Every February, Medicare Advantage (MA) plans pore over the Centers for Medicare & Medicaid Services (CMS) MA and Part D Advance Notice to determine how risk adjustment and quality bonus payments will be impacted along with changes to risk adjustment and Star Ratings methodologies. Here, we offer three takeaways from the 2025 Advance Notice for MA plans to consider as they solidify their strategies for 2024 and beyond.
MA plans would see an average 3.7% increase in revenue
After factoring in the effective growth rate driven by fee-for-service (FFS) per capita costs, risk model revisions, risk score trends, FFS normalization, and estimated changes in quality bonus payments, MA plans should see an average 3.7% bump in government payments, according to CMS. As shown in Figure 1, this represents an increase from 3.32% in the final 2024 Rate Announcement released in March 2023.
2025 Advance Notice
2024 Final Rate Announcement
Effective growth rate
Change in Star Ratings
MA coding pattern adjustment
Risk model revision and FFS normalization
MA risk score trend
Expected average change in revenue
Figure 1. Year-over-year proposed changes in payment. (Source: CMS fact sheet).
CMS notes this payment increase would represent more than $16 billion in additional payments to MA plans in 2025.
Regarding the net 2.45% decrease in payments related to risk adjustment model revisions and the FFS normalization, the agency offered this explanation:
If the raw risk adjustment model impact and the impact of the updated normalization factor for 2025 are broken out from one another, the impact of the raw risk adjustment model revisions phase-in is -4.44 percent, and FFS normalization is +1.99 percent. For plans to analyze their specific payment impact, they must both calculate their raw risk score impact of the model revisions with the phase-in and then net it with the FFS normalization impacts with the phase-in.
2024 risk adjustment model changes would continue to be phased in
CMS plans to continue its three-year phase-in of the 2024 CMS-HCC model that was finalized in last year’s Rate Announcement, blending 67% of the risk score calculated with the 2024 model with 33% of the risk score calculated using the 2020 model. Noting that the 2024 model included technical updates to improve predictive accuracy, the agency stated the following:
The CY 2024 MA risk adjustment model changes described above will support accurate MA payments in CY 2025. This CMS-HCC risk adjustment model improves payment accuracy by incorporating more recent utilization, coding, and expenditure patterns in the relative weights of HCCs in the model and reclassifying HCCs to reflect clinical cost patterns associated with ICD-10 codes.
This ongoing transition adds complexity for MA plans as they seek to ensure the submission of accurate data. As noted by the Office of Inspector General (OIG), “CMS estimates that 9.5% of payments to MA organizations are improper, mainly due to unsupported diagnoses submitted by MA organizations.” OIG has conducted several risk adjustment compliance reviews in recent months to address these concerns.
Responding to concerns that these model changes could hurt plans that serve dually eligible enrollees, the agency said it carefully considered these concerns and believes the new model will support appropriate payment for plans that serve them:
It is imperative to consider the MA risk score trend in concert with the impact of the updated risk adjustment model (as well as other changes to payment factors) to accurately predict payment impacts in the following year. On average, this growth in MA risk scores will more than offset the impact of the new risk adjustment model and normalization for dually eligible individuals.
Slight decline in Star Ratings anticipated
The expected impact of proposed policy changes is a 0.15% decline in Star Ratings, reflecting the estimated effect of changes to quality bonus payments for 2025. In addition to non-substantive measure specification updates and providing the list of measures included in the Part C and D improvement measures and Categorical Adjustment Index for the 2025 Star Ratings, CMS also detailed substantive measure specification updates and concepts for public feedback. Many of these changes depend on pending revisions being considered by the National Committee for Quality Assurance (NCQA) for the HEDIS® program.
CMS will accept public comment through March 1, 2024 and publish the final 2025 Rate Announcement on or before April 1.
Join Cotiviti experts as our Quality Decoded webinar series kicks off on February 22 when we break down the 2025 CMS Advance Notice, the annual guide to methodological changes shaping Medicare Advantage and Part D Star Ratings. During this webinar, you will:
- Get a deep dive into proposed changes
- Receive guidance on crafting impactful comments to CMS
- Gain strategic insights on how these alterations may influence Star Ratings in 2025 and beyond.
Our series will also break down proposed HEDIS® changes and more. Sign up for the entire series or choose one at a time to keep track of pivotal updates, measure changes, and announcements.
HEDIS® is a registered trademark of the National Committee for Quality Assurance (NCQA).