For years, we’ve worked closely with independent physician groups across the country—OB/GYNs in Tennessee, retina specialists in the Midwest, mental health clinics on the coasts. Again and again, we see the same thing: contracts from Medicare Advantage (MA) plans, particularly those from UnitedHealthcare, reimburse providers 25–30% less than traditional Medicare.
And yet somehow, these plans report a compliant medical loss ratio (MLR) – the measure of how much a health plan’s premium is spent on medical care – despite paying significantly below the regional benchmark.
To add another layer, traditional Medicare spends approximately 27% more per member compared to Medicare Advantage Organizations (MAOs).1 Some would say this is the promise of Medicare Advantage, an increase in efficiency and a decrease in dollars spent. But, the MA payment system incentivizes MAOs to diagnose more diseases in their enrollees, a process known as “upcoding,” and not follow those diagnoses up with any subsequent care. In fact, a 2024 Wall Street Journal report found that Medicare paid MAOs approximately $50 billion over three years for untreated diagnoses.2
So, how can all of this be true?
The answer to this question lies at the heart of Congress’s request to the Government Accountability Office (GAO) and the ongoing fraud investigation examining the relationship between UHC’s health plans and its owned provider groups.
Over the last several years, the healthcare sector has become increasingly vertically integrated. UnitedHealthcare employs over 70,000 affiliated physicians in the U.S. through its subsidiary OptumHealth, Cigna owns and maintains MDLive, and Humana operates the primary care network CenterWell, to name a few.
In total, 65% of MA enrollment in 2022 was attributed to spending directed to related businesses by health plans owned by parent companies.3 Put in other words, only one third of MA payments are received by independent providers not associated with a MAO.
There are many consequences to vertical integration. One particular effect is the ability of a MAO to circumvent regulations aimed at reducing the potential of “overpayment” from the Federal Government.
The ACA requires MAOs to maintain a MLR of at least 85% in an effort to align “costs” and payments. But by overspending on its related affiliate providers, a payer can skirt this regulation, allowing a larger portion of premium dollars to become profits.
Setting the price of medical services for a related business of a MAO above the market-level price increases claims spending and incentivizes parent companies to direct MAOs to their affiliated providers.
Federal price transparency mandates have made similar investigations possible in commercial health insurance – a recently published STAT News article investigated the ways in which UnitedHealth pays their providers owned by OptumHealth far above the average market rate in the commercial market.4
However, the dataset behind this analysis does not include MA rates. While CMS produces a market-by-market benchmark on what services should be priced at, MAOs may pay providers a percentage of these price points.
While the pricing range does not vary as widely as the commercial space, the difference between a payment of 100% CMS and 80% CMS is enough to affect the ability of smaller providers not owned by related parent companies to stay in business and to continue providing services.
It stands to reason these low levels of reimbursement to non-affiliate practices help promote high levels of spending to related parties.
Many of our clients who participate in MA products with MAOs receive a fraction of what CMS benchmarks for their regions when they come to us. Consequently, the below-market reimbursement forces these providers to restrict the amount of MA patients they let in the door. Some excellent providers need to close their doors to MA patients all-together. For MAOs with affiliated provider groups and affiliated PBMs, all the better to ensure a captive population.
The GAO request specifically addresses the need to understand the “differences in arrangements between providers owned by related businesses and those that are not”.
We, at Tribunus Health, would like to emphasize the need for reliable and publicly accessible pricing data for Medicare Advantage. While understanding the impact on the MLR is important in regulating compliance of MAOs, from a more practical standpoint, this information is paramount to smaller providers who must compete with the likes of OptumHealth in their market.
Ultimately, the ability for these providers to remain in business preserves the ability of patient choice and keeps costs contained for the entire system.
A free-market mechanism is the defining feature of our healthcare system. Monopolistic forces have undermined the fundamental principles that allow it to function efficiently and fairly.
1 Jeannie Fuglesten Biniek, Alex Cottrill, Nolan Sorczynski, and Tricia Neuman. Medicare Spending was 27% More for People who Disenrolled from Medicare Advantage than for Similar People in Traditional Medicare. https://www.kff.org/medicare/issue-brief/medicare-spending-was-27-percent-more-for-people-who-disenrolled-from-medicare-advantage-than-for-similar-people-in-traditional-medicare/ (December 2024)
2 Christopher Weaver, Tom McGinty, Anna Wilde Mathews, Marke Maremont. Insurers Pocket $50 Billion from Medicare for Diseases No Doctor Treated. https://www.wsj.com/health/healthcare/medicare-health-insurance-diagnosis-payments-b4d99a5d (July 2024)
3 Richard G. Frank and Conrad Milhaupt. Medicare Advantage spending, medical loss ratios, and related businesses: An initial investigation. https://www.brookings.edu/articles/medicare-advantage-spending-medical-loss-ratios-and-related-businesses-an-initial-investigation (March 2023).
4 Bob Herman, Casey Ross, Lizzy Lawrence, and Tara Bannow. UnitedHealth pays its own physician groups considerably more than others, driving up consumer costs and its profits. https://www.statnews.com/2024/11/25/unitedhealth-higher-payments-optum-providers-converts-expenses-to-profits/ (November 2024).
