On April 4, 2016, CMS released the final Medicare Advantage and Part D Prescription Drug Program payment and policy changes for 2017 (the “Final Notice”). In doing so, CMS announced a 0.85 percent increase in 2017 Medicare Advantage rates.  CMS also projected a 2.2 percent increase in revenue. CMS attributed the increases in revenue to expected growth in coding acuity (e.g. sicker and more complex patients).

The increases are smaller than the increases estimated in the February Advance Notice—a 1.35 percent rate increase and a 3.55 percent increase in revenue.  CMS attributed the difference to technical updates in the risk adjustment normalization factor.  Specifically, in the Final Notice, CMS corrected a technical error in the calculation of the risk-adjustment denominator used to create relative factors for the revised CMS-HCC Risk Adjustment model. The error resulted in a Fee for Service risk score in the Advance Notice that was too low. 

Since 2015, CMS has based its risk adjustment on a blend of encounter data-based risk scores and CMS’s Risk Adjustment Processing System-based risk scores. CMS will continue using the blend in 2017, but with a higher percentage of encounter data-based risk scores than in previous years. 

Additionally, CMS implemented changes in the Final Notice to respond to concerns that risk adjustments did not properly account for vulnerable populations, such as dually-eligible or low income beneficiaries. Specifically, CMS:

1. Revised risk adjustments to more accurately reflect the plan’s cost of care for dually eligible beneficiaries; and
2. Added an interim adjustment to the Star Ratings to reflect the socioeconomic and disability status of a plan’s enrollees.

CMS did not add any new measures for the 2017 Star Ratings for Medicare Advantage, but it removed the Improving Bladder Control Measure. CMS also updated improvement measures to account for at least two years of data, where available.

CMS will also implement the Categorical Adjustment Index (CAI) in 2017, which will change Star Ratings calculations. CAI is a factor that will be added to or subtracted from a contract’s overall and/or summary Star Rating to adjust for the average within-contract disparity.  In 2017, the CAI will adjust the Star Rating measures for the following measures: Breast Cancer Screening, Colorectal Cancer Screening, Diabetes Care – Blood Sugar Controlled, Osteoporosis Management in Women who had a Fracture, Rheumatoid Arthritis Management, Reducing the Risk of Falling, and Medication Adherence for Hypertension (RAS antagonists).

The Final Notice phases in the Employer Group Waiver Plan (EGWP) policy change over two years so that in 2018 only individual market plan bids will be used to calculate employer Medicare Advantage plan payments. This provides more time than the Advance Notice, where CMS proposed terminating the bidding process for all Medicare Advantage employer/union-only group waiver plans by using individual market non-EGWP bids to establish county level payment amounts for EGWPs starting in 2017. The change is expected to decrease payments to EGWPs. CMS adopted the phase in to provide employers and plans more time to adapt to the payment change.

The Final Notice is available here, and the CMS Press Release is available here. 

Reporter, Lara Compton, Los Angeles, +1 (213) 443-4369, lcompton@kslaw.com.