On February 1, 2023, the US Centers for Medicare & Medicaid Services (CMS) released the Advance Notice of Methodological Changes for Calendar Year (CY) 2024 for Medicare Advantage (MA) Capitation Rates and Part C and D Payment Policies. 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 3, 2023.
Comments on the Advance Notice are due March 3, 2023. The final Rate Announcement will be published no later than April 3, 2023. Among other provisions, the Advance Notice includes the following proposals:
Payment Changes / Growth Rates: The effective growth rate for 2024 MA non-End-Stage Renal Disease (ESRD) rates is estimated to be 2.09%. Accounting for the impact of the benchmark rate cap, MA rebate and other policies, the net impact on the Medicare Trust Funds for CY 2024 is expected to be $7.3 billion.
CMS estimates the expected average change in revenue for MA organizations (MAOs) to increase by 1.03% in CY 2024, down from an 8.50% increase in CY 2023. Normalization and changes to the Part C risk adjustment model resulting in a -3.12% decrease, plus a -1.24% decline due to changes in Star Ratings, are driving the lower increase in revenue. Below is the Year-to-Year Percentage Change in MAO payment.
2023 Rate Announcement
2024 Advance Notice
Effective Growth Rate
TBD in Final
Change in Star Ratings
MA Coding Pattern Adjustment
0.00% (Proposed 5.9%)
Risk Model Revision and Normalization
MA Risk Score Trend
Expected Average Change in Revenue
Part C Risk Adjustment Model Revision: CMS proposes several changes to the Hierarchical Condition Category (HCC) risk adjustment model. The impact of the proposals on MA risk scores is projected to be -3.12%, which represents $11.0 billion in estimated net savings to the Medicare Trust Fund in 2024. The proposed changes include:
Restructuring of condition categories using the ICD-10 code classification system instead of the ICD-9 classification system.
Updating the FFS data years underlying the model from 2014 for diagnoses and 2015 for expenditures to 2018 for diagnosis and 2019 for expenditures.
Revising the denominator year that is used in determining the average per-capita predicted expenditures to create relative factors in the model from 2015 to 2020.
Clinical revisions to the model adding constraints and removing several HCCs to reduce the effect of MA coding variation from FFS on risk scores (e.g., removal of HCC 47 Protein-Calorie Malnutrition).
Specifically, the Advance Notice discusses:
Clinical Revisions: CMS explains that it reviewed conditions where coding variation in MA was highest relative to FFS with its clinical experts to identify conditions with discretionary coding variation. Pursuant to Risk Adjustment Model Principle 10, discretionary diagnostic categories that are “particularly subject to intentional or unintentional discretionary coding variation or inappropriate coding by health plans/providers, or that are not clinically or empirically credible as cost predictors,” should be excluded from the model. CMS proposes to constrain (i.e., apply equal coefficients) the values of all diabetes HCCs and all congestive heart failure HCCs. The proposal would also remove HCC 47 Protein-Calorie Malnutrition, HCC 230 Angina Pectoris, and HCC 265 Atherosclerosis of Arteries of the Extremities, with Intermittent Claudication.
Changing HCCs: CMS would increase the number of payment HCCs from 86 in the current model to 115 in the proposed model. This is due to newly created HCCs and the splitting of existing HCCs as a result of moving from ICD-9 to ICD-10. The number of ICD-10 diagnosis codes mapped to an HCC for payment would decrease from 9,797 to 7,770. The proposed reclassifications reflect findings from CMS’ assessment of conditions that are coded more frequently in MA relative to FFS. The specific proposed changes to HCCs can be found in Table II-4 of the Advance Notice.
ESRD Risk Adjustment Model: For CY 2024, CMS will continue to use the 2023 ESRD risk adjustment models for MA plans and the 2019 ESRD risk adjustment model for Program of All-Inclusive Care for the Elderly (PACE) organizations.
Frailty Adjustment for PACE Organizations and Fully Integrated Dual Eligible Special Needs Plans (FIDE SNPs): CMS must account for the frailty of the PACE population when establishing capitated payment amounts. It must also make a payment adjustment to account for the frailty of beneficiaries enrolled in FIDE SNPs, if the average frailty level in the FIDE SNP is similar to the PACE program. For 2024, CMS is proposing to update the frailty factors used to calculate the frailty scores for those enrolled in FIDE SNPs. CMS will continue to calculate the risk scores for PACE beneficiaries using the 2017 CMS-HCC model and related factors.
On February 3, 2023, CMS announced that it had provided MAOs plan-specific risk scores for the 2021 plan year (using 2020 diagnosis data) calculated pursuant to the proposed model, as well as risk scores calculated using a version of the proposed CMS-HCC model that does not include the Principle 10-focused clinical updates.
Inflation Reduction Act of 2022 (IRA): The Advance Notice discusses several updates made by the IRA for 2024, including the following:
Part D Drug Cost Sharing: Cost sharing for covered Part D drugs will be eliminated for beneficiaries in the catastrophic phase. This means Part D sponsors will be on the hook for 20% of the costs incurred after a Part D beneficiary’s costs exceed the annual out-of-pocket threshold, compared to roughly 15% of costs in prior years.
Low-Income Subsidy (LIS) Program: The income limit for the full LIS benefit will increase from 135% to 150% of the federal poverty level (FPL). Individuals who earn between 135% and 150% of the FPL and who meet certain resource requirements will now be eligible for the full low-income premium and cost-sharing subsidies, as well as a $0 deductible.
Insulin Cost Sharing: In the initial coverage and coverage gap phases, cost sharing may not exceed $35 for a month’s supply of covered insulin products. The deductible will not apply to Part D-covered insulin products.
Adult Vaccine Cost Sharing: The deductible will continue to not apply to adult vaccines that are recommended by the Advisory Committee on Immunization Practices (ACIP). At any point in the benefit, these vaccines are exempt from cost sharing when administered consistent with ACIP’s recommendations. Part D sponsors will provide this coverage as a basic benefit and such costs should be reflected in plan bids.
Base Beneficiary Premium: The base beneficiary premium growth will be capped at 6%.
IRA provisions that take effect in 2025 and later will be addressed in future Advance Notices and Rate Announcements.
Part C and D Star Ratings: CMS includes in the Advance Notice a list of the measures that will be used to calculate the 2024 Star Ratings, as well as a list of the emergency areas that were affected by emergency declarations in 2022 for purposes of making adjustments under the extreme and uncontrollable circumstances policy. CMS is also soliciting comment in the following areas:
Universal Foundation Measures: For the 2023 measurement year and beyond, CMS is considering a core set of measures that are aligned across quality rating and value-based care programs, in what CMS is calling a “Universal Foundation” of quality measures. Each program would add aligned or program-specific measures to this measurement base. The Advance Notice outlines a preliminary set of measures that would be included in the Adult Universal Foundation, including Adult Immunization Status, Screening for Depression and Follow-Up Plan, and Screening for Social Drivers of Health/Social Need Screening and Intervention, among others.
Substantive Measure Updates: CMS outlines potential updates to a number of measures, including possibly retiring the Care for Older Adults (COA)–Pain Assessment (Part C) measure, re-evaluating the specifications of the Diabetes Care–Eye Exam and Diabetes Care–Blood Sugar Controlled (Part C) measures, and revising the eligible population for the Breast Cancer Screening (Part C) measure, among other changes.
New Measure Concepts: CMS also requests feedback on potential new measure concepts for future years, including Health Equity (Part C and D), Chronic Pain Assessment and Follow-Up (Part C), Sexual Orientation and Gender Identity for HEDIS Measures (Part C), Identifying Chronic Conditions in HEDIS Measures (Part C), Blood Pressure Control Measures (Part C), Kidney Health (Part C) and more.
ESRD Payment Adequacy: In recent years, stakeholders have 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 given the increase in ESRD enrollment in MA plans as a result of the 21st Century Cures Act. CMS previously analyzed stakeholders’ concerns and studied possible approaches to modifying MA ESRD rates. CMS reports that it has continued to study these concerns, including potentially basing rate changes on the area deprivation index of each county. However, at this time CMS is not proposing any changes to the MA ESRD rate methodology for 2024. CMS will continue to use statewide MA ESRD rates.
Annual Adjustments to Part D Benefit Parameters: CMS is required to update the parameters for the defined standard Part D drug benefit each year. This is meant to ensure that the actuarial value of the drug benefit tracks changes in Part D expenses. For non-LIS beneficiaries, the Advance Notice outlines the benefit parameters for defined standard benefits in 2024 as follows:
Cost Sharing: 100%
Cost Sharing: 100%
Initial Coverage Phase
Cost Sharing: 25%
Cost Sharing: 25%
Initial Coverage Limit: $4,660
Initial Coverage Limit: $5,030
Out-of-Pocket Threshold: $7,400
Out-of-Pocket Threshold: $8,000
Cost Sharing: Greater of 5% or
$4.15 (generic / preferred multi-
source drug / $10.35 (other))