Wall Street Yawned as Congress Grilled UnitedHealth’s CEO but Went Ballistic on CVS/Aetna Over Medicare Advantage Claims

Posted on by • Posted in Citizens United vs Federal Election Commission, CVS Health, Federal Trade Commission (FTC), Health Insurance Industry, Lobbyist, Market Consolidation, Market Power, Market Share, Medicare Advantage, Monopoly Behavior, Pharmaceutical Industry, Pharmacy Benefits Management, UnitedHealth Group, UnitedHealthcare, Vertical Consolidation, Vertical Integration • Leave a comment
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After UnitedHealth Group CEO Andrew Witty’s appearances at two congressional committee hearings last week, I had planned to write a story about what the lawmakers had to say. One idea I considered was to publish a compilation of some of the best zingers, and there were plenty, from Democrats and Republicans alike. 

I reconsidered that idea because I know from the nearly half-century I have spent on or around Capitol Hill in one capacity or another that those zingers were carefully crafted by staffers who know how to write talking points to make them irresistible to the media. As a young Washington correspondent in the mid-to-late’70s, I included countless talking points in the stories I wrote for Scripps-Howard newspapers. After that, I wrote talking points for a gubernatorial candidate in Tennessee. I would go from there to write scads of them for CEOs and lobbyists to use with politicians and reporters during my 20 years in the health insurance business. 

I know the game. And I know that despite all the arrows 40 members of Congress on both sides of the Hill shot at Witty last Wednesday, little if anything that could significantly change how UnitedHealth and the other big insurers do business will be enacted this year. 

Some reforms that would force their pharmacy benefit managers to be more “transparent” and that would ban some of the many fees they charge might wind up in a funding bill in the coming months, but you can be sure Big Insurance will spend millions of your premium dollars to keep anything from passing that might shrink profit margins even slightly.

Money in politics is the elephant in any Congressional hearing room or executive branch office you might find yourself in (and it’s why I coauthored Nation on the Take with Nick Penniman).

You will hear plenty of sound and fury in those rooms but don’t hold your breath waiting for relief from ever-increasing premiums and out-of-pocket requirements and the many other barriers Big Insurance has erected to keep you from getting the care you need.

It is those same barriers doctors and nurses cite when they acknowledge the “moral injury” they incur trying to care for their patients under the tightening constraints imposed on them by profit-obsessed insurers, investors and giant hospital-based systems. 

Funny not funny

Cartoonist Stephan Pastis captured the consequences of the corporate takeover of our government, accelerated by the Supreme Court’s 2010 landmark Citizens United vs. Federal Election Commission ruling, in his Pearls Before Swine cartoon strip Sunday. 

Rat: Where are you going, Pig?

Pig: To a politician’s rally. I’m taking my magic translation box.

Rat: He doesn’t speak English?

Pig: He speaks politicianish. This translates it into the truth. Come see.

Politician: In conclusion, if you send me to Washington, I’ll clean up this corrupt system and fight for you everyday hard-working Americans. God bless you. God bless the troops. And God bless America.

Magic translation box: I am given millions of dollars by the rich and the powerful to keep this rigged system exactly as it is. Until you change that, none of this will ever change and we’ll keep hoping you’re too distracted to notice. 

Politician’s campaign goon: We’re gonna need a word with you.

Magic translation box: This is too much truth for one comic strip. Prepare to be disappeared.

Rat: I don’t know him.   

Back to Sir Witty’s time on the hot seat. It attracted a fair amount of media coverage, chock full of politicians’ talking points, including in The New York Times and The Washington Post. (You can read this short Reuters story for free.) Witty, of course, came equipped with his own talking points, and he followed his PR and legal teams’ counsel: to be contrite at every opportunity; to extol the supposed benefits of bigness in health care (UnitedHealth being by far the world’s largest health care corporation) all the while stressing that his company is not really all that big because it doesn’t, you know, own hospitals and pharmaceutical companies [yet]; and to assure us all that the fixes to its hacked claims-handling subsidiary Change Healthcare are all but in.

Congress? Meh. Paying for care? WTF!

Wall Street was relieved and impressed that Witty acquitted himself so well. Investors shrugged off the many barbs aimed at him and his vast international empire. By the end of the day Wednesday, the company’s stock price had actually inched up a few cents, to $484.11. A modest 2.7 million shares of UnitedHealth’s stock were traded that day, considerably fewer than usual. 

Instead of punishing UnitedHealth, investors inflicted massive pain on its chief rival, CVS, which owns Aetna. On the same day Witty went to Washington, CVS had to disclose that it missed Wall Street financial analyst’s earnings-per-share expectations for the first quarter of 2024 by several cents. Shareholders’ furor sent CVS’ stock price tumbling from $67.71 to a 15-year low of $54 at one point Wednesday before settling at $56.31 by the time the New York Stock Exchange closed. An astonishing 65.7 million shares of CVS stock were traded that day. 

The company’s sin: paying too many claims for seniors and disabled people enrolled in its Medicare Advantage plans. CVS’s stock price continued to slide throughout the week, ending at $55.90 on Friday afternoon. UnitedHealth’s stock price kept going up, closing at $492.45 on Friday. CVS gained a bit on Monday, closing at $55.97. UnitedHealth was up to $494.38.

Postscript: I do want to bring to your attention one exchange between Witty and Rep. Buddy Carter (R-Ga.) during the House Energy and Commerce committee hearing. Carter is a pharmacist who has seen firsthand how UnitedHealth’s virtual integration–operating health insurance companies with one hand and racking up physician practices and clinics with the other–and its PBM’s business practices have contributed to the closure of hundreds of independent pharmacies in recent years. He’s also seen patients walk away from the pharmacy counter without their medications because of PBMs’ out-of-pocket demands (often hundreds and thousands of dollars). And he’s seen other patients face life-threatenng delays because of industry prior authorization requirements. Carter was instrumental in persuading the Federal Trade Commission to investigate PBMs’ ownership and business practices. He told Witty: 

I’m going to continue to bust this up…This vertical integration in health care in general has got to end.

More power to you, Mr. Carter. 

Medicare go-broke date extended to 2036, but warning bells continue ringing

Posted on by • Posted in American Hospital Association (AHA), Medical Trust Fund Solvency, Medicare Trust Fund • Leave a comment
https://www.healthcaredive.com/news/medicare-insolvency-deadline-trustees-2024-report/715342/?utm_source=Sailthru&utm_medium=email&utm_campaign=Issue:%202024-05-07%20Healthcare%20Dive%20%5Bissue:61826%5D&utm_term=Healthcare%20Dive

The Medicare trustees’ new projection for insolvency is five years later than previous forecasts, but budget hawks warned action is still needed to shore up the insurance program’s finances.

Dive Brief:

  • A key trust fund underpinning the massive Medicare program has a new insolvency date: 2036, according to a new report from the Medicare trustees.
  • That’s five years later than the go-broke date in last year’s report, thanks to more workers being paid higher wages causing more revenue to flow into the trust fund’s coffers, along with lower spending on pricey hospital and home health services.
  • Still, looming insolvency absent action in Washington remains a serious source of concern for the longevity of Medicare, which covers almost 67 million senior and disabled Americans, according to budget hawks.

Dive Insight:

Dire predictions in the annual Medicare trustees report have varied in the past few years. In 2020, in the early throes of COVID-19, the board predicted the Hospital Insurance Trust Fund fund would run out by 2026. That deadline was pushed back to 2028 and then 2031 in subsequent years’ reports, amid a broader economic rebound and more care shifting to cheaper outpatient settings.

Now, the trustees — a group comprised of the Treasury, Labor and HHS secretaries, along with the Social Security commissioner — are forecasting an additional five years of breathing room for Medicare solvency.

Along with the healthier economy, that’s in part due to the Inflation Reduction Act passed in 2022, which restrains price growth and allows Medicare to negotiate drug prices for certain Part B and Part D drugs, and should lower government spending in the program overall, according to the report.

The Hospital Insurance Trust Fund, which pays hospitals and providers of post-acute services, and also covers some of the cost of private Medicare Advantage plans, is mostly funded by payroll taxes, along with income from premiums.

The HI fund is separate from another trust fund that covers benefits for Medicare Parts B and D, including outpatient services and physician-administered drugs. That Supplemental Medical Insurance trust fund is largely funded by premiums and general revenue that resets each year and doesn’t face the same solvency concerns.

In 2023, HI income exceeded spending by $12.2 billion. Surpluses should continue through 2029, followed by deficits until the fund runs out entirely in 2036, according to the report.

At that point, the government won’t be able to pay full benefits for inpatient hospital visits, nursing home stays and home healthcare.

Spending is projected to grow substantially in Medicare largely due to demographic changes.

The number of Americans at the qualification age for Medicare is projected to reach 95 million by 2060, rising from 16% of the total population in 2018 to 23% at that time, according to the Census Bureau. As a result, beneficiaries in the program will swell as the number of workers paying into the trust fund shrinks.

The trustees forecast Medicare’s costs under current law will rise steadily from their current level of 3.8% of the gross domestic product, to 5.8% in 2048 and 6.2% by 2098.

To date, lawmakers have not allowed the Medicare trust fund to become depleted. But amid increasingly dire warnings from trustees and watchdogs urging the need to align spending with revenue, Congress has delayed taking action to improve Medicare’s finances, following bipartisan efforts to lower spending in the early 2010s.

The fund hasn’t met the trustees’ test for short-range financial adequacy since 2003, and has triggered funding warnings since 2018.

“The absurd part is that we’ve known insolvency was looming for quite some time. We’re driving straight into this mess despite all the warning bells and alarms that the Trustees and others have been ringing for decades now,” Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said in a statement on the report.

Along with concerns about Medicare access and quality for seniors, physicians will also be heavily affected by Medicare insolvency, according to the report. Physician groups, which perennially slam Medicare for low payment rates as it is, used the report to lobby for spending reform to align reimbursement with the cost of practicing medicine.

The American Medical Association argued the report highlights the need for policy changes, such as linking the annual payment update for doctors to the Medicare Economic Index, a measure of practice cost inflation — a suggestion also supported by influential congressional advisory group MedPAC.

“It would be political malpractice for Congress to sit on its hands and not respond to this report,” AMA President Jesse Ehrenfeld said in a statement.

Federal entitlement programs like Medicare remain on shaky ground because lawmakers are loath to take steps to increase revenue (i.e. raise taxes) or lower spending (i.e. raise the age of eligibility), measures deeply unpopular with voters.

Last year, President Joe Biden pitched a plan to keep Medicare’s hospital trust fund solvent beyond 2050 without cutting benefits. The plan would further reduce what Medicare pays for prescription drugs and raise taxes on Americans earning over $400,000.

There has been no movement in Congress on the proposal. Yet in a statement Monday, Biden took credit for strengthening Medicare, while his campaign in an email reupped comments from Republican presidential candidate Donald Trump that if elected he would consider cutting Medicare and other entitlement programs. Trump, who later walked back the comments, has not proposed a plan to address Medicare’s shortfall.

Steward’s bankruptcy documents reveal sprawling debt, planned hospital fire sale

Posted on by • Posted in Bankruptcy, Chapter 11, Financial Distress, Financial Instability, Financial Stewardship, Financial Strength, Financial Transparency, Financial Viability, Financially Distressed, Health System, Restructure • Leave a comment
https://www.healthcaredive.com/news/stewards-bankruptcy-documents-reveal-sprawling-debt-planned-hospital-fire/715245/?utm_source=Sailthru&utm_medium=email&utm_campaign=Issue:%202024-05-07%20Healthcare%20Dive%20%5Bissue:61826%5D&utm_term=Healthcare%20Dive

Since filing for bankruptcy Monday, Steward Health Care revealed it’s carrying more than $1 billion in debt and said its entire hospital portfolio is for sale.

At 3:30 a.m. Monday, Steward Health Care filed for Chapter 11 protections in U.S. Bankruptcy Court for the Southern District of Texas.

Eleven minutes later, Steward employees had an email waiting from their CEO, Ralph de la Torre. The CEO told his staff that industrywide economic headwinds and delays in Steward’s planned asset sales had forced the physician-owned health network to initiate restructuring proceedings.

“It is incumbent on all of us to ensure that this process has no impact on the quality care our patients, their families, and our communities can continue to receive at our hospitals,” de la Torre wrote in an email viewed by Healthcare Dive. “To the vast majority of you, operations will either not be different or improve.”

“To be clear, this is a restructuring under chapter 11; it is not a closure and it is not a liquidation,” he wrote.

The email was the first time employees had heard directly from Steward leadership about the company’s financial distress — though rumors and uncertainty about the operator had been festering for weeks, according to Marlishia Aho, regional communications director for the union 1199SEIU United Healthcare Workers East.

Leading up to Monday’s filing, state and federal lawmakers were increasingly worried about how a bankruptcy at the largest physician-led hospital operator in the country would impact access to care. 

Regulators in Massachusetts — where Steward operates eight hospitals — held closed-door strategy sessions to map out contingency in case of a bankruptcy, and workers staged rallies to protest possible hospital closures.

Steward provides care for more than 2 million patients each year across 31 hospitals and 400 facility locations, according to bankruptcy filings. The company also employs nearly 30,000 employees across its eight-state portfolio, including 4,500 primary and specialty care physicians. 

Steward’s first-day bankruptcy motions shed light on the operator’s future — and outlines its strategy for paying down its massive debt by selling assets. Here are the biggest takeaways.

Steward’s sprawling debt

Steward has earned a reputation for being cagey about its finances — to the dismay of Massachusetts Gov. Maura Healey, who accused the company of operating in a “black box” in a letter to its CEO earlier this year.

The operator has refused to file routine finances with Massachusetts regulators for years, citing a need to protect confidential business data. Even as the company shuttered hospitals this winter, regulators said Steward still dragged its feet on providing financial data, frustrating policymakers’ efforts to build out contingency plans.

“One of the good things about bankruptcy is that Steward and its CEO … will no longer be able to lie,” said Healey during a press conference Monday morning. “Transparency is really important here, and that’s why you know we’re looking forward to seeing what is in the various documents … We need clarity about debts and liabilities.”

In a slew of first-day motions, Steward now revealed it owes around $1.2 billion in total loan debts and about $6.6 billion in long-term lease payments.

Steward owes north of $600 million to 30 of its largest lenders, which include UnitedHealth-owned Change Healthcare, Philips North America LLC, Medline Industries, AYA Healthcare and Cerner.

The healthcare operator owes $289.8 million in unpaid compensation obligations, including $68 million to its own workers in unpaid employee salaries, $105.6 million in payments for physician services and $47.7 million owed to staffing agencies.

It also has approximately $979.4 million outstanding in trade obligations, of which approximately 70% are over 120 days past due.

The filings follow lawsuits from a multitude vendors — including staffing firms, consultants, medical equipment companies, electricians and marketing research companies — who said Steward reneged on payment obligations.

Steward’s interim funding tied to hospital sales

Though Steward had a consortium of six private lenders financing its asset-based loans this year, now only one lender is listed in bankruptcy filings as funding its debtor-in-possession financing: its landlord, Medical Properties Trust.

The change in vendors is notable, according to Laura Coordes, professor of law at the Sandra Day O’Connor College of Law at Arizona State University.

“Something went on to get these other lenders to drop out,” she said.

The landlord may be opting to fund Steward during bankruptcy proceedings in hopes of getting its own money back more expediently, according to Coordes.

Steward is MPT’s largest tenant and the healthcare network will owe MPT at least $6.9 billion in debt and lease obligations by 2041, according to the filings.

MPT agreed to finance $75 million debtor-in-possession financing and could fund up to $225 million more if Steward completes asset sale milestones on time.

During Tuesday morning’s first day hearing a representative for Steward told Judge Chris Lopez that all of Steward’s 31 hospitals are for sale. But to receive the $225 million from MPT, Steward has to hit aggressive sales milestones. It must host an auction for all non-Florida hospitals by June 28 and all Florida properties by July 30.

Since February, MPT executives have said there is strong interest from buyers in taking over Steward leases. However, Steward has yet to sell a hospital.

Experts have told Healthcare Dive they’re skeptical other operators would take on Steward’s leases at MPT’s current rental rates.

“Given the unaffordability of the leases and given that it hasn’t worked in the past, I do think that really material rent concessions are going to be needed to get this done,” said Rob Simone, sector head of real estate investment trusts at analyst firm Hedgeye.

Steward also signed a letter of intent to sell its physician group, Stewardship Health, to UnitedHealth. Although the deal was first announced in March, regulators have not yet begun reviewing the deal, according to David Seltz, executive director of the Massachusetts Health Policy Commission. Seltz said missing paperwork is delaying the review.

The Stewardship deal is not tied to further funding. A representative from UnitedHealth declined to comment on the pending deal and whether the bankruptcy proceeding would impact the sale.

Future of Steward

Employees have received conflicting messages about the future of Steward hospitals.

On one hand, both de la Torre and Massachusetts officials said Monday that Steward hospitals would remain open this week. However, Healey also emphasized that she wants Steward out of the state.

“Ultimately, [bankruptcy] is a step toward our goal of getting Steward out of Massachusetts,” Healey said during a press conference Monday.

Some Steward facilities may wind down during the bankruptcy proceedings, said Massachusetts Attorney General Andrea Campbell. Her office will oversee that process closely, and Steward will be required to provide licensing and notice obligations.

A healthcare worker at Steward’s Nashoba Valley Hospital told Healthcare Dive Monday she’s particularly concerned about the fate of her facility, which she says serves 14 communities but is small compared to some other hospitals in Steward’s portfolio. She doesn’t want regulators to forget about Nashoba.

“What I’m hoping for is that our state representatives and our local representatives really push to keep the hospital open,” she said. “But my concern is we get overlooked.”

State officials said they would continue monitoring Steward facilities to ensure quality care and push for the appointment of a patient care ombudsman to represent the interests of patients and employees during bankruptcy proceedings. Officials have already launched a website to offer resources about the bankruptcy process.

Still, employees are unsure of the path forward.

The Nashoba Valley Hospital employee told Healthcare Dive they’re conflicted about whether to stay at the hospital they’ve worked at for years or try to find a new position while they can.

“I’ve used the hospital since I moved out here. I’ve been living out in this area for like 25 years … I’ve brought my mother to this hospital,” the worker said. “It’s my hospital. It’s not just where I work. It’s what I use, and it’s vitally important to the community.”

HHS finalizes revised dispute resolution process for 340B program

Posted on by • Posted in Dept of Health and Human Services (HHS), Dispute Resolution, Health System, Hospital, Hospital Industry, Lawsuit, Medicare 340B Drug Discount Program, Pharmaceutical Industry • Leave a comment

https://www.kaufmanhall.com/insights/blog/gist-weekly-april-26-2024

Late last week, the Department of Health and Human Services (HHS) published a final rule establishing a new administrative dispute resolution process for the 340B drug discount program.

A panel, composed of government experts from the Office of Pharmacy Affairs, will resolve claims raised by covered entity providers about drugmakers overcharging them for 340B drugs, as well as claims from pharmaceutical companies that covered entities are diverting or duplicating discounts improperly. The new process, which will go into effect in mid-June, allows the panel to review claims on issues related to those pending in federal court. It’s intended to be “more accessible, administratively feasible, and timely” than a prior process established by HHS in 2020 that was paused after legal challenges.

The Gist: 

This new 340B dispute resolution process is likely to see extensive use, as battles between providers and drugmakers over the drug discount program have heated up significantly in recent years. There are more than 50 ongoing court cases related to the program, many of which concern actions taken by at least 20 major drugmakers to restrict 340B sales to contract pharmacies. Although this new process may provide more effective dispute resolution, none of its decisions can be considered final until courts have settled the myriad cases before them.

    U.S. labor market slows in April, adding 175,000 jobs

    Posted on by • Posted in Economy, Inflation, Job Growth, Job Market, Jobs Report (Dept of Labor), Labor Market • Leave a comment

    https://www.axios.com/2024/05/03/jobs-report-april-us-economy

    The U.S. economy added 175,000 jobs in April, while the unemployment rate ticked up to 3.9% from 3.8%, the Labor Department said on Friday.

    Why it matters: 

    Jobs growth slowed from the prior month’s hot pace, but the data suggests that the labor market is still chugging along with healthy demand for workers.

    • The pace of hiring was notably slower than economists’ estimate of 240,000 jobs in April.
    • Job gains in March were slightly better than previously thought, upwardly revised to 315,000 from 303,000—though payrolls in February were revised lower by 34,000 to 236,000.

    Driving the news:

    The lower-than-expected job gains were concentrated in health care, social assistance, transportation and warehousing

    • Average hourly earnings, a measure of wage growth, rose 0.2%.
    • Over the past 12 months, average hourly earnings increased 3.9%.

    State of play:

    Friday’s data is the latest evidence that the labor market is holding steady — an important development for the broader economy.

    • The Federal Reserve this week kept interest rates at the highest level in more than two decades.
    • Its policymakers suggested that any rate cuts would happen later than previously thought due to stalled progress on curbing inflation.
    • Fed chair Jerome Powell this week said that the central bank would be “prepared to respond to an unexpected weakening in the labor market.”

    Thought of the Day: Carnegie on Leadership

    Posted on by • Posted in Credit, Leadership, Leadership Character, Leadership Emotional State, Leadership Implementation, Leadership Listens, Leadership Skill Sets, Leadership Trust, Leadership Values, Leadership Vision, Thought Leaders, Thought of the Day • Leave a comment

    Insurers brace for continued Medicare Advantage medical costs

    Posted on by • Posted in Health Insurance Industry, Medical Loss Ratio (MLR), Medicare Advantage, Utilization Trends • Leave a comment

    https://www.healthcaredive.com/news/health-insurer-medicare-advantage-utilization-2024/707360

    The big question coming out of the health insurance earnings season is how much elevated utilization among seniors is carrying over into 2024.

    Medicare Advantage medical costs dominated fourth-quarter discussions between health insurers and investors, after higher healthcare utilization popped up like weeds in some segments of each payers’ business.

    Yet health insurers’ forecasts for how higher utilization will affect their performance in 2024 are night and day.

    Some payers controlled medical costs more effectively than analysts expected, said rising spending shouldn’t affect their outlooks for this year or guided to a stronger 2024 than previously forecast. That group includes UnitedHealth, Centene, Elevance and Cigna.

    However, Humana and CVS cut their 2024 earnings outlooks on the heels of last year’s results, and said they expect elevated medical costs to continue this year.

    Humana’s outlook is especially grim: The Kentucky-based payer’s earnings expectations for 2024 came in about half as low as analysts had expected.

    Even payers that emerged from 2023 with their financial outlooks unscathed said they plan to cut benefits or raise premiums this year. The plan redesigns are to protect margins in MA — a business that historically generates significant profits, but is facing challenges that threaten to kill the golden goose.

    Why didn’t payers see medical costs coming?

    MA plans have skyrocketed in popularity. More than half of Medicare seniors are currently signed up for the plans, attracted by benefits like lower monthly premiums and dental and vision coverage. An onslaught of marketing by insurers didn’t hurt, either, as payers jockey for members. Competition is fierce, as MA margins per enrollee can be twice as high as those in other types of plans.

    Yet, more members are creating more problems for some insurers because of rising medical utilization. Starting in the second quarter last year, seniors sought out medical care they had delayed during the COVID-19 pandemic, hiking insurers’ spending.

    For example, CVS added 800,000 MA enrollees for 2024, mostly nabbed from other payers after CVS aggressively expanded its benefits. But that’s coming back to haunt the Rhode Island-based insurer, which cut its earnings per share outlook for this year due to high medical costs.

    There are a few potential explanations for what’s driving the elevated utilization, and why insurers might not have properly forecast the uptick in trend, according to J.P. Morgan analyst Lisa Gill.

    Enrollees in MA tend to be healthier than those in traditional Medicare. But as more seniors join MA, the program’s risk population could be skewing sicker, Gill wrote in an early February research note. Insurers could have missed early warning signs of higher acuity as seniors avoided doctor’s offices during the pandemic.

    Higher demand could have also existed earlier, but providers might not have been able to address it because of labor shortages that have now ameliorated, Gill said. Similarly, insurers could have added new MA enrollees with less diagnosis history relative to the rest of their population, resulting in lower visibility into their conditions.

    Medical loss ratio is a useful metric for understanding how unexpectedly high utilization is affecting insurers.

    Medical loss ratio, or MLR, is a percentage of how much in healthcare premiums insurers spend on clinical services and quality improvement. The higher the MLR, the less in premiums insurers are spending on administration or marketing — or retaining as profit. As such, insurers generally try to keep their MLRs low (though within regulatory bounds to avoid sanctions).

    MLRs soared in payers’ Medicare businesses in the fourth quarter, as the utilization trends that emerged earlier in 2023 conflated with a typical seasonal rise in medical spending during the winter months.

    Utilization inflation

    Insurers chalked the increase in medical costs up to different drivers.

    Seniors covered by UnitedHealth and Humana, which together hold almost half of the total MA market share, continued to seek outpatient care in droves in the fourth quarter, including procedures like orthopedic surgeries.

    UnitedHealth’s members required more spending on seasonal diseases like the flu, COVID or respiratory virus RSV. Elevance, Centene and CVS also reported elevated outpatient care overall for things like elective procedures, along with higher spend on seasonal needs.

    That wasn’t the case for Cigna — which had lower than expected spending on seasonal diseases — and Humana. Humana’s uptick in care was “not respiratory driven,” said CFO Susan Diamond on the payer’s fourth-quarter earnings call in January.

    “We don’t have any clear indicators that it is something you can reasonably assume is seasonal,” Diamond said.

    As for inpatient care, Centene and CVS didn’t report higher utilization of hospital services than expected. Elevance also didn’t say that inpatient trends were contributing to growing costs.

    Yet, UnitedHealth and Humana warned investors about rising inpatient costs, which is concerning for insurers given hospital care is more expensive to cover. UnitedHealth blamed pricey COVID admissions, while Humana said it was seeing more short stays in hospitals across the board.

    Humana’s Diamond said recent government regulations requiring MA payers to comply with coverage determinations in traditional Medicare could be a potential driver of the higher inpatient spend. The rule requires insurers to cover an inpatient admission if the patient is expected to require hospital care for at least two midnights.

    Other insurers said they had planned for the so-called “two-midnight rule.”

    On Feb. 6, Centene CFO Drew Asher told investors that the payer had factored the rule into its planning for 2024. Meanwhile, CVS CFO Tom Cowhey said one day later the company had adjusted internally in response to the rule.

    Looking forward

    The increase in utilization — combined with weaker payment rates, changes to MA quality ratings and a shifting risk adjustment model — have created an updraft for MLRs, especially for insurers with high exposure to MA like Humana and UnitedHealth.

    The big question is how much of this utilization will carry over into this year, and whether payers have properly accounted for utilization changes in their plan designs.

    Every major insurer besides Elevance expects to record a higher MLR in 2024 than in 2023. Though, the size of the growth ranges from a 0.8 percentage point increase for UnitedHealth to a 2.7 percentage point increase for Humana.

    The outlier, Elevance, expects its MLR to remain flat.

    In response to the challenging financial environment, payers — even those that excelled in controlling medical costs last year — said they’ve been pulling back benefits, raising premiums or exiting underperforming markets to boost profitability.

    That’s true for insurers that expect their MA membership to grow this year (UnitedHealth, CVS), and those that expect it to fall (Cigna) or stay flat (Elevance).

    As a result, further growth could be curtailed as payers prioritize margins.

    “We are first and foremost focused on recovering margin, and market share gains is a secondary consideration,” Brian Kane, who leads CVS’ health benefits division, told investors during its February earnings call.

    “I look at next year as a year that I think the whole industry will possibly reprice. I don’t know how the industry can take this kind of increase in utilization along with regulatory changes that will continue to persist in 2025 and 2026,” Humana CEO Bruce Broussard said on the payer’s earnings call.

    Insurers said they could revise plans further in light of MA rates for 2025 that the government proposed midway through the earnings reporting season. The rates represent a renewed effort by regulators to rein in growing spending in Medicare.

    Executives with Humana, Centene and CVS all said the payment changes are insufficient to cover cost trends. Humana and Centene said the rule would result in a 1.6% and 1.3% drop in rates, respectively. (That’s before risk scoring, which should result in an overall increase in reimbursement in 2025).

    Insurers warned regulators that seniors could see their benefits reduced if they finalize the rates as proposed.

    “We’ll just adjust the bids accordingly,” Asher said on Centene’s call. “The products may be a little less attractive for seniors from an industry standpoint if we don’t make a lot of progress on the final rates.”