TrustWorks On Call: Medicare Disadvantaged

Behind the Headlines

Unpacking the forces driving healthcare's biggest stories.

1. CMS proposes miniscule MA pay boost.

Last week, the Centers for Medicare and Medicaid Services (CMS) published its 2027 Medicare Advantage (MA) and Part D Advance Notice, proposing a net average payment increase of 0.09 percent for plans.
CMS also proposed tightening risk-adjustment standards by excluding diagnoses generated via “unlinked” chart reviews (i.e., diagnoses not tied to an actual clinical encounter) from risk-score calculations, to disincentivize retrospective chart-mining and associated overpayments.
Health insurers’ stocks tumbled after the announcement, as market analysts were expecting a larger payment update in the neighborhood of four to five percent.

TrustWorks Take: CMS treats its proposed rules as opening bids in negotiation with private industry, so we should expect a more generous final rule to placate unhappy payers. Last year, for example, the 2.23 percent proposed pay increase in the 2026 advance notice more than doubled to 5.06 percent in the 2026 final rule. However, anchored to this near-flat increase, the 2027 final rule is still likely to leave MA payers and their investors disappointed, as President Trump’s second term has proven itself much less MA-friendly than they had come to expect from his first term.

Case in point: the administration’s changes to MA upcoding practices. The Trump administration wants to reduce government spending and fraud, and it wants to support private industry. With MA, these goals are in tension, as payers deploy a variety of well-documented tactics, including medically unnecessary upcoding, to turn public money into private profits. By delinking chart reviews from risk adjustments and playing hardball on rate increases, the second Trump administration is making its MA policy more in line with the Biden administration than the first Trump administration. In response, insurers are threatening benefit cuts, network restrictions, and fewer offerings for their MA plans, which are already operating in highly concentrated market conditions.

2. Medicare selects 15 more drugs for price negotiations.

Last week, CMS announced this year’s selections for the Medicare Drug Price Negotiation Program: 15 drugs which are used by 1.8M beneficiaries and account for $27B, or about six percent, of annual Medicare drug spending, including for the first time Medicare Part B spending along with Part D.
The list of drugs includes treatments for diabetes (Trulicity), HIV (Biktarvy), breast cancer (Kisqali and Verzenio), rheumatoid arthritis (Orencia, Cimzia and Xeljanz), and therapeutic applications of Botox, such as migraine relief; also a 16th drug, diabetes treatment Tradjenta, has been chosen for a first-ever renegotiation.
Because the program's built-in lag, the prices set by the first cycle, negotiated in 2024, have taken effect this year; the second cycle, negotiated last year, will take effect next year; and the third cycle, negotiated this year, will take effect in 2028.

TrustWorks Take: The Medicare Drug Price Negotiation Program is steadily reaching maturity. 40 drugs have been selected, 25 have had new prices negotiated, and the first ten drugs’ new prices have now taken effect. There are still more wrinkles being added to the program, as this is the first year to negotiate Part B prices, and starting next year the program will negotiate 20 drugs annually, but by all available measures, the program appears to be a great legislative success. It maintained full participation from drugmakers, obtained significant price reductions for dozens of Medicare’s most-used drugs, and enjoyed bipartisan support amid a change of Presidential administrations.

The only thing left to do is actually save seniors (and the Medicare program itself) money. Compared to baseline utilization estimates, the first round should achieve a 22 percent reduction in net Medicare spending, and the second round should spur a 44 percent reduction, but we will soon see what the savings look like in practice. AARP research projects that out-of-pocket spending for the first ten discounted drugs this year will drop by 50 percent, and that seven of the ten will be available for less than $100 per month, up from only two of them in 2025.

3. 30K Kaiser Permanente workers strike.

About 30K Kaiser Permanente workers, including nurses, physician assistants, pharmacists, and other healthcare professionals, at hospitals and clinics in California and Hawaii have been conducting an open-ended strike since Monday, January 26.
The United Nurses Association of California/Union of Healthcare Professionals (UNAC/UHCP), which represents the striking workers and called for a five-day strike last fall, is asking for a 25 percent wage increase over four years; Kaiser Permanente has instead offered a four-year, 21.5 percent increase.

TrustWorks Take: Much like the (still ongoing) New York City nursing strike we covered two weeks ago, this strike pits an empowered union of sympathetic, but already well-compensated, nurses (and other professions, this time) against a high-revenue, low-margin health system. Reportedly, negotiations broke down in December after Kaiser Permanente accused a union rep of misconduct, leading to UNAC/UHCP filing a complaint with the National Labor Relations Board, but that seems more like a reflection of tense negotiations than a cause of them.

The increased acrimony likely stems from system’s most-recent operating margin coming in at just 0.7 percent, while registered nurses in California and Hawaii already command the highest pay of all states, although they also face high costs of living. Factoring in the non-nurse workers on strike complicates the picture, but the dynamics remain the same: Health systems want to prepare for the coming lean years, whereas their workers want to get ahead and stay ahead of the purchasing power they lost to inflation.

Beyond the Whiteboard

Visualizing key trends from the healthcare industry

Healthcare Returns as Top Kitchen Table Issue
Headlines this week captured consumer confidence reaching a 12-year low this month, and while our preferred consumer sentiment index was slightly more optimistic, there is no debating that Americans hold a dismal view of the US economy these days. The persistent mix of inflation, tariffs, slow job growth, and political instability has given consumers a lot to chew on over recent months, but one issue has risen, or perhaps returned, to become Americans’ largest cost-of-living concern: healthcare. According to KFF polling, more Americans are worried about affording healthcare than any other household expense, including food, utilities, rent or mortgage, and transportation. The expiration of the Affordable Care Act enhanced subsidies may have raised the salience of this issue, but healthcare’s unaffordability extends far beyond that relatively small slice of the population. Over half of respondents say their healthcare costs increased last year, and slightly more expect them to increase again this year. In a midterm election year, affordability is going to be a powerful political current, and healthcare affordability may be the singular issue where voters are most disappointed with their representation.

Dialing In

Sharing insights from our work with clients

Partner-Track Traffic Jam
While working with an independent specialty group, I noticed something that is becoming a familiar pattern. Relative to its size, the group had a small number of partners, despite no shortage of promising physicians waiting in the wings. Clearly, there was hesitancy to transition physicians into partnership. When I asked one of the partners about this, he was direct about it: they (as in he and the other partners) wanted to protect the distribution pool and avoid dilution by keeping partnership tight.

Limiting partnership to avoid dilution can look smart in the short term, but over time it makes recruiting harder, increases the cost of talent, weakens culture, and leaves high-performing physicians vulnerable to poaching. It also dampens the “extra effort” behaviors that keep a group strong, such as taking call, stepping into leadership roles, and helping fix access. As those contributions fade, growth and capacity expansion slow, and the distribution pool can end up shrinking anyway, exactly the outcome the policy was meant to prevent.

Sensitive to these concerns, I offered my opinion that the I have seen the best results from groups that, rather than closing off partnership, redefine it as a group decision: not a rite of passage, but a governance and capital allocation choice. Partnership is one of the most powerful tools a group has to attract, retain, and align physicians. Instead of limiting partners, make better partners, promoted through a disciplined, accretive standard.

Tune in next week for our thoughts on how to define these “accretive” partnership standards so that groups can raise the bar without closing the door.

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Medicare Disadvantaged