On November 26, 2024, the US Centers for Medicare & Medicaid Services (CMS) released the Contract Year (CY) 2026 Policy and Technical Changes to the Medicare Advantage (MA) Program, Medicare Prescription Drug Benefit Program (Part D), Medicare Cost Plan Program, and Programs of All-Inclusive Care for the Elderly (PACE) proposed rule (fact sheet; proposed rule). This is part of an annual rulemaking process that includes both substantive and technical changes to the MA, Part D, and PACE programs.

This year, the rule proposes new policies related to the coverage of anti-obesity medications in Part D and Medicaid, medical loss ratio and utilization management requirements, use of artificial intelligence (AI) tools, and more. Comments are due by January 27, 2025.

In Depth

COVERAGE OF ANTI-OBESITY MEDICATION IN PART D AND MEDICAID

CMS proposes to reinterpret the Social Security Act so that anti-obesity medications are no longer excluded from Part D or Medicaid coverage when used to reduce excess body weight and maintain weight reduction long-term for individuals with obesity. CMS would recognize obesity as a chronic disease, so coverage would be permitted even if an individual does not have other medically accepted indications for use of the drug, such as diabetes. CMS estimates that over 10 years, this proposed change would increase costs to the federal government by $24.8 billion for Part D and $14.8 billion for Medicaid. This is a proposal that may be scrutinized more closely by the incoming Trump administration before being finalized.

MEDICAL LOSS RATIO RULES

CMS has proposed several revisions to the medical loss ratio (MLR) regulations, many of which reflect similar changes recently implemented in the commercial and Medicaid MLR rules. For example, CMS proposes to require that provider incentive and bonus arrangements are tied to clinical or quality improvement standards to be included in the MA MLR numerator. CMS also proposes to require that administrative costs be excluded from quality-improving activities in the MA and Part D MLR numerators. Both changes are based on findings from CMS’s commercial market MLR audits, which led to changes in the commercial MLR regulations. Additionally, CMS is proposing new regulations governing MA and Part D MLR audits, including an appeals process, suggesting that we may observe an increase in government scrutiny and potential enforcement action related to MLR reporting in these markets.

Additional changes to the MLR rules relate to allocations of expenses between lines of business, the treatment of Medicare Prescription Payment Plan unsettled balances, new data requests from CMS regarding vertical integration and provider payment arrangements, and rules protecting that additional data from public release.

BUILDING ON EXISTING PRIOR AUTHORIZATION AND UTILIZATION MANAGEMENT SAFEGUARDS

In the 2024 MA and Part D Rule, CMS codified enrollee protections related to prior authorization and utilization management to clarify when and how MA organizations (MAOs) can use these tools. The protections included, among other things, requiring MAOs to post internal coverage criteria publicly and requiring MAOs to establish a Utilization Management Committee to review all utilization management practices. These rules went into effect on January 1, 2024. CMS continued to address prior authorization processes throughout the year, including in the Interoperability and Prior Authorization Final Rule and through a set of frequently asked questions (FAQs).

CMS proposes to build on these safeguards by:

• Defining “internal coverage criteria” to mean any policies, measures, tools, or guidelines, whether developed by an MAO or a third party, that are not expressly stated in applicable statutes, regulations, national or local coverage determinations, or CMS manuals and are adopted or relied upon by an MAO for purposes of making a medical necessity determination
• Adding rules regarding the publication of internal coverage criteria on MAO websites
• Clarifying that decisions made contemporaneously with treatment are organization determinations and are, therefore, subject to appeal and other existing requirements
• Eliminating MAO discretion to reopen approved authorizations for hospital admissions.

ENSURING USE OF AI TOOLS DOES NOT PERMIT DISCRIMINATION

In recent years, stakeholders have raised questions concerning the role of AI, algorithms, and similar tools in making coverage determinations. CMS described via FAQs that an algorithm or software tool can be used to assist MAOs in making coverage determinations, provided that such tools comply with all applicable coverage determination rules, and that algorithms and AI cannot be used to solely deny certain care. CMS published a request for information in January 2024 soliciting comments on MA plans’ use of AI and the potential impacts on health disparities.

CMS now proposes to revise the MA regulations to ensure that services are provided “[e]quitably irrespective of delivery method or origin, whether from human or automated systems[.]” When AI or automated systems are used, the systems must be used in a way that ensures equitable service access. CMS may conduct program audits and/or take enforcement action where an MAO fails to comply with the regulations.

OTHER TOPICS

• Regulating the Administration of Supplemental Benefits Through Debit Cards. MAOs often use debit cards to provide supplemental benefits. CMS proposes to clarify when and how debit cards may be used by an MAO and enrollee, add disclosure requirements around debit cards, and require MAOs to allow an enrollee to receive covered benefits through an alternative method if there is an issue in using the debit card. CMS is also proposing to clarify and codify existing guidance to prohibit MAOs from marketing the dollar value of a supplemental benefit or the method by which a supplemental benefit is administered. CMS is soliciting comments on all aspects of the proposal.
• Expanding CMS Review of Marketing Materials. CMS proposes to expand the definition of “marketing” to require submission and review of a broader universe of materials. CMS would require submission of all communication materials and activities that are intended to draw a beneficiary’s attention or influence a beneficiary’s plan enrollment decision. CMS seeks comments on the potential financial impact of the proposal. The proposal does not impact materials that are – and will continue to be – designated as “File & Use.”
• Adding Topics That Agents and Brokers Must Discuss With Prospective Beneficiaries. CMS has developed a list of topics that MAOs and Part D sponsors must ensure their agents and brokers discuss with beneficiaries prior to enrolling the beneficiary in a plan. CMS proposes to expand the number of required topics that must be discussed to include low-income subsidy eligibility, resources for state programs, and additional information for beneficiaries who are enrolling into an MA plan when first eligible for Medicare or those who are dropping a Medigap plan to enroll into an MA plan for the first time.
• Integrating Provider Directory Information Into Medicare Plan Finder. CMS seeks to enhance Medicare Plan Finder by making provider network information searchable for all MAOs. CMS proposes to require MAOs to submit provider directory information that is formatted to CMS’ specifications for use on Medicare Plan Finder, as well as attest to the accuracy of the data. Consistent with current provider directory standards, MAOs would be required to update the Medicare Plan Finder data within 30 days of receiving information from providers regarding a change in information. CMS proposes an applicability date of July 1, 2025, to allow for online testing and requests feedback on the attestation process.

A range of additional topics are addressed in the proposed rule.