2023 has unfolded as a year of pivotal trends and landmark shifts. From technological innovations to regulatory changes, the healthcare sector is witnessing a big shift in its operations and strategies. Let’s explore seven major trends that shaped the industry over the year, each with its own nuances and implications for healthcare organizations.
Trend #1: Growth and Evolution in Medicare Advantage
In 2022, the growth of Medicare Advantage (MA) was one of healthcare’s biggest trends. This momentum has persisted in 2023, with MA enrollment reaching 31 million — representing 51% beneficiaries eligible for Medicare. The enduring appeal of Medicare Advantage is underscored by numerous studies showcasing better outcomes and lower utilization in MA enrollees compared to those relying on traditional Medicare. Notably, it has gained traction as the preferred choice for large employers offering retiree health benefits. Despite a gradual slowing of growth in the aging Medicare population and MA membership, innovation and investment in Medicare Advantage continue to progress as the demographic profile of Medicare beneficiaries and eligible individuals is skewing older, indicating a need for advanced clinical and operational capabilities.
Trend #2: Major Changes to CMS-HCC Risk Adjustment Model
On March 31, the Centers for Medicare & Medicaid Services (CMS) announced an update to the Medicare risk adjustment program, to be phased in over the next three years. The transition will start with a blend of two-thirds of Version 24 and one-third of Version 28. By 2025, the new model will be fully implemented.
Version 28 of the CMS-HCC model includes the reduction of more than 2,000 diagnosis codes from the current risk adjustment model. These changes will require providers to become more precise with their diagnoses to avoid missing out on premiums, posing challenges for traditional medical record retrieval and analysis systems.
Trend #3: Increasing Adoption and Impact of Value-Based Care (VBC)
With CMS’s 2030 deadline for all Medicare fee-for-service beneficiaries to be in a care relationship with accountability for quality and total cost of care looming ever closer, the healthcare industry has placed an increased focus on value-based care this past year. Large health systems and smaller startups alike are making significant strides in building technologies that aim to improve patient outcomes and reduce care costs. In 2023, CMS announced new models focused on both primary and specialty care, indicating determination to expand the reach of value-based care.
CMS’s 2023 annual initiative to measure the adoption of Alternative Payment Models (APMs) shows that in 2022, 24.5% of all healthcare payments were tied to double-sided risk as compared to 19.6% in 2021, demonstrating increased willingness of healthcare organizations in adopting APMs. Similarly, the number of providers forming Accountable Care Organizations (ACOs) has slightly increased in 2023, with REACH ACOs notably increasing from 99 in 2022 to 132 in 2023. This increased buy-in is coupled with a high-performing market, with REACH ACOs saving CMS $371.5 million in Performance Year 2022 — a 427.7% increase from 2021.
For those still not in value-based arrangements, however, several barriers to adoption remain, including provider readiness and willingness, data sharing capabilities between payers and providers, and lack of operational capabilities.
Trend #4: Progress Towards AI Implementation in Healthcare
The healthcare sector is witnessing a surge in initiatives to integrate advanced technologies including artificial intelligence (AI) and machine learning. Studies estimate that AI could save up to $360 billion in healthcare over the next five years. Discussions around the potential utilization of AI for administrative tasks and clinical support, as well as predictive algorithms for patient care, have been gaining momentum.
This explosion of AI has been tempered by discussions around how to responsibly use this new technology, especially in this industry where misuse can have serious consequences on patient outcomes. Major players like the Office of the National Coordinator (ONC) and the White House have weighed in on these discussions, with the ONC finalizing a new rule to increase AI transparency and President Biden issuing an executive order demanding that the Department of Health and Human Services (HHS) create a task force that would create a plan for responsible AI use.
Trend #5: Redeterminations and Changing Dynamics in Medicaid
Medicaid redeterminations started in April — when the public health emergency (PHE) was still in effect. By the end of the year, more than 13 million Medicaid enrollees were disenrolled during these redeterminations, with more than two-thirds getting their coverage terminated for procedural reasons.
CMS has taken substantive measures to minimize inappropriate disenrollments, including instructing states to evaluate not only their redetermination metrics and process, but also communication with members. This foreshadows a shift towards more transparency and automation in the member eligibility and renewal process. Another growth area is expected enrollment increases from South Dakota and North Carolina, which became the 40th and 41st states, respectively, to adopt the ACA Medicaid expansion.
Maternal health and behavioral health continue to be the focus areas in Medicaid. In September 2023, CMS had indicated two upcoming models in behavioral health and maternal health, both of which would have a heavy role for the Medicaid program. Before the year end, they announced a 10-year long Transforming Maternal Health (TMaH) Model that would support participating state Medicaid agencies in the development of a whole-person approach to maternal care.
Trend #6: Greater Emphasis on Social Determinants of Health (SDOH)
The past year saw a growing recognition of the impact of SDOH on health outcomes, with CMS taking the lead. CMS is exploring models that integrate social health factors while working around restrictions on certain groups Medicare is allowed to pay. The agency also issued its first-ever playbook to address social determinants of health, which outlines actions that stakeholders can take to promote equity. Additionally, CMS implemented a 2024 diagnosis code update in the fall of 2023, which includes 30 new codes for SDOH factors, as well as new guidelines for reporting these codes.
2023 also marks the first year that SDOH is codified into national and statewide value-based payment program mandates through ACO REACH, signifying a crucial shift in the healthcare sector’s approach to incorporating social factors into risk adjustment strategies and suggesting that volume and capture of SDOH data might increase going forward.
Trend #7: Crackdowns on Non-Compliance
Last — but not least — there has been a broad trend of heightened scrutiny in the risk adjustment industry, which has experienced a surge in audits by the Office of Inspector General (OIG). In fact, external payer audits have seen a four-fold increase year-over-year in 2023. The OIG also released an audit report estimating $580 million in improper payments for psychotherapy services that failed to comply with Medicare requirements from March 2020 to February 2021.
2023 also brought a pivotal development in risk adjustment audits: the finalization of the Risk Adjustment Data Validation (RADV) rule. For audits between payment years 2011 and 2017, CMS will collect non-extrapolated overpayments identified in the audits. Starting with the 2018 RADV audit, the process will include extrapolation, a method used to estimate overpayments across a broader set of claims based on a sample. Notably, the rule finalizes that CMS will not apply an adjustment factor, known as a Fee-For-Service (FFS) Adjuster, in these RADV audits.
This trend has placed increased pressure on revenue integrity teams to focus on compliance and accurate documentation. This means investing in robust healthcare technology solutions that can support compliance with these evolving requirements in an increasingly scrutinized environment.
What’s Next? Navigating 2024 as a Healthcare Organization
The trends we’ve just explored paint a picture of a sector in the midst of significant transformation, driven by technological advancements, regulatory changes, and an increasing focus on comprehensive care models. Though these changes may initially pose challenges for many healthcare organizations, they can also create new opportunities for health plans and provider organizations to construct innovative solutions that aim to continue delivering cost-effective, high-quality care in 2024.
