In April, CMS published its annual Medicare Advantage (MA) rate announcement for 2027.a For most years in recent memory, this would be a routine event, accompanied by no small amount of headshaking from the provider community.
Hospitals and physicians would be perpetually perplexed at why CMS would give MA plans generous payment increases, while giving hospitals payment updates that would keep them operating at a Medicare profit margin of –10% and giving physicians no payment update at all or, beginning in 2026, giving them updates that would utterly fail to keep up with inflation.b
This year, however, CMS proposed something astounding and, even more surprisingly, made it stick in the final rate notice: In January’s Advance Notice, CMS proposed to eliminate unlinked chart reviews from MA risk adjustment, citing the Medicare Payment Advisory Commission (MedPAC) as a key stakeholder informing its decision.c An unlinked chart review refers to a medical chart audit that produces a diagnostic code or codes independent of any encounter record (similar to a fee-for-service claim) indicating that a service was actually provided. MA plans have used these codes to increase beneficiary risk scores — and therefore payments — without incurring the costs of providing a service, leading to billions in estimated overpayments.
What was equally shocking was to see in April that despite intense reactions from the MA stakeholder community, CMS finalized its proposal in the rate notice for 2027.
This decision has profound implications not only for MA plans but also for healthcare providers and the beneficiaries and taxpayers who fund the Medicare program.
Coding-driven overpayments helped fuel the ascendance of MA plans
My tenure as executive director of MedPAC coincided with a period of rapid growth in enrollment in MA. In 2017, 31% of eligible beneficiaries were enrolled in MA.d By 2023, that share had grown to 49%, and now, well over half of eligible beneficiaries are enrolled in the program.e In the traditional Medicare program, rapid volume growth has typically signaled mispricing, and the same holds true with MA.
MA plans are paid fixed capitated amounts for each enrollee. These amounts are risk adjusted to calibrate them to enrollees’ health status to ensure plans are paid properly for their resources devoted to providing Medicare benefits to enrollees.
But risk adjustment in MA effectively works by paying plans more for enrollees’ qualifying diagnoses, which drive the enrollee’s risk score: The more diagnoses a plan reports for a given enrollee, the higher the Medicare payments the plan would receive. MA plans therefore have a strong incentive to submit to Medicare as many qualifying diagnoses as possible for their enrollees, even if those diagnoses are not current and the plan did not incur treatment costs for them.
MA plans, as rational economic actors, responded to this incentive. They have gone to great lengths to capture and report enrollee diagnoses that would boost risk scores — notably through chart reviews, where plans scoured patients’ charts for diagnoses, including for conditions not under active treatment, and health risk assessments, where diagnoses would be collected through enrollees’ responses to questionnaires administered by plan nurses (e.g., “Have you ever had …. ?”).f
By 2020, Medicare payments to MA plans were 25% higher than what Medicare would have paid had MA enrollees remained in the traditional program; this metric has come down in recent years but was still 14% in 2026.g Much of this differential has been driven by MA plans’ coding practices, or “coding intensity.” Medicare made $76 billion in excess payments to MA plans in 2026, with $22 billion of that amount attributable to coding intensity, to the point that over the past 10 years, coding intensity alone accounted for over $200 billion in payments to MA plans.
These dollars did not reflect the cost of actively treating MA enrollees’ present health conditions but reflected solely plans’ coding practices relative to traditional Medicare. They are dollars Medicare can ill-afford to spend.
A decade ago, MedPAC recommended that the Medicare program no longer permit diagnoses collected from health risk assessments for MA risk adjustment.h And MedPAC repeated that recommendation regularly during my tenure. Over that period, the political leadership of the U.S. House, the U.S. Senate and the administration changed, but there was little interest in acting on our recommendation, despite its profound financial implications for the Medicare program. I left MedPAC in 2023, feeling resigned that I would never see it come to fruition.
What the latest CMS policy means for MA and for the Medicare program
It came as no small shock, then, when CMS finalized its proposal in the rate notice for 2027.
This policy represents one of the most important reforms to MA since the passage of the Affordable Care Act of 2010, and CMS is to be commended for holding fast on its proposal. Medicare’s financing situation will only degrade as the last of the baby boomers age into the program and the number of workers per beneficiary to fund it declines. MA plans may respond to the CMS action by threatening to cut provider payments, but providers should hold firm. This is only the first of many steps that will need to be taken to ensure that MA can help mitigate rather than exacerbate Medicare’s financial problems — a topic for a future column.
Footnotes
a. CMS, “Announcement of calendar year (CY) 2027 Medicare Advantage (MA) capitation rates and Part C and Part D payment policies,” April 6, 2026.
b. In CMS’s defense, these updates are prescribed by statute, and the agency has no discretion to change them, but that fact doesn’t change the fundamental inequity.
c. CMS, “Advance notice of methodological changes for calendar year 2027 Medicare Advantage (MA) capitation rates and Part C and Part D payment policies,” Jan. 26, 2026.
d. To participate in MA, beneficiaries must be enrolled in both Medicare Part A and Part B.
e. By July 2025, MA enrollment among eligible Medicare beneficiaries had risen to 54%. See Ochieng, N., et al., “Medicare Advantage in 2025: Enrollment update and key trends,” KFF, July 28. 2025.
f. Diagnoses are so profitable that some plans will conduct health risk assessments by sending a nurse to the enrollee’s home. In MedPAC-sponsored beneficiary focus groups, unprompted, some beneficiaries referred to these visits as “home invasions.”
g. MedPAC, The Medicare Advantage program: Status report, March 2026.
h. MedPAC, Report to the Congress: Medicare payment policy, March 2016.
