Medicare Advantage 2027 payment update increases after a CMS revision

Belying earlier projections, CMS gave Medicare Advantage (MA) health plans a payment hike for 2027.

Payments will increase by 2.48%, or more than $13 billion, according to a final rate notice published April 6. It’s a better outcome for stakeholders than was anticipated when CMS released the advance rate announcement in January. Then, the payment change was projected to essentially stay flat year over year, ticking up by 0.09%.

The big shift between the advance notice and the final notice was CMS’s decision to hold off on using updated Medicare fee-for-service cost data in the MA risk adjustment model. As the newer data was expected to translate to lower reimbursement, the change in course is estimated to mean a difference of 2.2 percentage points in the payment rate.

A data refresh and resulting recalibration of the risk adjustment model still could be instituted in 2028 or later. But for 2027, CMS opted to avoid making a major update so soon after a three-year implementation of a risk adjustment model centered on new hierarchical condition categories.

“Continued use of the 2024 MA risk adjustment model will allow the MA market more time to adjust to the recently completed phase-in of the 2024 MA risk adjustment model,” CMS wrote in a fact sheet.

MA risk adjustment not left untouched

Some curbs on MA payments are being retained from the 2027 advance notice, among them exclusions of audio-only diagnoses and unlinked chart review records (CRRs) from the risk adjustment model. CMS perceives those aspects as being vulnerable to health plan upcoding.

Those decisions drew criticism from at least one provider advocacy group, the American Medical Group Association (AMGA), which said a payment update of less than 2.5% is inadequate.

The AMGA “is concerned the 2.48% update does not address growing beneficiary demand or the significant inflationary pressures facing medical group practices and integrated health systems,” according to a written statement.

The association noted that 1.8 million MA members had a 2024 plan that was not renewed in 2025, opining that the 2027 payment terms are unlikely to stem that trend.

In an accommodation for MA stakeholders that was not in the advance notice, unlinked CRRs (i.e., diagnoses not tied to a specific care encounter) can still factor into risk adjustment calculations if the beneficiary has changed health plans during the preceding year.

One aspect proposed but ultimately left out of companion MA regulations for 2027 was authorization of a special enrolment period allowing an MA beneficiary to switch plans if any of their providers leave the network. CMS did not provide a reason for the change but said the provision could be considered in future rulemaking. Comments from health plans and their advocates had urged that the provision be tabled, citing the potential disruption to the MA market.

MA Star Ratings to undergo significant changes

In the companion MA rule, CMS announced changes to the MA and Part D Star Ratings, removing 11 measures that primarily reflected administrative processes.

“These changes refocus the program on clinical care, outcomes and patient experience where meaningful performance differences exist across contracts and reduce administrative burden by removing measures that provide little meaningful distinction between plans,” CMS wrote in a fact sheet.

To sharpen the industrywide focus on behavioral health and promote integration with primary and specialty care, CMS is adding a Star Rating measure on depression screening and follow-up.

As part of the Trump administration’s deemphasis of health-equity incentives, the agency has chosen not to keep the “Excellent Health Outcomes for All” criterion (formerly known as the Health Equity Index reward). The final rule also rolls back the mandatory inclusion of health equity components in MA quality improvement programs, and regulations no longer will require utilization management committees at MA plans to incorporate equity-based expertise and publish equity-related analyses.

In all, the changes to the Star Ratings are expected to amount to a slight decrease, 0.03%, in bonus payments to health plans in 2027, relative to baseline. CMS projects an $18.6 billion increase over a decade, however, with the Consumer Assessment of Healthcare Provider and Systems (CAHPS) survey and the Health Outcomes Survey taking on more weight in the streamlined measure set.

Transparency-focused changes to the MA program’s Special Supplemental Benefits for the Chronically Ill (SSBCI) will obligate plans to post their eligibility criteria pertaining to chronically ill members.

Medicare Part D redesign changes codified

The regulations formally entrench Inflation Reduction Act (IRA) mandatory changes to Part D, among them elimination of the coverage gap; the cap on out-of-pocket maximums for covered drugs; and a prohibition on cost sharing in the Part D plan catastrophic phase. Those requirements already were in place via temporary guidance.

There is concern among some stakeholders that “the reallocation of financial risk under the redesigned Part D benefit creates incentives for plans to control costs through increased utilization management, increased usage of step therapy protocols, narrower formularies, restricted pharmacy networks and reduced coverage for certain brand or specialty drugs,” CMS acknowledged in the final rule.

A potential result is increased burden on hospital clinicians, according to a comment that was submitted on the proposed version of the 2027 regulations.

“We agree that robust oversight and monitoring are essential to the successful implementation of the redesigned Part D benefit, particularly for medically complex beneficiaries and those transitioning across care settings,” CMS responded.