Medicare Advantage Payment Crisis: A Critical Analysis of the Prompt and Fair Pay Act

The American healthcare system faces a mounting crisis as the gap between Medicare Advantage reimbursement rates and traditional Medicare payments threatens the stability of provider networks nationwide. The recent introduction of the bipartisan Prompt and Fair Pay Act represents a potential turning point in addressing what has become an unsustainable financial strain on healthcare providers, forcing many to make difficult decisions about their participation in Medicare Advantage programs.

The Growing Divide: Understanding the Payment Disparity

Medicare Advantage, originally designed as a market-based alternative to traditional Medicare, has evolved into a dominant force in senior healthcare coverage, now serving more than half of Medicare beneficiaries. However, the program’s structure has created an inherent tension between cost control objectives and provider sustainability. While Medicare Advantage plans receive payments based on benchmarks derived from traditional Medicare spending, current law does not mandate that these plans reimburse providers at the same rates as traditional Medicare Parts A and B.

This regulatory gap has allowed Medicare Advantage insurers to negotiate payment rates below traditional Medicare levels, creating significant financial pressure on healthcare providers. The consequences extend beyond simple economics—they represent a fundamental challenge to healthcare access and quality for millions of American seniors.

Legislative Response: The Prompt and Fair Pay Act

The Prompt and Fair Pay Act, introduced by Representatives Lloyd Doggett (D-Texas) and Greg Murphy (R-North Carolina), establishes a floor requiring Medicare Advantage plans to reimburse for all covered healthcare items and services at least what would have been paid under Medicare Parts A and B, while still allowing plans and providers to negotiate higher reimbursement rates.

The legislation addresses two critical issues that have plagued provider-payer relationships in the Medicare Advantage space. First, it establishes payment parity as a minimum standard, ensuring that providers receive at least the same compensation they would under traditional Medicare. Second, it incorporates prompt payment requirements similar to those already established for Medicare Part D, addressing the administrative burden and cash flow challenges that delayed payments create for healthcare organizations.

Representative Doggett has characterized the current situation as forcing providers to choose between accepting “substantial reimbursement delays that are often less than what is truly owed, administrative burdens, care denials, or an outright withdrawal from MA contracts.” This stark assessment reflects the real-world consequences of the payment disparity that has developed over time.

The Provider Exodus: Quantifying the Crisis

The scale of provider departures from Medicare Advantage networks provides concrete evidence of the system’s unsustainability. According to Becker’s Hospital Review, at least 27 health systems dropped Medicare Advantage plans in 2025¹, building on a concerning trend that saw 32 health systems make similar decisions in 2024². This represents a tripling of separations between health systems and Medicare Advantage plans over the past two years, according to FTI Consulting³.

The Healthcare Financial Management Association and Eliciting Insights found in a survey of 135 health system CFOs that 16% of systems are planning to stop accepting one or more Medicare Advantage plans in the next two years⁴. This exodus spans across different types of healthcare organizations, from large integrated health systems to smaller community providers.

The geographic and institutional diversity of these departures underscores that this is not a regional issue or one confined to particular types of healthcare organizations. Major health systems including Scripps Health in San Diego, which ended all Medicare Advantage contracts for its integrated medical groups⁵, ChristianaCare in Delaware, which cancelled its Humana contract⁶, and numerous others have made difficult decisions to terminate Medicare Advantage contracts, affecting hundreds of thousands of patients.

Financial Pressures and Operational Challenges

The financial mathematics driving provider decisions are increasingly stark. Medicare Advantage plans often reimburse at rates below traditional Medicare levels while simultaneously imposing additional administrative requirements that increase operational costs. Prior authorization processes, which are more stringent in Medicare Advantage than traditional Medicare, create delays in care delivery and require significant administrative resources to navigate.

These operational challenges compound the financial pressures. Providers must invest in additional staff and systems to manage the complex prior authorization requirements, claims processing, and appeals processes that Medicare Advantage plans typically require. When combined with lower reimbursement rates, the total cost of participating in these networks can exceed the revenue generated, creating an unsustainable business model that has led to more than 1 million patients losing coverage as providers and insurers exit Medicare Advantage arrangements¹⁰.

Industry Support and Stakeholder Perspectives

The Prompt and Fair Pay Act has garnered significant support from major healthcare industry organizations, reflecting broad consensus about the need for reform. Endorsing organizations include America’s Essential Hospitals, the American Academy of Family Physicians, the American College of Physicians, the National Rural Health Association, Premier, and the American Association of Nurse Anesthesiology.

Bruce Siegel, CEO of America’s Essential Hospitals, characterized the legislation as addressing “woefully inadequate hospital reimbursements” and providing “concrete steps” toward sustainability. This support from diverse provider organizations suggests that payment parity issues affect healthcare providers across different practice settings and specialties.

The broad coalition backing the legislation indicates that the payment disparity problem extends beyond any single segment of the healthcare industry. From large health systems to individual practitioners, from urban academic medical centers to rural community hospitals, providers across the spectrum are experiencing similar financial pressures from Medicare Advantage participation.

Patient Care Implications

Beyond the financial mechanics, the Medicare Advantage payment crisis has direct implications for patient care quality and access. Representative Murphy, who co-sponsored the legislation, has highlighted that physicians treating Medicare Advantage beneficiaries face higher rates of prior authorization denials, which can jeopardize patient safety, particularly for those with chronic illnesses, cancer, or mental health conditions.

When providers exit Medicare Advantage networks, patients face significant disruptions to their care continuity. They may be forced to change providers, travel longer distances for care, or switch insurance plans during enrollment periods. These disruptions can be particularly challenging for older adults who may have established long-term relationships with their healthcare providers.

The concentration of Medicare Advantage departures in certain markets also raises concerns about healthcare access in underserved areas. Rural health systems, which often operate with thinner financial margins, may be particularly vulnerable to the economic pressures created by below-market reimbursement rates.

Market Dynamics and Broader Context

The Medicare Advantage payment crisis occurs within a broader context of healthcare financing challenges. Traditional Medicare itself faces ongoing financial pressures, with the Centers for Medicare and Medicaid Services implementing a 2.83% physician payment cut that took effect on January 1, 2025⁷. This reduction, which brought the conversion factor to $32.35⁸, exemplifies broader challenges facing healthcare provider compensation, with Medicare payment rates having fallen by 33% over the past two decades when adjusted for practice costs⁹.

However, the Medicare Advantage payment disparity adds an additional layer of complexity. While traditional Medicare rates may be constrained, they represent a consistent and predictable payment standard. Medicare Advantage rates, by contrast, can vary significantly between plans and may include additional administrative requirements that effectively reduce the net reimbursement providers receive.

The market dynamics also reflect broader trends in health insurance consolidation and vertical integration. As Medicare Advantage plans increasingly integrate with provider organizations or develop their own delivery systems, independent providers may find themselves at a competitive disadvantage in rate negotiations.

Implementation Challenges and Considerations

If enacted, the Prompt and Fair Pay Act would represent a significant shift in Medicare Advantage operations. Plans would need to adjust their provider reimbursement strategies to comply with the minimum payment standards, which could impact their overall cost structures and profit margins.

The legislation’s approach of establishing a floor while allowing negotiation of higher rates attempts to balance provider sustainability with market flexibility. This structure recognizes that different markets and provider types may warrant different payment arrangements while ensuring that no provider receives less than traditional Medicare rates.

Implementation would likely require significant operational changes for Medicare Advantage plans, including updates to provider contracts, payment systems, and administrative processes. The prompt payment requirements would also necessitate improvements to claims processing systems and workflows.

Balancing Sustainability and Access

The Prompt and Fair Pay Act represents more than a technical adjustment to Medicare payment policies—it addresses fundamental questions about the sustainability of healthcare delivery for America’s seniors. The ongoing exodus of providers from Medicare Advantage networks demonstrates that current payment structures have created unsustainable pressures that ultimately threaten patient access to care.

The bipartisan nature of the legislation suggests recognition across party lines that the status quo is not working for providers or patients. However, the broader question of how to balance cost control objectives with provider sustainability and patient access remains complex.

As Medicare Advantage continues to grow and serve an increasing proportion of Medicare beneficiaries, resolving these payment disparities becomes increasingly critical. The success or failure of efforts like the Prompt and Fair Pay Act will likely determine whether Medicare Advantage can fulfill its promise of providing competitive, accessible healthcare coverage for seniors or whether structural problems will continue to undermine the program’s effectiveness.

The stakes extend beyond individual provider organizations or insurance companies—they encompass the fundamental question of how America will ensure healthcare access for its aging population. The resolution of the Medicare Advantage payment crisis will serve as a crucial test of the healthcare system’s ability to adapt and evolve to meet the needs of both providers and patients in an increasingly complex healthcare landscape.

Sources

1. Becker’s Hospital Review, “27 health systems dropping Medicare Advantage plans | 2025”
2. Becker’s Hospital Review, “32 health systems dropping Medicare Advantage plans | 2024”
3. Fortune Well, “Breakups between health systems and Medicare Advantage plans have increased”
4. Becker’s Hospital Review, “32 health systems dropping Medicare Advantage plans | 2024”
5. JustCare, “24 health systems drop their Medicare Advantage contracts”
6. JustCare, “24 health systems drop their Medicare Advantage contracts”
7. American Medical Association, “Congress fails to stop 2.83% Medicare payment cut for 2025”
8. Medical Economics, “Physicians face a 2.83% reimbursement cut unless Congress takes action”
9. American Medical Association, “Congress fails to stop 2.83% Medicare payment cut for 2025”
10. Stateline, “1 million+ patients lose coverage as insurers, hospitals drop Medicare Advantage”