The Evolving Landscape of Healthcare: Medicare Advantage and Hospital Value-Based Purchasing

Ben H.

Hatched by Ben H.

Jun 29, 2023

3 min read


The Evolving Landscape of Healthcare: Medicare Advantage and Hospital Value-Based Purchasing


In the ever-changing landscape of healthcare, two key areas that have garnered attention are Medicare Advantage utilization and Hospital Value-Based Purchasing (VBP). The largest Medicare Advantage insurers, Humana and UnitedHealth, are experiencing a spike in utilization, prompting them to make strategic changes to their plans. On the other hand, the Hospital VBP Program aims to reward hospitals for delivering high-quality care. In this article, we will explore these topics, their implications, and potential areas for improvement.

Medicare Advantage Utilization Spike:

Humana and UnitedHealth, with a combined market share of 46.5% in the Medicare Advantage market, are facing higher-than-anticipated medical expenses. To counteract this, both insurers plan to cut benefits, increase premiums, and implement other structural changes to their plans for the upcoming year. Humana has already factored these cost considerations into its Medicare Advantage bids, while UnitedHealth reassured investors that it has adequate reserves to cover medical expenses.

The implications of this utilization spike are significant. It highlights the need for insurers to carefully assess and adjust their offerings to ensure financial sustainability. Additionally, regulators have tightened the auditing, payment, and quality review processes for private Medicare plans. Some insurers have announced plans to reduce supplemental benefits in response to these changes. However, the three-year phase-in period for the risk-adjustment model gives companies like UnitedHealth and Humana time to adapt.

Hospital Value-Based Purchasing:

The Hospital VBP Program, established since the Affordable Care Act in 2009, aims to reward acute care hospitals based on the quality of care they provide in the inpatient hospital setting. This program adjusts payments to hospitals under the Inpatient Prospective Payment System (IPPS) based on their performance.

Participating hospitals have a percentage of their Medicare payments withheld, which is then used to fund value-based incentive payments. These payments are awarded based on hospital performance across various measures, including mortality and complications, healthcare-associated infections, patient safety, patient experience, and efficiency and cost reduction. Hospitals can earn scores for achievement and improvement in each measure, with the final score being the higher of the two.

While the Hospital VBP Program has been in place for over a decade, questions arise regarding its effectiveness and the metrics used to measure quality. With the program withholding a mere 2% of Medicare payments, there is debate about increasing this percentage to encourage hospitals to strive for even higher standards of care.

Actionable Advice:

  • 1. Insurers should proactively analyze healthcare trends and adjust their plans accordingly to mitigate the impact of unexpected spikes in utilization. This includes considering factors such as cost trends, investment income, and reserves.
  • 2. As regulators tighten auditing and quality review processes, insurers should focus on maintaining and enhancing the quality of care provided to Medicare Advantage beneficiaries. This can be achieved through continuous improvement initiatives, staff training, and strategic partnerships.
  • 3. Hospitals should critically evaluate the metrics used in the Hospital VBP Program to ensure they accurately reflect quality of care. Additionally, they should invest in initiatives that target areas for improvement, such as patient safety and efficiency, to maximize their performance scores and incentive payments.


The healthcare industry is constantly evolving, and the Medicare Advantage market and Hospital VBP Program are two areas at the forefront of change. As insurers like Humana and UnitedHealth navigate utilization spikes, they must adapt their plans to ensure financial sustainability. Simultaneously, hospitals participating in the Hospital VBP Program must strive for excellence in care delivery to earn incentive payments. By proactively analyzing trends, adapting strategies, and focusing on quality improvement, both insurers and hospitals can thrive in this ever-evolving landscape of healthcare.

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