Health insurers offering Medicare Advantage plans are narrowing their networks and favoring the national clinical lab companies over local medical labs and pathology groups
Enrollment in Medicare Advantage health plans is booming. This development is not auspicious for local medical laboratories, hospital lab outreach programs, and anatomic pathology groups because the private health insurers operating these plans typically prefer to contract with national lab companies while narrowing their lab networks.
The mathematics of this trend are simple. As Medicare Advantage enrollment increases, the proportion of patients covered by traditional Medicare Part B fee-for-service shrinks. The consequence is that local labs have fewer Medicare Part B patients to serve and are locked out of providing medical laboratory testing services to Medicare Advantage patients.
Negative Trend for Community Medical Labs and Pathology Groups
Another factor that exacerbates the negative consequences of this trend on community laboratories and pathology groups is that some members of Congress want to further cut back the amount of funding for Medicare Advantage plans. Private health insurers are fearful of such actions. To reduce their costs, they are taking steps to narrow their networks by excluding higher-priced hospitals, physicians, and medical laboratories. This also tends to reduce access to Medicare Advantage patients by local clinical lab organizations.
“In the face of the [funding] cuts to [the Medicare Advantage program], one way health plans can mitigate premium increases and benefit reductions is to narrow down providers,” observed Robert Zirkelbach in a story published in The New York Times. At that time, Zirkelbach was a spokesman for America’s Health Insurance Plans, a trade group for health insurers.
Private Medicare Plans Boom Despite Possible Funding Cuts
Enrollment in Medicare Advantage plans has increased robustly, according to a recent story published in Modern Healthcare. This growth is happening despite widespread projections that reduced funding for this federal health program would have the opposite effect.
Currently, almost 15.9 million seniors are enrolled in Advantage plans, according to the Modern Healthcare story. This is an increase of almost 40% over 2010 enrollments.
Medicare beneficiaries now enrolled in Advantage plans comprise nearly one-third of all Medicare beneficiaries. Modern Healthcare reported that by 2023 those numbers will hit 21 million, according to the Congressional Budget Office (CBO).
Aligning Advantage Plan Payments More Closely with Traditional Medicare
For decades, federal payments to Advantage plans have exceeded those to traditional Medicare for the same mix of services. Medicare payments to Advantage plans are projected to total $156 billion in 2014, according to the CBO’s April 2014 Medicare Baseline. Kaiser Family Foundation reported these statistics in its Medicare Advantage Fact Sheet.
In 2009 private Advantage plans received funding that averaged 14% more than the cost of treating the same patients enrolled in traditional Medicare, according to another story published in The New York Times. Since 2012, federal payments to private Advantage plans have dropped from an average of 7% higher than traditional fee-for-service Medicare to 4% higher in 2013.
The federal government has proposed a further reduction in payments to Advantage plans for 2015. The proposed cuts would reduce plan payments by around 6%, according to estimates made by America’s Health Insurance Plans, noted the New York Times in a recent story.
Notwithstanding such cuts, The Commonwealth Fund projects that Medicare Advantage members will still cost 2% more per beneficiary than traditional Medicare in 2017, Modern Healthcare reported.
Medicare Advantage Revenues Are Significant to Health Insurers
With the unexpected continuing growth in enrollment, revenues from Medicare Advantage plans have taken on increasing significance to private health insurers. Enrollment in private Medicare Advantage plans has more than doubled since 2006, according to the New York Times. This was due in part to lower premiums for beneficiaries and the additional benefits not included in traditional fee-for-service Medicare, they observed.
Humana now has 2.8 million Advantage plan enrollees, according to research and consulting firm Avalere Health, Modern Healthcare reported. That is 15% over its 2013 enrollments and roughly 25% of all new enrollees in Medicare Advantage plans that year.
Here are some additional interesting growth statistics elsewhere in the market, according to Modern Healthcare:
• Hartford, Connecticut-based Aetna (NYSE:AET) completed its $5.7 billion acquisition of Coventry Health Care last year. Since then, its Advantage business has more than doubled.
• Bloomfield Connecticut-based Cigna (NYSE:CI) completed its $3.8 acquisition of HealthSpring in 2012. The deal added 340,000 Advantage enrollees. The company has increased its Medicare business ten-fold in the past three years.
• WellPoint (NYSE:WLP) acquired CareMore Health Group in 2011. It gained 50,000 customers and bolstered its Advantage business in California, Arizona and Nevada.
Generally speaking, growth in Medicare Advantage enrollment favors the national labs, with private insurers providing them exclusive network contracts. This means less market access to these patients by community labs. Going forward, correctly grasping ways to provide laboratory services that make a difference for patients will determine the winners and losers under patient-centered care models and value-based reimbursements.
Pathologists and Clinical Labs Need Strategies to Access Advantage Plans
For pathologists and clinical laboratory managers, it is increasingly critical to develop strategies that will add value to the medical testing services provided and become essential providers in the communities served. Payers offering Medicare Advantage Plans are more inclined to include a local lab in their networks when that medical lab offers value clinicians recognize and use to improve the outcomes of their patients.
—by Pamela Scherer McLeod
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