Category Archives: Health Insurance Industry

The rising danger of private equity in healthcare

Posted on by • Posted in Adverse Events, Federal Trade Commission, Federal Trade Commission (FTC), Financialization of Health, Health Insurance Industry, Health System, Hospital, Hospital Industry, Joint Liability, Management Company, Market Consolidation, Market Power, Market Trends, Mergers & Acquisitions, Ownership Transparency, Private Equity, Regulation, Social Responsibility, Tax Loopholes • Leave a comment
The rising danger of private equity in healthcare

Private equity (PE) acquisitions in healthcare have exploded in the past decade. The number of private equity buyouts of physician practices increased six-fold from 2012-2021. At least 386 hospitals are now owned by private equity firms, comprising 30% of for-profit hospitals in the U.S. 

Emerging evidence shows that the influence of private equity in healthcare demands attention. Here’s what’s in the latest research.

What is private equity?

There are a few key characteristics that differentiate private equity firms from other for-profit companies. At a 2023 event hosted by the NIHCM Foundation, Assistant Professor of Health Care Management at The Wharton School at the University of Pennsylvania Dr. Atul Gupta explained these factors:

  1. Financial engineering. PE firms primarily use debt to finance acquisitions (that’s why they’re often known as “leveraged buyouts”). But unlike in other acquisitions, this debt is placed on the balance sheet of the the target company (ie. the physician practice or hospital). 
  2. Short-term goals. PE firms make the majority of their profits when they sell, and they look to exit within 5-8 years. That means they generally look for ways to cut costs quickly, like reducing staff or selling real estate. 
  3. Moral hazard. PE companies can make a big profit even if their target firm goes bankrupt. This is different from most investments where the success of the investor depends on how well the target company does.

The nature of private equity itself has serious implications for healthcare, in which the health of communities depends on the long-term sustainability and quality improvement of hospitals and physician practices. But are these concerns borne out in the real world?   

PE acquisition and adverse events

A recent study in JAMA from researchers at Harvard Medical School and the University of Chicago analyzed patient mortality and the prevalence of adverse events at hospitals acquired by private equity compared to non-acquired hospitals. The study used Medicare claims from more than 4 million hospitalizations from 2009-2019, comparing claims at 51 PE-acquired hospitals and 249 non-acquired hospitals to serve as controls.

In-hospital mortality decreased slightly at PE-acquired hospitals compared to controls, but not 30-day mortality. This may be because the patient mix at PE-acquired hospitals shifted more toward a lower-risk group, and transfers to other acute care hospitals increased. 

However, there were concerning results for patient safety. The rate of adverse events at PE-acquired hospitals compared to control hospitals increased by 25%, including a 27% increase in falls, 38% increase in central line-associated bloodstream infections (CLABSI), and double the rate of surgical site infections. The authors found the rates of CLABSI and surgical site infections at PE-acquired hospitals alarming because overall surgical volume and central line placements actually decreased. 

What could be behind these higher rates of adverse events after PE acquisition? In a Washington Post op-ed, Dr. Ashish Jha, dean of the School of Public Health at Brown University, writes that it’s down to two things: staffing levels and adherence to patient safety protocols. “Both cost money, and it is not a stretch to connect cuts in staffing and a reduced focus on patient safety with an increased risk of harm for patients,” he writes.   

Social responsibility impact

Private equity acquisitions may have a negative effect on patient safety, but what about social responsibility? In a recent report from PE Stakeholder on the impact of Apollo Global Management’s reach into healthcare, the authors use the Lown Institute Hospitals Index to understand hospitals owned by Apollo perform on social responsibility. Lifepoint Health, a health system owned by Apollo, was ranked 222 out of 296 systems on social responsibility nationwide. And in Virginia, North Carolina, and Arizona, some of the worst-ranked hospitals in the state for social responsibility are those owned by Lifepoint Health, the PE Stakeholder report shows.

Apollo Global Management is the second largest private equity firm in the United States, with $598 billion total assets under management, according to the report. The PE stakeholder report outlines concerning practices by Apollo, including putting high levels of debt that lowers hospitals’ credit ratings and increases their interest rates, cutting staff and essential healthcare services, and selling off real estate for a quick buck. If we care about hospital social responsibility we should clearly be concerned about private equity acquisitions. 

The bigger picture

Private equity buyouts did not come from out of nowhere, so what does this trend tell us about our healthcare system? PE acquisitions are in many ways a symptom of larger issues in healthcare, such as increasing administrative burden, tight margins, and lack of regulation on consolidation. For owners of private physician practices that face a lot of administrative work, deciding to sell to a PE firm to reduce this workload and focus on patient care (not to mention, getting a hefty payout) is a tempting proposal. 

In the Washington Post, Ashish Jha describes what made his colleague decide to sell his practice to a PE firm: “The price he was getting was very good, and he was happy to outsource the headache of running the business (managing billing, making sure there was adequate coverage for nights and weekends, etc.).”

“In many ways, private equity is both a response to and an accelerator of broader health system trends – one in which consolidation is happening quickly, care is being delivered by larger and larger entities, and corporate influence is growing.”Jane M. Zhu, MD, MPP, MSHP, Associate Professor of Medicine at Oregon Health & Science University, at NIHCM Foundation Event

PE buyouts are also indicative of a larger trend, what some researchers call the “financialization” of health. As Dr. Joseph Bruch at the University of Chicago and colleagues describe in the New England Journal of Medicine, financialization refers to the “transformation of public, private, and corporate health care entities into salable and tradable assets from which the financial sector may accumulate capital.”  

Financialization is a sort of merging of the financial and healthcare sectors; not only are financial actors like private equity buying up healthcare providers, but healthcare institutions are also acting like financial firms. For example, 22 health systems have investment arms, including nonprofit system Ascension, which has its own private equity operation worth $1 billion. The financialization of healthcare is also reflected in the boards of nonprofit hospitals. A 2023 study of US News top-ranked hospitals found that a plurality of their board members (44%) were from the financial sector. 

What we can do about it?

What can we do to mitigate harms caused by PE acquisitions? In Health Affairs Forefront, executive director of Community Catalyst Emily Stewart and executive director of the Private Equity Stakeholder Project Jim Baker provide some policy ideas to stop the “metastasizing disease” of private equity:

  • Joint Liability. Currently PE firms can put all of their debt on the balance sheet of the firm they acquire, letting them off the hook for this debt and making it harder for the acquired company to succeed. “Requiring private equity firms to share in the responsibility of the debt…would prevent them from making huge profits while they are saddling hospitals and nursing homes with debts that ultimately impact worker pay and cut off care to patients,” write Stewart and Baker.
  • Regulate mergers. Private equity acquisitions often go under the radar because the acquisitions are small enough to not be reported to authorities. But the U.S. Federal Trade Commission could be more aggressive in evaluating mergers and buyouts by PE, as they have done recently in Texas, where a PE firm has been buying up numerous anesthesia practices. 
  • Transparency of PE ownership. It can be hard to know when hospitals are bought by a PE firm. The Department of Health and Human Services could require disclosure of PE ownership for hospitals as they have done for nursing homes.
  • Remove tax loopholes. The carried interest loophole allows PE management fees to be taxed at as capital gains, which is a lower rate than corporate income. Closing this loophole would remove a big incentive that makes PE buyouts so attractive for firms.  

“It is clear that the problem is not the lack of solutions but rather the lack of political will to take on private equity,” write Steward and Baker.

We need not to not only stem the tide of PE acquisitions sweeping through healthcare, but address the financialization of healthcare more broadly, to put patients back at the center of our health system.

The Healthcare Industry Mega Trend to Watch in 2024

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The Nelson A. Rockefeller Institute of Government is a public policy think tank founded in 1981 that conducts cutting-edge research and analysis to inform lasting solutions to the problems facing New York State and the nation.

Introduction & Definitions

In 2023, I noted 10 trends within three broad categories in healthcare worth watching and provided a mid-year update on those trends. They included: the impact of unwinding the Public Health Emergency on insurance coverage, healthcare workforce shortages, price inflation, declining margins at hospitals, private equity in healthcare, consolidations, alternate payment models, attention to health equity, digital telehealth expansion, and the expansion of non-traditional providers in healthcare. These trends continue to be worth watching in 2024.

More significant than any one of these trends is the combined interaction of the trends in the industry overall—what I’ll call a “mega-trend,” which results in a trifurcation of the industry. Currently, there are parts of the healthcare industry struggling to exist. This is due to different factors, including high expenses, staffing challenges, and a lack of access to capital and technology, among other things. I call the types of healthcare entities that fall into this category “Today” entities because they exist now but may or may not exist in the future. In contrast, there is another set of entities in healthcare that have emerged in the last five or so years. They are becoming larger through consolidation and integration, and have greater access to capital and technology. I call these types of healthcare entities the “Tomorrow” entities because their size, resources, and forward-looking strategies are changing the future of healthcare.

In between these two categories, are existing and traditional entities in healthcare that seek sustaining strategies. I call these entities the “Striving Survivors” whose success and ability to persevere is still an open question. Most look like the healthcare entities of Today, but what distinguishes them is their ability to partner, use technology, and diversify what they offer. To understand the mega–trend phenomena of this trifurcation in healthcare and what’s happening within and across each of these three categories, this blog dissects how the trends I highlighted in 2023 are impacting the Today and the Tomorrow entities and discusses how the Striving Survivors are attempting to keep pace as the healthcare industry evolves.

The “Today” Healthcare Entities

As noted in my 2023 blog, price inflation and expense growth—particularly as they relate to workforce and labor costs—were two trends impacting existing healthcare organizations. Today’s healthcare entities are heavily reliant on people, and, unsurprisingly, increased expenses for personnel, which had a major impact on organizations’ bottom lines for the past few years, as did general inflation and increased supply prices. However, for some providers, revenue and patient volume have returned to levels comparable to pre–pandemic. According to Kaufman Hall, a healthcare consulting firm, by the end of 2023, some hospitals’ margins were beginning to stabilize.

In looking at what may happen in 2024 for providers, however, the return of patient volume and, therefore, more predictable revenue may not be enough to yield positive margins. This is because expenses are predicted to be challenging. Industry experts estimate that healthcare prices will grow 7 percent in the coming year. The estimate reflects increases in pharmaceutical costs, growing provider expenses given the high labor and supply costs noted earlier, and insurer rate increases.

Another challenge to the healthcare entities of Today is the availability of capital to make strategic investments. More of this capital is now being provided by private equity firms, an estimated $750 billion in the last decade. To secure capital in the private market, bond rating agencies typically favor larger providers because they are less risky. This, among other factors, has contributed to growing consolidation in the industry among physician groups, insurers, and hospitals. Not only do these entities need capital for projects like upgrades to existing facilities, but to also make strategic investments. Such investments include acquisitions of other providers or companies that add to the revenue base, or technologies that allow improvements in care delivery.

The Today entities are increasingly challenged with adapting to consumer demands for tech–enabled care options. Consumers want more tech–supported smart applications that allow them to book appointments or get assistance with care more quickly via chatbots. Consumers also want new options for care at home—including hospital–at–home, which provides acute care in a home-based setting, and home–based care. As noted in my November blog on AI in healthcare, access to such technologies is not only creating further separation between healthcare entities, but can also create further inequities among consumers.

The “Tomorrow” Healthcare Entities

With the challenges for the healthcare entities of Today outlined above, it is important to note that those same challenges are not as significant for the healthcare players of Tomorrow. This is because most are substantial in size and have sufficient revenue, technology, and capital resources—often in the form of private equity. And many of them did not start in healthcare. They include, for example, Amazon—which started as an online bookstore and now has annual revenues of over $500 billion, CVS—which started as a retail pharmacy and now has revenues close to $300 billion; Uber—which started as a tech-enabled taxi-like transport application and now has revenues of over $30 billion, and Microsoft—which started as computer company but has expanded into healthcare with annual revenues of over $200 billion.

Some of these companies have entered healthcare by partnering with, or acquiring companies already in the sector such as Amazon’s 2023 acquisition of One Medical, a tech–enabled primary care entity; the 2022 partnership between United Health Group and Change Healthcare, a technology company; and CVS’s official 2023 acquisition of Signify, a home health organization. This was on top of CVS’s earlier (2018) merger with health insurance company Aetna, and its 2022 partnership announcement with Uber with the stated aim of improving access to care and decreasing health inequities in underserved communities across the country. Other entities have increased their footprint in healthcare by launching their products, such as Microsoft’s 2020 launch of Cloud services, specifically for healthcare.  Some of these companies are now collaborating, including the 2021 partnership between CVS Health and Microsoft, which was designed to customize care further, enable frontline workers to more easily access and use data, and digitize operations.

In addition to these large nontraditional healthcare entities, the health insurance industry has also experienced large–scale consolidation and diversification that enables them to compete. One of the most notable companies in the world of healthcare integration is the nation’s largest insurer, United Health Group (UHG). UHG continued to outpace provider margins, with 2023 third quarter margins for UHG at levels 14 percent higher year-over-year.  The continued growth at UHG was largely due to the increasing number of individuals served and a growing provider base of 90,000 physicians, or 10 percent of all physicians nationwide. This contrasts with one of the largest provider margins (Kaiser) whose 2023 third-quarter margin was only $239 million, an improvement from the $1.5 billion loss they experienced in the third quarter from the previous year. Although no other insurers are as big as UHG, the next biggest including,  Aetna, Anthem, Cigna, and Humana all had 2023 third–quarter net incomes ranging from $1 billion to $1.4 billion.

The Striving Survivors

Not all traditional healthcare entities are being left behind; I call these the Striving Survivors. They may currently be considered Today entities, but they are attempting to put in place strategies so they can be Tomorrow entities in the future.  Here are three primary strategies that may help these entities survive into the future:

  1. Partnering—The number of independent hospitals as well as the number of independent physician groups has shrunk dramatically in the past decade, and there is increasing pressure for both to consider merging. A report by Kaufman Hall prepared at the request of the American Hospital Association, shows that merging can have advantages such as creating economies of scale, improving leverage to bargain for better payments from increasingly large insurance companies, and allowing better access to capital markets. Other advantages to partnering include diversifying what services can be offered to patients, allowing providers to assume risk for the care of a larger population, or leveraging complementary strengths for strategic investments. Although many of these consolidations used to be regional in nature (providers would merge with neighboring providers), new mergers are occurring across broader geographic areas, as was the case with the merger of west–coast–based Kaiser and Pennsylvania-based Geisinge.
  2. Maximizing Technology—Striving Survivors are also seeking to compete and survive into the future by partnering to maximize technology.  Technologies like telehealth, remote monitoring, artificial intelligence, and hospital–at–home, are growing because they are delivering care in ways that are preferable to consumers. As recently noted by Deloitte, “Adopting new technologies and business models—while under sustained financial pressure—might be the biggest challenge health care executives will face in 2024.” The good news for the healthcare players of Today is the use of data and technology in new and creative ways can counteract some of their current financial and care delivery challenges. Technology can make care more convenient for consumers, reduce costs, or provide care in places where it is sometimes inaccessible.  Some recent examples of partnerships between technology companies and today’s healthcare entities include women’s health tech startup Tia’s partnership with Common Spirit, one of the largest healthcare systems in the country.  Similarly, Strive Health is managing kidney patients for Bon Secours Mercy Health; Carbon Health is providing tech–enabled urgent care for Milwaukee–based Froedtert Health. Even Best Buy, a home electronics store, has begun offering homecare through several partnerships, including, for example, Mass General Brigham.
  3. Revenue Diversification—Revenue diversification has long been a growth strategy in many industries. Up until recently, there hasn’t been the same pressure for such diversification for healthcare entities. That is changing, in part, because many of the healthcare entities of Tomorrow come from non–health–related industries.  Diversification can occur using either of the strategies noted above (partnership or maximizing the use of technology). Diversification might also include providing services in areas of healthcare where demand is growing (e.g. urgent care or outpatient instead of legacy inpatient services). It might also include services that are not currently widely used but are likely to become more commonplace in the future, such as precision medicine or hospital–at–home.

Conclusion

In 2024, it will not only be important for healthcare policymakers to monitor single trends such as the continued focus on health equity, the expansion of alternate payment models, or the cost of the healthcare workforce, but it will also be important to understand how trends may be interacting with each other to create larger market trends. Such is the case for the emergence of non-traditional players in healthcare, the influx of private equity, digital expansion, and major consolidations— which when combined —are resulting in a mega trend of trifurcation of the industry into Today, Tomorrow, and Striving entities in healthcare that are seeking to survive into the future.  For healthcare policymakers, all these trends along with their interaction will be worth monitoring and understanding so that effective policies can be developed that result in a healthcare system that supports innovation, protects patients, reduces inequities, and results in better health outcomes at lower cost.

Trends shaping the business of health insurance in 2024

Posted on by • Posted in Behavioral Health, Diabetes, Health Insurance Industry, Market Consolidation, Market Outlook, Market Trends, Medicaid, Medicaid Eligibility, Medicaid Redeterminations, Medicare Advantage, Mental Health, Mergers & Acquisitions, Pharmacy Benefits Management, Uninsured, Weight Loss Drugs • Leave a comment
https://www.healthcaredive.com/news/health-insurer-predictions-2024/701800/?utm_source=Sailthru&utm_medium=email&utm_campaign=Issue:%202024-01-17%20Healthcare%20Dive%20%5Bissue:58245%5D&utm_term=Healthcare%20Dive

The new year dawned on a health insurance industry beset by challenges.

Only 7% of health plan executives view 2024 positively after being hammered by the coronavirus pandemic, regulatory turbulence and rising cost pressures, according to a Deloitte survey.

Costs are spiking, and health insurers remain uncertain how the lingering effects of COVID-19 will impact care utilization. Medicaid redeterminations are rewriting the coverage landscape state by state, while Medicare Advantage — the darling of payers’ business sheets — experiences significant regulatory upheaval.

Meanwhile, 2024 is a presidential election year. That’s adding more political uncertainty into the picture as Washington hammers payers over claims denials and the business practices of pharmacy benefit units.

Here’s what experts see coming down the pike for health insurers this year.

The uninsured rate will go up

The number of Americans without insurance coverage is almost certainly going to rise this year as states overhaul their Medicaid rolls, experts say.

During the pandemic, continuous enrollment protections led a record number of people to enroll in Medicaid. But earlier this year, states resumed checking eligibility for the safety-net program. Around 14.4 million Americans have been removed from Medicaid due to the redeterminations process, many for administrative reasons like incorrect paperwork despite remaining eligible.

“We are going to see an increase in the uninsured rate for children and probably adults as well as a consequence,” said Joan Alker, executive director of the Georgetown University Center for Children and Families.

The question is how big of an increase, experts said. Redeterminations began in April, but lagging information and state differences in data reporting has made it difficult to determine where individuals are turning for coverage, and in what numbers.

Early signs suggest some people losing Medicaid have found plans in the Affordable Care Act exchanges, though it’s probably “a very small percentage,” Alker said. More than 20 million people have signed up for ACA coverage since open enrollment began in November — an all-time high, according to data released by the Biden administration in early January.

Experts say the growth is due in part to redeterminations, along with the effects of more generous federal subsidies. Those subsidies are slated to expire in 2025, meaning ACA enrollment should stay elevated until then.

But it’s unlikely everyone who loses Medicaid will find a home on the marketplaces. The cost of family coverage without an employer remains out of reach for many Americans. It’s also too early to determine how many people terminated from Medicaid have shifted into employer coverage — that data should also emerge as 2024 continues, said Matt Fiedler, a senior fellow with the Brookings Schaeffer Initiative on Health Policy.

Federal regulators have also taken a number of actions to try and curb improper procedural Medicaid losses, like cracking down on states with high levels of child disenrollments. Yet, procedural terminations are unlikely to improve significantly this year, experts said.

“We do see a very hopeful trend” in some states, like Washington and Oregon, embracing longer periods of continuous eligibility, Alker noted.

The government has ramped up ACA marketplace outreach, which — along with macro forces like a strong labor market — are positive signs that individuals no longer eligible for Medicaid may find alternative coverage, whether in the ACA exchanges or through employment.

But “it’s likely we’ll see an increase in the uninsured rate. I think the question is how much,” Fiedler said.

Increasing vigilance around costs

Healthcare costs are projected to grow much faster in 2024 than the historical average, fueled by inflation, supply chain disruption and labor pressures increasing provider wages. Those costs are burdening employers already stressed by worker mental health and deferred preventive screenings that could worsen health conditions down the line.

As a result, employers are investing heavily in mental health and substance use disorder services. Seven out of ten employers say mental healthcare access is a priority in 2024, and employers say they’ll turn to virtual care providers to address the need, according to a Business Group on Health survey.

As a result, employers are increasingly demanding integrated platforms combining different benefits, continuing a pivot away from the point solutions they were deluged with during the pandemic. Payers are racing to meet that need.

This year, UnitedHealthcare plans to integrate more than 20 standalone products into a “supported benefits platform,” said Dan Kueter, CEO of the payer’s employer and individual business, during an investor day in November.

Cigna, which focuses on employer-sponsored plans, plans to add more services to its behavioral health navigator to help employers personalize the platform for their employees this year, said CEO David Cordani during a November earnings call.

For their part, health insurers are likely to raise premiums and combat hospital reimbursement hikes in 2024 to control costs, according to credit rating agency Fitch Ratings.

However, that outlook is complicated by uncertainty around how much elevated care utilization seen in 2023 will continue. Some payers, like UnitedHealth and Humana, are forecasting high utilization, while others like CVS have said they expect it to drop.

More payers might pursue mergers and acquisitions or build out internal musculoskeletal management programs to control costs, said Prateesh Maheshwari, a managing director at venture capital firm Maverick Ventures. Hip and knee surgeries were an oft-cited driver of utilization last year.

Still, publicly traded health insurance companies could see their margins moderately decrease in 2024, Fitch said.

GLP-1 coverage will increase — slowly

Surging demand for GLP-1s means insurance coverage for the drugs is expected to increase next year, putting more stress on the nation’s pressured healthcare payment system. GLP-1s, or glucagon-like peptide-1 drugs, have historically been used to treat diabetes but have shown efficacy in weight loss.

The drugs are exceedingly expensive, but that hasn’t stopped people from trying to get their hands on GLP-1s — off-label or not. TD Cowen predicts GLP-1 sales could reach $102 billion by 2030, with $41 billion of that for obesity.

More private payers are considering covering the drugs next year, though the doors to coverage aren’t being thrown wide open. According to a November survey by the International Foundation of Employee Benefit Plans, while 76% of employers provide GLP-1 drug coverage for diabetes, just 27% provide coverage for weight loss.

Yet, 13% are considering adding coverage for weight loss.

As insurance coverage increases, payers will ensure only eligible patients are accessing the drugs through checks like step therapy, said Nathan Ray, head of healthcare M&A at consultancy West Monroe. As a result, access could remain restricted.

Payers will also tie coverage for GLP-1s to additional behavioral management programs. That trend has proved a gold rush for chronic condition management companies and telehealth providers, which have rushed to stand up new business lines for weight loss that include GLP-1s.

“Things like this, that include the opportunity for medication along with the accompaniment of behavioral change, is where I think the market will go in 2024,” said Heather Dlugolenski, Cigna’s U.S. commercial strategy officer.

Proponents of weight loss medication are also eyeing a potential overturn of the ban on Medicare coverage of weight loss drugs next year. A growing number of lawmakers (and drugmakers standing to profit from Medicare coverage) have come out in support of a bill introduced in 2023 to allow Medicare to cover anti-obesity drugs.

The bill is unlikely to be prioritized given Washington has a lot on its plate during the election year, but passage isn’t out of the realm of possibility, experts said.

Medicare Advantage will continue to grow under Washington’s watchful eye

More seniors will select Medicare Advantage plans this year, further growing a program that recently saw its enrollment sneak past that of traditional Medicare.

In MA, the government contracts with private insurers to manage the care of Medicare seniors. MA has become increasingly popular, swelling to cover 31 million people last year — a boon for insurers offering the coverage, which can be twice as profitable for private payers than other types of plans.

As such, MA plans have been advertising heavily, trumpeting their supplemental benefits like gym memberships or subsidized groceries. Seniors find those benefits attractive, Brookings’ Fiedler said, and may not understand that MA plans may not cover as much medical care as traditional Medicare.

”My best bet would be MA enrollment in the near term continues to grow,” Fiedler said. “I don’t think we’re at the ceiling yet.”

Despite elevated costs in 2023 from seniors using more medical care, insurers generally didn’t cut back on plan benefits this year as they continue to compete for members.

Major payers in MA, including Humana, UnitedHealthcare, Centene and Kaiser Permanente, expanded their geographic markets for 2024, even as some lagging competitors like Cigna consider exiting MA altogether.

Yet, the program hasn’t been without its complications. Payers cried foul last year over tweaks to MA rates, star ratings and reimbursement audits, with Humana and Elevance suing to stop the changes.

MA “should remain a key long-term growth driver for managed care, but we see a more challenging setup in 2024 as weaker funding, risk coding changes, and lower Star ratings combine to pressure margins,” J.P. Morgan analysts wrote in an outlook report published late last year.

Insurers were also plagued in 2023 by congressional hearings and lawsuits over their claims reviews processes, sparking criticism that seniors may not be receiving the care they’re due.

Scrutiny from Washington around such practices is likely to continue.

“We are seeing both in the Senate and House a lot of interest in peeling back the layers of the onion of how big health plans are operating their Medicare Advantage programs. That’s going to continue to be an issue,” said Reed Stephens, a healthcare chair at law firm Winston & Strawn who focuses on risk.

Though it’s unlikely that legislation will be passed reforming MA, Reed said. Overall, regulatory and political turbulence should subside somewhat this year.

The rate and marketing changes were “short of the last train out of the station,” said Brookings’ Fiedler. “The administration is unlikely to want a big fight with MA plans in an election year.”

The Mark Cuban effect: Payers with PBMs will launch more ‘transparent’ options

Major pharmacy benefit managers will introduce more options billed as transparent and cost-effective to retain clients after some turned to upstart competitors last year.

PBM clients are clamoring for outcomes-based pricing, with structures tying PBM compensation to measures like adherence, according to a J.P. Morgan survey from late 2023. Clients also want transparency, whether more data sharing or full administration models.

The changes aren’t revolutionary, but they hint at ongoing distrust of major PBMs from benefits teams, J.P. Morgan said.

UnitedHealth’s Optum Rx, Cigna’s Express Scripts and CVS Caremark — which together control 80% of prescriptions in the U.S. — have all recently launched new programs, partnerships or models they say are more affordable and transparent to meet the demand.

The industry is likely to see more moves along those lines in 2024, experts say — especially as Congress considers legislation to reform PBMs. The Lower Costs, More Transparency Act passed the House in December. The bill is seen as unlikely to clear the Senate, but specific measures, like forced PBM transparency, could make it into larger legislative packages.

The passing of measures around transparency could satisfy politicians’ need for a win when it comes to drug pricing without creating meaningful reform in the sector, according to Jefferies analyst Brian Tanquilut.

Yet, momentum to do something about high drug costs will certainly carry into this year. Presidential candidates on both sides of the aisle are expected to wield the issue on the campaign trail.

“The companies in those markets are going to have to stay nimble and keep on their toes,” said Winston & Strawn’s Stephens.

M&A, especially vertical integration, carries on

Companies like UnitedHealth, CVS and Humana will continue building out networks of physical care sites in 2024. New M&A guidelines from the Department of Justice and Federal Trade Commission could raise the bar for merger approvals, but the value proposition for insurers to acquire healthcare providers is too high for them to be dissuaded, experts said.

Payers will continue to pursue as many deals “as they can find willing, available targets,” said West Monroe’s Ray.

By directing members to owned locations for medical needs, health insurers can essentially pay themselves for providing a service, keeping more revenue in-house. As a result, payers — especially those with a large presence in MA, which incentivizes organizations to better manage cost — will stay on the hunt for acquisition targets.

While healthcare M&A was relatively slow in 2023, 68% of senior leaders in the sector expect deal volume to rise in 2024, according to a survey by investment bank Jefferies.

Optum — which employs or is affiliated with around one-tenth of all doctors in the U.S. — is already eyeing M&A. The health services arm of UnitedHealth is currently pursuing an acquisition of a physician-owned clinic chain in Oregon, even as it comes off a number of big provider buys in 2023, including the multi-billion-dollar acquisitions of home health providers Amedisys and LHC Group.

Cigna has also said it plans to look for smaller strategic acquisitions to grow its business, after a  potential merger with rival Humana crumbled late last year.

Medicare Advantage rate change bedevils UnitedHealth’s 2024 outlook

Posted on by • Posted in Health Insurance Industry, Market Outlook, Market Trends, Medicare Advantage, Member Growth, UnitedHealth Group, UnitedHealthcare, Value-Based Contracting, Value-Based Healthcare • Leave a comment

https://www.healthcaredive.com/news/unitedhealth-2024-pressure-medicare-advantage-rate-change/700945/

UnitedHealth is bracing for a struggle next year with the financial effects of shifting Medicare Advantage payment rates.

The health insurance giant released 2024 guidance on Tuesday that included a number of less favorable metrics than analysts expected.

During the company’s investor day in New York City on Wednesday, UnitedHealth executives blamed the outlook on an MA rate change issued by regulators earlier this year that insurers slam as a payment cut.

Pressured metrics include slower MA membership growth, lower margins at UnitedHealthcare and a higher medical loss ratio. UnitedHealth forecast a 2024 MLR of 84%, a full percentage point higher than analysts’ consensus expectation.

Despite the MA headwind, UnitedHealthcare’s financial targets overall still came in in-line or ahead of analyst expectations.

MA rates ‘ripple’ through UnitedHealth’s 2024

UnitedHealth is a behemoth in the U.S. healthcare industry, with one of the largest pharmacy benefits managers, an expanding healthcare IT arm and a growing presence in care delivery, including a network of tens of thousands of physicians.

UnitedHealth is also the dominant health insurer in many markets, including in MA. The Minnesota-based company is the largest provider of the privately-run Medicare plans.

Management has said they expect their share of the market to grow as more seniors age into the government insurance program and select MA over traditional Medicare.

However, UnitedHealth is now saying that MA growth could be depressed next year thanks to a rate notice from the CMS that’s deeply unpopular with insurers.

Earlier this year, the CMS finalized MA rates for 2024 that regulators said should result in a 3.3% increase in revenue for health insurers in the program. The changes also include a new approach to risk adjustment meant to curb upcoding, a practice where insurers inflate their members’ sicknesses to get higher payments from the government.

However, insurers have said the changes, which are being phased in over the next three years, will result in a net decrease to MA revenue overall.

“That rate notice has a material impact in terms of revenues associated with our Medicare Advantage portfolio, and as you can see that ripples through the metrics of the organization,” CEO Andrew Witty said during UnitedHealth’s investor day.

UnitedHealthcare, UnitedHealth’s health insurance division, now expects slower Medicare revenue and membership growth next year than analysts expected.

UnitedHealth expects to add between 325,000 and 375,000 Medicare Advantage members next year, representing almost 4% growth at the midpoint — “well below our model,” commented JP Morgan analyst Lisa Gill in a note.

That’s compared to 11% membership growth year to date in 2023, according to CMS data cited in a TD Cowen note. Previously, UnitedHealth leadership said they expected to grow above the overall MA industry growth rate in 2024, so “this appears to be a disappointment,” TD Cowen analyst Gary Taylor wrote.

However, “we are not materially surprised to see the slower growth rate in 2024 given the changes with the risk adjustment,” Gill said.

Some payers have said the rate changes could force them to cut benefits in MA. Yet, UnitedHealth has spent the last six months reconfiguring its plans in response to the rate notice, looking for ways to contain costs without curtailing benefits, Witty said.

UnitedHealthcare should bring in about $303 billion in revenue next year, mostly driven by Medicaid upside, the company said. TD Cowen’s Taylor noted he was unsure why UnitedHealth forecast the Medicaid improvement, given Medicaid payers are shedding members as states recheck eligibility for the safety-net insurance coming out of the COVID-19 pandemic.

UnitedHealth thinks its Medicaid enrollment will drop by up to 200,000 members next year due to redeterminations, the company said.

Eye on Optum Health

UnitedHealth leadership devoted half of their investor day to talking about the insurer’s plans to expand value-based care arrangements — a “core objective” for the next several years, Witty said.

A key actor in striving for that objective is Optum Health, UnitedHealth’s care delivery network that’s under the umbrella of its health services business Optum.

Optum released stronger 2024 guidance than analysts expected. Much of that growth is due to better-than-expected margins for Optum Health, analysts said.

Optum Health has been working to transition commercial lives into more lucrative value-based arrangements, management said in comments earlier this year.

Currently, Optum Health has about 4 million lives in fully accountable payment arrangements — a number that’s nearly doubled from 2021, said UnitedHealthcare CEO Brian Thompson during the investor day.

Optum Health expects to add another 750,000 lives by the end of next year.

”You should expect us to grow that number substantially each year,” Thompson said. “Our long-term ambition is to transition as many people as possible into value-based care.”

Overall, UnitedHealth expects 2024 adjusted profit of $27.50 to $28 a share, largely in line with what analysts expected.

Expected revenue is $400 billion to $403 billion, higher than Wall Street consensus.

What to expect in US healthcare in 2024 and beyond

Posted on by • Posted in ACA, Cost Management, Cost Reduction, Health Insurance Industry, Health Policy, Inflation Reduction Act, Labor Spend Management, Market Consolidation, Market Outlook, Market Trends, Medicaid, Medicaid Eligibility, Medicare 340B Drug Discount Program, Medicare Advantage, Operating Income, Operating Margin, Operating Margin Drivers, Pharmaceutical Industry, Transformational Change, Value Based Care Model, Value-Based Contracting, Value-Based Healthcare • Leave a comment
https://www.mckinsey.com/industries/healthcare/our-insights/what-to-expect-in-us-healthcare-in-2024-and-beyond?stcr=FEFACC03D40F492EBD8401B5DCEEB6C3&cid=other-eml-alt-mip-mck&hlkid=2d8461c861f644cdb13cae55b6af9283&hctky=9502524&hdpid=edd3998f-a0c6-45fa-86c6-b0cd71574e4d

A new perspective on how technology, transformation efforts, and other changes have affected payers, health systems, healthcare services and technology, and pharmacy services.

The acute strain from labor shortages, inflation, and endemic COVID-19 on the healthcare industry’s financial health in 2022 is easing. Much of the improvement is the result of transformation efforts undertaken over the last year or two by healthcare delivery players, with healthcare payers acting more recently. Even so, health-system margins are lagging behind their financial performance relative to prepandemic levels. Skilled nursing and long-term-care profit pools continue to weaken. Eligibility redeterminations in a strong employment economy have hurt payers’ financial performance in the Medicaid segment. But Medicare Advantage and individual segment economics have held up well for payers.

As we look to 2027, the growth of the managed care duals population (individuals who qualify for both Medicaid and Medicare) presents one of the most substantial opportunities for payers. On the healthcare delivery side, financial performance will continue to rebound as transformation efforts, M&A, and revenue diversification bear fruit. Powered by adoption of technology, healthcare services and technology (HST) businesses, particularly those that offer measurable near-term improvements for their customers, will continue to grow, as will pharmacy services players, especially those with a focus on specialty pharmacy.

Below, we provide a perspective on how these changes have affected payers, health systems, healthcare services and technology, and pharmacy services, and what to expect in 2024 and beyond.

The fastest growth in healthcare may occur in several segments

We estimate that healthcare profit pools will grow at a 7 percent CAGR, from $583 billion in 2022 to $819 billion in 2027. Profit pools continued under pressure in 2023 due to high inflation rates and labor shortages; however, we expect a recovery beginning in 2024, spurred by margin and cost optimization and reimbursement-rate increases.

Several segments can expect higher growth in profit pools:

  • Within payer, Medicare Advantage, spurred by the rapid increase in the duals population; the group business, due to recovery of margins post-COVID-19 pandemic; and individual
  • Within health systems, outpatient care settings such as physician offices and ambulatory surgery centers, driven by site-of-care shifts
  • Within HST, the software and platforms businesses (for example, patient engagement and clinical decision support)
  • Within pharmacy services, with specialty pharmacy continuing to experience rapid growth

On the other hand, some segments will continue to see slow growth, including general acute care and post-acute care within health systems, and Medicaid within payers (Exhibit 1).

https://www.mckinsey.com/~/media/mckinsey/industries/healthcare%20systems%20and%20services/our%20insights/what%20to%20expect%20in%20us%20healthcare%20in%202024%20and%20beyond/svgz-what-to-expect-2024-ex1-v4.svgz?cq=50&cpy=Center
Exhibit 1

Several factors will likely influence shifts in profit pools. Two of these are:

Change in payer mix. Enrollment in Medicare Advantage, and particularly the duals population, will continue to grow. Medicare Advantage enrollment has grown historically by 9 percent annually from 2019 to 2022; however, we estimate the growth rate will reduce to 5 percent annually from 2022 to 2027, in line with the latest Centers for Medicare & Medicaid Services (CMS) enrollment data.1 Finally, the duals population enrolled in managed care is estimated to grow at more than a 9 percent CAGR from 2022 through 2027.

We also estimate commercial segment profit pools to rebound as EBITDA margins likely return to historical averages by 2027. Growth is likely to be partially offset by enrollment changes in the segment, prompted by a shift from fully insured to self-insured businesses that could accelerate as employers seek to cut costs if the economy slows. Individual segment profit pools are estimated to expand at a 27 percent CAGR from 2022 to 2027 as enrollment rises, propelled by enhanced subsidies, Medicaid redeterminations, and other potential favorable factors (for example, employer conversions through the Individual Coverage Health Reimbursement Arrangement offered by the Affordable Care Act); EBITDA margins are estimated to improve from 2 percent in 2022 to 5 to 7 percent in 2027. On the other hand, Medicaid enrollment could decline by about ten million lives over the next five years based on our estimates, given recent legislation allowing states to begin eligibility redeterminations (which were paused during the federal public health emergency declared at the start of the COVID-19 pandemic2).

Accelerating value-based care (VBC). Based on our estimates, 90 million lives will be in VBC models by 2027, from 43 million in 2022. This expansion will be fueled by an increase in commercial VBC adoption, greater penetration of Medicare Advantage, and the Medicare Shared Savings Program (MSSP) model in Medicare fee-for-service. Also, substantial growth is expected in the specialty VBC model, where penetration in areas like orthopedics and nephrology could more than double in the next five years.

VBC models are undergoing changes as CMS updates its risk adjustment methodology and as models continue to expand beyond primary care to other specialties (for example, nephrology, oncology, and orthopedics). We expect established models that offer improvements in cost and quality to continue to thrive. The transformation of VBC business models in response to pressures from the current changes could likely deliver outsized improvement in cost and quality outcomes. The penetration of VBC business models is likely to lead to shifts in health delivery profit pools, from acute-care settings to other sites of care such as ambulatory surgical centers, physician offices, and home settings.

Payers: Government segments are expected to be 65 percent larger than commercial segments by 2027

In 2022, overall payer profit pools were $60 billion. Looking ahead, we estimate EBITDA to grow to $78 billion by 2027, a 5 percent CAGR, as the market recovers and approaches historical trends. Drivers are likely to be margin recovery of the commercial segment, inflation-driven incremental premium rate rises, and increased participation in managed care by the duals population. This is likely to be partially offset by margin compression in Medicare Advantage due to regulatory pressures (for example, risk adjustment, decline in the Stars bonus, and technical updates) and membership decline in Medicaid resulting from the expiration of the public health emergency.

We estimate increased labor costs and administrative expenses to reduce payer EBITDA by about 60 basis points in 2023. In addition, health systems are likely to push for reimbursement rate increases (up to about 350 to 400 basis-point incremental rate increases from 2023 to 2027 for the commercial segment and about 200 to 250 basis points for the government segment), according to McKinsey analysis and interviews with external experts.3

Our estimates also suggest that the mix of payer profit pools is likely to shift further toward the government segment (Exhibit 2). Overall, the profit pools for this segment are estimated to be about 65 percent greater than the commercial segment by 2027 ($36 billion compared with $21 billion). This shift would be a result of increasing Medicare Advantage penetration, estimated to reach 52 percent in 2027, and likely continued growth in the duals segment, expanding EBITDA from $7 billion in 2022 to $12 billion in 2027.

https://www.mckinsey.com/~/media/mckinsey/industries/healthcare%20systems%20and%20services/our%20insights/what%20to%20expect%20in%20us%20healthcare%20in%202024%20and%20beyond/svgz-what-to-expect-2024-ex2-v3.svgz?cq=50&cpy=Center
Exhibit 2

Profit pools for the commercial segment declined from $18 billion in 2019 to $15 billion in 2022. We now estimate the commercial segment’s EBITDA margins to regain historical levels by 2027, and profit pools to reach $21 billion, growing at a 7 percent CAGR from 2022 to 2027. Within this segment, a shift from fully insured to self-insured businesses could accelerate in the event of an economic slowdown, which prompts employers to pay greater attention to costs. The fully insured group enrollment could drop from 50 million in 2022 to 46 million in 2027, while the self-insured segment could increase from 108 million to 113 million during the same period.

Health systems: Transformation efforts help accelerate EBITDA recovery

In 2023, health-system profit pools continued to face substantial pressure due to inflation and labor shortages. Estimated growth was less than 5 percent from 2022 to 2023, remaining below prepandemic levels. Health systems have undertaken major transformation and cost containment efforts, particularly within the labor force, helping EBITDA margins recover by up to 100 basis points; some of this recovery was also volume-driven.

Looking ahead, we estimate an 11 percent CAGR from 2023 to 2027, or total EBITDA of $366 billion by 2027 (Exhibit 3). This reflects a rebound from below the long-term historical average in 2023, spurred by transformation efforts and potentially higher reimbursement rates. We anticipate that health systems will likely seek reimbursement increases in the high single digits or higher upon contract renewals (or more than 300 basis points above previous levels) in response to cost inflation in recent years.

https://www.mckinsey.com/~/media/mckinsey/industries/healthcare%20systems%20and%20services/our%20insights/what%20to%20expect%20in%20us%20healthcare%20in%202024%20and%20beyond/svgz-what-to-expect-2024-ex3-v4.svgz?cq=50&cpy=Center
Exhibit 3

Measures to tackle rising costs include improving labor productivity and the application of technological innovation across both administration and care delivery workflows (for example, further process standardization and outsourcing, increased use of digital care, and early adoption of AI within administrative workflows such as revenue cycle management). Despite these measures, 2027 industry EBITDA margins are estimated to be 50 to 100 basis points lower than in 2019, unless there is material acceleration in performance transformation efforts.

There are some meaningful exceptions to this overall outlook for health systems. Although post-acute-care profit pools could be severely affected by labor shortages (particularly nurses), other sites of care might grow (for example, non-acute and outpatient sites such as physician offices and ambulatory surgery centers). We expect accelerated adoption of VBC to drive growth.

HST profit pools will grow in technology-based segments

HST is estimated to be the fastest-growing sector in healthcare. In 2021, we estimated HST profit pools to be $51 billion. In 2022, according to our estimates, the HST profit pool shrank to $49 billion, reflecting a contracting market, wage inflation pressure, and the drag of fixed-technology investment that had not yet fulfilled its potential. Looking ahead, we estimate a 12 percent CAGR in 2022–27 due to the long-term underlying growth trend and rebound from the pandemic-related decline (Exhibit 4). With the continuing technology adoption in healthcare, the greatest acceleration is likely to happen in software and platforms as well as data and analytics, with 15 percent and 22 percent CAGRs, respectively.

https://www.mckinsey.com/~/media/mckinsey/industries/healthcare%20systems%20and%20services/our%20insights/what%20to%20expect%20in%20us%20healthcare%20in%202024%20and%20beyond/svgz-what-to-expect-2024-ex4a-v4.svgz?cq=50&cpy=Center
Exhibit 4

In 2023, we observed an initial recovery in the HST market, supported by lower HST wage pressure and continued adoption of technology by payers and health systems searching for ways to become more efficient (for example, through automation and outsourcing).

Three factors account for the anticipated recovery and growth in HST. First, we expect continued demand from payers and health systems searching to improve efficiency, address labor challenges, and implement new technologies (for example, generative AI). Second, payers and health systems are likely to accept vendor price increases for solutions delivering measurable improvements. Third, we expect HST companies to make operational changes that will improve HST efficiency through better technology deployment and automation across services.

Pharmacy services will continue to grow

The pharmacy market has undergone major changes in recent years, including the impact of the COVID-19 pandemic, the establishment of partnerships across the value chain, and an evolving regulatory environment. Total pharmacy dispensing revenue continues to increase, growing by 9 percent to $550 billion in 2022,4 with projections of a 5 percent CAGR, reaching $700 billion in 2027.5 Specialty pharmacy is one of the fastest growing subsegments within pharmacy services and accounts for 40 percent of prescription revenue6; this subsegment is expected to reach nearly 50 percent of prescription revenue in 2027 (Exhibit 5). We attribute its 8 percent CAGR in revenue growth to increases in utilization and pricing as well as the continued expansion of pipeline therapies (for example, cell and gene therapies and oncology and rare disease therapies) and expect that the revenue growth will be partially offset by reimbursement pressures, specialty generics, and increased adoption of biosimilars. Specialty pharmacy dispensers are also facing an evolving landscape with increased manufacturer contract pharmacy pressures related to the 340B Drug Pricing Program. With restrictions related to size and location of contract pharmacies that covered entities can use, the specialty pharmacy subsegment has seen accelerated investment in hospital-owned pharmacies.

https://www.mckinsey.com/~/media/mckinsey/industries/healthcare%20systems%20and%20services/our%20insights/what%20to%20expect%20in%20us%20healthcare%20in%202024%20and%20beyond/svgz-what-to-expect-2024-ex5-v3.svgz?cq=50&cpy=Center
Exhibit 5

Retail and mail pharmacies continue to face margin pressure and a contraction of profit pools due to reimbursement pressure, labor shortages, inflation, and a plateauing of generic dispensing rates.7 Many chains have recently announced8 efforts to rationalize store footprints while continuing to augment additional services, including the provision of healthcare services.

Over the past year, there has also been increased attention to broad-population drugs such as GLP-1s (indicated for diabetes and obesity). The number of patients meeting clinical eligibility criteria for these drugs is among the largest of any new drug class in the past 20 to 30 years. The increased focus on these drugs has amplified conversations about care and coverage decisions, including considerations around demonstrated adherence to therapy, utilization management measures, and prescriber access points (for example, digital and telehealth services). As we look ahead, patient affordability, cost containment, and predictability of spending will likely remain key themes in the sector. The Inflation Reduction Act is poised to change the Medicare prescription Part D benefit, with a focus on reducing beneficiary out-of-pocket spending, negotiating prices for select drugs, and incentivizing better management of high-cost drugs. These changes, coupled with increased attention to broad-population drugs and the potential of high-cost therapies (such as cell and gene therapies), have set the stage for a shift in care and financing models.

The US healthcare industry faced demanding conditions in 2023, including continuing high inflation rates, labor shortages, and endemic COVID-19. However, the industry has adapted. We expect accelerated improvement efforts to help the industry address its challenges in 2024 and beyond, leading to an eventual return to historical-average profit margins.

Medicare Advantage growth raises critical financial questions

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In the coming year, more than half of Medicare’s 66 million beneficiaries may opt for private Medicare Advantage plans, a development likely to put further strain on an already overstretched healthcare system, according to a report in the New England Journal of Medicine.

The report, written by Gretchen Jacobson and David Blumenthal, raised several questions regarding the ascendancy of MA, its impact on care quality, cost considerations and the broader implications for the healthcare system.

Jacobson, a vice president at the Commonwealth Fund, and Blumenthal, previously the fund’s president, delve into the intricacies of MA, outlining its operational mechanisms, payment structures and performance relative to traditional Medicare.

WHY THIS MATTERS

Medicare Advantage, also known as Medicare Part C, is an alternative to traditional Medicare offered by private insurance companies.

It typically includes additional benefits such as prescription drug coverage, dental, vision and wellness programs, often with different cost-sharing structures compared to traditional Medicare.

A November report from Inovalon indicated MA beneficiaries generally experience improved health outcomes, encountering reduced avoidable hospitalizations, readmissions and lower rates of high-risk medication use.

The authors of the NEJM report question the affordability of a program that costs a minimum of 6% more per enrollee and scrutinized the insights offered by MA’s popularity concerning the limitations of traditional Medicare.

This growing expense, even prior to factoring in the effects of selective enrollment into MA, elevates federal expenditures, widens deficits and ultimately heightens costs for all beneficiaries.

The report cautioned the resultant fiscal strains exert pressure to curtail Medicare benefits and elevate federal taxes – both politically complex undertakings.

Furthermore, the escalating clout of the MA sector, accompanied by the substantial enrollment of older voters in these plans, presents political hurdles to significantly altering the program’s trajectory. The study also analyzed the implications of MA’s popularity on the constraints of traditional Medicare.

The allure of supplementary benefits and capped out-of-pocket expenses within MA designs has magnetized older and disabled Americans, while attempts to incorporate such services within traditional Medicare have met consistent failure due to explicit cost constraints.

The report notes the federal government indirectly shoulders these expenses through augmented payments to plans, and adds that the profits amassed by MA plans – which it says verge on being excessive – may not uniformly represent genuine efficiencies or enhanced value.

“Aside from these broad policy issues, some more-practical questions arise,” the study explained. “One concerns how the growth of Medicare Advantage will affect the ability of policymakers and researchers to understand and manage the Medicare program and the health system generally.”

The study suggests enhanced federal policies on risk adjustment, coding incentives, payment structures for quality and rectification of market imbalances in MA could improve evaluation of plan value for beneficiaries and taxpayers. It calls for ensuring accurate provider directories to mitigate misleading tactics.

“As Medicare Advantage continues to grow, federal authorities and plan stakeholders face a continuing challenge to craft a program that is affordable, high in quality, and free of abuse and that meets the needs of beneficiaries,” the report concludes.

THE LARGER TREND

A recent analysis of 1,300 hospitals revealed escalating reimbursement delays and shrinking cash reserves, highlighting the urgent need for interventions to ease financial strain and maintain consistent patient care.

The American Hospital Association has also urged the Centers for Medicare and Medicaid Services to address MA insurers that are disregarding CMS coverage rules.

The 2024 MA final rule ensures better alignment and coverage parity between traditional Medicare and MA, and increases oversight of Medicare Advantage Organizations (MAOs).

How Elevance Health plans to integrate ‘food as medicine’ across its lines of business

Posted on by • Posted in Elevance Health, Food as Form of Medicine, Food as Medicine Strategy, Health Insurance Industry, Innovation • Leave a comment
https://www.beckerspayer.com/leadership/how-elevance-health-plans-to-integrate-food-as-medicine-across-its-lines-of-business.html?origin=PayerE&utm_source=PayerE&utm_medium=email&utm_content=newsletter&oly_enc_id=2893H2397267F7G

In June, Elevance Health named Kofi Essel, MD, as its first food as medicine program director, signaling a paradigm shift within one of the country’s largest healthcare organizations. 

Dr. Essel is a community pediatrician by training, having most recently worked at Children’s National Health System in Washington, D.C. Before that, he was the director of the culinary medicine program at George Washington University’s School of Medicine and Health Sciences. 

He sat down with Becker’s to discuss how Elevance is building a food as medicine strategy intended to eventually touch and improve the lives of its more than 47 million members nationwide.

Question: How do you define “food as medicine” as it relates to your role at Elevance Health?

Dr. Kofi Essel: The definition I’ve been leading around “food as medicine” are the strategies or interventions that work alongside healthcare and give access to high-quality foods, and a focus on prevention, management and treatment of disease. We also love to center this around health equity and thinking strongly about the importance of high-quality nutrition education as well.

Q: What’s your plan to integrate the “food as medicine” concept into Elevance Health’s insurance and other product offerings?

KE: We as a company strongly believe in the concept of whole health and really recognizing that the health of our members around the country is far more than what’s happening in the four walls of the clinical setting. We also believe that because we get great insight into the lives of our members in a variety of different settings, we are uniquely positioned to be able to respond to their whole health, including socioeconomic and behavioral health backgrounds. Food as medicine fits into this concept because we’re thinking about challenges around food and nutrition insecurity, and diet-related chronic diseases. This is a quite prevalent issue across the country, and we’re thinking about this through every line of business in Medicaid, commercial and Medicare. 

We’ve been doing a lot of work in this space as an organization, and our philanthropic arm has committed $30 million over a three-year period to authentic foods as medicine solutions. One of the grantees that we supported in their community based efforts has been Feeding America, the largest umbrella organization for the majority of food banks around the country. They’ve been doing some phenomenal work creating what we call food pharmacies, which team up with health clinics. We’ve seen them collect some unique data, so we’re really excited about what we expect to see from that partnership in particular. 

I will also say one of the big things that I’ve been working with our teams around is building our actual strategy. How are we going to incorporate this concept into every line of business? We are getting ready to roll out some pilots because the data is quite clear that these interventions are effective.

Q: Are there emerging trends or innovations in nutritional science that you think can enhance traditional health plans?

EF: The science around food as medicine is emerging and exciting and exists — and the data is quite clear that diet affects disease and health outcomes. There are a few different kinds of food as medicine interventions, such as medically tailored meals, medically tailored groceries and produce prescriptions.

There’s also strategies around using federal nutrition programs and other population or community-level policies and programs that we can lean into, including around quality nutrition education. I reviewed one recent study that looked at the power of produce prescription initiatives, which a lot of people have asked me, “What’s the point?” I point them to the data: One in 10 adults and children consume enough fruits and vegetables, meaning our consumption of fiber and other nutrients is quite low. 

When families are provided a produce prescription, we see significant changes in hemoglobin A1C, which is a marker for diabetes. We see significant changes in blood pressure and significant improvement in weight management and overall health outcomes. So the data that these interventions can work is a powerful reminder to keep this great work going.

Q: Why should every major healthcare organization employ someone in your role?

EF: When you look at professional guidelines for organizations addressing a variety of different diet-related chronic diseases, one of the first things you’re going to see as an intervention option for patients is using lifestyle components such as food as a priority.

Unfortunately, the reality is we as medical providers aren’t always given the training that’s necessary to be able to engage in these meaningful conversations with our patients and families. It’s important to have a paradigm shift in how we incorporate this priority topic into how we engage with members across the country. Having a food as medicine director, or prioritizing food as medicine within an organization, is a key element to improving the health of patients and members. 

Senators concerned Medicare Advantage plans deny long-term care

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A pair of senators are asking CMS to require Medicare Advantage plans to cover stays in long-term care facilities at the same rate as traditional Medicare. 

Chris Murphy, a Connecticut Democrat, and Thom Tillis, a North Carolina Republican, wrote a letter to CMS Administrator Chiquita Brooks-LaSure Dec. 21, asking the agency to clarify MA plans cannot use different standards to approve long-term care than traditional Medicare. 

In their letter the senators wrote they have heard concerns from long-term care hospitals in states that “regularly receive denial letters from Medicare Advantage plans.” 

“Unfortunately, Medicare Advantage plan prior authorization practices are creating significant barriers to [long-term hospital] care for critically and chronically ill patients,” the senators wrote. 

In a final rule issued in April, CMS said Medicare Advantage plans cannot implement prior authorization criteria that are more stringent than traditional Medicare. In their letter, the senators asked the agency to clarify this statute also applies to long-term care hospitals. 

“We write to ask CMS to confirm this interpretation is correct and to request such information be publicly clarified to eliminate confusion for Medicare Advantage plans and ensure that [long-term care hospitals] are treated the same as any other post-acute care provider under the Medicare Advantage regulations,” the senators concluded. 

Read the full letter here. 

Providers threaten to leave MA networks amid contentious negotiations  

Posted on by • Posted in Health Insurance Denial, Health Insurance Industry, Health System, Hospital, Hospital Industry, Margin Improvement, Market Consolidation, Market Power, Market Share, Market Trends, Medicare Advantage, Payor Contracting • Leave a comment

https://mailchi.mp/79ecc69aca80/the-weekly-gist-december-15-2023?e=d1e747d2d8

This week’s graphic highlights increasing tensions between health systems and Medicare Advantage (MA) plans as they battle over what providers see as unsatisfactory payment rates and insurer business practices.

On paper, many providers have negotiated rates with MA plans that are similar to traditional fee-for-service Medicare, but find MA patients are subject to more prior authorizations and denials, as well as delayed discharges to postacute care, which increases inpatient length of stay and hospital costs. 

A number of health system leaders have reported their revenue capture for MA patients dropped to roughly 80 percent of fee-for-service Medicare rates due to an increase in the mean length of stay for MA patients, caused by carriers narrowing postacute provider networks.

As a result, a growing number of health systems and medical groups have either already exited, or plan to exit, MA networks due to what they see as insufficient reimbursement. 

Health systems with a strong regional presence may be able to leverage their market share to get MA payers to play ball. But for health systems in more competitive markets, these hardline negotiation tactics run the risk of payers merely directing their patients elsewhere. 

Regardless of market dynamics, providers exiting insurance plans is extremely disruptive for patients, who won’t understand the dynamics of payer-provider negotiations—but will feel frustrated when they can’t see their preferred physicians.