Medicare Advantage risk payment soars as hospitals left behind

Medicare Advantage (MA) has extended its payer-leading shift to downside risk but that appears to still exclude most hospitals.

As of 2023, MA plans have tied 43% of payments to downside risk, which increased from 29% in 2020, according to the latest tracking from the Health Care Payment Learning and Action Network (HCP-LAN).

That MA risk payment share is larger than the 2023 share of Medicare fee-for-service (FFS) (34%), Commercial (22%) and Medicaid (21%).

Ali Khan, MD, CMO for Medicare at Aetna, part of CVS Health, said some of the shift to risk came from multiyear contracts easing providers into risk. But a lot of the risk trend is driven by new entrants, such as primary care management services organization (MSO) aggregators and those offering wrap-around care management models. Additionally, some providers have asked Aetna to move from upside-only models to downside risk.

“There are spots around the country that are saying ‘We’ve been in pay-for-performance too long; we’d like to do something more,’” Khan said.

Aetna has obtained $660 million in savings from its 2.4 million enrollees in value-based arrangements, he said.

Brendan McDonald, vice president, provider reimbursement and network optimization for Highmark Health, said a lot of the MA shift to risk may have been driven by vertical integration.

McDonald said factors driving downside risk adoption are provider experience; a push for ROI with broader adoption by payers and providers with risk experience; payer expectations for providers to adopt it and cost containment needs.

 “The statistics that we all see, whether we’re looking at administrative or medical costs, are pretty daunting and scary,” McDonald said. “This is a key lever to push past that historic payer-provider dynamic and think about cost savings differently.”

Hospital hesitancy

Despite the large MA shift to risk among some providers, it appears to have largely bypassed hospitals amid ongoing reluctance, say industry observers.

“The way that MA has made itself, it’s not very friendly for hospitals,” said Munzoor Shaikh, founder and CEO of Long Game Health Consulting.

That is because hospitals’ primary revenue is from facility use, while MA’s primary cost savings lever is through reduced facility use, he said. That conflict has been exacerbated by the recent spike in hospital labor costs, which they are offsetting with historically high Medicare hospital utilization.

“We recognize the barriers to broader adoption posed by industry consolidation and the need for better alignment of incentives across hospitals, specialists and primary care providers,” Kelly Parsons, a spokesperson for the Blue Cross and Blue Shield Association said when asked about hospital hesitation to take on MA downside risk.

“The biggest barrier is people can’t figure out how to operationalize this,” Khan said about MA downside risk. “We haven’t done enough to put enough teeth in the right ways with the right supports for those to get people to that critical mass.”

Without new approaches, Khan worried MA risk with stall.

“Are we going to cap out at 40% or are we going to actually capture the rest of the 60% there?” Khan said.

Further exacerbating the MA-health system relationship is a recent spike in MA utilization management, including prior authorizations, which has led some health systems to drop MA plan contracts.

“The providers are struggling with [MA] because a lot of providers are starting to drop MA from certain places because it is too hard, the utilization management or prior authorization piece is too hard,” said Shaikh. “And it’s all really around cost control so they feel like they can’t do what’s right for the patient.”

Exceptions to the underlying conflict between the financial models of MA and hospitals include Advocate Aurora Health, which has taken on significant MA downside risk, Shaikh said. Among the many factors that have allowed that health system to take MA risk are its elevation of a chief population health officer and department; development of a strong data structure allowing creation of a longitudinal patient record and active outreach to CMS on policy.

“They’ve intentionally created the structure to support this process,” Shaikh said.

Commercial boost

Commercial payers have been one of the fastest growing segments to adopt risk-based payment after doubling the 11% share in 2000 to 22% in 2023 and surpassing Medicaid’s share of downside payment.

Shaikh said he personally has seen the most growth in commercial downside risk over the last five years, which has surprised him.

McDonald of Highmark Health said commercial plans have previously lagged in downside risk arrangements. But the recent surge has likely been fueled by payers’ desire to scale risk across their various lines of business, since many offer plans in multiple categories of coverage.

The growth in commercial risk also was likely fueled by increasing employer demands to control costs, he said.

Medicare goals

In addition to finding the that share of Medicare FFS spending in downside risk has increased from 30% in 2022 to 34% in 2023, the HCP-LAN report found nearly half (47%) of Medicare FFS enrollees are in accountable care arrangements. CMS has a goal of moving 100% of FFS Medicare enrollees into such arrangements by 2030.

“We are really encouraged by the results,” said Ellen Lukens, deputy director of the Center for Medicare and Medicaid Innovation at CMS.

Lukens said the key to reaching the 2030 goal will be more models that are attractive to clinicians at early-stage capabilities in value-based care and for the agency to better understand which providers are not participating in accountable care.

Lukens said the agency remains committed to its 2030 goal and will make greater efforts to simplify its accountable care models.

Medicaid slower

Medicaid’s use of downside risk has grown at a slower pace in recent years. The share of Medicaid payment in downside risk was 17% in 2021 and that increased to 21% in 2023.

Daniel Elliott, MD, chief medical officer for Delaware First Health, said Medicaid’s share of payments tied to downside risk still appears to generally track the broader payer industry.

However, a better understanding of the less-connected Medicaid population will take on greater importance for providers as more of Medicaid moves to downside risk in the low-margin business, he said.