The Great Medicare Advantage Debate: Too Big to Fail, or Failing Because It’s Too Big?

Perhaps one of the hottest topics in healthcare today, Medicare Advantage (MA) is anticipated to have a monumental year in 2023. Not only do Congressional Budget Office (CBO) projections indicate 2023 will be the year MA penetration surpasses the symbolic majority threshold of 50% nationally, but also major regulatory changes are set to be enacted or finalized that will impact both plan sponsors and providers. In just the past four years, MA penetration has risen nearly 10% nationally, and according to the CBO, that growth trajectory is expected to continue to 61% penetration by 2032. Additionally, in 2023 the average beneficiary will have 43 Medicare Advantage plans to choose from in their local market, with almost 4,000 different plans available across the country—nearly a 50% increase over the past five years.

While there is no denying the sheer size of growth rates in MA, there is plenty of healthy debate over whether it provides marginal utility compared to traditional Medicare. This debate, and its two opposing camps, may at times sound like journalistic sensationalism, but understanding their key arguments is important.

  • Opponents of MA (or, as they call it “MA money machine”) often point to excessive profit margins at the expense of taxpayers, plan overpayments linked to risk adjustment gaming, restrictive utilization management (UM) tactics and no differentiated clinical benefit to beneficiaries.
  • Proponents of MA often celebrate the inclusion of the Part D drug benefit and other extra benefits (e.g., vision, hearing, dental) in their plans that aren’t available with traditional Medicare; superior quality, driven by the Star Ratings system; the prevalence of capitated payments, both by the Centers for Medicare & Medicaid Services (CMS) to plans and by plans to providers; the potential for lower out-of-pocket costs; and its overall ability to deliver high-value care by using traditional managed care structures such as networks and formularies.

Each of these arguments is nuanced and may have different implications for beneficiaries than it does for providers. For example, one way MA plans can offer $0 premiums and additional benefits is to reimburse providers at lower unit costs than Medicare reimburses. While in the short term this may help beneficiaries financially, it has the potential in the long term to limit their ability to see their provider of choice if that provider decides to leave the network.

As the result of both MA’s incredible growth and the aforementioned, very public debate, several regulatory efforts have been enacted that seek to address some of the issues the opponents have with MA while preserving and strengthening the aspects of the program that the proponents often tout. Following is a summary of some key regulatory efforts and their potential implications for providers.

  • Risk adjustment: One of the most widely debated issues related to MA is the claim of overpayments by CMS to MA plans due to upcoding, whereby CMS has incorrectly increased its capitated payment to a plan because of the medical diagnosis codes submitted by the plan that, upon retrospective audit, were not supported in the beneficiary’s medical record. In 2018, CMS indicated it would collect an estimated $650 million in overpayments to MA plans resulting from Risk Adjustment Data Validation (RADV) program audits for 2011 through 2013 . In January 2023, CMS issued MA RADV final rule CMS-4185-F2, which set policy on the extrapolation of RADV audit results beginning with the plan year 2018 RADV audit. This final rule effectively absolves MA plans from paying back CMS potentially billions of dollars in extrapolated overpayments that occurred from 2011 through 2017.
    • Provider implications: As providers enter rate negotiations with MA plans, they are finding it more and more difficult to obtain rates near 100% of Medicare reimbursement. Providers with best-in-class risk adjustment programs and those who truly manage sicker patients will be well prepared for the administrative requirements related to coding that will be passed down by the payers. Providers may even start to see new risk sharing arrangements with MA plans, as the double incentive that previously existed through percentage of premium contracts will be diminished. In the long term, providers should deliberately start thinking about how best to capture social determinants of health factors, as they will be an increasingly important component to risk adjustment.
► Thanks to the recent release of this data, we can see which MA plans were audited and the quantity of over- or underpayments CMS identified among the sample patients included in the audit.
► The data shows that roughly 79% of the audits uncovered overpayments and that the three highest total overpayment amounts by payer represented nearly 50% of the total payment errors. Of note, those three MA payers are all for-profit health insurers.
► While taxpayers and healthcare providers are still feeling the financial effects of the COVID-19 pandemic and the current economic environment, for-profit healthcare insurance companies continue to be the darlings of Wall Street.
► As frustrating as it may be for providers to learn that these plans will not be required to pay extrapolated overpayments back to CMS, they should take solace knowing that real (albeit not perfect) regulatory change for risk adjustment is finally here.


  • Utilization management: Many providers today are growing increasingly frustrated with the utilization management tactics used by MA plans and claim these measures prevent medically necessary care. The most common pain points typically center on moving from observation to inpatient status, which leads to lower hospital reimbursement; denying skilled nursing facility placements, which increase hospital length of stay; and denying prior authorizations on drugs, leading to patient safety concerns. In December 2022, CMS issued two proposed rules, CMS-4201-P and CMS-0057-P, that aim to alleviate these challenges. While many components are embedded in the proposed rules, some key provisions include mandating faster turnaround times for payers to provide rationale for denied authorizations, increasing the use of technology and application programming interfaces to automate authorization requests and decisions, ensuring that prior authorizations remain valid for a beneficiary’s full course of treatment, and revising regulations related to coverage criteria to ensure MA plans can’t apply criteria that are more restrictive than those for traditional Medicare’.
    • Provider implications: Similar to risk adjustment, the pending regulatory changes for UM won’t solve all provider issues but are certainly a step in the right direction and a comforting recognition of challenges providers deal with. Providers should closely track the cost of doing business with difficult MA plans, as it often can amount to incremental full-time equivalents’ worth of billing and revenue cycle staff. These hidden costs can be illustrated to the plans during negotiations and considered in rate negotiations. Providers should also push for plans to contribute to new IT costs related to authorizations, as any technology upgrades will ultimately benefit the MA plan. Lastly, for those providers with an exemplary track record of prior authorization approvals or those taking on a substantial degree of risk from the plan, consider embedding “gold card” status clauses in contracts that will exempt the provider from prior authorization for certain services or receive delegation of UM.


  • Quality and Star Ratings Program: Current participants in Medicare Advantage networks are likely familiar with the importance of star ratings. With the Star Ratings Program driving bonus payments, increased benchmarks and even the potential to enroll members outside of standard enrollment periods, it’s easy to see why performance on these quality measures is a critical part of most MA plans’ provider contracts. Included in the MA contract year 2024 proposed rule (CMS-4201-P) are several changes to the Star Ratings Program that providers should be aware of. Some of the proposed changes include replacing the existing reward factor with a health equity index reward, to help improve care for beneficiaries with social risk factors; reweighting measures related to patient experience and access, to further align with other CMS quality programs; and removing guardrails for certain measure cut points, making the performance level needed on certain measures to achieve a specific star rating more transparent and predictable.
    • Provider implications: Industry consensus is that, when taking all the methodology changes into consideration, an across-the-board decrease in star ratings is likely. Providers should be prepared for the impact of this decrease based on their contracts and focus on select measures where they can drive meaningful change. CMS recently announced it is considering a “universal foundation” of quality measures across all quality- and value-based care programs, which will be a welcome change for providers who feel they must juggle dozens, if not hundreds, of quality measures across their payer portfolio. That said, providers should still look to contract negotiations with MA plans to consolidate quality measures across all plans to the extent possible. Lastly, with the proposed use of the health equity index reward, providers need a robust and comprehensive approach to health equity, as it inevitably will become a large impact factor to reimbursement in both MA and traditional Medicare programs.


Key Takeaways

Many opponents of MA have claimed the program is currently failing them, but we are likely at the point where MA is too big to fail. Whether you are in the proponent or opponent camp, given the amount of change occurring, you need to be prepared with a well-considered Medicare Advantage strategy. Provider MA strategies should be thought of as a spectrum that can range from being a fee-for-service “price taker” that goes out-of-network when reimbursement drops below an acceptable threshold, to the other end of the spectrum and building your own provider-sponsored MA plan.

Formulating and implementing your Medicare Advantage strategy is important and difficult work, but Sg2’s expertise and experience in Medicare Advantage can help your organization power your success. Our experts are equipped to provide unique insights and impactful recommendations to work through any questions you have, and more. Please reach out to us to speak with an Sg2 expert.

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