Study: Medicare Advantage pays hospitals less than fee-for-service

Hospitals were paid about 8 percent less by Medicare Advantage plans compared to traditional fee-for-service (FFS) reimbursement in 2009, 2011 and 2012, according to a study published in Health Affairs.

Laurence C. Baker, a health research and policy professor at Stanford University, and his coauthors, found Medicare Advantage still paid less—about 5.6 percent less—when accounting for the program’s narrower networks compared to FFS. Baker wrote the results were “contrary to conventional wisdom” and should make CMS think differently about its rate adjustments.

“Medicare Advantage hospital prices were lower where both the program’s penetration and FFS Medicare spending were higher,” Baker and his coauthors wrote. “This suggests that the government’s ongoing efforts to adjust payments to Medicare Advantage plans, based on the ACA, should consider the Medicare Advantage market environment more broadly, instead of just the level of FFS Medicare.”  

Using data from the Health Care Cost Institute and CMS for inpatient hospital claims, the study calculated the average price per admission for Medicare Advantage, FFS Medicare and commercial insurance plans. When comparing the same diagnosis-related groups in the same selected metropolitan areas, the study found Medicare Advantage paid less than FFS Medicare in 2009 and 2012.

The average hospital payment per admission was:

• 2009: $10,730 for FFS, $9,526 for Medicare Advantage
• 2012: $11,199 for FFS, $10,307 for Medicare Advantage

The study also found commercial plans paid “significantly more” than the Medicare options, and the disparity grew between 2009 and 2012, with rates increasing from 146 percent to 165 percent of FFS Medicare rates, depending on which diagnosis-related groups were used.

Baker wrote that no other study had calculated Medicare Advantage prices compared to FFS, and doing so would be “important to public policy.”

“If Medicare Advantage prices are lower than those of FFS Medicare, then Medicare can obtain the same quantity of services for less money through Medicare Advantage than through FFS Medicare,” Baker and his coauthors wrote. “However, if Medicare Advantage prices are higher than those of FFS Medicare, then Medicare would have to spend more to obtain the same quantity of services through Medicare Advantage, compared to through FFS Medicare.”