Over the last year, we have seen volatility in the healthcare industry overall, and Medicare Advantage (“MA”) and Medicare Part D plans (together, “Plans”) have not been immune. Particularly because of their risk adjustment payment models, and metrics by which they are measured, it was unclear how the Centers for Medicare and Medicaid Services (“CMS”) would respond.

On January 15, 2021, CMS published its annual MA and Part D Rate Announcement (the “Announcement”). The Announcement, which followed the release of the 2022 MA and Part D Final Rule released on the same day, is intended to address the comments CMS received in response to Parts I and II of the 2022 Advance Notice (“Advance Notice”) for payment rates.

The Announcement was released three months earlier than normal, in order to give ample time for Plans to consider the included information while finalizing their 2022 bids, which are due June 7, 2021. This information includes considerations CMS made regarding the impact of COVID-19, both in terms how care has been affected, and what is to come. The biggest surprise? The changes are expected to increase per-capita plan payments by 4.08% on average—notably higher than the 2.82% change cited in the Advanced Notice. CMS rationalized the increase with an assumption that care has been deferred until a later date during the public health emergency (“PHE”), and anticipates that deferred care will be more intensive than was assumed in the Advanced Notice.

Some other highlights include:

• CMS-HCC Model Phase-In Completion: The CMS-HCC Risk Adjustment Model (“CMS-HCC Model”) includes variables that count the number of conditions a beneficiary has among those in the risk adjustment model, and additional conditions for mental health, substance use disorder, and chronic kidney disease. The CMS-HCC Model was first implemented last year, and completing the phase-in means risk scores will now be calculated solely based on diagnoses from encounter data submissions and fee-for-service (“FFS”) claims using a filtering logic, rather than any consideration of CMS’s Risk Adjustment Processing System and inpatient record supplements.

• MA Coding Pattern Adjustment: The adjustment, which adjusts payments to reflect the differences between MA organizations and FFS providers, will be 5.90%, which is the minimum adjustment required by statute.

• Star Ratings Changes: The Announcement also includes measures for the Categorical Adjustment Index for the 2022 Star Ratings and Medicare Parts C and D improvement measures; sets the date by which Plans must submit requests for changes to the appeals and complaints measures; and solicits feedback on provider directory accuracy and COVID-19 vaccination as concepts for Star Rating measures.

• FEMA-Designated Individual Assistance Areas: The Announcement identifies the states and territories that have Individual Assistance designations from the Federal Emergency Management Agency (“FEMA”) for major disaster declarations used in the definition of an affected contract for the extreme and uncontrollable circumstances adjustment for the 2022 Star Ratings. For contracts with 60% or more of their enrollees in such areas, CMS will use the 2020 performance scores for the 2022 Star Ratings. Those contracts with at least 25% of their enrollees in such areas will receive the higher of either their current or their prior years’ Star Ratings to calculate their 2022 ratings.

In releasing the Announcement, CMS noted that, since 2017, MA premiums have dropped 34%, and Part D premiums by 12%. Presumably, CMS seeks to continue this decline in beneficiary cost-sharing and expects these rate and policy changes to do so.  At the very least, the Announcement provides some certainty for Plans with which they may make decisions about their 2022 bids, and how next year may play out.