Why Are Health Systems Dropping Medicare Advantage Contracts and What Should Providers Consider

Medicare Advantage (MA) plans have grown rapidly over the past decade, offering seniors an alternative to traditional Medicare with added benefits and managed care. Yet, a growing number of health systems are choosing to drop their Medicare Advantage contracts. This shift raises important questions about the challenges health systems face and what other providers should weigh before making similar decisions.

This article explores the reasons behind health systems stepping away from Medicare Advantage contracts and offers practical considerations for providers evaluating their own participation.

Challenges Driving Health Systems Away from Medicare Advantage Contracts

Many health systems initially embraced Medicare Advantage contracts to expand patient access and secure steady revenue streams. However, several challenges have emerged that make these contracts less attractive.

Financial Pressures and Payment Rates

Medicare Advantage plans negotiate payment rates with providers, often setting lower reimbursement levels than traditional Medicare or commercial insurance. Health systems report that these rates sometimes fail to cover the full cost of care, especially for complex or high-acuity patients.

• Example: A large Midwestern health system found that MA contract payments were 10-15% lower than traditional Medicare reimbursements for similar services. This gap strained their financial margins, particularly in specialties like cardiology and oncology.

  
  

• Impact: Lower payments can reduce resources available for staffing, technology, and quality improvement, limiting the health system’s ability to deliver high-value care.

  
  

Administrative Burden and Complexity

Medicare Advantage plans often require extensive prior authorizations, utilization reviews, and reporting. Health systems face increased administrative work to comply with these requirements.

• Example: One health system reported that managing MA plan authorizations consumed hundreds of staff hours monthly, diverting resources from patient care.

  
  

• Impact: The administrative complexity can slow care delivery, frustrate clinicians, and increase operational costs.

  
  

Restrictions on Provider Networks and Patient Choice

Some Medicare Advantage contracts limit the providers patients can see, requiring health systems to accept narrow networks or risk losing patients.

• Example: A health system in the Northeast was asked to accept a narrow network contract that excluded several of its specialty clinics. This restriction conflicted with the system’s goal to provide comprehensive care.

  
  

• Impact: Network restrictions can reduce patient volume and disrupt continuity of care, undermining patient satisfaction and outcomes.

  
  

Quality Metrics and Incentives Misalignment

Medicare Advantage plans tie payments to quality metrics, but health systems sometimes find these measures misaligned with their clinical priorities or patient population needs.

• Example: A health system serving a high proportion of patients with multiple chronic conditions struggled to meet certain MA quality benchmarks focused on preventive care, which did not fully reflect their patient complexity.

  
  

• Impact: Misaligned incentives can discourage providers from focusing on the most critical aspects of care for their patients.

  
  

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What Providers Should Consider Before Dropping Medicare Advantage Contracts

Deciding to leave Medicare Advantage contracts is a significant step with wide-reaching implications. Providers should carefully evaluate several factors before making this choice.

Assess Financial Impact Thoroughly

Providers must analyze how dropping MA contracts will affect revenue and patient volume. This includes:

• Comparing reimbursement rates from MA plans versus traditional Medicare and other payers.

• Estimating potential loss of MA patient referrals.

• Considering the impact on overall payer mix and cash flow.

  
  

Tip: Use detailed financial modeling to forecast short- and long-term effects.

Evaluate Patient Access and Market Position

Medicare Advantage enrollment continues to grow nationally, representing a large segment of the senior population. Providers should consider:

• How dropping MA contracts might limit access for MA beneficiaries.

• Whether patients will seek care elsewhere, affecting market share.

• The competitive landscape and how peers are responding to MA contracts.

  
  

Tip: Engage patient advisory groups or conduct surveys to understand patient preferences.

Consider Administrative and Operational Capacity

If administrative burden is a key concern, providers might explore alternatives before exiting MA contracts, such as:

• Negotiating simpler prior authorization processes.

• Investing in technology to streamline MA plan requirements.

• Collaborating with MA plans to align workflows.

  
  

Tip: Evaluate whether operational improvements could reduce administrative costs enough to maintain MA participation.

Review Contract Terms and Negotiation Opportunities

Providers should carefully review contract terms and seek opportunities to negotiate better rates, network flexibility, or quality metric alignment.

• Request data transparency from MA plans to understand utilization and payment patterns.

• Propose adjustments to quality measures that better reflect patient complexity.

• Explore value-based arrangements that reward outcomes rather than volume.

  
  

Tip: Engage legal and financial advisors experienced in MA contracts to support negotiations.

Plan for Patient Communication and Transition

If a decision is made to drop MA contracts, providers must prepare to communicate clearly with patients and coordinate care transitions.

• Inform patients well in advance about changes.

• Provide resources to help patients find in-network providers.

• Coordinate with MA plans to ensure continuity of care.

  
  

Tip: Develop a patient-centered communication plan to maintain trust and minimize disruption.

Examples of Health Systems That Dropped Medicare Advantage Contracts

Several health systems have publicly shared their experiences with dropping MA contracts, offering valuable lessons.

• Example 1: A California-based health system exited several MA contracts after concluding that low reimbursement and administrative demands outweighed benefits. They focused on expanding traditional Medicare and commercial payer relationships instead.

  
  

• Example 2: A Southeastern health system negotiated improved contract terms with MA plans after threatening to leave. They secured higher payments and reduced prior authorization requirements, allowing them to maintain participation.

  
  

These cases highlight that dropping MA contracts is not the only option; negotiation and operational changes can sometimes address key concerns.

Final Thoughts on Medicare Advantage Contract Decisions

Medicare Advantage contracts present both opportunities and challenges for health systems. While some are choosing to drop these contracts due to financial, administrative, and operational pressures, others find ways to adapt and negotiate better terms.

Providers considering this decision should take a comprehensive approach: analyze financial impacts, assess patient access implications, explore operational improvements, and negotiate contract terms. Thoughtful planning and clear communication with patients will help ensure the best outcomes.

The healthcare landscape is evolving, and providers must balance financial sustainability with patient-centered care. Understanding the full picture of Medicare Advantage participation will help providers make informed choices that support their mission and community.