Introduction to the Problem
Rural hospital leaders are questioning whether they can continue to afford to do business with Medicare Advantage companies, and some say the only way to maintain services and protect patients is to end their contracts with the private insurers.
Medicare Advantage plans pay hospitals lower rates than traditional Medicare, said Jason Merkley, CEO of Brookings Health System in South Dakota. Merkley worried the losses would spark staff layoffs and cuts to patient services. So last year, Brookings Health dropped all four contracts it had with major Medicare Advantage companies.
“I’ve had lots of discussions with CEOs and executive teams across the country in regard to that,” said Merkley, whose health system operates a hospital and clinics in the small city of Brookings and surrounding rural areas.
Concerns about Medicare Advantage
Merkley and other rural hospital operators in recent years have enumerated a long list of concerns about the publicly funded, privately run health plans. In addition to the reimbursement issue, their complaints include payment delays and a resistance to authorizing patient care.
But rural hospitals abandoning their Medicare Advantage contracts can leave local patients without nearby in-network providers or force them to scramble to switch coverage.
Medicare is the main federal health insurance program for people 65 or older. Participants can enroll in traditional, government-run Medicare or in a Medicare Advantage plan run by a private insurance company.
Enrollment in Medicare Advantage
In 2024, 56% of urban Medicare recipients were enrolled in a private plan, according to a report by the Medicare Payment Advisory Commission, a federal agency that advises Congress. While just 47% of rural recipients enrolled in a private plan, Medicare Advantage has expanded more quickly in rural areas.
In recent years, average Medicare Advantage reimbursements to rural hospitals were about 90% of what traditional Medicare paid, according to a new report from the American Hospital Association. And traditional Medicare already pays hospitals much less than private plans, according to a recent study by Rand Corp., a research nonprofit.
Impact on Rural Hospitals
Carrie Cochran-McClain, chief policy officer at the National Rural Health Association, said Medicare Advantage is particularly challenging for small rural facilities designated critical access hospitals. Traditional Medicare pays such hospitals extra, but the private insurance companies aren’t required to do so.
“The vast majority of our rural hospitals are not in a position where they can take further cuts to payment,” Cochran-McClain said. “There are so many that are just really in a precarious financial spot.”
Nearly 200 rural hospitals have ended inpatient services or shuttered since 2005.
Promoting Medicare Advantage
Mehmet Oz — doctor, former talk show host, and newly confirmed head of the Centers for Medicare & Medicaid Services — has promoted and worked for the private Medicare industry and called for “Medicare Advantage for all.” But during his recent confirmation hearing, he called for more oversight as he acknowledged bipartisan concerns about the plans’ cost to taxpayers and their effect on patients.
Cochran-McClain said some Republican lawmakers want to address these issues while supporting Medicare Advantage.
“But I don’t think we’ve seen enough yet to really know what direction that’s all going to take,” she said.
Benefits of Medicare Advantage
Medicare Advantage plans can offer lower premiums and out-of-pocket costs for some participants. Nearly all offer extra benefits, such as vision, hearing, and dental coverage. Many also offer perks, such as gym memberships, nutrition services, and allowances for over-the-counter health supplies.
But a recent study in the Health Services Research journal found that rural patients on private plans struggled to access and afford care more often than rural enrollees on traditional Medicare and urban participants in both kinds of plans.
Response from the Better Medicare Alliance
Susan Reilly, a spokesperson for the Better Medicare Alliance, said a recent report published by her group, which promotes Medicare Advantage, found that private plans are more affordable than traditional Medicare for rural beneficiaries. That analysis was conducted by an outside firm and based on a government survey of Medicare recipients.
Reilly also pointed to a study in The American Journal of Managed Care that found the growth of private plans in rural areas from 2008-2019 was associated with increased financial stability for hospitals and a reduced risk of closure.
Challenges Faced by Rural Hospitals
Merkley said that’s not what he’s seeing on the ground in rural South Dakota.
He said traditional Medicare reimbursed Brookings Health System 91 cents for every dollar it spent on care in 2023, while Medicare Advantage plans paid 76 cents per dollar spent. He said his staff tried negotiating better contracts with the big Medicare Advantage companies, to no avail.
Patients who remain on private plans that no longer contract with their local hospitals and clinics may face higher prices unless they travel to in-network facilities, which in rural areas can be hours away. Merkley said most patients at Brookings Health switched to traditional Medicare or to regional Medicare Advantage plans that work better with the hospital system.
Administrative Burden
Medicare Advantage plans often limit the providers patients can see and require referrals and prior authorization for certain services. Requesting referrals, seeking preauthorization, and appealing denials can delay treatment for patients while adding extra work for doctors and billing staff.
“The unique rural lens on that is that rural providers really tend to be pretty bare-bone shops,” Cochran-McClain said. “That kind of administrative burden pulls people away from really being able to focus on providing quality care to their beneficiaries.”
Jonathon Green, CEO of Taylor Health Care Group in rural Georgia, said his system had to set up a team to deal solely with coverage denials, mostly from Medicare Advantage companies. He said some plans frequently decline to authorize payments before treatments, refuse to cover services they already approved, and deny payment for care that shouldn’t need approval.
Conclusion
Rural hospitals are facing a difficult decision when it comes to Medicare Advantage contracts. On one hand, the plans can offer lower premiums and out-of-pocket costs for some participants, as well as extra benefits and perks. On the other hand, the plans often pay hospitals lower rates than traditional Medicare, which can lead to financial difficulties for rural hospitals. Additionally, the administrative burden of dealing with Medicare Advantage plans can be significant, and the plans often limit the providers patients can see and require referrals and prior authorization for certain services. Ultimately, rural hospitals must weigh the benefits and drawbacks of Medicare Advantage contracts and make a decision that is in the best interest of their patients and their financial stability.
FAQs
Q: What is Medicare Advantage?
A: Medicare Advantage is a type of health insurance plan that is offered by private companies and is approved by Medicare.
Q: How do Medicare Advantage plans pay hospitals?
A: Medicare Advantage plans pay hospitals lower rates than traditional Medicare.
Q: What are the benefits of Medicare Advantage plans?
A: Medicare Advantage plans can offer lower premiums and out-of-pocket costs for some participants, as well as extra benefits and perks.
Q: What are the drawbacks of Medicare Advantage plans?
A: The plans often pay hospitals lower rates than traditional Medicare, which can lead to financial difficulties for rural hospitals. Additionally, the administrative burden of dealing with Medicare Advantage plans can be significant, and the plans often limit the providers patients can see and require referrals and prior authorization for certain services.
Q: Why are rural hospitals dropping their Medicare Advantage contracts?
A: Rural hospitals are dropping their Medicare Advantage contracts because the plans often pay hospitals lower rates than traditional Medicare, which can lead to financial difficulties for rural hospitals. Additionally, the administrative burden of dealing with Medicare Advantage plans can be significant, and the plans often limit the providers patients can see and require referrals and prior authorization for certain services.
