The Centers for Medicare & Medicaid Services (CMS) released the announcement of CY 2014 payment rates on April 1, which included its change in position regarding the assumption of the "doc fix" in estimates of Medicare Program growth, providing welcome relief for MA Organizations facing new medical loss ratio requirements, sequestration cuts and new premium taxes in 2014.  CMS simultaneously released the Final Call Letter, addressing various program policy and operational changes for CY 2014 affecting health plans, their contractors and providers.

On April 1, 2013, the Centers for Medicare & Medicaid Services (CMS) released the Announcement of Calendar Year (CY) 2014 Medicare Advantage Capitation Rates and Medicare Advantage and Part D Payment Policies and Final Call Letter (the Announcement).  In it, CMS for the first time assumes Congress will enact a “doc fix” in the agency’s estimate of the Medicare Program growth rate, which affects the Medicare Advantage (MA) benchmarks against which MA Plan bids will be compared.  CMS’s change in policy offers a positive development for MA Organizations, which still face implementation of new medical loss ratio (MLR) requirements, sequestration cuts and new premium taxes in CY 2014.

The Announcement is CMS’s final statement regarding payment and other MA and Part D Program policies effective CY 2014.  CMS remains consistent with most of its positions set forth in the February 2013 Advance Notice of Methodological Changes for Calendar Year (CY) 2014 for Medicare Advantage (MA) Capitation Rates, Part C and Part D Payment Policies (Advance Notice) and draft CY 2014 Call Letter, although CMS modifies its approach to several issues, including the following.

Revised Medicare Program Growth Percentage Estimates

CMS states it has incorporated into its determination of the estimates of the National Per Capita MA Growth Percentage and Medicare fee-for-service (FFS) growth rate an assumption that Congress will override the scheduled 25 percent reduction in payments under the Medicare Physician Fee Schedule.  Accordingly, the -2.3 percent estimate of the National Per Capita MA Growth Percentage and -2.1 percent FFS growth rate estimate issued in the Advance Notice now are 3.3 percent and 3.53 percent estimates.  Both of these changes in the estimated growth rates positively affect MA benchmarks, against which MA Plan bids are compared for purposes of determining MA Plan payment rates, MA “rebate” amounts and beneficiary premiums, if any.

Although CMS historically has based its growth rate estimates on law in effect on the date payment rates are announced, CMS’s Office of the Actuary “has been directed by the Secretary” to use the assumption that Congress will prevent the scheduled -25 percent reduction to the Medicare Physician Fee Schedule from occurring, as it has for the past 11 years.  CMS’s revised estimated growth rate for CY 2014 thus assumes a 0 percent change to the Medicare Physician Fee Schedule for 2014, and avoids the calculation of MA benchmarks based on an estimate of Medicare spending growth that is slower than it will be upon Congress acting to avert the Physician Fee Schedule reduction, as expected.

Transitional Updates to Risk Adjustment Models

CMS will implement an updated version of the CMS-Hierarchal Condition Category (CMS-HCC) risk adjustment model as proposed in the Advance Notice.  Recognizing the negative effect this revised model likely will have on member risk scores, which are calculated under the model and used to make member-level adjustments to MA Plan payments, CMS will phase in the revised model over two years.  Risk scores determined in 2014 will blend the scores calculated under the revised model (weighted 75 percent) and the 2013 risk scores calculated under the older model (weighted 25 percent).  In 2015, risk scores will be determined under the revised model.

Delayed Analysis of MA Enrollee Risk Assessments

CMS will delay its analysis of diagnoses collected through Medicare beneficiary risk assessments to assess the accuracy and completeness of such information.  The agency intends to propose and finalize a policy addressing the extent to which diagnoses collected in 2014 through enrollee assessments will be used to determine risk scores and 2015 payment rates.  Among the issues CMS intends to address is what constitutes a “Medicare Advantage Enrollee Risk Assessment.”

Notably, CMS reiterates its “concern” that these enrollee risk assessments “may sometimes be used as a vehicle to maximize MA revenue without follow-up care or treatment.”

Deferred Star Rating Changes

Based upon public comment, CMS will delay implementation of new four-star thresholds for metrics used to determine the 2014 Quality Star Ratings until the agency can complete a more comprehensive analysis of certain affected measures.  Additionally, CMS will delay implementation of its proposal to modify the calculation of an MA Organization’s or Part D Plan Sponsor’s overall/summary rating.  For the 2014 Star Ratings (to be released in fall 2013), CMS will calculate the overall/summary ratings using the same methodology used in prior years, i.e., an average of the individual measures’ stars.  CMS intends to present the results of its research on the potential revised overall/summary rating methodology in summer 2013.

Total Beneficiary Cost Charge Amount Will Be $34

In response to comments, CMS has retreated from two changes initially proposed in the draft Call Letter.  Critically, CMS has relaxed its proposal to reduce to $30 per member per month (PMPM) the permissible Total Beneficiary Cost (TBC) charge amount, which had been $36 PMPM for CY 2013.  Instead, CMS is moving forward with a $34 PMPM TBC threshold for CY 2014 bids.

Pharmacy Administration Fees

In the Advance Notice, CMS stated its belief that per claim administrative fees levied by Part D Plan Sponsors (or their intermediaries) on pharmacies are inconsistent with CMS’s negotiated price guidance.  According to CMS, negotiated prices reported on prescription drug event data must reflect the amount ultimately paid to the pharmacy for a prescription, including “all price concessions that a pharmacy has agreed to up-front on a per-drug claim basis,” and preferred pharmacy network participation fees, per-claim administrative fees and dispensing fee chargebacks affect this negotiated price.  Although maintaining this position in the Announcement, CMS acknowledges that the regulatory definition of “negotiated price” could be interpreted as permitting post-point-of-sale claim adjustments.  As a result, CMS has concluded that notice and comment rulemaking would be necessary to require Part D Plan Sponsors to consider these fees as part of the negotiated price, and CMS will not consider Part D Plan Sponsors to be non-compliant with CMS negotiated price rules as long as such fees are fully reported as price concessions through Direct and Indirect Remuneration reporting, effective with fees assessed on claims as of January 1, 2012.

Mail-Order Dispensing

CMS indicates that Part D Plans offering attractive terms for mail-order service, such as $0 cost-sharing for 30-day supplies, without offering similar terms for retail pharmacies, are “driving purchasing behavior for beneficiaries for whom mail-service may not be a good option.”  As a result, CMS is evaluating whether 30-day mail-service benefit designs are appropriate and may not approve 2014 benefit designs if the mail-order cost-sharing for 30-day supplies is not also available throughout the retail network.

Several items remain unaddressed in the Announcement, such as the effect of sequestration or how to adjust bids to reflect the Affordable Care Act health insurer tax that will be collected based on CY 2013 premium revenue in 2014.  Some of these issues may be covered in the Bid Pricing Tool instructions, which CMS expects to release very soon.  CMS indicates that it will release the final MLR rule “as soon as possible” after close of the comment period for the proposed MLR rule on April 16, 2013, and likely before bids are submitted on June 3, 2013.  Further, MA Organizations should anticipate guidance on the Part C Explanation of Benefits (including the final templates), and guidance elaborating on rewards and incentive programs.