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.
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.
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).
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.
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.
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.
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 2027.5Specialty 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.
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.7Many 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.
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 2024 MA final rule ensures better alignment and coverage parity between traditional Medicare and MA, and increases oversight of Medicare Advantage Organizations (MAOs).
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.
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, whichincreases 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.
Published last week in the Wall Street Journal, this piece predicts that the era of immense profitability for Medicare Advantage (MA) insurers may be drawing to a close.
MA has experienced rapid growth over the past decade, due both to the pace of Baby Boomers aging into Medicare, and the increasing numbers of beneficiaries choosing MA plans. In 2023, MA surpassed 50 percent of total Medicare enrollment.
Payers readily embraced the MA market because they found they could earn gross margins two to three times higher than from a commercial life.
However, as the rate of enrollment growth begins to slow (the last of the Boomers will turn 65 in 2030), competition between payers increases, and government payments become less generous, the MA business—while still profitable—is poised to become less of a jackpot.
The Gist:While MA has been an outsized driver of profits for insurance companies in recent years,the nation’s two largest MA payers, UnitedHealth Group (UHG) and Humana, have been signaling growing concerns to the market.
UHG announced late last month that its 2024 MA enrollment growth will be less than half of its 2023 rate, and Humana has been engaged in merger talks with Cigna.
As the “gold rush” period ends, MA payers will have to earn their keep by better integrating their various care and data assets, and more carefully managing spending for an aging cohort of seniors with increasingly complex needs, both much harder than riding a demographic wave to easy profits.
Following rumors of a potential merger reported last month by the Wall Street Journal, the paper shared this week that Bloomfield, CT-based Cigna is no longer pursuing an acquisition of Louisville, KY-based Humana.
According to insiders, the $140B merger was scuttled when the two health insurance giants couldn’t agree on price and other terms.
Instead, Cigna announced that it will be focusing on smaller, bolt-on acquisitions, and is reportedly still considering divesting its Medicare Advantage business.
Cigna also announced $10B of stock buybacks to assuage shareholders, who reacted negatively to the rumored deal, dropping the company’s stock price by nearly 10 percent since merger rumors surfaced.
The Gist: While there are several reasons why this deal may have been called off—Wall Street’s adverse reaction, antitrust concerns, leaking of the talks before the parties were ready—this likely isn’t the end of either payer’s pursuit of greater scale, as both stand in UnitedHealth Group’s giant shadow.
Given Cigna and Humana have each had potential mergers with other payers blocked by the courts, and federal antitrust scrutiny is only increasing, we’re wondering if each may be also looking at nontraditional partners (as Humana explored with Walmart in 2018), though the universe of companies with an interest in a vertically-integrated insurance and care business—and deep enough pockets—is small.
Claim denials are increasing, especially in Medicare Advantage, and it’s affecting hospital’s revenue cycles and patient care.
“We definitely are seeing an increase in denials,” said Sherri Liebl, executive director of Revenue Cycle, CentraCare Health, a large multispecialty system in Minnesota. CareCare has two acute care hospitals, seven Critical Access Hospitals and 30 standalone clinics, many of them in rural areas.
CentraCare reported a positive margin this year, but in no way realizes the profits of insurers, especially the national insurers where Liebl is having the most difficulty with claims.
CentraCare’s goal in its cost to collect – not all-around denials – is to be at 2%. The health system is closer to 7% on its cost to collect.
“The cost for our organization is exorbitant,” Lieble said.
Much of the blame for denials is falling to artificial intelligence being used in algorithms to deny claims.
UnitedHealthcare has been sued in a class action lawsuit that alleges the insurer unlawfully used an artificial intelligence algorithm to deny rehabilitative care to sick Medicare Advantage patients.
Cigna has also been suedfor allegedly using algorithms to deny claims. The lawsuit claims the Cigna PXDX algorithm enables automatic denials for treatments that do not match preset criteria, evading the legally required individual physician review process.
A Cigna Healthcare spokesperson said the vast majority of claims reviewed through PXDX are automatically paid, and that the PXDX process does not involve algorithms, AI or machine learning, but a simple sorting technology that has been used for more than a decade to match up codes. Claims declined for payment via PXDX represent less than 1% of the total volume of claims, the spokesperson said.
Industry consultant Adam Hjerpe, who formerly worked for UnitedHealth Group, said there’s nothing new about payers using artificial intelligence. AI has been used for 20 years in robotic processes, statements in Excel and algorithms, he said.
Everybody is working with good intent, Hjerpe said. There are reasonable controls in place to avoid fraud and abuse.
Claims are being denied for missing information, or for the information being out of sequence, or for the claim giving an incomplete picture of the care.
“We don’t want care delayed,” he said.
Nobody wins in claims denials, said Susan Taylor, Pega’s vice president of Healthcare and Life Sciences.
While payers save money in the short-term, in the long-term, the best arrangement is to have payers and providers work together to prevent denials, said Taylor, who has worked in healthcare for more than 25 years, starting on the health system side before moving into IT.
“There are more claims of note being denied,” Taylor said. “If you look at the ecosystem, there are a lot of opportunities for error.”
The solution is building an agility layer to streamline workflows throughout the revenue cycle, from initial claim submission to the complex denials processing stage.
WHY THIS MATTERS
Liebl said that denials have increased over the past two years and that there’s also been an uptick in payer audits months after payment has been made.
Insurers want justification for why CentraCare should keep its payments, and this is especially true for Medicare Advantage claims, she said.
One insurer said the claim didn’t meet inpatient criteria and downgraded the claim to an observation patient.
“We have a pretty good success rate as far as being able to justify we did the right care,” Liebl said.
Asked what’s driving the higher denial rates Lieble said, “Everybody wants to keep margins and expand their business. I think it comes down to profit margins, trying to keep profit margins high; we’re just trying to stay afloat.”
To combat denials and work with payers, CentraCare founded a joint operating committee to have successful partnerships. They’ve been more successful with the local Minnesota plans than the national plans, but Liebl is optimistic, she said.
“I am hopeful we can create partnerships …” she said. “Some of the denials we receive are against their payer policy. We need to be able to hold payers accountable.”
Larger health systems have a little more clout, and CentraCare is able to partner with other health systems through the Minnesota Hospital Association.
What’s being lost in all this is the patient, Liebl said. Sometimes a patient is getting a bill up to a year after a procedure.
“Sometimes the patient focus is lost when we work through some of this,” she said.
“They keep our money longer,” Liebl said. “They hold our money hostage. We have denials sitting out there for 300 days. It’s a lot of administrative burden on our part. We’ve spent a lot of money just to get the money in the door. Finally when that claim has been resolved, it’s a year later. No one wins? I think there is some winning going on one side.”
According to a Wall Street Journal exclusive published this Wednesday, Bloomfield, CT-based Cigna and Louisville, KY-based Humana, two of the nation’s largest health insurers, are exploring a merger that could close as soon as the end of this year.
With Cigna valued at around $83B and Humana at roughly $62B, their potential combination would be the largest domestic merger of the year, not just in healthcare, but across all industries.
According to anonymous insiders, the companies are discussing a cash-and-stock deal, but nothing has been finalized. Should an agreement be reached, the merger is expected to receive close attention from antitrust authorities. Both Humana and Cigna have attempted to merge with rival insurers over the past decade, only to see the deals blocked on antitrust grounds.
The Gist: This would be a blockbuster deal, putting the combined entity on par with CVS Health and UnitedHealth Group.
Though Cigna and Humana have relatively little direct overlap in their health insurance businesses—Humana recently announced it will exit the commercial group business to focus on its more successful Medicare Advantage (MA) offerings and Cigna, mostly a commercial insurer, is reportedly shopping its much smaller MA business—their respective pharmacy benefit managers (PBMs) may be an antitrust sticking point. (By market share, Cigna’s Express Scripts is the second-largest PBM, while Humana’s CenterWell Pharmacy is fourth.)
Given the Biden administration’s focus on targeting potentially anticompetitive healthcare mergers, as well as rising Congressional scrutiny around PBMs, this potential merger is sure to face many hurdles prior to closing.
Medicare Advantage and commercial claims denials have spiked across the country, leaving hospitals increasingly financially strapped, according to research published Nov. 17 by the American Hospital Association and Syntellis.
The report analyzed data from a national sample of 1,300 hospitals and health systems. From January 2022 to July 2023, revenue reductions related to Medicare Advantage denials increased 55.7% for the median hospital. During the same period, denial-related revenue reductions rose 20.2% for commercial plans. For denials relative to net patient service revenue for the median hospital, Medicare Advantage plans saw an increase of 63.3% and commercial plans rose 20%.
“[Hospitals] must take larger revenue reductions to account for those lost reimbursements from commercial payers and Medicare Advantage plans, which cover more than 31 million Americans and make up about half of all Medicare beneficiaries,” the report said. “The challenges will only worsen as Medicare Advantage enrollment continues to grow.”
In November 2022, an AHA survey found that half of hospitals and health systems reported having more than $100 million in unpaid claims that were more than 6 months old. As of June 2023, health systems had a median of 124 days cash on hand, down from 173 days in January 2022.
The new data coincides with recent reporting from Becker’s about hospitals across the country that have ended some or all Medicare Advantage contracts. The reasons behind contract terminations vary by system and by payer offering the plan. Some systems have cited steep losses amid excessive prior authorization denial rates and slow payments from insurers. Others have noted that most MA carriers have faced allegations of billing fraud from the federal government and are being probed by lawmakers over their high denial rates.
“It’s become a game of delay, deny and not pay,” Chris Van Gorder, president and CEO of San Diego-based Scripps Health, told Becker’s in September.
According to data shared with Becker’s by FTI Consulting, among the 64 contract disputes reported in the media this year through Sept. 30, 37 involved Medicare Advantage plans, and 10 disputes exclusively involved MA plans. In the third quarter alone, 15 disputes involved MA plans, compared to seven in the third quarter of 2022, a 115% increase year over year.
HENRY KOTULA 