CMS Adjusts Medicare Advantage Payments Amid Fiscal Concerns

In a recent announcement, the Centers for Medicare & Medicaid Services (CMS) revised its stance on Medicare Advantage (MA) payments, opting for a payment increase contrary to initial plans to curb overpayments. Initially, CMS had suggested adjustments to mitigate the projected $1.3 trillion in MA overpayments over the next decade. These adjustments included a modest 0.09% increase and measures targeting the practice of "upcoding," which involves insurers inflating payments by overstating enrollees' health conditions. CMS aimed to scrap unlinked chart reviews and update the CMS-Hierarchical Condition Category (CMS-HCC) Risk Adjustment Model, anticipating a $22 billion reduction from these reforms alone.

However, the finalized rate notice from CMS now implements a 2.48% rate increase, considerably higher than the original proposal. This change adjusts the “effective growth rate” from the projected 4.97% to 5.33% and amends the risk model revision from -3.32% to -1.12%. CMS projects that this alteration will result in a $13 billion increase in MA spending by 2027.

Concessions were also made regarding upcoding reforms. The exclusion of unlinked chart reviews was retained broadly, except for individuals shifting between MA plans, and updates incorporating recent data into the CMS-HCC model were not included.

Impacts on Medicare Advantage Costs and Quality

The latest announcement follows a CMS decision to expand the star ratings quality bonus program, potentially incurring an additional $18 billion expense over ten years. This program has faced criticism due to a high percentage of plans qualifying for bonuses despite limited evidence of quality improvements, with the new rule making qualification easier by eliminating certain beneficiary feedback measures.

These developments raise concerns about fiscal responsibility, as MA overpayments pose substantial challenges to both the federal budget and the solvency of the Hospital Insurance trust fund, which is projected to be insolvent by 2032. Furthermore, the increase in MA rates is expected to drive up premiums for beneficiaries, with a reported $212 hike in 2025 due to these overpayments.

To address these financial issues, congressional intervention may be required. Proposed legislative measures, such as the No UPCODE Act or the Reform the Medicare Advantage Program bill, suggest potential ways to curb MA overpayments and reduce fiscal deficits. These bills could potentially involve benchmark reductions, enhanced risk adjustments, or reforms to the quality bonus system, aiming at substantial savings over the coming decade.

In light of the Medicare Trust Fund's precarious status and the rising national debt, industry stakeholders emphasize the necessity for policies that focus on cost reduction and fiscal sustainability.