August 16, 2022

Profitability Dwindling, Compliance Risk Rising as Managed Care Rolls In

By Maureen McCarthy, Founder, President and CEO, Celtic Consulting, LLC

Profitability Dwindling, Compliance Risk Rising as Managed Care Rolls In Clinical Services

Medicare replacement and Medicare Advantage insurers have been diligently working to attract beneficiaries to their products. In 2021, more than 40% of Medicare beneficiaries were enrolled in managed care plans1 and the Congressional Budget Office (CBO) estimated this total will increase to more than 50% by 2030.1 2 Advertising targets potential new beneficiaries and touts additional services such as vision, dental, and prescription benefits.

However, managed care plans aren’t as all-inclusive as they may seem. Managed care organizations operate under a capitated payment model and receive a fixed rate per beneficiary regardless of services provided. Capitated payment models may incentivize managed care insurers to deny coverage payments to increase profits. These plans have higher than average coverage denial rates; as a result, many beneficiaries are left with costly bills for necessary care. An internal or external case manager decides if a beneficiary is allowed to access their inpatient benefits Ultimately, beneficiaries who require medically necessary daily skilled services may be unable to access their benefits. Periodically, beneficiaries themselves pay out of pocket for the additional care needed, which would have been covered under a traditional Medicare fee-for-service benefit.

The U.S. Department of Health and Human Services, Office of Inspector General (OIG) recognized that findings from the Centers for Medicare and Medicaid Services’ (CMS) annual audits of Medicare Advantage Organizations (MAOs )“highlighted widespread and persistent problems related to inappropriate denials of services and payment.” The OIG reviewed denials of prior authorization requests and payment denials from one week in June 2019 and determined “MAOs also denied payments to providers for some services that met both Medicare coverage rules and MAO billing rules.”

The OIG found that an estimated 18% of payment denials in the sample met Medicare coverage rules and should have been approved. To put this in context, if the MAOs in this review denied the same number of payment requests for the remainder of the year (2019), they would have denied 1.5 million payment requests that met Medicare coverage and MAO billing rules.

Post-acute care in skilled nursing and inpatient rehabilitation facilities were among the most prominent service types denied by MAOs. The OIG determined that post-acute services in those care settings are significantly more expensive than home health services, leading to increased scrutiny from MAOs looking to reduce their costs.3

The Appeal Process

CMS drafted the Medicare Benefit Policy Manual, the Medicare Claims Processing Manual, and the Medicare Managed Care Manual. Each publication clearly defines the rules and regulations skilled nursing providers must conform to when providing Medicare-covered services, as well as what information must be submitted on a claim to receive timely payment. Insurers must follow Medicare coverage rules and make determinations based on the medical necessity of plan-covered services, “coverage criteria no more restrictive than original Medicare’s national and local coverage policies, and the beneficiary’s medical history.”4

Traditional fee-for-service, Medicare-certified providers abide by these rules and regulations daily to continue participating in the Medicare program. If payment or services are denied by Medicare, there is a five-step appeal process available to both beneficiaries and providers who disagree with Medicare’s decision: redetermination by a Medicare administrative contractor (MAC), reconsideration by a qualified independent contractor (QIC), hearing before an administrative law judge (ALJ), review by the Medicare Appeals Council, and judicial review in a U.S. district court.

The process of appealing services or payments denied by managed care insurers looks a bit different for providers and beneficiaries. In a three-level appeal process, the provider or beneficiary appeals their denied services or payments directly with the denying insurer. In the first level, the staff member that initially denied the claim reconsiders their decision. After filing another appeal, providers and beneficiaries can proceed the second level and a different staff member representing the denying insurer will review the case. In the third level of the appeal process, the case is peer-reviewed by a physician trained by the insurer to understand their interpretation of skilled services, acceptable documentation, and claims requirements.

Providers are often frustrated by the appeal process for managed care products because there is no clear path to get these cases reviewed by an independent party not associated with the denying insurer. As a result, providers are left with uncompensated care costs and no way to recoup their losses.

While some providers are publicly vocal about their annoyance with managed care insurers’ denial practices and appeals process, many are reluctant to file appeals. Providers are concerned that expressing grievances may threaten ongoing business and existing contractual obligations with managed care insurers.

When providers choose to appeal payment denials, they often drop out before reaching the third level, feeling that time spent arguing with managed care insurers is wasted. However, industry experts recommend providers complete all three levels of the appeal process. If the denying insurer has not reversed the decision after the three-level appeal process, providers can attempt to file a formal complaint with CMS.

When appealing their case, it is important that billing department staff in skilled nursing facilities have a precise understanding of their managed care contracts and the regulations defined in the Medicare Managed Care manual. In addition, staff members who package records to return to the denying insurer must ensure the records are received prior to the due date, as late submissions cannot be appealed.

Dwindling Rates

Not only have many managed care insurers overlooked basic coverage guidelines, but rates paid to contracted providers have dwindled over the last decade. The average Medicare Advantage rate is now hovering around $453 per day while traditional Medicare rates are approximately $573 per day for the same beneficiary with the same conditions.

Bad Debt May Create Obstacles for Compliance

Managed care payment denials increase a provider’s uncollectable debt, known as “bad debt.” Decreased revenue during a time when provider expenses have never been higher has a trickle-down effect and can impact staffing in a facility.

Labor is the biggest expense for a skilled nursing facility and decreased revenue often forces a provider to cut labor budgets, lay off staff, and offer less competitive wages. These actions can contribute to a lower quality of care and increased risk for errors and compliance issues. Staff may unintentionally fail to conform with regulations for care, documentation, and billing of skilled services.

Case Managers Pressure Providers to Falsify Records

There is a particularly concerning trend within the long-term care industry that places providers’ conformance with regulatory requirements at risk. Nurses in long-term care facilities that provide skilled care utilize a tool called the Minimum Data Set (MDS) 3.0 assessment to determine payment levels. Some case managers have reportedly requested that nurses manipulate or falsify the information to meet the insurer’s pre-determined payment levels. Both the facility nurse and case manager must attest to the accuracy of the information encoded in the MDS assessment, and this practice puts both in danger of penalties from government agencies. The False Claims Act penalty is $11,803 to $23,607 per violation, and there is also a statutory penalty of three times the damages the government sustains due to the violation.5 If CMS begins to uncover instances of case managers choosing Patient Driven Payment Model (PDPM) scores and requiring MDS coordinators to falsify coding to match their PDPM score, experts anticipate CMS will audit more managed care MDSs.

Providers that suspect this is happening should file a grievance with the insurer. If the provider does not receive a timely response, it should file a complaint with the regional CMS office to call attention to the unethical behavior.

It is best practice for a provider to require clinical staff to report requests to modify MDS assessments to facility management. Management can then prepare data and trends to report to CMS.

Managed Care Insurers Are “Playing Games”

Managed care insurers have adapted techniques that allow them to issue denials (many unfounded) for coverage and payment. By misinterpreting guidelines defined in the MDS 3.0 Resident Assessment Instrument (RAI) Manual, these insurers have been known to deny coding, assessment types, assessment reference dates (ARDs), completion dates, and submission dates.

Some insurers use a strategy that involves changing who is responsible for issuing denial notices to beneficiaries. When an insurer denies services, it is required to notify the beneficiary that the insurer will no longer pay for their care. In 2015, CMS audited several managed care insurers and noted a higher than normal rate of inappropriately denied cases, citing 56% of audited managed care contracts for making inappropriate denials. Further, “CMS cited 63 of the 140 audited MAO contracts (45 percent) for sending denial letters that did not contain important required information.” In its review, CMS found that some denial letters “did not clearly explain why a request was denied, contained incorrect or incomplete information, did not use approved language, and/or were written in a manner not easily understandable to beneficiaries.” In response to 2015 audit findings, CMS issued $1.9 million in civil money penalties to nine managed care insurers.6

As a result of audit findings, managed care insurers got creative. They handed the responsibility of drafting or issuing denial notices to the provider. This is cause for concern, as the provider is liable for the accuracy and validity of the denial notice. If a notice is invalid, the provider is responsible for the cost of care.

Experts want to empower skilled nursing providers to challenge managed care insurers providers and avoid this provider liability scenario. Providers have options when a managed care insurer determines it will deny coverage of services for a beneficiary; for example, the provider can reject the responsibility to draft or issue the notice, or it can request that the insurer issue the notice and the provider will deliver on behalf of the insurer.

Case managers have allegedly misinterpreted requirements to complete an accurate MDS assessment, further diluting the reimbursement providers receive from managed care insurers. If the documentation submitted for review does not include the additional items to support the misinterpreted regulations, providers will be held to a lowered payment rate.

The newest game insurers have been playing is misinterpreting federal regulations for their own benefit in an effort to deny entire stays or reduce already insufficient payments for services provided. Many times, this includes denying care retroactive to the date of admission.

The insurer assigns case managers to monitor care provided to the beneficiary. Case managers may also speak with the SNF team about the resident and their current skilled needs; attend facility meetings; and participate in care conferences. During this process there are many opportunities for case managers to notify providers of concerns regarding the plan and level of care provided. That allows the provider to change, add to, or otherwise alter the plan of care to meet the insurer’s requirements for full payment.

However, some case managers have not communicated concerns about skilled criteria, leading the insurer to deny entire stays after the resident is discharged and the provider has billed for care.

A Difficult Decision for Providers

Recent practices by managed care insurers have put providers in a tough position: there aren’t enough traditional fee-for-service Medicare beneficiaries in the country to avoid admitting managed care beneficiaries and. turning down that population would result in a drop in providers’ census’.

This has led providers to examine the true cost of doing business with managed care insurers. Providers receive lower reimbursement rates from managed care insurers and managed care beneficiaries are becoming high accounts receivable problems for many providers. Some of the larger care chains are hiring staff just to address these issues and manage the growing receivable balances, along with fighting the denied claims through the current appeals process.

To entice providers, managed care insurers promise to fill providers’ beds with managed care residents. However, many providers need every penny to offset staffing and equipment costs that skyrocketed during the pandemic. As a result some providers are reconsidering their participation with managed care insurers and questioning why they would admit a managed care beneficiary, with a higher-than-average denial rate and declining daily rate, when they could admit a resident with a guaranteed state or federal payer.

What Does the Future Hold for Managed Care Insurers and Skilled Nursing Providers?

Skilled nursing providers are unlikely to see much change from managed care providers until CMS places stronger constraints on their actions.

The OIG recommended that CMS issue new guidance for using managed care clinical criteria in medical necessity reviews, update its audit protocols to focus on issues identified, and direct managed care insurers to address vulnerabilities. CMS agreed with the recommendations3; however, experts have not yet seen evidence of progress beyond these recommendations.

Ultimately, the relationship between skilled nursing providers and managed care insurers is not doomed. As many managed care insurers’ practices take a toll on providers’ receivables and pose risks to their compliance with regulations, experts believe providers will learn which insurers follow the guidelines dictated in the Medicare Managed Care manual. Billing department staff can help identify those organizations by documenting billing/coverage challenges and denial rates for MAOs they are contracted with. Ultimately, providers will be able to determine, based on their own metrics, which insurers are problematic and choose not to engage with them.


  1. Freed, Meredith, Jeannie Fuglesten Biniek, Tricia Neuman, and Anthony Damico. “Medicare Advantage in 2021: Enrollment Update and Key Trends.” KFF. Kaiser Family Foundation, June 21, 2021.
  2. “Medicare – CBO’s March 2020 Baseline as of March 6, 2020.” Washington DC: Congressional Budget Office, March 19, 2020.
  3. Office of Inspector General, and Christi A Grimm, U.S. Department of Health and Human Services § (2022).
  4. “Medicare Managed Care Manual, Chapter 4 – Benefits and Beneficiary Protections .” Baltimore, MD: U.S. Centers for Medicare and Medicaid Services, April 22, 2016.
  5. Murray, Sheaniva. “DOJ Releases 2021 FCA Civil Monetary Penalties Inflation Adjustment.” Inside the False Claims Act. Bass, Berry & Sims, December 14, 2021.
  6. Office of Inspector General, and Daniel R. Levinson, Medicare Advantage Appeal Outcomes and Audit Findings Raise Concerns About Service and Payment Denials § (2018).