Some commissioners question MedPAC finding of no MA margin impact

Increasing shares of Medicare Advantage patients do not hurt margins of hospitals, including rural hospitals, according to a recent analysis by Congress’ Medicare advisers. But some commissioners have raised questions about those findings. 

The findings of the Medicare Payment Advisory Commission recently issued staff report, which examined aggregated 2013 to 2023 data on the effect across all IPPS hospitals of a 10% increase in local enrollment in MA enrollment, included:

• No significant profit margin changes were associated with it
• Revenues dropped 1.3% and costs dropped 1.2%
• Lower revenues and lower costs when the hospital was not financially integrated with any MA plan
• No statistically significant change in revenues or costs when they were financially integrated
• Profit margins were unaffected by whether the hospital did or did not have a financially integrated MA plan

The study on the effect of increasing MA enrollment comes as MA enrollment this year reached 55% of total Medicare coverage, according to MedPAC. Similarly, MA enrollment was projected to surpass 50% this year in rural markets, according to an analysis of the Rural Policy Research Institute.

MedPAC also examined critical access hospitals (CAHs) and found no statistically significant association between increased local MA enrollment and revenue, costs or profit margins.

MedPAC staff said hospital industry analysis have found MA plans have lower payment-to-cost ratios than fee-for-service (FFS) Medicare. But that the academic research was mixed on the financial effect of MA plans on hospitals.

“On the plus side, it seems to be the case that the biggest fears, the MA is making hospitals dramatically unprofitable, on average, does not actually seem to be true because of adaptation,” said Michael Chernew, PhD, chair of MedPAC and a professor at Harvard Medical School. “Revenue goes down, but their costs go down, he added.”

However, Chernew noted that data do not address whether MA is increasing hospital efficiency or if “the reduction in cost is having real, deleterious consequences.”

The analysis came in response to increasing hospital concerns that surging MA enrollment — MA enrolled 55% of all Medicare enrollees in 2025 — has resulted in lower revenue due to poor rates and much larger administrative requirements.

Brock Slabach. MPH, chief operations officer for the National Rural Health Association, said he has heard from rural providers that MA payment is one of the biggest concerns they raise.

“Where our members are seeing the biggest issues, it’s not necessarily [payment rates], although rates are important, it’s that the denials, prior authorizations and downcoding,” Slabach said. “Those are the bigger issues around the MA program exists.”   

MedPAC concerns

Some MedPAC members raised a range of concerns about the analysis, according to a transcript of the Sept. 4 public hearing.

Betty Rambur, PhD, vice chair of MedPAC and professor of nursing in the College of Nursing at the University of Rhode Island, worried that it was unknown whether the hospital cost reductions linked to MA were related to care coordination, avoiding unnecessary services or denial of valuable services.

Brian Miller, MD, an associate professor of medicine at Johns Hopkins University, underscored that the analysis only provided averages, with the potential for wide variation — positively or negatively — in MA effects on hospital margins.

“Plans will say no hospitals are hurt and hospitals will say all hospitals are hurt. And neither of those is true,” said Miller.

The American Hospital Association (AHA) underscored a similar concern.

“MedPAC’s recent findings focus on averages – a blunt tool for looking at impacts that ultimately conceal each unique community’s hospital-level reality,” said an AHA spokesperson. “Additionally, their assumption that a 10% increase in Medicare Advantage penetration would result in the same effect in every community across the nation misses important distinctions between the many different types of hospitals and the populations they serve.”

Scott Sarran, MD, the founding chief medical officer of Harmonic Health, worried that for smaller and independent hospitals “my sense is a lot of them are really hurting, that they were tenuous organizations, at best, and now with higher MA penetration … they can be pushed over the edge.”

Tamara Konetzka, PhD, a professor of public health sciences at the University of Chicago, urged MedPAC staff to examine the MA margin effect over time due to concerns that “we may see that hospitals have hit a floor in terms of how much they can reduce their costs and then we’ll see more effects in the future.”

Cheryl Damberg, PhD, director of the RAND Center of Excellence on Health System Performance, noted hospitals may absorb costs of longer MA patient stays when they await plan approval for post-acute approval by transferring patients to a holding facility or absorb the cost through charity care.

Gregory Poulsen, MBA, senior vice president at Intermountain Healthcare, noted the analysis does not quantify adverse financial effects on hospitals of MA denials or other administrative requirements. He urged penalties for MA plans found to have high rates of denials that are overturned on appeal.

Other findings

More recent data that Ensemble, a revenue cycle firm, provided to FastFinance found that from June 2024 to May 2025 the average MA reimbursement-to-charge ratio was 90.37%. 

“This means providers are effectively ‘underwater’ — absorbing administrative burden and denial risk — just to obtain reimbursement that falls significantly short of traditional Medicare,” said Stacie Sutter, assistant vice president for payer strategy at Ensemble. “The gap is not theoretical; it’s reflected in real claims data across multiple market, multiple states and months.”

Variation during that period Ensemble examined included:

• Minimum ratio: 88.89% (August 2024)
• Maximum ratio: 92.26% (April 2025)

Amid upheaval in the MA space, including plans dropping coverage for 2026, Sutter expected worsening MA payment differentials as remaining plans consolidate and tighten reimbursement.

That could drive more strategic exits from MA participation, with providers prioritizing FFS Medicare and commercial payers that offer more predictable and equitable reimbursement, she said.