Medicare Payment and Reimbursement

CMS’s 2024 MA rule brings some improvements but falls short of addressing all providers’ concerns

After CMS’s issuance of its 2024 final rule for Medicare Advantage (MA) organizations, providers face many questions about next steps in their strategies in working with these organizations.

June 19, 2024 4:48 pm

Hospitals and other healthcare providers welcomed CMS’s release in 2023 of the 2024 Medicare Advantage and Part D final rule (CMS-4201-F).a The rule represents CMS’s effort to refine the practices of MA organizations by placing limitations on prior authorization, elevating requirements for provider directories and making comprehensive adjustments to the MA and Part D quality rating systems.

Nonetheless, some providers continue to express frustration with the challenges posed by MA, and the final rule does not allay all of their concerns. Provider frustration has led to an appreciable shift in practice, with some hospitals opting to discontinue their participation in MA plans due to the adverse consequences on patient populations.

Among the final rule’s notable provisions, four are highlighted here, with the determination around prior authorization having raised the most questions and concerns.

1 Prior authorization

Because the prior authorization scheme has not been completely altered, providers should expect continuing problems from MA organizations. Key points the rule addresses with respect to this area include the following.

Appeals and reporting of bad behavior. The rule contains beneficial language that providers can add to their templates for letters for administrative appeals to MA organizations.

In addition to filing appeals of dubious prior authorization decisions, providers can take other steps to curtail bad behavior on the part of these organizations, such as delaying or wrongfully denying claims.

For example, when providers witness such bad behavior, the rule gives them the option of notifying their regional CMS office. In submitting their letters to the CMS office, in addition to notifying the agency of behaviors they think violate the rule, providers should make sure to clearly describe the behaviors and the nature of the violations. By consistently making CMS aware of the issues with MA organizations and underscoring the negative effects they can have on patient health, providers could make a persuasive case for CMS to rule more decisively in the future.

Restrictions on the use of prior authorization. Perhaps the most anticipated aspect of the new rule relates to the restrictions placed on MA organizations’ use of prior authorization, which private insurers tend to use freely as a tool to confirm the medical necessity of a procedure before covering its costs. While traditional Medicare operates without prior authorization, MA organizations have used it chiefly to control costs and also, in part, to ensure what they’re paying for is truly necessary. Critics argue that the absence of prior authorization in traditional Medicare may give rise to unnecessary procedures, while proponents of keeping prior authorization out of traditional Medicare argue that its use causes undue delays and hinders timely, high-quality care.

Concerns about care delays have prompted calls for reform, supported by a 2022 American Medical Association (AMA) survey indicating that 94% of physicians experienced delays due to prior authorization.b CMS recognizes prior authorization as a significant cause of provider burnout, making it a priority for reform to improve health outcomes.

Determination of medical necessity. In a report released in 2022, HHS’s Office of Inspector General (OIG) concluded that MA organizations denied prior authorization and payment requests, even when in compliance with Medicare coverage rules, by using clinical criteria outside of those rules’ purview, by requesting unnecessary documentation from providers and by making manual review and systems errors.c The OIG recommended that CMS issue new guidance on how MA organizations should appropriately use clinical criteria in medical necessity reviews.

In the final rule, therefore, CMS requires MA organizations to comply with national coverage determinations (NCDs), local coverage determinations (LCDs) and general coverage and benefit conditions required under traditional Medicare regulations. CMS also states that when coverage criteria are not fully established by such statutes, regulations and determinations, MA organizations may create their own publicly accessible internal coverage criteria. Where payers have substituted their own criteria for medical necessity, the rule provides a solid legal basis for appeal and dispute resolution whether by alternative dispute methods or litigation.

The final rule requires that coordinated care plan prior authorization policies may be used only to confirm the presence of diagnoses or other medical criteria and/or to ensure that an item or service is medically necessary. The rule also requires that coordinated care plans provide a transition period of at least 90 days when an enrollee currently undergoing treatment switches to a new MA plan, during which the new plan will not be permitted to require prior authorization for the enrollee’s active course of treatment. Furthermore, the rule states that MA organizations must establish utilization management committees to review all utilization management policies (including prior authorization) annually to ensure that they are consistent with coverage requirements.

CMS requires that MA organizations account for individuals’ circumstances when making medical necessity determinations. CMS does not allow the organizations to use algorithms and other software because the agency deems them incapable of accounting for individual circumstances.d

CMS’s position in proscribing the use of such tools is striking, given that commercial payers increasingly are using algorithms and AI to review claims and making various medical necessity determination without reviewing medical records. Providers should be cautious of MA contract language that allows for software use but does not specify as to how the software is used. For example, while it may be appropriate to use software to note a variety of tests have been unbundled where there is a code for the bundled tests, it is not appropriate to use software alone to change coding, level or service by the claim without reference to the patient’s medical record.

2 Advancements in quality rating systems

CMS developed the Medicare Stars rating system to measure the quality of MA and Prescription Drug (Part D) plans. Measurements are based on customer satisfaction and quality of care. The goal of Medicare Stars is to improve the quality of care and general health status for Medicare beneficiaries and increase accountability for the care given by providers. Some star ratings provisions are not yet finalized and will be provided by CMS in the future.

3 Promotion of health equity

In the final rule, CMS has included changes aimed at improving health equity for populations with certain social risk factors. Specifically, CMS aims to ensure that services are provided in a “culturally competent” manner by implementing new requirements for provider directories. Although MA organizations are already required to provide enrollees with provider directories, the final rule requires that these directories henceforth include providers’ cultural and linguistic capacities.

Responding to stakeholder comments, CMS acknowledged the importance of eventually providing MA organizations and providers with a universal database for provider directories, but the agency has no immediate plans to roll out the database.

The rule also addresses health equity by requiring MA organizations to offer digital health education for enrollees and incorporate these and other health equity activities into existing quality improvement programs. Further, beginning with the 2027 Star Ratings, CMS finalized a health equity index (HEI) reward to encourage MA and Part D plans to improve care for enrollees with social risk factors.

4 Applicability of the two-midnight rule

The extension of the two-midnight rule to MA organizations in a 2023 final rule, effective Jan. 1 of this year, represented a significant regulatory alignment, ensuring consistency in coverage benchmarks and reimbursement policies.

The 2024 final rule makes an important distinction between the two-midnight rule, which applies to MA organizations, and the two-midnight presumption, which does not apply to them. The two-midnight presumption is used by Medicare contractors as a way to designate in-patient stays spanning two or more midnights as medically necessary, thereby removing these stays from their medical review efforts. MA organizations are free to review claims as they see fit, regardless of the two-midnight determination. The specific application and impact of the two-midnight determination can vary depending on the specific MA organization’s rules and utilization management practices.

Implications of the 2024 final rule and what comes next

The 2024 Medicare Advantage and Part D Final Rule represents a significant step toward improving healthcare delivery within the Medicare system. By addressing the key areas outlined here, CMS aims to strike a balance between ensuring the necessity of medical services and improving access to care for patient populations. The restrictions on MA organizations’ use of prior authorization underscore a commitment to streamlining processes and mitigating delays in healthcare delivery.

Acknowledging the concerns raised by healthcare professionals and the OIG, CMS’s emphasis on aligning MA organizations with NCDnations and ensuring a 90-day transition period for enrollees undergoing treatment reflects a deliberate effort to prioritize patient well-being.

On releasing the 2024 Medicare Advantage and Part D final rule, CMS faced several questions from providers and MA organizations on how the agency intended the new rules to be applied in real-world situations. CMS responded by issuing a memo on Feb. 6 addressing some of the frequently asked questions it had received on the new rule.e While there are still some gray areas that need to be addressed, CMS’s memo provides much needed clarification for how its expects MA organizations to comply with the new rule.

The overall direction outlined by CMS demonstrates a commitment to adapting healthcare policies that better meet the needs of an evolving and diverse patient population. However, providers will likely continue to see issues as a result of the final rule’s shortcomings, particularly in the area of prior authorization. Healthcare providers therefore should continue to file appeals according to their resources and abilities.

But they should not stop there. Providers also should develop a strategy to identify the worst actors, issues and behaviors, and their financial impact. They also should work with staff to review templates for MA administrative appeal letters to include helpful language from the rule in their day-to-day administrative appeals. By reporting their findings and frustrations to regional CMS departments, providers could prove decisive in effecting further positive development in future rulemaking.

While not a be all or end all for providers, CMS’s final rule has furnished some worthwhile language that can serve as a major weapon in provides’ arsenal for appeal and dispute resolution.


a., “2024 Medicare Advantage and Part D Final Rule (CMS-4201-F),” Fact sheet, April 5, 2023.
b. AMA, “2022 AMA prior authorization (PA) physician survey,” 2023.
c. HHS OIG, Some Medicare Advantage organization denials of prior authorization requests raise concerns about beneficiary access to medically necessary care, April 2022.
d. The rule states, “MA organizations must ensure that they are making medical necessity determinations based on the circumstances of the specific individual, as outlined at § 422.101(c), as opposed to using an algorithm or software that doesn’t account for an individual’s circumstances.”
e. CMS, “Frequently asked questions related to coverage criteria and utilization management requirements in CMS final rule (CMS-4201-F), Feb. 6, 2024.

About the two-midnight rule

The “two midnight”  rule, originally published by CMS in 2013 and amended in 2016, is a coverage benchmark which requires that hospital services be designated as inpatient (therefore eligible for Medicare Part A reimbursement) when the admitting physician expects that the patient will require care for at least the length of two midnights.a If the hospital stay does not span two midnights, the services are designated as outpatient and the payment would be evaluated under Medicare Part B, unless the patient is admitted for a surgical procedure that is on the inpatient-only list.


a., “Fact sheet: two-midnight rule,” Oct. 30, 2015.


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