Medicare Advantage (MA) plans are private health insurance plans approved by Medicare and offered by companies like Humana, UnitedHealthcare, or CVS. These plans bundle Original Medicare (Part A and Part B) and often include prescription drug coverage (Part D). Instead of the government paying for each service you provide (fee-for-service), the MA plan receives a fixed monthly payment from the government for each patient enrolled. The plan is then responsible for managing the patient’s care within that budget.
Why This Matters to Healthcare Providers
For your practice, a high concentration of Medicare Advantage patients completely changes your business model and your attractiveness to potential buyers. Acquirers see MA-heavy practices as opportunities. They believe their resources can better manage patient care, improve quality scores to earn bonuses, and optimize clinical documentation for Risk Adjustment—all of which increases profitability from the fixed monthly payments. Your MA patient panel can be a primary driver of your practice’s valuation in a sale.
Example in Healthcare M&A
Scenario: A private equity firm is evaluating two primary care practices for acquisition. Both practices generate $5 million in annual revenue.
- Practice A‘s revenue comes mostly from traditional fee-for-service Medicare.
- Practice B‘s revenue comes mostly from Medicare Advantage contracts. Its quality scores are average, and its clinical documentation is not optimized for risk adjustment.
Application: The private equity firm’s advisors perform a Payer Mix Analysis and see far more upside in Practice B. The firm has a dedicated Management Services Organization (MSO) that specializes in improving quality scores and training staff on proper documentation for MA patients.
Outcome: The PE firm makes a significantly higher offer for Practice B. They are not just buying its current earnings; they are buying the opportunity to apply their expertise to the existing MA patient base, increase per-patient revenue through bonuses and risk adjustment, and generate a much higher return on their investment. The owner of Practice B realizes a greater sale price because their MA panel represented unlocked potential for the right buyer.
Related Terms
- Value-Based Care – The payment model that rewards providers for efficiency and quality outcomes, which is the foundation of Medicare Advantage.
- Risk Adjustment – The process MA plans use to adjust payments based on the health status of their members. Proper documentation in your practice directly increases this revenue.
- Payer Mix Analysis – The evaluation of a practice’s revenue sources. A heavy MA concentration is a key finding that signals opportunity to sophisticated buyers.
Curious how your practice compares to others in your specialty that have recently sold? Get a Confidential Market Comparison →
About the SovDoc M&A Glossary
Hand-curated by our deal-makers and analysts, the SovDoc glossary turns complex mergers-and-acquisitions jargon into clear, plain-English definitions.
Want to learn more? Explore the rest of our glossary or reach out to our team for deeper insights.
Frequently Asked Questions
What are Medicare Advantage plans?
Medicare Advantage (MA) plans are private health insurance plans approved by Medicare and offered by companies like Humana, UnitedHealthcare, or CVS. They bundle Original Medicare (Part A and Part B) and often include prescription drug coverage (Part D). Unlike traditional fee-for-service Medicare, the MA plan receives a fixed monthly payment from the government for each patient enrolled and manages patient care within that budget.
How do Medicare Advantage plans affect healthcare providers’ business models?
A high concentration of Medicare Advantage patients changes a healthcare provider’s business model by shifting from fee-for-service payments to fixed monthly payments. Providers with a significant MA patient panel are attractive to buyers, as these practices offer opportunities to improve quality scores, optimize clinical documentation for risk adjustment, and increase profitability from fixed payments, which can enhance the practice’s valuation in a sale.
Why might private equity firms prefer acquiring practices with a high Medicare Advantage patient base?
Private equity firms see practices with a high Medicare Advantage patient base as valuable because they can apply expertise to improve quality scores and clinical documentation for risk adjustment. This can unlock potential by increasing per-patient revenue through bonuses and risk adjustment payments, resulting in a higher return on investment and a greater sale price for the practice owner.
What is risk adjustment in the context of Medicare Advantage?
Risk adjustment is the process Medicare Advantage plans use to adjust payments based on the health status of their members. Proper clinical documentation in a practice increases revenue through risk adjustment by accurately reflecting the patients’ health needs, which influences the fixed monthly payments the MA plan receives.
What related terms should a healthcare provider understand regarding Medicare Advantage?
Key related terms include:
- Value-Based Care: A payment model rewarding providers for efficiency and quality outcomes, which is foundational to Medicare Advantage.
- Risk Adjustment: Adjusting payments based on member health status, influenced by clinical documentation.
- Payer Mix Analysis: Evaluation of a practice’s revenue sources, where a heavy Medicare Advantage concentration signals opportunity to sophisticated buyers.