The Real Cost of Medicare Advantage: Fraud, Denials, and the Impact on Hospitals

Major Medicare Advantage (MA) insurers are facing increased scrutiny—not just from the federal government, but also in their relationships with hospitals and enrollees. While MA enrollment continues to grow, recent data show that profitability is slipping, with average margins falling from 4.9% in 2019 to 3.4% in 2022. This financial pressure is being compounded by federal investigations, negative media attention, and the threat of legislative reform.

The proposed ‘One Big Beautiful Bill Act’ could reshape Medicare Advantage (MA) funding and oversight. If passed, it may limit access to affordable care for low-income enrollees and increase regulatory burdens on insurers. In anticipation, many payors are adopting more aggressive tactics, straining hospitals and health systems with MA contracts. 

This piece explores recent shifts in the relationships between MA plans, the government, hospitals, and enrollees—and offers hospitals practical, proactive strategies to strengthen their contractual positions with MA payors amid these evolving challenges.

Negative Impact on Enrollees and Beneficiaries

MA insurers are under growing federal scrutiny amid a wave of investigations and lawsuits. The U.S. Department of Justice (“DOJ”) recently filed False Claims Act complaints against Aetna, Elevance Health (formerly Anthem), and Humana, signaling a broader effort to address fraud and abuse in MA and other federally funded healthcare programs. Meanwhile, UnitedHealth Group is reportedly under criminal investigation for alleged fraudulent practices tied to its MA operations.

Allegations Against Aetna, Elevance Health, and Humana

On May 1, 2025, the DOJ filed False Claims Act complaints against Aetna, Elevance Health, Humana, and three major insurance broker firms—eHealth, GoHealth, and SelectQuote. The government alleges that, between 2016 and 2021, these Medicare Advantage Organizations (“MAOs”) paid millions in illegal kickbacks to brokers to steer enrollees into their plans, regardless of medical or financial suitability.

According to the DOJ, this steering practice prioritized broker incentives over patient needs and may have harmed vulnerable beneficiaries. More troublingly, Aetna and Humana are accused of conspiring to avoid enrolling individuals with disabilities—perceived as less profitable—by pressuring brokers through financial disincentives.

Allegations Against United

Last month, The Guardian published a report alleging that UnitedHealth secretly paid nursing homes to reduce costly hospital transfers for MA enrollees. The report claims United embedded nurses and clinicians in facilities as part of a cost-cutting strategy and pressured providers to lower care levels—allegedly encouraging residents to change their code status to “Do Not Resuscitate” or “Do Not Intubate,” even against prior wishes. 

While UnitedHealth denies the allegations, which remain under investigation, the Guardian’s report highlights troubling issues around patient safety and the influence of financial incentives on care decisions. 

Fraud Allegations and Risk Adjustment Data Reporting

UnitedHealth Group continues to find itself in the spotlight. Following the high-profile murder of CEO Brian Thompson and the resignation of former CEO Andrew Witty in 2024, the insurer’s Medicare Advantage business is the subject of an ongoing criminal investigation by the DOJ.

A related issue is the potential abuse of CMS’s Risk Adjustment Payment system, which pays MA plans more for patients with complex health needs. While designed to support sicker patients, the system can be exploited through “upcoding,” where diagnoses are inflated to increase payments.

Although separate from the DOJ probe, these alleged risk adjustment practices highlight the broader need for greater oversight, transparency, and accountability in the MA space.

Why Hospitals Need to Stay Vigilant—and What They Can Do

Hospitals continue to face major reimbursement challenges with Medicare Advantage (MA) plans. Long-standing issues like improper audits, medical necessity denials, and authorization delays persist, while newer disputes—such as those involving the Two-Midnight Rule and 340B underpayments—add complexity and strain hospital resources. Under CMS’s Two-Midnight Rule, an inpatient admission is considered appropriate if the physician reasonably expects the patient to need hospital care spanning at least two midnights. Shorter stays are generally classified as outpatient and reimbursed at lower rates. Despite this guidance, MA payers frequently deny or underpay claims for properly classified inpatient services.

The 340B dispute stems from the Becerra decision, which found CMS’s cut to 340B drug reimbursement from ASP + 6% to the unlawful ASP – 22.5%. This ruling affects underpayments tied to hospital contracts with MAOs. Starting in 2026, hospitals will also face payment cuts for non-drug services, further disadvantaging those still recovering from past 340B underpayments.

In response, more health systems are taking action. Scripps Health and St. Charles Health System have terminated MA contracts and advised patients to avoid private Medicare plans during open enrollment. As of July 2024, KFF Health News reports that at least 41 hospital systems have left 62 MA plans across 25 states.

How Hospitals Can Respond: Three Strategic Actions

Ongoing government investigations, negative media coverage, and declining beneficiary confidence are increasing financial pressure on Medicare Advantage (MA) plans—pressures that will likely affect hospitals. Here are three practical steps to consider:

• Renegotiate or Exit Contracts with Underperforming MAOs: Regularly review MAO contracts before open enrollment and renegotiate or terminate unfavorable agreements. A short out-of-network period can encourage payers to negotiate in good faith and give patients time to switch to better plans.

• Strengthen Contract Provisions: Include clear, enforceable terms on reimbursement timelines, denial rates, and prior authorizations. Require mutual written approval for contract changes to prevent unilateral updates. Ensure contract terms override insurers’ changing policies and procedures.

• Push Enforcement on Existing Terms: Even with strong contracts, hospitals must actively monitor compliance and hold MAOs accountable. Regularly audit claims for underpayments, delays, and denials, using appeals, dispute resolution, or legal action as needed. Consistent enforcement builds leverage and deters bad-faith behavior.