Increases in Medicare Advantage (MA) enrollment are not, on average, associated with significant profit margin changes for hospitals operating in their respective counties, according to an analysis conducted by Medicare Payment Advisory Commission (MedPAC) staff and reviewed by its commissioners Friday.
The analysis, which examined all-payer revenue, costs and profit margins pulled from hospitals’ 2013-23 Medicare cost reports, pushes back on hospital groups’ claims that the rising number of MA enrollees brings tighter margins and threatens financial viability.
Rather, MedPAC found that MA enrollment increases were tied to lower revenues and costs alike.
Specifically, a 10-percentage-point increase in a county’s MA penetration was associated with a 1.3% reduction in all-payer revenues and a 1.2% reduction in all-payer costs. The resulting 0.1% dip in profit margins was not statistically significant.
The analysis found hospitals that are financially integrated with a MA plan (for instance, common ownership) did not have a significant change in revenues or costs with higher enrollment, which the commission suggested could stem from limited incentives for plans to reduce these hospitals’ volumes or payment rates.
Critical access hospitals also had no significant changes in revenues, costs or profit margins due to MA enrollment changes, potentially due to their cost-based reimbursements that would rise with lower volumes.
The commission noted that a shift in enrollment rates could have a downstream effect on the add-on payments many hospitals receive to offset their uncompensated care, due to the payment formula’s sensitivity to changes in total MA discharges and fee-for-service discharges. How exactly those changes are impacting uncompensated care payments would require further analysis, staff and commissioners said.
The share of eligible Medicare beneficiaries enrolled in an MA plan has risen from 31% in 2014 to 55% in 2025, according to prior MedPAC data cited in Friday’s presentation.
The hospital industry has painted the rise as negative, particularly for rural facilities. An American Hospital Association report from earlier this year described lower pay rates than traditional Medicare as well as care delays and additional administrative hurdles stemming from plans’ utilization management tools.
Separate analyses and anecdotal accounts from health systems have similarly warned of rising MA utilization’s threat to rural facilities often vulnerable to closure. High-profile provider network contract disputes between payers and health systems hinging on utilization management issues have also sprung up in recent years.
Provider groups and health system executives have accused plans of ramping up their efforts to reduce volumes or shift care to lower cost settings partway through 2024—after MedPAC’s analysis period—to offset rising utilization rates.
The commission’s presentation acknowledged the issues stemming from utilization management and provider network misuse but noted that “when used appropriately, [the tools] may promote more efficient care and better outcomes.” MedPAC’s analysis also outlined peer-reviewed academic studies going both ways on MA growth’s hospital finance impact, citing one that found an association between higher MA penetration and improved financial health and reduced risk of closure among rural hospitals.