How to save Medicare Advantage amid swelling enrollment, administrative burdens and financial challenges

Medicare Advantage (MA) has experienced explosive growth in recent years, with more than half of eligible seniors enrolled in the private plan alternative. Projections suggest enrollment could reach 64% by 2034.

But behind this boom, growing tensions between payers and health systems have led to nationwide fractures. Over the past 18 months, more than 40 health systems across 25 states have terminated MA contracts, creating a surge in provider network instability.

Facing a blend of financial, administrative and operational challenges, some health systems are finding more disadvantages than advantages in MA participation. Exiting MA plans may make strategic sense, but their patients pay the price.

Can the MA termination trend be reversed? Let’s start by examining the MA landscape and how it’s affecting hospitals and their patients.

Administrative burdens and financial strain

Administrative burdens are one of the primary drivers pushing health systems and independent practices to reconsider MA participation. Excessive prior authorization, documentation demands and claim denials not only delay care but also fuel physician burnout and staff fatigue.

With hospitals already operating on razor-thin margins, these unsustainable processes have a devastating effect on the collection of payments for health systems and practices.

Historically, traditional Medicare typically pays claims with clearly defined adjudication rules, resulting in collection rates close to 100%. Under Medicare Advantage, hospitals are collecting between 85% and 89%, and this widening gap is a key factor behind the wave of contract terminations.

Impact on independent practices

Independent practices, especially smaller ones, are often disproportionately impacted by administrative strains. Without the support structures of larger systems, they struggle to manage delayed or denied payments while absorbing the operational demands of MA. This is one of the leading factors that is pushing many smaller practices toward acquisition by health systems.

However, there are some examples of primary and multispecialty groups finding ways to succeed under MA. Since they are not usually tied to hospital finances, these practices often have more control over referral pathways, which align well with MA’s emphasis on cost-effective care.

The aftermath of contract exits

Contract terminations are raising concerns around network adequacy, particularly when patients lose access to in-network clinicians. When a hospital exits, patients’ access to care can shrink depending on their type of plan and location.

• Patients under HMO plans face the most disruptions, as these plans offer less flexibility for seeing providers outside their network and result in higher out-of-pocket costs.
• PPO plans typically retain some coverage for out-of-network care, though costs can still rise.

In rural areas, the stakes are even higher. If a hospital in a health care desert exits an MA network, patients may be forced to travel long distances to find a physician or specialist in network or face inflated out-of-pocket costs. In some circumstances, state regulators step in when access to care is jeopardized, and parameters are enforced for hospitals and MA to find common ground and restore services for patients.

Changing these dynamics will require a willingness from both sides to find new ways to collaborate and advance the current model to a more sustainable one for providers from both a financial and an operational standpoint.

Collaboration and standardization are critical for building better relationships

Reducing administrative complexity and creating safeguards around policy changes are essential steps in strengthening payer-provider relationships. While CMS has finalized new protocols to modernize data exchange and streamline prior authorization, more work remains.

Unlike traditional Medicare, which allows time for review and feedback before implementing policy changes, MA plans can introduce new policies with 90 days’ notice and without provider input. Physicians are often left figuring out what the policy means and how it will impact them.

Standardizing MA policies with those of traditional Medicare would help both sides better navigate the relationship. It’s important to give health systems and physicians a voice in how new rules are developed, as well as address any potential financial or operational harm caused by new policies.

One promising solution is “gold carding,” which exempts providers from prior authorization requirements if they have a track record of delivering medically necessary care within MA’s guidelines. Payers should also routinely assess whether certain policies remain necessary. Removing outdated requirements can speed up claims, reduce staffing burdens, and improve the working relationship between payers and providers.

The potential of value-based care

Value-based care models are a potential means of improving MA collaborations. However, success requires structural improvements and renewed investments in provider infrastructure. Key reforms include increasing MA coding intensity adjustment, incorporating two years of diagnostic data and excluding diagnoses identified solely through health risk assessments. These changes would help make reimbursements fairer and more accurate.

However, risk adjustment alone is not enough. Health systems and practices are often not clinically integrated enough or lack the resources to support value-based arrangements. For these models to truly deliver improved outcomes and beneficial contract results, it will require close collaboration between providers and payers, including continued data sharing and transparency, and organization around shared protocols and coordinated approaches to managed patient care.

Where the MA market is headed

If current trends continue, the MA landscape could look significantly different in three to five years. Consolidation is expected to increase as underperforming plans exit or are acquired. A decade ago, launching an MA plan was seen as a high-reward opportunity. Today, that profitability is harder to realize, and only the strongest plans are likely to remain.

Large health systems are already exploring their own MA plans, rather than being at the mercy of external product types. Doing so allows more control over policies with less administrative complexity and aligns care models directly with reimbursement, resulting in more integrated, patient-centered offerings.

The future of MA will not be defined by enrollment statistics alone but will rely on whether health systems and practices can establish stronger, more collaborative partnerships. Through transparency, shared goals and mutual accountability, the industry can restore confidence in MA models while fulfilling its promise of premier care and improved outcomes.

Terri Welter is a partner at ECG Management Consultants. She has spent more than 20 years helping providers develop innovative payment approaches, negotiate contracts, devise reimbursement strategies and ultimately improve revenues.