Who is subsidizing record payer profits?

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Healthcare faces a watershed moment. In the recent CY 2025 OPPS proposed rule, CMS recommends increasing payment rates by a net 2.6% next year. This “inadequate update,” as AHA has stated, represents a smaller rate increase than the 3.1% increase set in the CY 2024 final rule. Moreover, it comes at a time when costs are increasing industry-wide, due in part to inflationary pressures.  

With the proposed rule, providers will receive less than a 3% increase next year. In comparison, healthcare costs are set to rise 8% in 2025, reaching the highest level in 13 years. 

Market conditions are sobering: Health insurance premiums grew twice as fast as hospital prices in 2023. Hospitals and health systems are struggling to make ends meet, while payers see record margins. Faced with these headwinds, providers need to rely more and more on improving payer contract rates and performance. One prime area of opportunity comes with Medicare Advantage plans.  

Historically, payers have not been willing to concede on MA plan rates — they protect their highest margin line of business. Instead, payers will offer concessions on their commercial products. Most of these commercial products are funded directly by employers through employer-sponsored health plans, which provide coverage for more than 60% of all insured workers.  

Employer-sponsored health insurance — group coverage offered by a person’s place of employment rather than purchased directly through an insurer — is the largest source of health coverage for non-elderly U.S. residents. It’s also the most common source of private health insurance. Approximately 60% of claims for a commercial product are funded directly by employers, whereas funding for claims through Medicare Advantage comes from the payer itself.   

Employers are picking up the costs for MA plans’ poor performance. 

Payers are willing to offer an increase on the commercial products because it’s not their money that they are spending. Commercial increases simply transfer the employer’s money to providers, rather than drawing reimbursement from the payers.  

“Employers are concerned about the cost of healthcare increasing every year, but it's not because their employees are any sicker. It's because the insurance companies are spending their dollars in a frivolous manner to protect their own bottom line.” 

— Bradley G. Gingerich , VP of Payer Strategy, Ensemble Health Partners  

Meanwhile, in accepting these increases, providers essentially agree to look the other way on poor performance on the Medicare side. Those MA plan profits become the payers’ to keep. As with any business, payers operate with greater diligence and fiscal responsibility when their dollar is on the line. In most cases, however — it’s the employer’s money that’s been negotiated.   

This has far-reaching consequences. Today, commercial insurance rates are 2.5-3x Medicare reimbursement on any patient; yet it costs far less to treat a commercially insured patient than a Medicare patient, on average, due to age and comorbidities. 

In other words? The lowest cost patients are paying the most, and self-funded employers are subsidizing payer profits. This issue will continue to expand until providers demand more from MA plans. 

Providers have a responsibility to stand their ground. 

There’s a great deal of resistance from payers when it comes to negotiating Medicare Advantage rates. But with the commercial rates continuing to grow at an unsustainable pace, it’s past time for providers to take a stand. 

“Providers do have culpability. We are the ones saying, at the end of the day, I'll agree to that substantial commercial increase because I need the increase no matter where it comes from.” 

— Brad Gingerich, VP of Payer Strategy, Ensemble Health Partners 

It’s no longer just a nice-to-have: to keep one step ahead, providers now need to have a robust strategy in place when entering into contract negotiations with payers. 

So how can providers make sure they’re getting paid what they’re owed? A two-pronged approach for providers and their RCM partners is best practice: 

1. Negotiation: Every few years, assess the efficacy of existing rates for all products. Work to get providers' reimbursements to align more closely with the established Medicare rate in order to eliminate the effective rate discrepancy between MA plans and CMS. The closer contracts get to 100%, the more likely providers are to stay afloat after high denials and requests for additional documentation whittle down payment rates. Consider potential contract termination if a payer is unwilling to act in good faith on rate increases or tighter language to avoid denials or revenue leakage. 
2. Enforcing existing contracts: On a day-to-day basis, stay on top of payer performance and the terms spelled out in your contracts. Do you have provisions that require the payer to pay, deny or dispute a claim within 30 days or remit payment with interest on day 31? Are you preventing pre-payment review on claims not disputed within 30 days? How are you limiting requests for information, audit volumes and appeal response timelines? Are you restricting bundling of charges and limiting “lesser of” language? How are you protecting yourself against recoupments? Hold payers accountable for complying to the terms of their contracts.   

Rates are only as good as the payment terms supporting them, so make sure managed care leaders have a strong understanding of existing contract terms as well as the best practice language required to drive proper reimbursement. 

Partnership in practice 

Billie Jean Mounts, MBA, FHFMA, EHRC, CRCR, CSMC , Chief Revenue Officer of Bon Secours Mercy Health , spoke at this year’s HFMA Conference about her system’s experience partnering with Ensemble to build an effective payer strategy to go toe-to-toe with major payers. Data-driven decision making, strong payer relationships, strategic negotiations, a willingness to stay ahead of regulatory changes and the ability to lean on innovative technology were critical to this process, she explained. Learn more.