Why Health Systems Need a Medicare Advantage Strategy (and How to Win)

Key takeaways:

• Health systems need to rethink their strategic approach in Medicare Advantage (MA) due to strong organic growth, evolving payer dynamics and compressed margins in this business segment.
• In general, health systems have three strategic options to bolster their competitive positioning in MA with successful programs sharing common elements that focus on three key performance metrics.
• Premier's PINC AI™ Strategy and Growth Practice can help health systems design and deploy a winning MA strategy that encompasses five best practices gleaned from their work in partnership with health systems and payers.

In a recent blog, the Premier Advocacy team identified policy issues and conflicts between Medicare Advantage (MA) and other Medicare payment programs. In this follow-up blog, our PINC AI™ team deep dives into Premier and PINC AI™ solutions and strategies that support real synergy between Medicare Advantage and other payment models health systems and hospitals may be engaging with.

Significant demographic tailwinds coupled with strong consumer preference for MA products (relative to traditional Medicare) will continue to propel robust growth in the Medicare Advantage market. As of May 2023, nearly half (49 percent) of all Medicare beneficiaries are enrolled in Medicare Advantage.¹ By 2028, the Congressional Budget Office expects this number to increase to 60 percent.²

But there is another key market dynamic shaping MA today. Discussions between health system executives and experts at PINC AI™ (the technology and services brand of Premier) reveal that many payers are seeking to set MA payments to 100 percent of traditional Medicare. While this reimbursement may seem on par with Medicare, MA plans apply administrative controls that often result in a true “net” reimbursement that is below Medicare for many providers.

Given the impaired state of industry margins³, can health systems afford to be price takers? And as more of the population shifts to MA, can health systems afford actual payments that are less than Medicare?

The key implication here is that most health systems will need to create a dedicated MA strategy to capture the organic growth in the marketplace, stabilize margins and position themselves to be price makers. Let’s look at how this can be accomplished.

Health System Strategic Options in Medicare Advantage

Can health system executives simply continue to use market clout to negotiate higher payments from payers? While this traditional approach may work for large organizations in some markets, the reality is that payers are currently negotiating from a perceived position of strength. Data transparency requirements for providers are giving payers disproportionally more intel than the providers have about the payers which only serves to foster inequity in those negotiations. At the same time, payers are enjoying record profits, while health systems battle persistent economic uncertainty.⁴ Moreover, a recent survey found that 78 percent of hospitals and health systems report that their relationships with commercial insurers are getting worse.⁵

Here’s a solution: Many health systems will need to gain control of the premium dollar to ensure the highest degree of market relevance and essentiality.

Health systems seeking to move up the premium ladder in Medicare Advantage have three strategic options:

• Establish a risk arrangement with an existing payer.
• Create a joint venture or private label plan with an existing payer.
• Start a provider-sponsored insurance plan on their own.

Most health systems will deploy a combination of these strategies with different MA payers. However, these options are certainly not for every health system and depend on several local market and organizational factors. Moreover, each option has distinct advantages and disadvantages and a different set of requirements for risk assumption capabilities, levels of financial investment and commitment of management time and energy.

One crucial consideration is whether your health system has the brand cachet – relative to local payers and health systems – to attract seniors. If so, equity and ownership models may be a strategic fit for your organization. More specifically, co-branded, private label or provider-sponsored MA products can take advantage of differentiated health system brands.

How to Win in the Medicare Advantage Business

All successful provider-driven MA endeavors share three programmatic elements in common: a high-performing provider network, a technology-enabled delivery platform and a proactive clinical engagement model.

High-Performing Provider Network

• Manages a provider network that understands how to deliver high-quality and low-cost care, especially to the poly-chronic seniors.
• Maintains a core competency in compliant coding and documentation, and creates a culture where providers understand the value of this function.
• Proactively engages with the cohort of seniors most likely to decompensate prior to their need for expensive, acute care services.

Technology-Enabled Delivery Platform

• Uses advanced risk stratification to proactively target interventions for rising- and high-risk patients.
• Generates actionable clinical insights that enable timely intervention by dedicated care teams.
• Enables providers with the latest health information on their patients, regardless of where they may have sought care, enabling true care coordination.

Proactive Clinical Engagement Model

• Maintains dedicated clinical teams that act on identified clinical interventions.
• Proactively engages with rising- and high-risk patients to manage ongoing health challenges, close gaps in care and reduce avoidable utilization.

Successful MA programs also drive performance in three key metrics: medical benefit ratio (MBR), risk scores and the Centers for Medicare & Medicaid (CMS) Star rating.

MBR

• The MBR represents the percentage of premium dollars that a health plan spends on medical claims and quality improvements.
• When healthcare outcomes are improved (e.g., by reducing unnecessary utilization), this in turn lowers overall costs.
• Lower healthcare expenditures then drive savings that can be reinvested into richer coverage and plan benefits.

Risk Score

• The risk score is a component of premium payments in MA plans.
• Each beneficiary in a MA plan receives a risk score based on medical coding that reflects the beneficiary's medical condition. Beneficiaries with poorer health will have higher risk scores, while healthier beneficiaries will have lower risk scores.
• MA plans receive higher premiums for beneficiaries with higher risk scores, to reflect the higher levels of care needed. If the risk score is underestimated, the plan and/or risk-bearing providers will not have the money to adequately provide the needed care called for by the beneficiary’s condition.

Star Rating

• CMS rates MA plans using a one-to-five scale, with one star representing poor performance and five stars representing excellent performance.
• Five-star plans can enroll members throughout the year.
• A Star rating of four or higher qualifies Medicare Advantage plans for premium bonuses and drives positive quality perceptions among brokers and members.

Lessons Learned in Medicare Advantage: What Health System Executives Need to Know

The MA business presents an attractive opportunity, but it is hard to be successful. There is an entire industry – and set of companies – being built around MA. The evolving competitive landscape is further complicated by changing consumer preferences and regulations.

Here are five lessons that we have gleaned from designing and deploying MA programs in partnership with health systems and payers.

1. Craft a five-year MA strategy. Articulate the strategic rationale for entering into or repositioning your presence in the MA business. Is it an offensive move, defensive maneuver or both? Outline your target markets, covered lives trajectory, preferred go-to-market business models and preferred payer partners.
2. Align incentives across stakeholders. This is a “must have” to ensure that each stakeholder – the health system, provider network and/or payer – is working towards a shared set of goals and partners are rewarded for achieving performance targets. Providers must have meaningful financial incentives that reward them for delivering high-quality services in a cost-effective manner.
3. Participate in the product design and bid processes. This is a learning opportunity, not often undertaken, for health system executives new to the MA business. The premium each MA plan receives is based on a bid that is approved by the CMS. Each plan’s bid reflects its underlying cost structure, which in turn impacts the level of benefits (i.e., product design) each plan can offer.
4. Understand the CMS Star rating system front to back. Successful MA programs maintain a dedicated and ongoing effort to manage the metrics that impact Star ratings. The Star rating is something that is known and celebrated across the organization.
5. Leading-edge technology must be part of your solution. Many traditional MA health plans are not technology driven, thus tech-enabled platforms can provide a competitive advantage and enable incremental improvements in care delivery. A successful technology platform includes high-end solutions for risk stratification, real-time clinical interventions and care team workflows.

Are you ready to start or reinvigorate your MA journey? Be sure to align your organization with an experienced partner. Premier is here to help.

For more on this topic:

• Learn why PINC AI™ was awarded the 2023 Best in KLAS designation for Value-Based Care Consulting.
• See how PINC AI’s Strategy and Growth Advisory practice can help your health system craft a winning Medicare Advantage strategy.

Sources cited:

1 Centers for Medicare & Medicaid Services. MA State/County Penetration. (2023, May). https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/mcradvpartdenroldata/ma-state/ma-state/county-penetration-2023-05

2 Kaiser Family Foundation. Medicare Advantage in 2022: Enrollment Update and Key Trends. (2022, Aug. 25). https://www.kff.org/medicare/issue-brief/medicare-advantage-in-2022-enrollment-update-and-key-trends/

3 Becker's Healthcare. Hospitals faced 'worst operating year' ever in 2022: Fitch. (2023, April 7). https://www.beckershospitalreview.com/finance/hospitals-faced-worst-operating-year-ever-in-2022-fitch.html

4 Becker's Healthcare. 'The house always wins': Insurers' record profits clash with hospitals' hardship. (2023, Jan. 3). https://www.beckerspayer.com/payer/the-house-always-wins-health-systems-face-worst-finances-in-decades-as-payers-rake-in-record-profits.html

5 American Hospital Association. Survey: Commercial Health Insurance Practices that Delay Care, Increase Costs. (2022, Nov. 2). https://www.aha.org/infographics/2022-11-01-survey-commercial-health-insurance-practices-delay-care-increase-costs-infographic

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