Policy Brief
Executive Summary
Insurer ownership and operation of primary care practices is expanding rapidly and is increasingly concentrated in Medicare Advantage (MA) markets. Evidence suggests that this model creates a structural misalignment in behavioral health financing: MA risk adjustment produces front-loaded financial rewards for documenting diagnoses, while expanding behavioral health treatment capacity generates back-loaded costs. This imbalance incentivizes documentation and coding optimization rather than investment in psychotherapy, psychiatry, and longitudinal behavioral health care—exacerbating provider shortages and access barriers.
Insurer Ownership and the Growth of Payer-Operated Primary Care
Recent national evidence shows that payer-operated practices now account for a meaningful and growing share of Medicare primary care delivery, with particularly high penetration in counties with strong MA enrollment (Adler et al., 2025). While vertical integration is often framed as a pathway to improved care coordination, its implications for behavioral health are more ambiguous because MA payment incentives differ sharply between diagnosis and treatment.
How Medicare Advantage Incentives Shape Behavioral Health Care
Diagnosis-Driven Revenue Through Risk Adjustment
Medicare Advantage plans are paid prospectively using the CMS Hierarchical Condition Category (CMS-HCC) risk-adjustment model, which increases plan payments when enrollees’ diagnoses are documented, including many behavioral and mental health conditions (Centers for Medicare & Medicaid Services [CMS], 2024a, 2024b). When insurers own the practices documenting these diagnoses, the same organization captures both the diagnostic activity and the resulting revenue, strengthening incentives to invest in documentation infrastructure.
Evidence of Coding Intensity
A large body of research demonstrates that MA coding intensity increases risk scores and payments relative to Traditional Medicare (Curto et al., 2025; Geruso & Layton, 2020; Medicare Payment Advisory Commission [MedPAC], 2025). Federal policy already attempts to offset this behavior through a statutory coding intensity adjustment, implicitly acknowledging that diagnosis-based payment creates strong financial incentives independent of care delivery (MedPAC, 2025).
Why Behavioral Health Is Disproportionately Affected
Behavioral health conditions are:
- Highly prevalent and often underdiagnosed
- Valid risk-adjustment categories in MA
- Documentation-sensitive and clinically subjective
- Labor-intensive and under-reimbursed to treat
At the same time, behavioral health services face chronic workforce shortages and narrow MA networks. Multiple federal oversight reports document limited access to psychiatrists and therapists, inaccurate provider directories, and long wait times despite nominal coverage (HHS-OIG, 2024, 2025; Zhu et al., 2023).
The result is a behavioral health bottleneck: diagnosis rates rise faster than treatment capacity, leaving many patients identified but untreated.
Impacts
Patients
- Increased mental health labeling without timely access to psychotherapy or psychiatry
- Narrow provider choice in vertically integrated systems
- Delays and discontinuity of care, especially for complex conditions
Providers
- Pressure to document diagnoses without resources to deliver care
- Burnout and moral distress
- Exit from MA networks due to low reimbursement and administrative burden
Markets
- Consolidation of primary care within insurer-owned entities reshapes referral patterns and competition, compounding access challenges in behavioral health (Adler et al., 2025).
Policy Options
- Link Risk Adjustment to Treatment Engagement
Require evidence of follow-up or treatment access for selected behavioral health diagnoses to reduce incentives for diagnosis without care. - Rebalance Behavioral Health Reimbursement in MA
Increase payment adequacy for psychotherapy, psychiatry, and collaborative care models to support service expansion. - Strengthen Network Adequacy Enforcement
Audit appointment availability and provider activity, not just contracted counts, particularly for behavioral health specialties (HHS-OIG, 2025). - Increase Transparency in Vertically Integrated Systems
Require reporting on diagnosis growth relative to behavioral health service utilization and wait times.
Conclusion
Insurer ownership of primary care—especially within Medicare Advantage—has exposed a fundamental flaw in behavioral health financing. The system rewards identifying mental illness more reliably than treating it. Without policy reforms that better align payment with service delivery and workforce sustainability, insurer-operated care risks worsening behavioral health access: more diagnoses, fewer available providers, and growing gaps between need and care.
References
Adler, L., Crow, S., Fiedler, M., et al. (2025). The changing landscape of primary care: An analysis of payer–primary care integration. Health Affairs Scholar, 3(7), qxaf120. https://doi.org/10.1093/haschl/qxaf120
Centers for Medicare & Medicaid Services. (2024a). Medicare Advantage risk adjustment. https://www.cms.gov
Centers for Medicare & Medicaid Services. (2024b). 2025 Medicare Advantage and Part D advance notice fact sheet. https://www.cms.gov
Curto, V. E., Einav, L., Levin, J., et al. (2025). Coding intensity variation in Medicare Advantage. Health Economics. Advance online publication.
Geruso, M., & Layton, T. (2020). Upcoding: Evidence from Medicare on “squishy” risk adjustment. Journal of Political Economy, 128(3), 984–1026. https://doi.org/10.1086/704756
Medicare Payment Advisory Commission. (2025). Report to the Congress: Medicare payment policy. https://www.medpac.gov
U.S. Department of Health and Human Services, Office of Inspector General. (2024). A lack of behavioral health providers in Medicare and Medicaid impedes enrollees’ access to care. https://oig.hhs.gov
U.S. Department of Health and Human Services, Office of Inspector General. (2025). Many Medicare Advantage and Medicaid managed care plans include limited or inactive behavioral health providers. https://oig.hhs.gov
Zhu, J. M., Zhang, Y., Polsky, D., & McConnell, K. J. (2023). Narrow networks and access to psychiatrists in Medicare Advantage. Health Affairs, 42(4), 567–575. https://doi.org/10.1377/hlthaff.2022.01046