conversation, a clinical and business conversation. The benefit designs are a little more… flexible.

 

Daniel Marino:

Flexible, yeah.

 

Cliff Frank:

And the administration is not quite so onerous. I think there's another dynamic here that's coming in this new open enrollment period. And that is a lot of the plans, the big nationals. are wiping out their PPO options in a number of counties, and forcing members, if they're going to be in a BUCA plan and then they're gonna be in an HMO. That's another way to kind of improve the margin. But it, it definitely is going to add more stress both to the members, the primary care, and the specialist offices as they try and figure out, can we proceed with this particular procedure with this plan?

 

Daniel Marino:

Absolutely, because it's closing the network, right? So, especially if you have You know, folks that are, you know, traveling across the country, or…

 

Cliff Frank:

Snowbirds.

 

Daniel Marino:

Snowbirds that are going down to Florida, you know, how do you manage that appropriately through the an HMO product, especially if you've got a risk component tied to it?

 

Cliff Frank:

Well, and so one of the problems that the V28 situation, the, risk scoring. What I'm creating is that if there are inaccuracies or just things that just don't kind of line up very well. It encourages the plan to kind of run away from those people whose score doesn't really represent their cost.

 

Daniel Marino:

Well, that's true.

 

Cliff Frank:

We used to do… we used to see this in the 1980s. The enrollment office on the third floor and turn off the elevator. And if you could make it up the stairways, by God, we'd take you. You know, we may kind of be heading back that way that if you have certain diseases, we don't really want you in our plan.

 

Daniel Marino:

Yeah. So, give me… let's talk a little bit around the risk component. Because, you know, again there's… there's the big push to work through, you know, a lot of the HCC capture, tie it into risk, the risk com… the… the risk strategy is… is really critical. How are you seeing that change as we move into 2027? Do you think the new products as we enter into 2027 and beyond, Is it going to have more or less influence around risk stratification, the risk model with the patients, and then the dollars tied to it?

 

Cliff Frank:

I think less. But…For… for reasons which have more to do with the risk scoring program. CMS has decided that sending nurses into the home, to kind of find diseases to score, doesn't count anymore. It's got to actually be submitted on a claim from a physician office. So that gamifying of that whole process, CMS is finally kind of cracking down on that, appropriately so in my view. And so… I do see… Some additional push, or incentives kicked over to primary care physicians to kind of, be complete in their… in their documentation, and to send it over. But, beyond that, I… I don't see… I don't see…anything except maybe in the formularies, in the benefit designs, or in the… in the…maybe the specialist co-pays or other sorts of things that are really designed to kind of back off on certain disease categories that the plans really don't want to insure.

 

Daniel Marino:

If you're just tuning in to Value-Based Care Insights, I'm your host, Daniel Marino. I'm here talking to Cliff Frank, about the trends in Medicare Advantage and what we're going to see as we head into 2027. So I want to build off what you just had mentioned there, because I think it's… it's interesting, Cliff, as we start… as we think about the risk scoring, the risk stratification, and how we're tying that in, we're… we still very much work in a retrospective type of… type of a model. Do you think, as with some of these changes that CMS is proposing, and how we're capturing some of the ACCs, calculating the risk scores, and all of that. Is this going to limit providers' ability to kind of make that transition to more of a prospective model, and how we're getting out in front of some of these patients, and really starting to think about how we could better manage utilization. I mean, are we almost shooting ourselves in the foot related to that?

 

Cliff Frank:

Perhaps my, my sense is that a lot of the kind of… Bonus arrangements that… have been in place for primary care docs to do certain things around certain kinds of patients. Those are kind of drying up.

 

Daniel Marino:

Yeah.

 

Cliff Frank:

Because I don't think the plans figure that there's a lot more to be gained there. Deals with CINs and other networks are kind of coming unglued. Because they won't, you know, the plans are reluctant to pay care management fees anymore, and without that up front, it's hard to kind of pay for some of this care management. The plans are more interested in taking it back. So… I think… I think we're gonna see some changes, either it's going to be kind of plan-driven. Like, we seem to kind of be drifting toward, or… and… There'll be some elements like the Humana model that wears a full global cap. And then, you know, if you're facing that, then all those things you're talking about in terms of early intervention and prospective risk scoring and the like really matter.

 

Daniel Marino:

Yeah. Well, I agree with you. I just think the way the model is set up now, certainly those incentives aren't aligned, the economics aren't aligned, and it's hard to be able to drive a lot of the, you know, the right level of strategy is, you know, as an example, we're working with one organization right now, and they're focused on their HCC capture, and rightfully so, you know, in order to make sure they're risk scoring appropriately. But, you know, they sort of came back to me and said, okay, is this more of a coding strategy, or is this more of a documentation strategy, right? And I think that's a good point, because the documentation, as we start to think about that, that integrates in with our work… with our… our workflow. You know, if you're gonna do it right, you have to think prospectively on how you're gonna get out in front and manage these patients. Otherwise, all you're doing is reacting to it. And if that's the case, then you just need to make sure you're documenting, or you're coding appropriately. So, you know, again, I think a lot of the alignment of these directions and the economics, in my mind, are certainly going to drive operationally how these organizations are going to have to perform.

 

Cliff Frank:

I think that's right. It ain't getting any simpler, that's for sure.

 

Daniel Marino:

Do you see, I want to move on to a couple other topics, I want to ask this last question, though. In some of the conversations that you're having with some of the nationals and even some of the regional plans, are you seeing some of these administrative burdens lessening? Are you seeing any movement on the pre-auths or alignment? Denials, or anything like that?

 

Cliff Frank:

Oh there is noise about it, but frankly, they take the pre-auth off The 3 per thousand occurrences. So yeah, it looks like we got rid of 1,700 prior OS, but okay, that's 3% of our total administrative actions in that class of service, so…no, it's much more… it's much more about the optics than it is about the substance.

 

Daniel Marino:

Yeah, I would agree. So let's change the narrative a little bit. You know, as organizations are thinking about the success components tied to Medicare Advantage, and some of them, you know, they have quite a few thousand covered lives that are included in there. In your opinion, as organizations are thinking about this, as physician groups, CINs, and what have you, are thinking through this. What are your thoughts in terms of, you know, the greatest opportunity to really drive some of this change? Is it still to focus on, you know, the key things like readmissions, ED utilization, site of service management? Or is it… is it more so on, you know, still focusing on the annual wellness visits, sort of the preventative care type of elements? You know, in your opinion, what's driving some of these economics for these folks that are the providers that do have the plans?

 

Cliff Frank:

Site of service is a big deal. It's a huge deal. And… If you're an employed physician, employed by a hospital. The last thing the hospital wants you to do is to rationalize site of service. They're my patients. You're my doctor. So you put those two together in my facility. I think that… whole… Schema is gonna break. You're seeing some serious pressure from Elevance and some others right now on the commercial side to really kind of disconnect hospital site of service from revenue.

 

 

Daniel Marino:

Well, and the states are pushing back, too. I mean, there's a lot of the, you know, California, Indiana, I was talking to a few of my colleagues and some clients in Indiana, you know, there's some real differentials in the reimbursement there, aligning some of these services are done historically in outpatient facilities, which now are going to be shifted to ambulatory, and frankly, some of these hospitals and health systems, they haven't… they don't have a strong ambulatory strategy in place. Everything has been invested in their outpatient campus.

 

Cliff Frank:

Well, and just to give you a sense of the differential. At least on the commercial side, a hospital outpatient surgery center surgery can, can easily run 300, 400% of Medicare. Whereas in a surgery center, it's 150.

 

Daniel Marino:

Yeah, exactly.

 

Cliff Frank:

It's… it's… A big, big difference.

 

Daniel Marino:

So when you're thinking through that, kind of tying it back to the MA world, you know, it sort of makes sense if you, you know, are looking at that in terms of the shift in utilization, certainly how it aligns with your, you know, the MLR that has been negotiating… negotiated, rather. But, you know, when you think about what the economic draw, you know, the challenges associated with that. I don't think the economics really make up shifting that to ambulatory compared to what it is for outpatient.

 

Cliff Frank:

Oh, no. And it's the same problem with value-based care. The value that you harvest, doesn't compensate you for… the same loss of revenue that you gave up. So, you know, you…That's why we've had value-based care in kind of in name only and not really until it's a capitated system, where the physicians are kind of driving the show, you're not gonna get big cyber service changes.

 

Daniel Marino:

Well, it needs to be also a value play, too. So, I think if you're able to incorporate higher volume associated with it, you know, you can do more cases in ambulatory surgery centers than you can in outpatient, and the cost is lower, and all of that, and even on the value-based care side, you know, if you can certainly tie it into some of the performance outcomes. Then you've got a chance of making it up. But, you know, some of these investments have been so high that it's really just been it's tough to overcome that.

 

Cliff Frank:

It is. It is. And I know some hospital systems like Tenet, you know, are putting all their eggs in that, in that freestanding basket and, you know, maybe they're using the formula you just… Just outlined, but it's, none of these roads are easy roads to travel these days.

 

Daniel Marino:

So I want to touch on another topic that I know has been kind of, you know, something you've been working through. And it's sort of the proposed legislation in even some of the states where limiting some of the level of the increases, that have been negotiated and capping them, so to speak. And I know this is more on the hospital side than it is on impacting the hospital more than it is on the physician side, but certainly that comes into play as you have an integrated provider strategy with hospitals and physicians. Where do you see that going, and is there any influence there in Medicare Advantage?

 

Cliff Frank:

I think it has legs, a lot of legs. In California, several years ago, legislation was passed and created the Office of OCHA. And now things are starting to bite. And what they did was they capped per member per month spending. And… Of… Rate increases on both hospital and Premiums.

 

Daniel Marino:

Yeah, sure.

 

Cliff Frank:

So Vermont's done similar and Indiana now is talking, you know, some… there's about 10 states where this is really… Boiling. In part driven by the surge in utilization and cost in their own state employee benefits plans.

 

Daniel Marino:

Yeah.

 

Cliff Frank: So…what it does, interestingly, is to open up different dialogues, because if I negotiate an 8% increase. But the state's got me capped at three and a half. You know what the heck? You know. Why do I need a big… why do I need to be a big system with all that overhead. If my rates are gonna be capped.

 

Daniel Marino:

Well, I think it also drives…different levels of conversation, and kind of getting back to the value-based care play, you know, layering on top of that some other performance levers, some other revenue drivers. It's the only way you're going to make that up, because

 

Daniel Marino:

You know, again, if you're being capped on the fee-for-service on what you're gonna get, there's… the only way you're gonna make it up is some level of value-based performance, even if you… my experience, you could tie that to some level of managing the trend, the healthcare spend, then there's an opportunity. I think the payers will pay for that.

 

Cliff Frank:

They will if, depending on how value-based payments are calculated in the formula. If they're inside the formula, it's a problem. If they're outside the formula, then there's a big incentive to move that way. Move dollars to physicians, have the physicians throw, then there's less that the hospital has to throw over the transom to keep the physician enterprise afloat.

 

Daniel Marino:

Yeah. I agree. I agree. Well, I know we're coming up to the end here, Cliff. Real quick, any final thoughts, any pieces of advice you give to some of our listeners and, you know, from the provider space as they're managing through some Medicare Advantage?

 

Cliff Frank:

I think it's really important that providers maintain some sort of leadership position with their patients with respect to what their preferences are in Medicare Advantage. Not all plans are the same, they're not all interchangeable, and it's not just about price. And the people they need to be talking to are the brokers for Medicare Advantage. Don't forget that they're part of your community, and they're part of the population influencers that you need to reach.

 

Daniel Marino:

Yeah. I couldn't agree more. I mean, the brokers really I mean, they're they're the connection to to the community. No doubt about it. Well, thanks, Cliff, for coming on. I always enjoy the conversation. It's great. You are a wealth of information and, just to love to hear your opinion. Really appreciate it.

 

Cliff Frank:

Happy to chat anytime, man.

 

Daniel Marino:

And a special thanks to all of our listeners for tuning in. If you're interested in learning more about this topic or any of the topics we talk about on Value-Based Care Insights, please visit luminahp.com/insights or visit ecgmc.com. Until our next insight, I am Daniel Marino bringing you 30 minutes of value to your day. Take care.

About Value-Based Care Insights Podcast

Value-Based Care Insights is a podcast that explores how to optimize the performance of programs to meet the demands of an increasingly value-based care payment environment. Hosted by Daniel J. Marino, the VBCI podcast highlights recognized experts in the field and within Lumina Health Partners