More Medicare Advantage contracting, risk expansion in 2025 for health systems: poll

Contrary to high-profile exceptions, in 2025, health systems plan expanded contracting with Medicare Advantage (MA) plans and taking on more downside payment risk, according to a recent survey.

For 2025, a greater share of health systems plan to add more MA contracts (23%) than plan to have fewer MA plan contracts (17%), according to a recently released November survey of health system executives by VMG Health. The largest share (57%) plan to maintain the same number of contracts.

The share dropping MA plans echoes the 16% of health system CFOs who said in an HFMA survey a year ago that they were planning to drop one or more MA plans within the next two years. However, an additional 45% of CFOs in the HFMA survey said they were considering terminating plans but had not made a final decision. 

Driving terminations

Anecdotal reports of MA plan terminations include announcements from 21 health systems that they were dropping some MA plans at the start of 2025, as reported by Becker’s Hospital CFO Report.

The terminations have been driven by health systems’ growing frustration with increasing administrative burdens, including increasing use of prior authorizations, by MA plans. Those hurdles sometimes result in significantly less revenue per MA enrollee than they receive for fee-for-service (FFS) Medicare patients.

“Globally, you’re hearing a lot of press about … pressure on hospitals, where seeing Medicare Advantage patients is increasingly hard and the frustration is growing and it’s becoming more difficult,” said John Klare, managing partner at Impact Advisors. “A lot of small hospitals will complain that what is a big part of what’s causing them to struggle is Medicare Advantage programs.”

The less-discussed expansion of MA contracting by health systems, as identified by the recent poll, may be driven by the steadily increasing market share of such plans. The majority of Medicare enrollees have selected coverage through MA and such plans cover most Medicare enrollees in a growing number of local markets.

MA shift to risk

The health system movement to contract with more MA plans will run into an increasing trend of those plans paying through downside risk arrangements.

As of 2023, MA plans have tied 43% of payments to downside risk, which increased from 29% in 2020, according to latest tracking from the Health Care Payment Learning and Action Network (HCP-LAN). In comparison, the share of payments with downside risk was 34% for Medicare fee-for-service (FFS), 22% for Commercial and 21% for Medicaid (21%).

Thirty three percent of health system executives also said in the VMG survey that they plan to move into more risk-based arrangements in 2025.

Stuart Levine, MD, MHA, president of value-based care for VillageMD, said “people are not going to get upside risk without downside risk anymore. And upside risk, even if you get it, is going to be so ‘de minimis [a Latin term that means lacking significance or importance],’ unless you’re taking downside risk.”

Klare said MA plans are pushing hospitals to downside risk, first, as a way to pressure hospitals to retain patients who are deemed theirs instead of allowing those patients to go to other hospitals and, second, to focus on reducing average length of stay (LOS) for those patients.

Lack of alignment between hospitals, health plans and medical groups have produced financial losses for health systems and increased friction with their payers, he said.

The health systems performing well under such arrangements have primarily done so through managing the incoming revenue from the payers and by maintaining good metrics, like the Richmond Agitation Sedation Scale (RASS) and Hierarchical Condition Category (HCC) coding scores.

“Maybe that’s not the best way to do it but as that trend continues and people keep making money and we start to get involved in managing the outcomes of patient, it’s going to continue to accelerate,” Klare said.

Other hospitals have responded to that pressure by building more outpatient departments, Levine said.

“Some of the most progressive hospitals in the country are going to an entirely different model, which ‘if you give us all of the patients, even for hospital outpatient services, we’ll max the outpatient services rate of the program because we want to capture everything,” Levine said. “They are full all of the time and they’re the epitome of that center of excellence for everything, and they’re willing to take contract where they have mass and shared upside to do that and have it be really successful.”

Some hospitals use a cost model with plans, which incentivizes shorter LOS and more effective treatment periods but pays more per day in exchange for less per visit, which produces more admissions as capacity opens, he said.

“It’s just that the hospital CEOs are still being incented for average daily census, while the system may see broader opportunity,” Levine said. “And so, the system has to take advantage and take charge of this in order to really flip it around and make it work.”

Organizations taking downside risk

There are no common characteristics of health systems that are taking downside risk, said Klare. But among those that are, their reasons include:

• Viewing it as part of the strategic direction of the organization
• Seeing a need to create alternative sources of revenue
• Believing they can do well because they have capabilities, such as personnel with payer backgrounds

“There are a lot of people who are fairly confident they can do a good job in this space and provide good care and make money at the same time,” Klare said.

Why health systems avoid risk

Factors that continue to lead most health systems to avoid downside risk in MA also vary. Such reasons can include:

• Performing well under fee for service (FFS)
• Challenging to transition between FFS and value-based payment (VBP)
• Lacking the capabilities to perform well in VBP

“Health systems in Florida and Texas and other places that pretty clearly are doing really well in FFS and don’t really want to dabble in risk because they have bad experiences in that space before,” Klare said.

Even organizations that have developed good case management, care management and capture data may struggle to shift to VBP, Klare said. Those organizations can benefit from consolidating their risk patients into a smaller operating circle and smaller panel sizes that are much more highly populated by value-based care (VBC) patients.

“If you are a very large health system doing FFS and you have a tiny fraction of your patient population spread across everybody that is value-based, nobody is going to pay any attention to it,” Klare said. “That’s why systems consistently have trouble with it and struggle with it.”

Capabilities to do well in VBC are very similar to those needed to do well in FFS but also are fundamentally different. For example, FFS documentation for reimbursement using diagnostic-related groups (DRGs) is very different from documentation aimed at capturing a disease burden.

“It looks the same and we feel like we have capabilities in this space, but the reality is you don’t,” Klare said.