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Downward Pressure on Medicare Advantage Payment Continues in Final Rate Notice

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On April 7, CMS finalized their Calendar Year (CY) 2015 capitation rates, methodological changes to rates and risk models, and other payment and program policies for Medicare Advantage (MA) and Part D plans.

CMS finalized a -3.4% average update to MA rates, down from the proposed -1.9% average update in February’s Advance Notice.

Despite some positive changes in the Announcement for MA plan payments, the overall impact is mostly negative, the magnitude of which will vary with plans’ particular circumstances (e.g., geography, competitive landscape, quality rating). On the plus side, however, CMS made changes to the calculation of the fee-for-service (FFS) normalization factors to account for the baby boomers, further benefiting MA plans, especially as compared to the Advance Notice. CMS is scaling back the phase in of the CMS-HCC 2014 risk adjustment model for MA plans, and is not moving forward with a proposal to exclude diagnoses collected during in-home health risk assessments (HRAs). Also, CMS is not adopting the updated Part D risk model, which would have had a negative impact on some plans’ payments.

The Part D program remains relatively stable, however. CMS is moving forward with new audit standards to ensure that Part D plans’ medication therapy management (MTM) programs offer enrollees timely medication reviews, which will improve medication adherence. CMS is not finalizing its proposal requiring additional cost-sharing reductions in the coverage gap for all formulary generic and brand drugs in Enhanced Alternative (EA) plans. CMS also is not adopting any network adequacy standards for pharmacies offering preferred cost sharing at this time.

Providers who contract with MA plans should expect downstream pressure on reimbursement rates as plans look for ways to continue robust benefit offerings under lower capitation rates. However, providers may benefit from CMS’ finalized provisions to limit mid-year MA plan network changes.

Health plans should anticipate that some of the non-finalized proposals may resurface in future rulemaking. Plan attrition in certain markets also could arise, in light of the anticipated cuts and decreased benefit design flexibility, especially in rural areas or among lower quality plans in areas with an abundance of highly rated plans. Even so, experience from the 2014 open enrollment period suggests MA enrollment will continue to rise with the influx of baby boomers into the Medicare program.

View CMS’ Final Notice.

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