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Medicare Advantage Plans Pay Less than Traditional Medicare

Medicare Advantage (MA) plans paid hospitals 8 percent less than traditional Medicare between 2009 and 2012, Stanford University researchers recently reported in Health Affairs. The discrepancy between MA plans and private insurance was even greater.


According to the researchers’ study, MA plans paid hospitals about 91.5 percent of what FFS Medicare paid in 2012, while commercial plans paid an average of about 165 percent of FFS Medicare payments.


The driving factor for lower payments was the link to narrower provider networks and better bargaining power, especially for DRGs associated with inpatient stays.

“Knowing how Medicare Advantage prices compare to those of FFS Medicare is important for public policy,” wrote the researchers. (“Medicare Advantage Plans Pay Hospitals Less Than Traditional Medicare Pays, Health Affairs, August 2016)


Noted healthcare economist Paul Keckley commented on the study, noting that hospitals are apparently being paid less for taking care of sicker patients and thereby having to stretch scarce resources even further. “This one’s bad news if you’re a hospital. Can you interpret it any other way? . . . While this approach may ultimately result in lower costs, the savings benefit the plans and don’t ‘trickle back’ to providers.” (“Hospitals Receive Lower Payments from MA Than From Traditional Medicare: Study,” HFMA Weekly, August 26, 2016.)


Keckley suggested hospitals consider an approach that links high volumes with shared risk, which would ultimately result in sharing in the savings generated by managed care. Healthcare organizations may also need to seriously consider creating their own MA plan. (“Hospitals Receive Lower Payments from MA Than From Traditional Medicare: Study,” HFMA Weekly, August 26, 2016.)


Medicare Advantage Growth


The number of beneficiaries enrolled in private MA plans more than tripled in 12 years, going from 5.3 million in 2004 to 17.6 million in 2016, according to a recent Kaiser Family Foundation report. About 31 percent of Medicare beneficiaries belong to an MA plan. At least 40 percent of beneficiaries in five states are enrolled in MA: Minnesota (55 percent), Hawaii (46 percent), Oregon (44 percent), Florida (41 percent) and Pennsylvania (40 percent). Conversely, the MA enrollment rate is only 2 percent of Medicare beneficiaries in Wyoming and 1 percent in Alaska. (“Medicare Advantage,” Kaiser Family Foundation, 2016)


MA plans typically offer beneficiaries more benefits at lower premiums. Uwe Reinhardt, PhD, a health economics professor at Princeton University, noted in a JAMA Forum column posted June 1, that despite the positive attributes of MA, the majority of U.S. seniors remain with traditional Medicare. While Americans may have general doubts of the competency of government-run programs, Reinhardt suggested that private enterprises are often viewed as “ephemeral companions” that can easily change contracts or be acquired by a company with different ideas on management or social obligations.


“Enrolling in traditional Medicare can be likened to being married to a spouse who, if not generally thrilling, is an always faithful and reliable companion,” Reinhardt wrote. “The social contract under traditional Medicare is not easily changed and can be changed only after much open debate.” (“JAMA Forum: Why Many Medicare Beneficiaries Cling to an Allegedly Worse Deal,” news@JAMA, June 1, 2016)



To read the Kaiser Family Foundation Fact Sheet on Medicare Advantage, click here.




To read the JAMA Forum Article by Uwe Reinhardt, PhD, click here.




To read the Health Affairs abstract of the Stanford study, click here. Subscription is required for the full study.




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