Medicare Payment and Reimbursement

CMS’s 2025 advance rate notice for Medicare Advantage brings potential concern for providers

Next year will be the second in a three-year process of shifting to a new MA risk adjustment model.

February 7, 2024 4:29 pm

Medicare Advantage (MA) health plans are projected to reap a 3.7% revenue increase in 2025, but provider payments could be affected by a decrease in plan benchmarks, per data shared in CMS’s annual advance notice.

If finalized, the estimated 0.16% average reduction in base payments to plans could have consequences for care delivery, one provider advocacy group said. The reason overall payments are projected to go up is an anticipated 3.86% increase in aggregate risk scores, which MA plans can influence through coding practices.  

“On paper, it may appear that Medicare Advantage plans can afford a little belt tightening,” Jerry Penso, MD, MBA, president and CEO of the American Medical Group Association, said in provided comments. “But the providers they contract with already are facing cuts of more than 3% on the [Medicare physician] fee-for-service side. In addition, there are potential impacts to patient care, such as decreased access, a reduction in available services and decreased programs that address social drivers of health. I think CMS is underestimating the ramifications of further payment reductions for providers and their patients.”

Comments on the advance notice, which also applies to Medicare Part D, are due by March 1 at, with CMS committing to publish the final notice by April 1. It’s common for the financial projections to increase in the final document based on updated data.

Payers in the catbird seat

Payers have an average MA margin of 5%, according to data from Vizient as presented in May 2023 at HFMA’s Spring Thought Leadership Retreat. Meanwhile, providers have an average margin of minus 8.5% on Medicare services. The ability to negotiate MA rates is limited because the fee-for-service (FFS) benchmarks hold sway.

Moreover, MA generally is a bigger driver of providers’ negative Medicare margins compared with FFS, in large part because of a higher administrative burden from processes such as prior authorization.

Still, in newly published insights, Fitch Ratings said providers are in position to gain from the ongoing increase in utilization among MA beneficiaries (a development that could hamper insurers’ bottom line because of the increase in medical-loss ratio).

“For-profit health systems in particular benefited in 2023 from above-average same-facility volume growth, including an upturn in inpatient volumes,” Fitch wrote in the bulletin.

However, the bulletin also cited the increasing tendency of not-for-profit providers to exit MA contracts because of concerns such as administrative burden, slow payments and authorization denials.

Certain levers, including coding and favorable selection, help boost the profits of MA plans, according to a presentation at the January meeting of the Medicare Payment Advisory Commission (MedPAC). For 2024, MA payments are 23% higher than Medicare FFS spending because of coding intensity and favorable selection. That’s a projected difference of $88 billion.

In a letter sent to MedPAC after the meeting, AHIP (formerly America’s Health Insurance Plans) said the analysis about favorable selection “did not quantify the extent to which prior FFS spending for those who switch into MA may reflect barriers to access and thus do not translate into lower MA spending, or other reasons that actual MA spending may change over time after people enroll.”

More stability expected

The annual rate announcements in recent years have garnered substantial attention in the healthcare industry as MA attracts an increasingly larger share of Medicare beneficiaries: 51% in 2023, up from 29% a decade earlier.

The latest notice did not trigger the type of uproar that was seen a year ago, when the advance notice for 2024 projected a mere 1.03% increase in MA payments. CMS subsequently agreed to phase in a new risk model instead of implementing it all at once, and payments in the final notice were estimated to increase by 3.32%.

Next year will continue the three-year shift to the new Hierarchical Condition Category risk adjustment model, which will determine two-thirds of a plan’s risk score before taking full effect in 2026. As explained in the 2025 advance notice, the model incorporates updated ICD-10 condition categories and more recent FFS underlying data years.

The projected average risk-score increase of 3.86% for 2025 is based on blended calculations of a 5% change under the old model and 3.3% under the new model. In its letter, AHIP said MedPAC’s analysis should include the impact of the new model on coding intensity.

In a fact sheet, CMS said the phase-in of the new model should not adversely affect MA beneficiaries who are dually eligible for Medicare and Medicaid and thus have coverage through special-needs plans.

The new model also is not expected to diminish access to preventive care for enrollees with complex needs, CMS stated. Nor does the agency project significant changes to MA plan premiums and benefits as a result of the changes.

Other key provisions

The rate notice is one of two sets of regulations that will set the parameters of the MA market in 2025. In November, CMS issued an annual proposed rule on policy and technical changes to MA and Medicare Part D. Among the terms and conditions were increased network-adequacy standards pertaining to behavioral healthcare access and new standards for special supplemental benefits for the chronically ill.

That rule also would implement restrictions on plans’ marketing and communication practices and on compensation for plan agents and brokers. CMS also proposed tweaks to the agency’s process for using risk adjustment data validation (RADV) to track overpayments.

In comments about the RADV proposal, America’s Physician Groups noted that overpayments stemming from erroneous or inflated risk adjustment can be recouped from plans at triple the amount, with penalties also possible under the False Claims Act. CMS thus should institute safeguards to ensure plans claw back those sums only from providers that had a role the inaccurate risk adjustment rather than from all providers in their network.

The advance notice also incorporates consumer-focused changes to Medicare Part D that are taking place in 2025 as required by the Inflation Reduction Act. These include a $2,000 annual cap on out-of-pocket costs. Changes that were made for 2023 and 2024 included a $35 monthly limit on cost sharing for insulin, plus elimination of cost sharing in the catastrophic phase and for covered adult vaccines that are recommended by the CDC’s Advisory Committee on Immunization Practices.

The cap on annual out-of-pocket spending necessitates changes that the advance notice describes for the risk adjustment model used by Part D plans and MA prescription drug plans, CMS said.


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