A contract dispute between the nation’s largest Medicare Advantage insurer and a storied health system could provide a glimpse into the future of rate negotiations.

Mayo Clinic will no longer schedule appointments for out-of-network patients, aside from those who show up in the Rochester, Minnesota provider’s emergency room, where federal law requires its physicians to care for them, regardless of their health insurance. The health system has long had this policy in place, but only recently began to actually turn away patients to preserve its capacity during the COVID-19 pandemic, said spokesperson Karl Oestreich. Medicare Advantage enrollees will be the most impacted since Mayo serves more Medicare beneficiaries than any other plan type, he said.

Unlike commercial insurance products, Medicare Advantage patients are not subject to surprise bills since providers’ out-of-network rate is capped at the price that traditional Medicare pays. As consumers increasingly choose Medicare Advantage over the fee-for-service program, more providers could demand more payers utilize in-network to increase their reimbursement, and strong arm health plans into favorable contract terms by refusing service, said Gretchen Jacobson, vice president of Medicare at the Commonwealth Fund.

“You may get even more of a bifurcated market, in terms of networks,” Jacobson said. “You may have those plans that include the core providers in an area, and then you may have plans with fewer of those must-have providers that cater to perhaps a different set of beneficiaries and are lower-cost.”

By 2023, half of all Medicare beneficiaries are expected to be enrolled in a Medicare Advantage plan. This shift has already been realized in Minnesota, where 54% of older adults were enrolled in the privatized form of Medicare or cost plans as of January, according to federal data.

The increase in Medicare Advantage patients has impacted Mayo Clinic’s business. Over the past three years, Mayo has seen a rise in non-contracted Medicare Advantage patients coming to its clinics, particularly from UnitedHealthcare, which is the third-largest Medicare Advantage carrier in the state with nearly 113,800 members, according to the latest federal data.

From 2019 to 2021, the number of Minnesota patients coming to Mayo with coverage from out-of-network Medicare Advantage insurers nearly doubled, reaching more than 32,000 individuals last year. During the same two-year period, the number of patients coming to Rochester with non-contract Medicare plans jumped 42% to more than 7,000 people.

Mayo said at least half of those individuals receive insurance through UnitedHealthcare, which controls 28% of the growing national Medicare Advantage market with 7.9 million enrollees. The state’s largest local Medicare Advantage plans—Blue Cross Blue Shield Minnesota and Ucare Minnesota—are both in-network with Mayo Clinic, which is the state’s largest health system.

“The primary issue is capacity—not reimbursement,” said Oestreich. “Mayo simply does not have enough capacity to serve an ever-increasing number of patients. Mayo needs to be good stewards with our contracted plans.”

The two companies have spent the last year negotiating a Medicare Advantage contract. The insurer has reached out to Mayo officials, but hasn’t heard back yet, said spokesperson Dustin Clark.

“We have asked Mayo Clinic to outline requested terms to join our network for Medicare Advantage and haven’t received a proposal,” Clark said. “We are committed to reaching an agreement at an affordable cost for the people we serve. We stand at the ready to work with Mayo to end this disruption.”

Mayo is reportedly paid a higher rate by in-network Medicare Advantage plans than those out-of-network. This differs from most Medicare Advantage carriers, whose payment rates generally mirror or pay only 5% more than traditional Medicare; thanks to out-of-network payment caps, MA plans’ need to compete with the fee-for-service program and a status quo that leaves providers looking to commercial insurance products as a revenue source, as opposed to Medicare Advantage.

“It’s an interesting question, why, frankly, we don’t see more providers trying to do this in the Medicare context, in order to get around the out-of-network cap,” said Matthew Fiedler, a fellow at the USC- Brookings Schaeffer Initiative for Health Policy. “The answer to that is probably that there are limits to how effective this strategy can be when MA insurers still need to compete with traditional Medicare and are paid based on traditional Medicare’s costs. There’s only so much more providers can really hope to get.”

Mayo is not the first health system to refuse to see out-of-network patients, he said. UPMC had a policy where the health system would only see out-of-network patients—particularly those covered under Highmark plans—if they paid upfront in cash, and then requested reimbursement from their insurers, he said. Fiedler expected more providers to take similar tactics going forward.

“As Medicare Advantage becomes larger, it will be interesting to see if their reimbursement rates increase,” he said. “For it to change, providers would need to do something like what Mayo is doing, to make clear to a plan that you can ‘t send your patients to us out-of-network, given that your out-of-network prices are limited.”