Large hospital systems often complain about Medicare Advantage (MA) plans. Just last year some large hospital systems reported dropping or threatened to drop major MA plans run by health insurers. One complaint is low reimbursement, but arguably a more irritating business practices by MA plans is excessive prior authorization and slow payments. Breaking up with an MA plan runs the risk of shutting out thousands of potential patients. A strategy more large hospital systems are exploring is establishing their own MA plans. The following is from Kaiser Family Foundation Health News:
Kaiser Permanente, the nation’s largest nonprofit health system by revenue, started an experimental Medicare plan in 1981 and now has nearly 2 million people enrolled in dozens of Advantage plans in eight states and the District of Columbia.
Last year, UCLA Health introduced two Medicare Advantage plans in Los Angeles County, the most populous county in the United States. Other new hospital-owned plans have cropped up in less profitable rural areas.
“These are communities that have been very hard for insurers to move into,” said Molly Smith, group vice president for public policy at the American Hospital Association.
But Advantage plans offered by hospitals have a familiar, trusted name. They don’t have to move into town, because their owners — the hospitals — never left.
Medicare Advantage plans are health plans for seniors run by private health insurers. Just over half of seniors enrolled in Medicare are in MA plans (55%), which tend to offer more benefits than Traditional Medicare. One disadvantage of MA plans is that not every doctor is in every plan. If an MA plan and a hospital have a falling out, a senior may find they have to switch plans if they want to keep their doctors. An estimated 3.7 million seniors found themselves in that position last year when hospital providers no longer would accept their MA plans. More from KFF Health News:
When Fred Neary, 88, learned his doctors in the Baylor Scott & White Health system in central and northern Texas would be leaving his Medicare Advantage plan, he was afraid the same thing could happen again if he joined a plan from another commercial insurer. Then he discovered that the 53-hospital system had its own Medicare Advantage plan. He enrolled in 2025 and is keeping the plan this year.
“It was very important to me that I would never have to worry about switching over to another plan because they would not accept my Baylor Scott & White doctors,” he said.
It makes a lot of sense for large hospitals systems to establish their own MA plans. Instead of depending on insurers to send them patients, they can enroll seniors and get paid per member whether or not they need care during the year. Hospital owned MA plans are free to experiment with different mixes of primary and inpatient care models to see which is more efficient. They are free to test telemedicine to see if it reduces more expensive care. A study published in JAMA Surgery found that surgical patients enrolled in hospital-owned MA plans had fewer complications, likely because the hospital and insurer are not on opposing sides of the care process.
One competitive advantage that hospitals enjoy is that many physicians are now employed by hospitals. That is not necessarily good for seniors not enrolled in a hospital owned MA plan, however. There is also a shortage of primary care physicians that hospitals may be able to exploit. For instance, Baylor Scott & White Health (mentioned above) employs both primary care physicians and specialists. Some of their hospital-employed specialists will not accept new Medicare patients unless their referring primary care physician is also employed by Baylor. In an environment with a growing physician shortage, the ultimate tool to recruit members could be that no doctors will care for you if you are not a member of a hospital-owned health plan.
It makes a lot of sense for large hospital systems to vertically integrate and operate health plans. This offers the potential to streamline care and make it more efficient, while providing more competition for health insurers. It also creates significant risk for consumers. In 2024 I enrolled in a Baylor Obamacare plan. I began to worry that my doctors would only refer me to higher priced Baylor facilities for any needed services. Since my deductible was nearly $9,000 dollars, it could potentially cost me a fortune.
KFF Health News: Sick of Fighting Insurers, Hospitals Offer Their Own Medicare Advantage Plans