The Rising Cost-Cutting Pressures on Payers

The Looming Crisis

Across the U.S. healthcare landscape, payers—whether managing Medicare Advantage (MA), Dual-Eligible Special Needs Plans (D-SNPs), or Medicaid—are confronting unprecedented cost-cutting pressures. The old playbook of slashing provider contracts, squeezing reimbursement rates, and layering on utilization management (UM) is no longer enough. As medical costs outpace revenue growth and regulatory demands intensify, payers are discovering a hard truth: you can't shrink to greatness.

The Why

Why is the pressure mounting? The drivers are multifaceted:

• Exploding Enrollment: Medicaid and MA rolls have swelled in recent years, with aging populations and policy expansions fueling growth. Even after the post-pandemic redeterminations, Medicaid and CHIP still cover nearly 80 million Americans.
• Rising Medical Complexity: Chronic disease, behavioral health needs, and social determinants of health are driving utilization and costs to an unprecedented level.
• Regulatory Scrutiny: State and federal agencies are tying more payments to quality, outcomes, and member experience, raising the stakes for every dollar spent.
• Competitive Market: Star ratings, member churn, and provider network adequacy are now existential issues for payer organizations.

In this environment, simply cutting contracts or applying more restrictive claims policies—especially those not grounded in individualized clinical evidence—is not a sustainable strategy. The risks of eroding quality, disengaging providers, and losing members are too great.

The Stark Reality

The consequences of relying on familiar cost-cutting measures are increasingly evident across the healthcare landscape:

• Contract Cuts Backfire: Short-term savings from aggressive rate reductions often come at the expense of network stability. Providers may exit networks, disrupting continuity of care for members and increasing reliance on costly out-of-network services.
• Utilization Management Complexity: Recently, payers pledged to reduce prior authorization requirements for many routine services. However, robust utilization management—including prior authorizations and concurrent reviews—remains essential for ensuring medical necessity in behavioral health, skilled nursing facilities, and home health care. While these processes are necessary, they often introduce significant administrative complexity, slow care transitions, and can frustrate care teams. The ongoing challenge is not the existence of UM, but the need for timely care coordination, real-time feedback, and seamless tracking of patient progress.
• Fragmented Care Management: When case management is not tightly integrated across every level of care—from post-acute rehabilitation to post-inpatient psychiatric hospital stays or detox—members are at risk of falling through the cracks. This fragmentation leads to preventable readmissions and rising costs.
• Care Gaps: These are specific breakdowns in care delivery, such as missed follow-up appointments after hospital discharge, delays in transitioning between care settings, or failures to provide recommended preventive services. Care gaps can result in unmanaged chronic conditions, avoidable complications, and higher utilization of emergency or inpatient services.

Recent events highlight these risks. In Maryland, a leading Medicaid MCO lost NCQA accreditation due to operational lapses, disrupting coverage for hundreds of thousands of members. In the Medicare Advantage market, plans with poor care coordination see their star ratings drop, losing out on bonus payments and market share. This is substantiated by multiple sources: Press Ganey’s analysis found that more than 80% of Medicare Advantage plans were at risk of losing at least one star in 2023, with care coordination being a key factor. Lower star ratings directly threaten millions in quality bonuses and can impact member retention and plan competitiveness.

What's Changing?

The industry is at an inflection point:

• From Siloed to Integrated: Payers are realizing that UM and CM must work hand-in-hand, not in silos. True cost control requires seamless coordination across the care continuum.
• From Reactive to Proactive: Real-time data and analytics are empowering payers to intervene earlier, identifying high-risk members, addressing barriers to discharge, and coordinating transitions before problems escalate.
• From Transactional to Relational: Success now hinges on building trusted partnerships with providers, sharing data, and aligning incentives around quality and outcomes.

The days of "shrink to greatness" are over. Sustainable savings demand smarter, more connected care management at every step—from post-acute to behavioral health transitions.

The Hidden Dangers

Ignoring this new reality brings hidden risks:

• Care Gaps and Readmissions: Without tight CM, members discharged from hospitals, psych units, or detox facilities may lack follow-up, leading to costly bounce-backs. For example, research shows that readmission rates for patients discharged from inpatient psychiatric or detox programs can exceed 50% over four years, especially when transitions to behavioral health residential or intensive outpatient programs are poorly managed. Lack of care coordination and inadequate discharge planning are major contributors to these preventable readmissions.
• Administrative Waste: Disconnected UM and CM teams duplicate efforts, miss critical information, and waste precious staff time.
• Regulatory and Financial Penalties: Poor quality scores, lost accreditation, and member complaints can trigger steep penalties and revenue losses.
• Provider Disengagement: Cutting contracts and increasing administrative burden drives providers out of network, reducing access and increasing costs.

The Cost of Inaction

The price of standing still is steep:

• Lost Revenue and Market Share: Poor star ratings or accreditation issues can mean lost bonuses, reduced enrollment, and reputational damage. For example, a single-star drop for payers can result in a 3.5% to 5% decrease in benchmark payments, translating to millions in lost revenue and threatening a plan’s ability to retain its contract, particularly for those who are state-approved payers through competitive bid processes.
• Escalating Medical Spend: Failure to coordinate care leads to unnecessary admissions and unmanaged chronic conditions.
• Member Attrition: Members who experience care gaps or administrative hassles are quick to switch plans, undermining growth and stability.
• Operational Chaos: Fragmented workflows and outdated systems sap productivity and morale, making it harder to attract and retain top talent.

A Call to Action

Payers must move beyond traditional cost-containment tactics and embrace a new model:

• Integrate UM and CM Across All Levels of Care: Break down silos and ensure that every member—whether in post-acute rehab, skilled nursing, behavioral health, or home care—has a coordinated, accountable team managing their journey.
• Leverage Real-Time Data and Communication: Invest in a platform that delivers instant visibility into both clinical and financial metrics—including patient status, barriers to discharge, care plans, and cost of care—enabling timely, data-driven interventions and a comprehensive understanding of member needs and organizational performance
• Streamline Workflows: Establish standardized processes, reduce administrative friction, and empower staff to focus on what matters most: member outcomes.
• Partner with Providers: Build collaborative relationships with network providers, sharing data and aligning around shared goals for accountability and transparency.

The Solution You Need: Olio Health

This is where Olio Health delivers transformative value. Olio's platform is purpose-built to unite payers, case managers, utilization managers, and providers in a single, real-time care coordination ecosystem.

Why Olio?

• Seamless Integration: Olio bridges UM and CM, enabling teams to collaborate on every case, track patient progress, and address barriers before they become costly problems.
• Olio Insights: No more waiting for outdated reports. Olio delivers up-to-the-minute data on cost of care, patient status, and discharge plans—empowering proactive intervention.
• Scalable Impact: Olio works across all lines of business—MA, D-SNP, Medicaid—supporting the co-management of hundreds of network providers.
• Provider Engagement: Transparent, collaborative tools foster accountability, making providers true partners in quality and cost control.

Looking Ahead: Navigating Regulatory Change and Value-Based Care

The regulatory landscape is evolving rapidly. CMS’s 2026 Medicare Advantage and Part D Rate Announcement ties even more payment to quality outcomes, with changes to star ratings and risk adjustment models directly impacting plan revenue and competitiveness. The CMS Innovation Center’s strategic direction for 2025 and beyond is clear: empower Americans through evidence-based prevention, patient empowerment, and value-based care, while protecting federal taxpayers. Olio Health’s technology platform is uniquely positioned to help payers meet these new standards, supporting seamless care coordination, measurable quality improvement, and compliance with evolving value-based mandates.

Conclusion

Rising cost-cutting pressures on payers are real and intensifying. But you can't shrink to greatness. The era of contract cuts and administrative hurdles is over. Sustainable cost control and quality improvement demand tight, integrated case management across every level of care, from post-acute to post-inpatient psychiatric and detox transitions.

Olio Health is the partner payers need to break out of the old cycle, drive real savings, and deliver the quality and outcomes that members—and regulators—demand. Don’t let outdated strategies put your organization at risk. Connect with Olio Health to learn how you can achieve the balance of cost, quality, member satisfaction, and provider satisfaction that defines true greatness in healthcare.

‍