On April 7, the Centers for Medicare & Medicaid Services finalized Medicare Advantage plan payment rates for Calendar Year 2015 and announced other changes to payment and program policies for MA and Part D plans. Although the announcement included some positive changes for plans, the overall impact is mostly negative. Plans are likely to experience negative payment changes from 2014 to 2015, although the magnitude of the changes will vary with plans’ particular circumstances (e.g., geography, competitive landscape, quality rating). The payment pressure on health plans may also put additional pressure on reimbursement rates for downstream providers.

What Are MA Plans Facing in 2015?

MA plans will continue to feel payment pressures from a number of different factors in 2015, including:

Negative Updates to Payment Rates: In the announcement, CMS finalized a -3.4% average update to MA rates, down from the proposed -1.9% average update in February’s Advance Notice. While this is the average rate change for health plans, the actual change will vary based on each plan’s plan circumstances.

Continued Cuts to Payments from the Affordable Care Act (ACA):  CMS will still phase in the ACA-mandated MA payment cuts  in different areas of the country through 2017. Approximately 30% of MA enrollees are in these counties that will continue to be phased in through 2017.

End of the Quality Bonus Demonstration (QBP): Under the ACA, only plans with ratings of 4-5 stars were eligible for quality based increases to payment rates. CMS conducted a three year demonstration that expanded these quality increases for plans with 3 and 3.5 stars. This demonstration is scheduled to end at the end of 2014, with CMS noting in their Announcement that they will not extend the demonstration, making plans with 3-3.5 stars susceptible to decreases in 2015.

Increased Negative Adjustments for Coding Differences: CMS also finalized a scheduled increase in the adjustment of plan payments for risk adjustment coding practices, from -4.91 in 2014 to -5.16 in 2015.

Notice Does Offer Some Relief for Plans

On the plus side, however, CMS did announce some changes that will benefit plans. Specifically, CMS made changes to the phase in of a new risk adjustment model that will help maintain better payment stability for plans.  Additionally, CMS did not finalize a proposal to exclude diagnoses captured during home health risk assessments that are not validated by a subsequent clinical visit, thus allowing plans to continue using these diagnoses. Finally, CMS made changes to factors which modify risk adjustment scores to account for the baby boomers. 

What does this mean for PAC providers?

Providers who contract with MA plans should expect downstream pressure on reimbursement rates as plans look for ways to continue robust benefit offerings under lower capitation rates. However, providers may benefit from CMS’ finalized provisions to limit mid-year MA plan network changes,  signaling CMS’ greater scrutiny of plan-provider relationships.

CMS also provided greater regulatory control around plan changes to provider networks. Responding to recent mid-year changes to MA plans’ provider networks, CMS is implementing new requirements around notification, transition, and timing of significant changes, as determined by MAOs and confirmed by CMS.  

Overall, many plans will feel greater pressure on their bottom lines in 2015 and will continue to try to find ways to offset these pressures, especially with providers. However, this pressure will also encourage plans to work with providers to improve the quality of their services, especially as CMS ends their quality bonus payment demonstration. In addition plan attrition in certain markets could arise in rural areas or among lower quality plans in areas with an abundance of highly rated plans. Even so, experience from the 2014 open enrollment period suggests MA enrollment will continue to rise with the influx of baby boomers into the Medicare program.

Jennifer Rak is senior manager at Avalere Health. She provides policy analysis and strategic advice on Medicare legislation and regulation and health insurance market reform. In particular, she focuses on policy and payment issues related to the Medicare Advantage and Part D programs. Jennifer leads quantitative analyses related to changes in Medicare and other payment policies for clients, including changes to payments for health plans and drugs and biologics.