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Medicare Advantage Control of Postacute Costs: Perspectives From Stakeholders

The American Journal of Managed CareDecember 2018
Volume 24
Issue 12

This qualitative study examines the methods that Medicare Advantage plans use to control or reduce postacute spending and their associated unintended consequences.


Objectives: Medicare Advantage (MA) plans have strong incentives to control costs, including postacute spending; however, to our knowledge, no research has examined the methods that MA plans use to control or reduce postacute costs. This study aimed to understand such MA plan efforts and the possible unintended consequences.

Study Design: A multiple case study method was used.

Methods: We conducted 154 interviews with administrative and clinical staff working in 10 MA plans, 16 hospitals, and 25 skilled nursing facilities (SNFs) in 8 geographically diverse markets across the United States.

Results: Participants discussed how MA plans attempted to reduce postacute care spending by controlling the SNF to which patients are discharged and SNF length of stay (LOS). Plans typically influenced SNF selection by providing patients with a list of facilities in which their care would be covered. To influence LOS, MA plans most commonly authorized patient stays in SNFs for a certain number of days and required that SNFs adhere to this limitation, but they did not provide guidance or assistance in ensuring that the LOS goals were met. Hospital and SNF responses to the largely authorization-based system were frequently negative, and participants expressed concerns about potential unintended consequences.

Conclusions: In their interactions with hospitals and SNFs, MA plans attempted to influence the choice of SNF and LOS to control postacute spending. However, exerting too much influence over hospitals and SNFs, as these results seem to indicate, may have the negative consequences of delayed hospital discharge and SNFs’ avoidance of burdensome plans.

Am J Manag Care. 2018;24(12):e386-e392Takeaway Points

We examined the methods that Medicare Advantage (MA) plans use to control or reduce postacute spending, as well as their possible unintended consequences. Plans attempted to reduce spending by controlling the skilled nursing facility (SNF) to which patients are discharged and the SNF length of stay:

  • Some plans used a more hands-on approach by engaging with SNFs and patients.
  • Most plans used authorization processes.
  • SNFs and hospitals reported negative consequences of these authorization processes, including longer hospital lengths of stay and SNF avoidance of some plans.
  • These negative consequences could result in MA patients being sent to lower-quality SNFs.

Medicare Advantage (MA) offers Medicare beneficiaries the option of receiving healthcare benefits through private insurance plans rather than through traditional fee-for-service Medicare. In 2017, MA beneficiaries made up 33% of the Medicare population, and Medicare’s capitated payments to MA plans comprised 30% of total Medicare spending.1 Following hospitalizations, one-fifth of Medicare beneficiaries, both fee-for-service and MA, are discharged to skilled nursing facilities (SNFs) for postacute care (PAC).2 The growth in SNF utilization and spending3 has placed pressure on payers to identify effective strategies to reduce postacute spending.4

Because MA plans receive capitated payments in exchange for bearing the risk of providing Medicare-covered services, plans may attempt to control PAC spending by requiring prior authorization for each PAC stay and for specific length of stay (LOS) durations or by limiting the network of SNFs in which patients’ care is covered.2 Health plans employ prior authorization to determine whether they will pay for a SNF stay and, if so, the duration of the stay that will be covered. Restricting the network of SNFs may reduce administrative costs associated with working with a larger number of SNFs and preferentially direct patients to SNFs with more efficient practice patterns. Additionally, because MA patients can go directly to a SNF without an acute stay, plans may be further motivated to narrow their SNF networks. These cost-containment strategies are unavailable in traditional Medicare because the program does not selectively contract with providers and does not use prior authorization for SNF care beyond requiring a 3-day qualifying hospital stay.

Prior research comparing PAC in traditional Medicare versus MA has reported that MA patients use less PAC, have a shorter LOS, experience fewer readmissions, and are more likely to be discharged to the community.5 However, MA patients are more likely to receive care in low-quality SNFs and have high rates of switching to traditional Medicare following a SNF stay.6,7 Of note, there is little empirical study of the specific strategies that MA plans use to reduce PAC spending and manage/coordinate care for their enrollees. This lack of prior research raises a critical gap for 3 reasons. First, there is a pressing need to identify effective approaches, including those used by MA, to improve the value of PAC.8 Second, federal policy has stimulated enrollment in MA under the theory that capitated payments to private plans will improve quality and lower costs, but the specific strategies that these plans use to achieve these objectives are unknown. Third, MA strategies to reduce the use of PAC may have adverse unintended consequences, and PAC providers that contract with MA plans and serve MA patients may be well positioned to identify and report these consequences.

The present study aimed to explore these mechanisms and potential consequences and sought to describe perceptions from plans, hospitals, and SNFs. Whereas quantitative analysis of secondary data may shed light on patient outcomes, LOS, or other utilization trends, these data are often out-of-date and do not give information on actual mechanisms at work. This study required a qualitative approach, as such data can help uncover and examine these dynamics in detail and lead to the development of further hypotheses that can be tested in future quantitative work.


Design and Sample

We conducted a qualitative study of 154 participants from 10 MA plans, 16 hospitals, and 25 SNFs in 8 markets across the country. We selected markets that varied based on region of the country, county size, MA penetration rates, and the absence or presence of accountable care organizations. For further information on market selection, see McHugh et al.9


We first recruited the 1 or 2 largest MA plans in each of the 8 markets, then recruited from each of those markets 1 hospital with a low readmission rate and 1 with a higher rate. Using Medicare claims data, we then selected at least 3 SNFs to which the 2 hospitals discharged patients. During in-person facility visits, we conducted 154 interviews, representing 10 MA plans, 16 hospitals, and 25 SNFs. We interviewed the chief medical officer (CMO) and a care manager for each MA plan; the vice president of strategy, the CMO, a discharge planner, and a hospitalist in each hospital; and the administrator, director of nursing, and admissions coordinator, among other staff, for each SNF. These interviews were designed, in part, to understand relationships among MA plans, hospitals, and SNFs. Participants were asked about hospital discharge planning, SNF placement and LOS, and the role that different actors, including MA plans, play in placement and LOS decisions. Sample questions from different interview participant roles are included in Table 1. These interviews took place in participants’ offices or, in the case of many of the MA plan interviews, on the phone, and they lasted approximately 40 minutes each. All interviews were audio recorded and transcribed for analysis.


Interviews were qualitatively analyzed to identify overarching themes and patterns of responses.10-13 First, we developed a preliminary coding scheme based on the questions included in our interview protocols. We then adjusted the scheme in an iterative fashion to add codes and refine code definitions; additional codes were added depending on the material that emerged from the interviews. The scheme was then applied to each transcript and analyzed by members of the research team. For detailed information regarding data analysis, see Tyler et al.14

During analysis, an audit trail was kept to record ongoing team decisions, including selection and definitions of codes and discussion of emerging themes and competing interpretations.11,15-18 Coded data were entered into the qualitative software package NVivo (QSR International Pty Ltd; Melbourne, Australia) for data management. The research protocol and associated materials were approved by Brown University’s institutional review board, and informed consent was obtained from all participants.


Qualitative analysis yielded several themes. Participants discussed relationships among MA plans, hospitals, and SNFs, including the ways that these 3 types of organizations typically interact. MA plans described efforts to influence PAC costs by directing patients to specific SNFs and limiting SNF LOS, whereas hospital and SNF participants discussed their perspectives about these aspects of the interorganizational relationships. Somewhat unexpectedly, MA plans did not report attempting to influence the initial posthospital discharge setting (eg, SNF, independent rehabilitation facility, home healthcare, home without PAC), nor did hospital or SNF interview participants describe MA plan staff trying to influence the type of postacute setting.

MA Plans Reduce PAC Costs by Influencing SNF Selection and LOS

MA plan participants discussed 2 methods for reducing PAC costs: controlling the SNF to which MA patients are discharged following hospitalization and limiting the LOS in the SNF. A CMO at one plan in the Northeast described this focus on the appropriate discharge destination: “We’re, as a plan, very highly focused on right care, right place, right reason” (site 6, plan 1, interview 1). A chief operating officer at a Southern MA plan seconded this: “We wanna make sure that that member always has the right level of service. And that’s one of the things that we do push very hard to our staff, is we gotta make sure the member gets the right service at the right time” (site 7, plan 2, interview 1).

[PAC] is a huge cost growth area for our plan and for the enterprise as a whole. I mean, the challenges are the expense line, also the nature of PAC and a lack of energy on the part of the PAC providers to move along or expedite the progression of the clinical course for our members that are patients...so it requires constant scrutiny, um, advocacy for the member, and also advocacy for us as a payer.… [SNFs] have no incentive to, in fact a negative incentive, to discharge our members (site 4, plan 1, interview 1).

Of note, this focus on the right care at the right time was limited to helping hospitals and patients select a facility once the discharge setting had already been determined and then limiting LOS once the patient was in that facility. MA plan interview participants did not describe involvement in determining the posthospital discharge setting. Those participants instead reported that hospitals were responsible for deciding the site of PAC, and the MA plans would then authorize the hospitals’ decisions based on patients’ clinical requirements. Then, once the SNF was selected as the discharge setting, MA plans were involved in choosing which specific SNF. A CMO at a plan in the Midwest described the overall cost of PAC and highlighted the need to balance patient and plan priorities:

MA Plan Influence of SNF Selection

As illustrated in Table 2, MA plan interview participants discussed their efforts to influence the SNF to which their beneficiaries would be discharged following hospitalizations. These efforts were frequently authorization based and limited to providing beneficiaries with a list of SNFs in which care would be covered. Participants reported that patients were encouraged to select from a network of approved SNFs and would frequently be responsible for costs if they did not. Hospital participants described this authorization-based system of MA plan involvement in SNF decision making as a potential barrier to timely care, frequently reporting a delay in the placement of MA patients. This delay may complicate relationships between hospitals and SNFs; because it is relatively easier to place traditional Medicare beneficiaries than MA beneficiaries, SNFs may be less willing to take MA patients. (See Table 2 for example quotes.)

A few MA plans were reported to use a more hands-on approach that included sharing of staff and active involvement in discharge planning in the hospital. This took the form of care managers who worked with (1) hospital staff to provide the range of covered options and (2) patients and their families to provide further information about these options, as needed. Although MA plans described these efforts as collaborative, hospital interview participants did not tend to differentiate between these efforts and those that were strictly authorization based. Hospital participants indicated that MA plans were not particularly involved in the SNF selection process. They also stated that any MA involvement causes delays in SNF placement. (See Table 2 for example quotes.)

MA Plan Influence of SNF LOS

As illustrated in Table 3, to influence LOS, interview participants expressed that most frequently, MA plans authorized patient stays in SNFs for a certain number of days and required that SNFs adhere to this limitation. However, the MA plans did not provide guidance or assistance in ensuring that the LOS goals were met. SNF responses to this authorization-based system were frequently negative, and participants described MA plans as “dictat[ing]” the LOS, that they felt they were “working against managed care,” and that working with MA plans was “not worth it.” SNF participants also expressed that MA plans were especially difficult to deal with when it came to balancing restrictive authorization requirements with relatively low reimbursement. Specific areas of frustration that SNF participants discussed included low reimbursement and a burdensome process of appealing for longer LOS. One participant also described that SNFs sometimes stop taking beneficiaries from plans that are deemed “high maintenance.” (See Table 3 for example quotes.)

A few participants reported that MA plans took a more collaborative approach when it came to controlling SNF LOS. Some plans placed their own staff in SNFs to assist with the paperwork required to determine LOS. Other plans engaged directly with patients and family members in an effort to control LOS. SNF interview participants described nuanced responses to this more engaged MA approach: Such participants described the added value of working with MA plans despite the burden of additional paperwork required through contracting with MA plans. These participants also described the benefit of building relationships with MA plan staff—having connections with MA staff made the contracting and authorization process smoother and made plans more amenable to appeals for longer LOS. (See Table 3 for example quotes.)


Interview participants from MA plans noted that the plans were interested in reducing postacute spending by ensuring that patients received the right care at the right time by influencing SNF selection and LOS. Plans typically influenced SNF selection by providing patients with a list of facilities in which their care would be covered. Sometimes, however, MA plans were more engaged in the process, working with hospital staff to place their beneficiaries. Hospital participants tended to describe MA plan involvement in SNF decision making as a challenge because any form of MA plan involvement seemed to be associated with a delay in placement of MA patients. To reduce LOS, MA plans most commonly authorized and capped the number of days they would pay for their patients to receive care in SNFs, and SNFs then had to ensure that these caps were not surpassed. Less commonly, MA plans were reported to take a more hands-on approach and engaged with SNFs and patients to actively reduce SNF LOS by monitoring care and improving communication among the plan, the SNF, and the patient.

Several hospital participants suggested that hospital LOS was sometimes prolonged if there were delays in identifying a SNF. Although this practice could increase total costs of care because hospital days are more expensive than SNF days, the costs of prolonged hospital stays are likely borne by hospitals rather than MA plans, under the assumption that MA plans use the same prospective payment approach used in traditional Medicare. This additional cost to hospitals that may result from working with more restrictive MA plans may place significant strain on interorganizational interactions. However, it is also important to note that hospitals have incentives to reduce LOS, perhaps unduly, under the diagnosis-related group system, so some increase in hospital LOS may be appropriate.

SNF responses to the MA plans’ largely authorization-based LOS system were frequently negative, with adverse consequences related to LOS reduction including unwillingness of SNFs to take on patients from specific plans that were perceived to be too authoritative and whose practices were deemed too burdensome. SNF unwillingness to accept patients from certain plans could have serious implications. In their interactions with hospitals and SNFs, MA plans have the power to affect the type and intensity of PAC. However, exerting too much power over hospitals and SNFs, as these results seem to indicate, can influence SNFs to avoid working with certain plans. Even if SNFs continue to accept patients from these plans, these MA plan strategies may create pushback from SNFs, which could adversely affect patients.

It is possible that the SNFs that are able to turn down MA patients are those that are of higher quality and are able to attract patients with other sources of coverage. This could mean that when MA plans are behaving authoritatively, their patients might have reduced access to SNFs of higher quality. This is consistent with recent research, which found that inequities in SNF payment are promoting patient selection and advantages for some providers over others and that, compared with traditional Medicare patients, MA patients receive care in SNFs of lower quality.5,19 Alternatively, it is important to note that although we have reported on the MA plan motivation to reduce spending and the associated SNF frustrations, SNFs have a contrary motivation. Whereas SNF participants discussed MA plans as “pushing” patients out, because SNFs get paid by the day, they have an incentive to keep patients longer even though the “extra” days are not necessarily better for patient outcomes.

Of note, this paper reported findings related to MA plan influence of SNF selection and LOS after the posthospital discharge setting had already been determined. It would be reasonable to expect that plans might attempt to influence the choice of PAC site (eg, SNF, home healthcare, home without PAC) in an attempt to reduce PAC spending. Given that SNF care is more expensive than other postacute options, it might be expected that MA plans would want to deflect patients away from SNFs by approving patients for lower-intensity settings of care. However, despite asking our diverse group of participants about strategies used to ensure appropriate use of PAC, we found no evidence of plans deflecting admissions away from SNFs or denying postacute services based on cost. Interview participants noted that hospitals and patients determined the posthospital setting, and MA plans reviewed and decided whether to authorize hospitals’ choices. Participants always described this MA plan authorization process as based on clinical need. Plans did not seem to overrule hospitals’ decisions about the need for SNF care and limited their influence to control of SNF selection and LOS.

Although it did not come up in these interviews, another potential implication of MA plan strategies regarding PAC spending is the additional complication of a possible lack of alignment between the SNFs that hospitals versus MA plans choose to work with. Hospitals sometimes own and frequently contract with SNFs to which they discharge patients, and it is possible that MA plans may have preferences for SNFs that are outside these contracting networks. If hospitals must then send patients outside their networks, there may be less coordination of care between the acute and postacute settings. Future research should further investigate this and other aspects of these complicated interorganizational relationships.


Our results are not intended to be generalizable, and these plans, hospitals, and SNFs that agreed to participate may be different from others that did not participate. Nevertheless, our study included a substantial amount of data by the standards of qualitative research: Interviews with 154 staff in MA plans, hospitals, and SNFs provided insight into emerging patterns of these organizations’ behaviors.


This paper is the first examination, to our knowledge, of MA plan methods of influencing and reducing postacute spending and presents perspectives from 3 critical types of stakeholders. In their interactions with hospitals and SNFs, MA plans attempted to influence the choice of SNF and LOS to control postacute spending. However, when plans exert what is perceived to be too much control over hospitals and SNFs, as our results seem to indicate, delays in hospital discharge and SNF avoidance of burdensome MA plans may result. SNFs’ unwillingness to accept patients from specific plans may restrict access to higher-quality SNFs by patients in MA plans.Author Affiliations: Center for Gerontology and Healthcare Research, Brown University School of Public Health (EAG, RRS, AT, VM), Providence, RI; RTI International (DAT), Waltham, MA; Mailman School of Public Health, Columbia University (JPM), New York, NY; Department of Public Health and Caring Sciences, Uppsala University (UW), Uppsala, Sweden; Health Services Research, Providence Veterans Affairs Medical Center (VM), Providence, RI.

Source of Funding: This work was supported by the National Institute on Aging (grant number P01 AG027296).

Author Disclosures: Dr McHugh has been engaged to consult with Navigant Consulting, which consults with managed care companies among other healthcare-related clients; his work was limited to assistance with article preparation related to Medicare Advantage but not specific client work. Dr Mor is chair of NaviHealth’s Scientific Advisory Board and chair of HCR ManorCare’s Independent Quality Committee; he is the former director of PointRight, Inc, for which he no longer provides services, and has small equity in the company. The remaining authors report no relationship or financial interest with any entity that would pose a conflict of interest with the subject matter of this article.

Authorship Information: Concept and design (DAT, RRS, AT, VM); acquisition of data (EAG, DAT, RRS, JPM, UW); analysis and interpretation of data (EAG, DAT, RRS, JPM, UW, AT); drafting of the manuscript (EAG, JPM); critical revision of the manuscript for important intellectual content (EAG, DAT, RRS, JPM, UW, AT, VM); statistical analysis (EAG); provision of patients or study materials (EAG); obtaining funding (VM); administrative, technical, or logistic support (EAG); and supervision (VM).

Address Correspondence to: Emily A. Gadbois, PhD, Brown University School of Public Health, 121 S Main St, Providence, RI 02903. Email: emily_gadbois@brown.edu.REFERENCES

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