CMS Releases Part II of the Medicare Advantage Advance Notice & Draft Call Letter

On February 1, 2018, the Centers for Medicare & Medicaid Services (CMS) released its 2019 Advance Rate Notice (Part II) and Draft Call Letter. CMS estimates an expected increase of 1.84% to payments in 2019. CMS says its estimates do not reflect underlying coding trend, which it expects to increase risk scores by 3.1% in 2019.

The benchmark growth rates are in line with the early preview, with some slight differences. The prior year adjustment for 2019 for the Fee-for-Service (FFS) USPC will have a slight downward impact on benchmark trends, but they are still going to be over 4% – the highest we have seen in some years.

Chart: The overall change in MA rates versus prior year, comparing the 2019 Advanced Notice to the 2018 Call Letter

It is important to remember we already have two proposed regulations on the table from CMS that bring changes outside of this announcement, to be incorporated into the Final Notice and Call Letter due April 2. All three of these documents should be examined together in order to truly evaluate the impact to the Medicare Advantage (MA) and Part D program in 2019. Below is a high-level summary of the three proposed regulations for the 2019 payment year.

Proposed Technical & Policy Updates to MA & Part D

As a reminder, CMS released its 2019 Proposed Technical and Policy Updates to the MA and Part D Program in November, a proposed regulation not seen in several years, which puts forth some pretty significant changes to the program. Some of the major changes we are tracking that CMS stated it is still evaluating in the call letter are:

  • Meaningful Difference Requirement – CMS proposed to remove meaningful difference requirements for MA plans offered in the same county. In a policy reversal, CMS stated it does not believe eliminating this requirement would increase similar plan options significantly or create confusion with beneficiary decision-making.
  • Star Ratings and Contract Consolidation – CMS proposed a significant change to the calculation of Star Ratings for a surviving contract after two or more contracts consolidate, whereby the Star Rating of the surviving contract would be computed as the weighted average of the surviving and consumed contracts.
  • Scaled Star Ratings Reductions – CMS proposed changing its data integrity policy of reducing Star Ratings measures when a plan’s data for the measure is inaccurate, incomplete, or biased such that reductions would be applied on a scaled basis rather than through automatic reduction of the measure to one star.
  • Medical Loss Ratio (MLR) – In the proposed regulation, CMS introduced a significant reduction in the burden of reporting MLRs by mandating MA and Part D sponsors only report the MLR percentage and amount of remittance owed to CMS. In addition, in a big win to the industry, CMS proposes to allow fraud reduction activities to be included in the calculation of the MLR.
  • The regulation also proposed many Part D changes outlined here.

Part I of the 2019 Advance Notice

CMS also released Part I of the Advance Notice late in December in order to comply with the 21st Century Cures Act. Part I of the Notice proposes changes to the Risk Adjustment program. The changes proposed, which are to be phased in through 2022, are primarily intended to address underpayment by the current model for certain conditions – specifically, chronic kidney disease, mental health, and substance abuse. Additionally, the model will be modified to adjust payment for beneficiaries with multiple conditions by providing a distinct risk adjustment factor based on the number of a beneficiary’s conditions.

CMS also proposes to move forward with a greater transition from the Risk Adjustment Processing System (RAPS) to Encounter Data Processing System (EDPS) for submitting data utilized for risk adjustment purposes has been ongoing for many years. Last year, for Payment Year 2018, CMS retracted the percentage from previous years and finalized the risk score calculation to be based on 15% EDPS and 85% RAPS. For the 2019 Payment, CMS is proposing moving forward with further progression of utilizing EDPS for a larger percentage of the weight – EDPS 25% and RAPS 75%. It is increasingly important health plans stay on top of understanding the differences between the results of these two submissions as the transition progresses – especially since there are other changing variables to take into account throughout the next few years.

Part II of the Advance Notice

Part II of the Advance Notice and Draft Call Letter offers up more of the typical guidance we see from CMS on an annual basis. However, the notice is not without its share of important details. Some of the bigger callouts include:

  • Reauthorization of Special Needs Plans (SNP) Plans in Limbo: Congress has yet to reauthorize SNPs, meaning these plans could very well be terminated in 2019. CMS notes it will accept bids but warns the agency does not have authority to offer SNPs absent congressional actions, which would make these contracts void.
  • Star Ratings and Disaster Implications – CMS is proposing to adjust 2019 and 2020 Star Ratings to take into account the 2017 disaster-plagued year and affected areas such as Puerto Rico, Virgin Islands, and parts of Texas, Florida, Idaho, and California.
  • Full Phase-in of the Employer Group Waiver Plan (EGWP) Payment Formula – Despite industry pushback, CMS is proposing to move forward with the full phase in of the Obama-era EGWP payment formula, which was initially put in place in 2016 and not proposed to be fully phased in until now.
  • Expanding the Scope of the Supplemental Benefit Standard – This is one new proposal from CMS in which it seeks to expand the ability of plans to offer supplemental benefits to its beneficiaries. Currently, plans are not allowed to cover benefits whose primary purpose is “daily maintenance”. CMS seeks to change this in order to allow for benefits which “compensate for physical impairments, diminish the impact of injuries or health conditions, and/or reduce avoidable emergency room utilization.” This proposal is a great expansion for both plans and beneficiaries, and is in addition to the previously expanded authority that allows plans to offer targeted cost sharing and supplemental benefits for beneficiaries with certain chronic care conditions.
  • Public Reporting of Civil Money Penalties (CMPs) – CMS plans to begin publicly reporting CMPs on its Medicare Plan Finder in order for beneficiaries to more easily identify which organizations have received a CMP.
  • Compliance Program Audits – In good news for plans, CMS is considering allowing sponsoring organizations that have undergone a program audit to treat the program audit as meeting the annual compliance program audit requirement for one year from the date of the CMS program audit.
  • Opioid Limits – In addition to the changes to its overutilization monitoring system (OMS) included in the proposed 2019 regulation, CMS will now require plans to implement a hard formulary level cumulative opioid safety edit at the point of sale at 90 morphine milligram equivalents, with a 7-day supply allowance. CMS is also implementing a supply limit for initial prescription fills of 7 days.

Our team of experts will continue to examine the Rate Notice and Call Letter in the next several days. Stay tuned for our upcoming webinar and white paper for further analysis.




Registration is now open for the Gorman Health Group 2018 Forum, April 25-26, 2018, at the Red Rock Resort ideally located near the Red Rock Canyon in Las Vegas.

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