When San Diego-based Scripps Health walked away from nearly all of its commercial Medicare Advantage contracts Jan. 1, 2024, the move drew widespread attention across the industry.
Medicare Advantage enrollment was still climbing nationally and many health systems were doubling down on value-based care strategies tied to the private Medicare program. For Scripps, however, the math no longer worked, and leadership believed staying the course would do more harm than good.
More than two years later, Scripps leaders say the decision — though painful — proved financially and operationally sound.
“It was a tough decision to make because it involved five health plans and about 32,000 Medicare Advantage beneficiaries,” Chris Van Gorder, president and CEO of the health system, told Becker’s. “But we were losing about $75 million a year on those contracts, and the payers weren’t willing to negotiate the changes we needed — not just higher reimbursement, but also addressing prior authorization issues and simply paying us what they were contractually obligated to pay.”
Mr. Van Gorder said he received numerous emails from frustrated patients, who were directed to resources to help them transition to another provider or to traditional Medicare.
“A lot of those patients ultimately switched back to traditional Medicare with a supplemental plan,” he said. “While the decision certainly had an impact, it was not devastating. In the end, it had a positive impact on the health system. We didn’t see a huge dip in census or volume — maybe a bit more on the ambulatory side than inpatient — but we muddled through it, and it went really well for us in the end.”
Over the past two years, Mr. Van Gorder said he has fielded calls from many other providers considering getting out of Medicare Advantage and seeking insight into Scripps’ experience.
“At the time, it was a pretty bold move, especially when everyone says we should be moving toward value-based reimbursement,” he said. “But value-based reimbursement won’t work unless providers are adequately compensated. Otherwise, we’ll go through the same cycle we saw with capitated managed care years ago. Providers eventually got out of that business and things shifted back to PPO fee-for-service.
“Now we’re back in another cycle of value-based reimbursement. And unless something changes, we’ll see the same thing happen again. Everyone upstream makes money in different ways, but providers are at the end of the food chain. If the end of the food chain isn’t compensated appropriately, providers will either close or exit those contracts — and the cycle will start all over again.”
What Scripps’ finances reveal about its Medicare Advantage exit
Brett Tande, corporate executive vice president and CFO of Scripps, argues that the health system’s financial performance tells the story more clearly.
“If you look at our credit ratings, you can see the change,” Mr. Tande said. S&P Global Ratings downgraded Scripps in late 2023, shortly before it exited Medicare Advantage. By January 2025, ratings agencies were signaling potential upgrades.
Today, Scripps net payer mix remains relatively stable, at roughly 60% governmental and 40% commercial.
“Scripps’ physician foundation recently exited all of its full-risk Medicare Advantage contracts through its health plan, but increased volumes with alternative and higher reimbursement contracts,” S&P said in a Jan. 22 ratings report shared with Becker’s. “Scripps’ contract with Anthem expired at the end of 2024, and as of this report the parties are not contracted, although remain in negotiations; Scripps does not expect a negative impact to operations.”
Since exiting Medicare Advantage, Scripps has not reported a quarterly loss, according to Mr. Tande.
“A lot of things have changed since then, but that’s an important data point,” he said.
Payers often argue Medicare Advantage losses stem from utilization or operational inefficiencies. But Scripps leaders reject that framing.
Under its contracts with UnitedHealthcare and Anthem, Scripps assumed full risk for Scripps-only Medicare Advantage products. The system handled authorizations and medical decision-making internally — a model executives say clashed with payer incentives.
“Anthem and UnitedHealthcare would price those products the same way they priced everything else, even though they were Scripps-only plans,” Mr. Tande said. “Then they would apply all of their prior authorization and other policies on top of that. We wouldn’t do that. We’re the caregivers, and I don’t think we fully align with those policies.”
Mr. Van Gorder was more direct.
“We’re an ethical organization … [and] we’re not going to do what some insurance companies have done,” he said. “No. 1, we’re not going to upcode. That’s fraud.”
He said Scripps did not pressure physicians to add diagnoses after visits or restrict medically appropriate care. As a result, utilization may have been higher than it would have been under insurer-controlled models.
“So yes, you could say we were partly responsible for the losses,” he said. “But we were responsible for those losses because we were appropriately taking care of the patient.”
Mr. Tande said that dynamic reflects a broader misalignment in so-called payvider models.
“When you’re a payvider, you’re not going to run risk pools the way an insurance company does,” he said. “That’s one of the challenges that plagued us, and I guarantee it plagues others that are taking on risk as well.”
Mr. Tande’s and Mr. Van Gorder’s comments come on the heels of a landmark Medicare Advantage settlement that has sent shockwaves across the sector.
In mid-January, Oakland, Calif.-based Kaiser Permanente agreed to pay $556 million to resolve allegations that it violated the False Claims Act by submitting invalid diagnosis codes for Medicare Advantage enrollees to obtain higher payments from the federal government, according to the Justice Department.
Kaiser was accused of increasing risk-adjusted MA payments over several years by pressuring physicians to add diagnoses to patient records after visits had occurred — even when the diagnoses were not evaluated or treated during the visit, according to the Justice Department.
The health system said the $556 million settlement is not an admission of any wrongdoing.
The structural flaw in Medicare Advantage
Beyond Scripps’ experience, executives argue that Medicare Advantage has a deeper structural issue — one that many providers underestimate.
“Insurance is actually a low-margin business,” Mr. Tande said, pointing to public Form 10-K filings from UnitedHealth Group over the last 15 years.
While UnitedHealth Group historically generated most of its profit from insurance operations, Mr. Tande said profitability has increasingly shifted toward Optum and other adjacent businesses.
“If you adjust for the size of those businesses, insurance has always been a low-margin business,” he said. “Optum, on the other hand, is about three times as profitable. What happens — because of how their income statement works — is that insurance becomes a loss leader to sell through to Optum, where they make the real money, whether that’s pharmacy, physician services or other pass-through businesses.”
Health systems cannot do this because they lack national scale and diversification, according to Mr. Tande.
“One of the reasons health systems got into MA was to gain market share,” he said. “But you can’t make money on traditional Medicare, and you certainly can’t make money on Medicare Advantage, which ultimately pays less. Yet systems have built very expensive infrastructure around MA and are afraid that if they exit, volume will go elsewhere.”
That dynamic creates what Mr. Tande described as a “sunk-cost” fallacy: systems feel compelled to stay in money-losing contracts because exiting feels even riskier after investing heavily in MA infrastructure.
“Organizations have positioned themselves so they feel they have to keep hospitals full — and they’re doing it with a payer or group of MA payers that are terrible,” Mr. Tande said. “They’re stuck between two bad decisions.”
Scripps was able to absorb the disruption largely because of its market position. When it exited Medicare Advantage, many patients switched coverage to remain with Scripps providers.
“For the average hospital, that’s a much scarier proposition,” Mr. Tande said. “But I still think you’re going to see more systems exit, because continuing to absorb losses isn’t sustainable. At some point, the decision has to change.”
Advice for other systems considering exiting Medicare Advantage
Over the past three years, Becker’s has reported on a growing number of hospitals and health systems that have gone out of network with commercial Medicare Advantage plans — including 15 systems in 2026 alone.
For hospitals considering a similar move, Mr. Van Gorder said the lesson isn’t necessarily to pull the plug all at once.
“If you have multiple contracts that aren’t going well, you don’t have to drop everything at the same time,” he said. “You can design an incremental plan.”
“As a provider, you have to think about your own organization, but you also have to think about where the market is going. MA continues to grow in part because there are lawmakers who support it and see it as positive. A lot of voters are on MA, they like it, it’s less expensive, and if you’re healthy, a narrow network isn’t a bad thing.”
The challenge emerges when patients become seriously ill and need care outside narrow networks. Medicare Advantage may work well and cost less for healthier individuals, but it can present challenges for patients with complex or high-acuity conditions.
Many health system leaders argue that broader reform is needed.
“The government has to figure out how to stratify health insurance so providers and intermediaries are paid appropriately and programs remain viable,” Mr. Van Gorder said. “My belief is that health insurance should not be a for-profit business — not on the hospital side and not on the insurance side. The profit motive means money leaves the system that could otherwise support reasonable margins for providers and nonprofit insurers.”
The healthcare system doesn’t have enough money for every organization involved to operate as a for-profit business.
Because so many of the vendors hospitals rely on — such as insurers, pharmaceutical companies, devicemakers and other suppliers — are for-profit, their margins drive up overall costs. Mr. Van Gorder argued that cost control efforts should focus on those intermediary players to bring expenses down.
Mr. Tande added that health systems should be realistic about margins.
“We need to get rid of the misguided belief among health systems that you can make money providing Medicare Advantage as insurance,” he said. “You have to look no further than United and Elevance’s public filings to see that Medicare Advantage insurance is, at best, a 2% to 3% margin business, and that’s when you run it with prior auth and other practices many of us find caustic.
“The money in Medicare Advantage isn’t made in the insurance product itself, but in adjacent businesses — like Optum at United or Carelon at Elevance. That’s where the money is made.”
Health systems simply can’t replicate that model, and the idea that they can generate profits from Medicare Advantage is misguided, according to Mr. Tande, who said neither the data nor Scripps’ experience supports that conclusion.
“If this doesn’t change, you’re going to see more health systems finally throw in the towel on Medicare Advantage in its current form,” he said.
Would Scripps ever return to Medicare Advantage?
Neither executive ruled out Medicare Advantage forever, but both said any return would require significant structural reform.
“There needs to be a way where the economic incentives matter. Today, Medicare is a great way for hospitals to take already-low Medicare reimbursement and make it worse,” Mr. Tande said. “We need to find a way to restructure Medicare Advantage if you want that program to work. We need incentives where people can get into Medicare Advantage and have some opportunity. It can’t all just be a stick; there’s got to be a carrot there.”
Mr. Van Gorder echoed that view, arguing that too much money is siphoned off by intermediaries rather than flowing to care delivery.
“People don’t buy insurance to make insurance companies wealthy; they buy insurance to get healthcare. And the only ones who deliver healthcare are hospitals and doctors — the end of the food chain,” he said. “If we can manage the middle better and get money closer to care delivery, we can make healthcare more affordable going forward.”
