Medicare Advantage Plans: Bargaining Chips in Negotiations Between Hospitals and Insurers

by David Hogberg / Published Monday, February 5th 2024

In their negotiations with health insurers, hospital systems have found a new tactic: removing themselves from the networks of Medicare Advantage plans.

Medicare Advantage is the program via which beneficiaries receive their Medicare benefits through private insurance plans.

The tactic is widespread. Beginning in 2024, San Diego-based Scripps Health no longer accepts any MA plans at its hospitals or physician clinics. Other health systems have focused on specific insurers. St. Charles Health System in Oregon no longer accepts MA plans from HealthNet, Humana, and WellCare. Baptist Health in Kentucky, Vanderbilt University Medical System in Tennessee, and Memorial Hermann Health System in Texas have also dropped the MA plan with Humana. Baptist has also dumped such plans from United HealthCare and WellCare, while Bon Secours in Virginia has dropped Anthem Blue Cross.

“We frequently hear from hospitals and health systems across the country about the increasing challenges they are facing with certain commercial insurers, including Medicare Advantage plans,” said Michelle Millerick, senior associate director of health insurance coverage at the American Hospital Association.

“We don’t track this systematically, but it’s clear that there is increasing tension about the growing administrative burdens associated with insurer policies, as well as delays and denials in approving and paying for patient care that should be covered,” Millerick said. “As MA enrollment continues to grow, these pain points are getting more intense for patients and their providers.”

When a hospital system takes itself out of an MA plan’s network, patients are faced with either paying more to stay with that hospital system or receiving care elsewhere.

In early 2023, St. Charles threatened to go out of PacificSource’s MA plan network.

“I think it’ll be a financial burden for a lot of people because PacificSource is ‘free,’” PacificSource policyholder Kate Bailey told KTVZ.

“It’s going to be very expensive, very time-consuming,” she said about having to go back to traditional Medicare. “And I think customer service will go out the window.”

Hospitals argue that MA plans make it harder to treat patients.

“The reality of Medicare Advantage in Central Oregon is that it just hasn’t lived up to promise,” Dr. Steven Gordon, president and CEO of St. Charles, told KTVZ. “A program intended to promote seamless and higher-quality care has instead become a fragmented patchwork of administrative delays, denials, and frustrations. The sicker you are, the more hurdles you and your care teams face.”

In late September, St. Charles reached an agreement with PacificSource.

James Gelfand, president and CEO of the ERISA Industry Committee, an organization that represents large employers on issues related to benefits like health insurance, thinks it goes beyond just administrative burdens.

“Hospitals focus on getting higher reimbursement rates from private plans, and they use the government health programs to achieve that,” Gelfand said.

He argues that hospitals are willing to take themselves out of MA plan networks because it gives them more leverage in getting higher reimbursement rates from employer-based plans, which usually pay more than MA plans.

“Hospitals know that if they drop MA plans, they can tell the patients to blame the insurance companies,” Gelfand said. “The seniors on the MA plans can tell their members of Congress. And if you’re a member of Congress, you are not going to necessarily care that the hospital got greedy. They care that [these seniors] who they want to vote for them are pissed off. And the easiest way to fix it is to make the insurance companies do what the hospitals want.”

Ensemble Health Partners is a company that helps hospitals get better rates from insurers. Its website provides tips for going out of network.

“Two of our clients recently leveraged an out-of-network strategy that ultimately resulted in contract rates double the standard annual increase of 2%-3% for each year of their agreement,” according to the website. “One of the organizations only went out of network for a matter of hours before settling on a higher rate with the payor. The other merely threatened to exit the network, leveraging social media and community news outlets to make their position public and put pressure on the payor to come to the table with more reasonable rates.”  

Ensemble Health Partners declined to be interviewed for this article.

Hospitals have experienced increased bargaining power in recent years via mergers. There were 1,887 hospital mergers announced between 1998 through the end of 2021. This gives hospitals a larger share of their markets, which increases the leverage they have over insurers. A review of the research on hospital mergers found that they were done “primarily for the purpose of enhanced bargaining power with payers.” The mergers increased costs while doing little to improve quality.

Gelfand worries about what effect this will have on employees.

“The best thing that could happen for employees is the insurance companies say no [to the hospitals],” he said. “But if they don’t, then premiums go up and you’ll be paying higher deductibles and cost-sharing for the same services. A lot of families will be unhappy about that.”