Medicare Advantage and Post-Acute Care: Saving Money or Shifting Costs?

By Lane Koenig, PhD, Jing Xu, PhD, and Berna Demiralp, PhD
August 3, 2020

In its April 2020 report, the Medicare Board of Trustees projects that the Hospital Insurance (HI) Trust Fund – basically, funding for Part A – will be depleted by 2026; Medicare will only be able to pay out 90 percent of benefits available under current law in that year.  With financial circumstances likely to worsen as a result of COVID-19, Congress will be looking for ways to extend the solvency of the Medicare program over the next few years.

One approach favored by some would be to accelerate the growth of Medicare Advantage (MA), which would shift financial risk from the Federal Government to the private insurers that offer an MA plan.  In 2020, approximately 36 percent of Medicare beneficiaries are enrolled in an MA plan, which receives a fixed fee per enrollee, adjusted for clinical characteristics. Most beneficiaries are in Traditional Medicare (TM), but the Medicare Trustees project MA enrollment to continue to grow and reach 43.3 percent by 2030.

Because MA plans receive fixed payments for their enrollees, they have an incentive to control healthcare use, including use of post-acute care (PAC), i.e., home health agencies (HHAs), skilled nursing facilities (SNFs), inpatient rehabilitation facilities (IRFs), and long-term care hospitals (LTCHs).  PAC is perceived as a potential area for savings in Medicare, particularly after research has identified it as a key driver of geographic variation in TM. TM’s spending on PAC is significant, estimated at $58.5 billion in 2018.

In a recent study, researchers at KNG Health Consulting compared PAC utilization in TM and MA as well as short-term acute care hospital (STACH) average length of stay by patient severity of illness (SOI) and select clinical conditions. The study found that for all levels of SOI and selected clinical conditions, the TM discharge rates to facility-based PAC (SNF, IRF, and LTCH) were higher than for MA beneficiaries, although differences in facility-based PAC rates between TM and MA narrowed some for the highest severity patients.  For patients with the highest SOI or the selected clinical conditions, MA beneficiaries had longer average length of stay at STACHs compared with TM beneficiaries.

While the study findings are consistent with other recent studies that found MA enrollees were less likely to receive PAC services, it provides additional insights on variation in use of PAC among TM and MA beneficiaries.  First, the observed differences in PAC use for low severity beneficiaries suggests there may be opportunities for TM savings among these patients. Second, MA may substitute longer hospital stays for facility-based PAC and, specifically, for care in LTCHs, which care for the most severely ill Medicare beneficiaries.

The study suggests that MA plans generate PAC savings by pushing costs onto short-term acute care hospitals for the most severely ill patients.  All good? Medicare saves money and MA plans compensate hospitals for the longer lengths of stay….or not.  Studies have documented that MA plans pay hospitals the same, on average, as TM or lower.  So, growth of MA shifts financial risk from TM onto hospitals, at least with respect to PAC use, to what effect? Lower hospital margins– yes, but a key unanswered question is the impact on beneficiary outcomes. With the relatively recent release of MA encounter data, researchers may be able to start answering this key question.



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Medicare Advantage: Lower Use of Facility-based Post-acute Care but Longer Hospital Stays than Traditional Medicare, June 2020

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