On January 31, 2024, the US Centers for Medicare & Medicaid Services (CMS) released the Advance Notice of Methodological Changes for Calendar Year (CY) 2025 for Medicare Advantage (MA) Capitation Rates and Part C and D Payment Policies. CMS also released a press release and fact sheet. The advance notice is released on an annual basis and includes proposed updates to the capitation and risk adjustment methodologies used to calculate payments to MA plans, as well as other payment policies that impact Part D. Comments are due March 1, 2024. The final CY 2025 rate announcement will be published no later than April 1, 2024.

IN DEPTH

Among other provisions, the advance notice includes the following proposals:

Payment Changes/Growth Rates: The effective growth rate for 2025 MA non-end-stage renal disease (ESRD) rates is estimated to be 2.44%. Accounting for the impact of the benchmark rate cap, MA rebate and other policies, the net impact on the Medicare Trust Funds for CY 2025 is expected to be $9.2 billion. CMS estimates that payments from the government to MA organizations (MAOs) will increase by 3.70% on average from 2024 to 2025, as proposed. Below is the year-to-year percentage change in MAO payment.

¹ Available with the publication of the final CY 2025 Rate Announcement.

Part C Risk Adjustment Model: For CY 2024, CMS implemented several changes to the Hierarchical Condition Category (HCC) risk adjustment model, including restructuring the condition categories using the ICD-10 classification system, updating the underlying fee for service (FFS) data years, and revising the denominator year that is used in determining the average per-capita predicted expenditures to create relative factors in the model. Risk scores for CY 2024 are deduced using a blend of the risk scores calculated with the 2020 CMS-HCC model and those calculated with the 2024 CMS-HCC model. For CY 2025, CMS proposes to continue this phased-in approach and to calculate CY 2025 risk scores using 33% of the risk score calculated with the 2020 model and 67% of the risk score calculated with the 2024 model. The impact of the proposals on MA risk scores if implemented would be -3.12%, representing $11 billion in estimated net savings to the Medicare Trust Fund in 2024.

CMS is also considering a calculation methodology for normalization factors that would more accurately account for the impacts of the COVID-19 pandemic. The methodology would allow CMS to incorporate recent average FFS risk scores without excluding any years of risk scores. CMS encourages feedback on the proposed approach.

ESRD Payment Adequacy: Stakeholders have previously expressed concerns that MA ESRD rates are not adequate to cover the cost of care for beneficiaries with ESRD. This concern has attracted more attention since 2021, when the 21st Century Cures Act allowed beneficiaries with ESRD to enroll in MA plans. CMS considered potential changes to MA ESRD rates in CY 2023 and CY 2024. More recently, CMS analyzed the actual experience of ESRD enrollees in 2021 and 2022 based on data reported in the MA Bid Pricing Tools (CY 2023 and CY 2024). CMS reported that its analysis indicated that “revenues for ESRD enrollees exceeded the corresponding net medical expenses for most plans.” Therefore, CMS does not propose any changes to the MA ESRD rate methodology for 2025. CMS will continue to use statewide MA ESRD rates.

Part D Benefit/Inflation Reduction Act of 2022 (IRA): The advance notice discusses several updates the IRA made for 2025, including:

As a result of the IRA, CMS proposes updates to the Part D risk adjustment model to reflect the Part D benefit design.

CMS is annually required to update the parameters for the defined standard Part D drug benefit. This is meant to ensure that the actuarial value of the drug benefit tracks changes in Part D expenses. For non-low-income subsidy beneficiaries, the advance notice outlines the benefit parameters for defined standard benefits in 2025 as follows:

Source: Advance Notice, Table III-6. Part D Benefit Parameters for Defined Standard Benefit for CY 2024 and CY 2025 Non-LIS Beneficiaries.

Part C and D Star Ratings: The advance notice includes the list of measures that will be used to calculate the 2025 Star Ratings, as well as a list of the emergency areas that were affected by emergency declarations in 2023 for purposes of making adjustments under the extreme and uncontrollable circumstances policy. Other updates include:

• Patients’ Experience and Complaints and Access Measures: CMS reminds stakeholders that, beginning with the 2024 measurement year (for the 2026 Star Ratings), the weight of patients’ experience and complaints and access measures will be reduced to two.

• Measures Under Consideration (MUC): CMS submitted the Initiation and Engagement of Substance Use Disorder Treatment (Part C) and Initial Opioid Prescribing for Long Duration (IOP-LD) (Part D) measures to the 2023 MUC list. The MUC list includes measures that CMS is considering adopting through future rulemaking.

• Care for Older Adults – Pain Assessment (Part C): Because the National Committee for Quality Assurance is retiring this indicator starting with the 2025 measurement year (at the earliest), CMS announced that it will remove the measure in advance of the measurement period.

• New Measure Concepts: CMS requests feedback on potential new measure concepts for future years, including Health Outcome Survey (Part C), Blood Pressure Control for Patients with Hypertension (Part C), Breast Cancer Screening Follow-Up (Part C), Social Connection Screening and Intervention (Part C), Chronic Pain Assessment and Follow-Up (Part C), Tobacco Use Screening and Cessation and Lung Cancer Screening and Follow-Up (Part C), Functional Status Assessment Follow-Up (Part C) and Medicare Plan Finder Drug Pricing Measure (Part D).

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