The federal government will soon kick off the all-important annual sub-regulatory cycle for the Medicare Advantage (MA) and Part D programs, issuing proposed policy changes and payment rates for calendar year (CY) 2017. The proposed guidance—expected to be issued on February 19—is likely to include substantial proposed changes to the MA risk adjustment methodology and may address increased provider network oversight for MA Organizations (MAOs), among other topics.

Key topics that the Centers for Medicare & Medicaid Services (CMS) is expected to address in the document—known as CY 2017 Advance Notice and Draft Call Letter—include the following:

• Payment Rates:  CMS’s early preview of CY 2017 ratebook growth rates projected that the United States Per Capita Cost (USPCC) for Medicare Fee-for-Service beneficiaries, a measurement of year-over-year spending in the Original Medicare Program, would increase by 3.1 percent in 2017. CMS uses the USPCC to calculate MA Program benchmarks, so an increase in this measure could potentially result in increased payments to MAOs. Other factors contribute to MA payment rates, however, and CMS has in the past issued proposed growth rates in February that are significantly different from the December projections.

• Risk Adjustment: CMS is likely to address multiple issues related to the much debated and closely watched MA risk adjustment payment methodology:

  • CMS may finalize changes to the CMS-HCC risk adjustment model originally proposed in October 2015. The changes, which CMS says are intended to increase the predictive power of the CMS-HCC risk adjustment model, may include separating the community segment of the model into six populations: full benefit dual aged, full benefit dual disabled, partial benefit dual aged, partial benefit dual disabled, non-dual aged, and non-dual disabled. According to CMS, these changes were proposed in response to concerns that the CMS-HCC risk adjustment model does not accurately predict costs for dual eligible beneficiaries and other specific beneficiary populations. In its proposal, CMS stated its intentions to include these changes in the Advance Notice.

  • CMS may once again address whether MAOs may use diagnoses collected during risk assessments for risk adjustment purposes. Although CMS has repeatedly discussed excluding such diagnoses unless they are confirmed by a subsequent clinical encounter, the Agency has stopped short of finalizing this change. A recent Medicare Payment Advisory Commission (MedPAC) recommendation echoed CMS’s earlier proposal, and CMS may revive this issue in the Advance Notice.

• Provider Network Oversight:  The CY 2017 Draft Call Letter may also address provider network adequacy, which has received increasing attention in recent years. CMS has historically assessed MAO compliance with regulatory provider network adequacy standards only when an organization initially applies to be an MAO, or to expand its plans or service areas. Following a recent Government Accountability Office (GAO) report, CMS has recently moved to monitor network adequacy more regularly, piloting a new Program Audit module that assesses MAO compliance with network adequacy requirements and releasing a “Network Management Module” in the Health Plan Management System (HPMS) that both CMS and individual MAOs can use to evaluate provider network adequacy outside of the application process. CMS has already indicated that it will use the Network Management Module to review network adequacy of Provider Specific Plans this spring, and CMS may provide further guidance on its intended use of the Network Management Module in the CY 2017 Draft Call Letter.

• Provider Directories: Over the past several years, CMS has expressed concerns about the accuracy of MA and Part D provider and pharmacy directories. In the revised Medicare Marketing Guidelines issued in July 2015, CMS implemented new requirements for collecting updated contact information from providers and implementing timely updates to online provider directories. In the CY 2016 Call Letter, CMS floated the possibility of a national standardized provider database that would include not only MA and Part D Plans but also Qualified Health Plans offered on the Federally Facilitated Marketplace. Data interoperability remains a challenge for efforts to streamline provider and pharmacy directories. CMS may propose additional requirements in the CY 2017 Call Letter.

• Additional Clarity on the CY 2017 Star Ratings: We expect CMS to discuss its proposed changes to the CY 2017 Star Ratings, originally issued in a Request for Comments on November 12, 2015. Among the more significant proposed changes is the development of an interim adjustment to ensure that the Star Ratings accurately adjust for the effects of enrolling a disproportionate number of enrollees who are dual eligibles (DEs), receive a low income subsidy (LIS) and/or are disabled. Specifically, CMS proposed two interim measures: (1) a Categorical Adjustment Index, which would impact a contract’s overall rating, or (2) an Indirect Standardization adjustment, which would impact scores on a particular metric. This recent proposal follows several years of studies and analysis, which CMS has concluded provide “scientific evidence that there exists a within-contract LIS/DE/disability effect for a subset of the Star Ratings measures.” Although CMS presented information about the potential interim measures on December 3, 2015, the Agency has not provided significant detail about the proposals or an impact analysis as to their effect on stakeholders.

• Expansion of the Recovery Audit Contractor Program: Although Recovery Audit Contractors (RACs) have been operating in the Original Medicare Program for years, CMS recently proposed to expand the use of RACs to the MA Program. Specifically, in a Request for Information issued December 22, 2015, CMS proposed that RACs would conduct risk adjustment data validation (RADV) audits to identify overpayments and underpayments made to MA Organizations. The RACs would conduct both comprehensive and condition-specific RADV audits to identify errors and omissions in the diagnosis data submitted to CMS. Comments were due to CMS on February 1, 2016, leaving it unclear as to whether the Agency will have any further developments to propose in the Advance Notice.

• Meaningful Difference Evaluation: Pursuant to a policy first articulated by CMS in 2006, MAOs are only permitted to offer multiple plan offerings in a service area if they are “meaningfully different.” CMS has indicated in the past that it may begin applying the meaningful difference evaluation at the legal entity/MAO level and/or the parent organization level rather than the contract level, as the evaluation is currently performed.  CMS did not finalize this change for CY 2016, but indicated that it may institute this and/or other changes to the meaningful difference evaluation in CY 2017.

• Total Beneficiary Cost: Based on proposals identified in the CY 2016 Draft Call Letter, CMS may institute, for CY 2017, a Total Beneficiary Cost (TBC) measure for Prescription Drug Plans, similar to what has been in place for MA Plans for years, and may announce a change in the methodology for calculating the MA TBC. 

• Opioid POS Edits: In the CY 2016 Draft Call Letter, CMS stated its expectation that Part D Plan Sponsors develop and implement a soft point-of-sale (POS) edit to prevent opioid overutilization. Based on concerns raised by stakeholders, CMS opted to delay the recommendation, although the Agency did encourage Part D Plan Sponsors to implement the recommended soft POS edit and to prepare for other POS edits that may be required in the future. Many stakeholders believe that opioid overutilization could be better addressed by allowing Part D Plan Sponsors to “lock in” Medicare beneficiaries taking certain drugs to specific prescribers and pharmacies. Such a provision, however, is not likely to be addressed in the Draft Call Letter, as it may require additional authority from Congress.

• More Time to Comment in CY 2018: Historically, CMS has issued the annual Advance Notice and Draft Call Letter as draft sub-regulatory guidance subject to a two-week comment period. Industry stakeholders have long expressed concerns with this abbreviated timeframe for public comment. A new law enacted on December 18, 2015 will require CMS to release the Advance Notice at least 60 days prior to finalizing payment rates and provide the public with no less than 30 days to comment on the proposals. The Advance Notice may address the revised sub-regulatory timeline for CY 2018, which will likely involve an early February release of the Advance Notice in light of statutory deadlines.

Despite our projections about some of the key areas CMS may address in the Advance Notice and Draft Call Letter, a myriad of other topics will be addressed and there will likely be a few surprises. With the luxury of a four-week comment period still a year away, stakeholders will need to move quickly to analyze proposals that impact plan finances or operations, and determine whether to submit comments.