During the past year, several large Medicare Advantage carriers have acquired smaller Medicare Advantage HMO plans. First, there was HealthSpring, which acquired Bravo, next, there was WellPoint, which bought CareMore and most recently there was Humana, which snapped up Arcadian.

This is most certainly just the beginning of a floodgate of MA plan consolidations. Seeking to capitalize on millions of baby boomers who will age into the program, large MA carriers will look for opportunities to expand services areas to attract more enrollees. Smaller plans that have good star ratings and have integrated healthcare systems will be prime targets for acquisition.

However, the thinning out of MA plans will not only occur because of future acquisitions. Because of requirements from the federal healthcare reform law and more stringent Centers for Medicare & Medicaid Services requirements, some smaller companies may not be able to cut the mustard.

Beginning in 2014, MA plans must meet a minimum medical loss ratio of at least 85 percent. Smaller carriers with much less economies of scale than bigger MA players like UnitedHealthcare and Humana are likely to have trouble meeting this standard. If struggling plans cannot find an interested buyer by 2014, then they may have to shutter their doors.

Adding even more complexity to the mix, beginning next year, CMS will begin doling out reimbursement bonuses to MA plans that perform well in meeting numerous star rating quality measurements. The bonuses are coupled with reimbursement rate cuts that begin next year. For companies with just a few MA plans in their portfolio, a bad star rating and a shrinking reimbursement rate could be disastrous enough for them to exit the MA business entirely. Making matters worse for poor performers, CMS has threatened to terminate plan offerings that receive consistently lackluster star ratings.

If this isn't enough to make your head swim, smaller companies will also have to adjust to meeting CMS requirements such as e-prescribing and the switchover from ICD-9 diagnosis codes to ICD-10 diagnosis codes, which will be very costly. Larger companies are able to afford the staffing additions and IT upgrades more easily that smaller carriers.

For many smaller companies, the strategy now may be to make their plans attractive enough so that if the stars don't align quickly enough on patient outcomes, perhaps they will on a buyout offer they can't refuse.

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