Insights^

On April 4, 2025, the Centers for Medicare and Medicaid Services (CMS) released their final rule with technical changes to Medicare Advantage (MA) and Medicare Part D Prescription Drug plans. This rule creates policy changes based on last year’s final MA payment rule and the Inflation Reduction Act (IRA). The CMS fact sheet can be found here. As this rule was proposed under President Biden and finalized under President Trump, there are, as expected, substantive changes in this final, much smaller rule.

Some of the larger changes from the proposed rule include:

• MA plans are no longer being required to cover GLP-1 type medications.
• CMS is halting creating guardrails around the use of AI within MA (although CMS did say they want to look at this in the future).
• CMS is scrapping the Annual Health Equity Analysis.
• CMS removed propose changes to MA and Part D Medical Loss Ratio (MLR) requirements
• CMS is removing mandates for MA plans to cover behavioral health at a maximum 20% copayment level and cover opioid treatments with zero copayments.
• CMS removed all draft requirements around debit card use in MA plans.

Please see below for more detail on this and other provisions.

MEDICARE ADVANTAGE PROVISIONS

Prior Authorization/Appeals

Despite concerns about reports of high rates of prior authorization requirements from MA plans to providers, CMS pulled back significantly on implemented proposals related to these concerns. The final rule restricts plans’ ability to reopen and modify previously approved inpatient hospital decisions – plans will now only be able to reopen determinations for obvious error or fraud. n addition, CMS is codifying existing guidance that requires plans to give a provider notice of a coverage decision, in addition to the enrollee, whenever the provider submits a request on behalf of an enrollee. CMS is also ensuring that a patient will not have to pay for services until the MA organization has made a claims payment.

Proposals deleted in the final rule:

• defining the meaning of “internal coverage criteria” to clarify when MA plans can apply utilization management.
• ensuring plan internal coverage policies are transparent and readily available to the public (i.e. posted on websites).
• ensuring plans are making enrollees aware of appeals rights, and addressing after-the-fact overturns that can impact payment, including for rural hospitals.
• For internal coverage criteria, regulatory language closing any loopholes being used to create prior authorizations that CMS did not intend.

Promoting Informed Choice

CMS has deleted all language in the “informed choice” selection of the proposed rule. Language was removed that would have required plans to submit their MA provider directory data to CMS for population in the Medicare Plan Finder. CMS also deleted new requirements for plans to discuss alternative funding solutions with beneficiaries such as the Part D Low-Income Subsidy Medicare Savings Programs.CMS also deleted language to expand its oversight of MA and Part D marketing and communication materials.

Dual Eligibles Provisions

To reach its goal of reducing fragmentation for dual-eligible beneficiaries , CMS is proposing that Dual Eligible Special Needs Plans (D-SNPs) be required to do the following:

• Have integrated member identification (ID) cards that serve as the ID cards for both the Medicare and Medicaid plans in which an enrollee is enrolled.
• Conduct an integrated health risk assessment (HRA) for Medicare and Medicaid rather than separate HRAs for each program.
• Codify timeframes for all SNPs to conduct HRAs and individualized care plans (ICPs) and prioritize the involvement of the enrollee or the enrollee’s representative, as applicable, in the development of the ICPs.

There are no changes in this section between the proposed and final rules.

Non-allowable Special Supplemental Benefits for the Chronically Ill (SSBCI)

SSBCI are benefits that can be offered non-uniformly to qualifying MA enrollees with chronic conditions. These supplemental benefits may be non-primarily health-related; however, the benefit must have a reasonable expectation of improving or maintaining the health or overall function of the chronically ill enrollee. This rule establishes guardrails for these benefits by codifying a list of non-allowable examples (e.g., non-healthy food, alcohol, tobacco, cosmetic surgery, life insurance). These provisions were in the proposed rule and have been finalized – so they are not directly tied to the “Make America Health Again” program.

Program of All-Inclusive Care for the Elderly (PACE) and Cost Plans

This rule codifies requirements for PACE organizations and cost plans to submit risk adjustment data to CMS. These entities already do this, for the most part, but this provision puts it into regulation.

MEDICARE PART D PROVISIONS

Vaccine Cost-Sharing

This provision implements section 11401 of the IRA requiring that the Part D deductible will not apply to, nor is there any cost-sharing for, adult vaccines recommended by the Advisory Committee on Immunization Practices (ACIP). This includes common vaccines like flu, HPV, COVID-19, Shingles, and other vaccines for more rare occurrences like anthrax and Dengue Fever.1 No change from the proposed rule.

Insulin Cost-Sharing Changes

This proposal implements section 11406 of the IRA requiring that the Medicare Part D deductible will not apply to covered insulin products and that the Part D cost-sharing amount for a one-month supply of each covered insulin product must not exceed the statutorily defined “applicable copayment amount” for all enrollees. The applicable copayment amount for 2023, 2024, and 2025 is $35. From 2026 on, a decision tree will be used for the copayment based on drug prices for that year. No change from the proposed rule.

Medicare Prescription Payment Plan

The rule continues the existing provisions of the Medicare Prescription Payment Plan, which allows Part D enrollees to spread out-of-pocket costs out throughout the year, through 2026 – but adds two new features. First, CMS created an automatic renewal process for the beneficiary for the next calendar year unless the enrollee opts out. Second, CMS finalized a requirement for Part D sponsors to effectuate election requests received via phone or web in real time for 2026 or future years. The final rule does make one change which is to exempt D-SNPs from having to provide beneficiaries with hard copy mailing materials for plan election or education information.

Pharmacy Network Transparency for Pharmacies and Beneficiaries

CMS is now requiring Part D plans to provide contracted pharmacies with information about which Part D plans they are in-network for before open enrollment and afterward on request. However, CMS removed a provision that would have allowed pharmacies to terminate their network contracts without cause after the same notice period that the sponsor is allowed to terminate pharmacy network contracts without cause.

Biosimilar and Generic Drugs

CMS clarifies existing law that drug plans must provide beneficiaries with broad access to generics, biosimilars, and other lower-cost drugs. CMS is making this statement because of reports from external entities that pharmacy benefit managers (PBMs) and Part D plans have been favoring more expensive brand drugs and reference biological products over generics, biosimilars, and other lowercost drugs in terms of formulary placement decisions. In one change, the final rule removes a provision that would have had CMS reviewing formularies for generic and biosimilar drug inclusion. However, CMS does state that they “may consider codifying additional requirements regarding formularies in future rulemaking if necessary.”

On April 1, the Centers for Medicare and Medicaid Services (CMS) released their proposed Inpatient Hospital Prospect Payment System rule for FY 2026. The proposed changes are a mixed bag for the nation’s inpatient hospitals. Under the proposed rule, the hospital market basket percentage would increase by 3.2% (with a 0.8% reduction for productivity). The update is in line with last year’s update of 2.6%, although it is much lower than MedPAC’s recommendation of 4.2%. The American Hospital Association and the Federation of American Hospitals have both declared that this increase is insufficient due to hospital cost inflation and labor shortages

Comments on the rule are due June 10, 2025.

LOW-WAGE HOSPITAL POLICY

The proposed rule discontinues the low wage index hospitals policy for FY 2026 and subsequent years. This policy, put in place in 2020, makes upward adjustments to the wage indices of hospitals with a wage index value below the 25th percentile. CMS referenced the court decision of Bridgeport Hosp. v. Becerra, 108 F.4th 882, 887–91 & n.6 (D.C. Cir. 2024) as a reason for discontinuing the policy.

To partially offset this change, CMS is capping any hospitals’ wage index deduction by a maximum of 5% for FY 2026.

UPDATED WAGE INDEX AREAS

As CMS does every year, the agency is recalculating all hospital wage index areas to incorporate data from cost reporting periods beginning in FY 2022. The table of changes can be found here.

Hospital Inpatient Quality Reporting (IQR) Program

CMS is removing four reporting measures beginning with the CY 2024 reporting period/FY 2026 payment determination:

• Hospital Commitment to Health Equity
• COVID-19 Vaccination Coverage among Health Care Personnel measure
• Screening for Social Drivers of Health
• Screen Positive Rate for Social Drivers of Health

CMS is modifying four current measures:

• Hospital-Level, Risk-Standardized Complication Rate (RSCR) Following Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) – CMS is adding Medicare Advantage patients to the current cohort of patients, shortening the performance period from three to two years, and changing the risk adjustment methodology.
• Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Acute Ischemic Stroke Hospitalization – CMS is adding Medicare Advantage patients to the current cohort of patients, shortening the performance period from three to two years, and making changes to the risk adjustment methodology.
• Hybrid Hospital-Wide Readmission (HWR) and Hybrid Hospital-Wide Mortality (HWM) – CMS is lowering the submission requirements to allow for up to two missing laboratory results and up to two missing vital signs, reducing the core clinical data elements (CCDEs) submission requirement to 70% or more of discharges, and reducing the submission requirement of linking variables to 70% or more of discharges.

Hospital Readmissions Reduction Program

As CMS is doing for all quality measures, CMS is modifying readmission measures to add Medicare Advantage data, for both the measures and the calculation of aggregate payments. The agency is also shortening the applicable period of measuring performance from 3 to 2 years. CMS is also removing the COVID-19 exclusions and risk-adjustment covariates from the six readmission measures. These changes will be implemented for FY 2027.

Hospital Value-Based Purchasing Program

CMS is making a few changes to the VBP. First, the agency is adding MA data to most measures. Second, CMS is removing the Health Equity Adjustment from the scoring methodology. The agency is also adding COBID-19 patients back INTO the measures’ denominators (they had been removed during the pandemic and for a few subsequent years). In the same vein, CMS is adding patients with a diagnosis of COVID-19 back into the THA/TKA complication measures numerator and denominator. CMS will also be updating the CDC’s National Healthcare Safety Network (NHSN) healthcare-associated infections (HAI) chart-abstracted measures with the new 2022 baseline.

CMS has estimated that $1.7 billion is available in FY 2026 for value-based incentive payments.

DRG GROUPER CHANGES

CMS made several grouper coding changes based on feedback. See details here. In addition, CMS made many changes to severity levels in codes – those changes can be found here. This file also includes the 50 new procedure codes that CMS added as well.

New Transforming Episode Accountability (TEAM) Model

Last year, CMS proposed a new 5-year mandatory bundled payment program for all acute-care hospitals in a yet-as-unnamed CBSA. The model begins January 1, 2026, and ends December 31, 2030. Under this model, CMS would begin by focusing on lower extremity joint replacement, surgical hip femur fracture treatment, spin al fusion, coronary artery bypass graft, and major bowel procedures. Providers would bill as normal (MS-DRGs for inpatient, HCPCs for physician, etc.) for their procedures – but would receive target prices for episodes prior to each performance year. Performance for providers would be measured by spending as well as performance on three quality measures.

For this year, CMS has added a limited deferment period for certain hospitals, quality measure performance using patient-reported outcomes in the outpatient setting, improved target price construction, and expand the three-day Skilled Nursing Facility Rule waiver.

POST-ACUTE TRANSFER POLICY

CMS is proposing to add and remove MS-DRGs from post-acute transfer payment treatment in this rule. CMS is proposing to add MS-DRGs 209, 213, 318, 359, 360, 321, 322, 403, 404, 463, 464, and 465. CMS is proposing to remove MS-DRG 294, 295, and 509.

FEEDBACK

CMS is also asking for input on many aspects of the rule from stakeholders. Below we highlight some of their requests for feedback:

• For the overall Medicare program, CMS is putting out an RFI asking stakeholders to identify areas that are redundant or burdensome in Medicare regulations, including in conditions of participation, value-based purchasing, quality and safety reporting, telehealth and digital health. The deadline for comments is June 10, 2025.
• For quality reporting, CMS is issuing a second RFI on creating a digital quality measurement. Specifically, CMS wants to hear about:
• The anticipated approach to FHIR-based electronic clinical quality measure (eCQM) reporting in quality reporting programs.
• The potential use of FHIR-based patient assessment instrument reporting for inpatient psychiatric facilities.
• For quality reporting, CMS is requesting comments regarding how to measure well-being and nutrition in future years.
• For quality reporting, CMS is seeking input on future modifications to the Query of Prescription Drug Monitoring Program (PDMP) measure, including seeking public input on changing the Query of PDMP measure from an attestation-based measure (“Yes” or “No”) to a performance-based measure (numerator and denominator), and expanding the types of drugs to which the Query of PDMP measure applies.
• For quality reporting, CMS is requesting information on the Medicare Promoting Interoperability Program’s objectives and measures moving toward performance-based reporting.
• For quality reporting, CMS is requesting information on improvements in the quality and completeness of the health information eligible hospitals and CAHs are exchanging across systems.

On April 1, CMS released the proposed rule for skilled nursing facility (SNF) payments for FY 2026. Under the proposed rule, SNF payments would increase by 2.8% for FY 2026. This includes hospital market basket percentage would increase by 3.0%, with a 0.8% reduction for productivity, and 0.6% increase for a market basket forecast error adjustment. The update is lower than last year’s update of 4.6%. The American Health Care Association lauded the increase while also warning Congress that this increase wouldn’t make up for proposed Medicaid reform this year. CMS estimates that the overall economic impact of this proposed rule is an estimated increase of $997 million in payments to SNFs for FY 2026. Comments on the rule are due June 10, 2025.

PAYMENT UPDATES

The final case-mix adjusted rates (pp. 21-22 of the rule) can be found here.

CMS also released new wage index tables for FY2026 – they can be found here.

PROPOSED CHANGES IN PATIENT-DRIVEN PAYMENT MODEL (PDPM) ICD-10 CODE MAPPINGS

In FY 2020, CMS implemented the Patient-Driven Payment Model (PDPM) to focus on the needs of the whole patient, rather than focusing on the volume of services provided. CMS is proposing several changes to the PDPM ICD-10 code mappings

Interestingly, a large portion of these codes are for behavioral/mental health disorders – that have been moved off the primary diagnosis list because “treatment for these diagnoses would typically occur on an outpatient basis and not require an inpatient SNF stay in and of themselves. as reasons for a SNF admission.

SNF VALUE-BASED PURCHASING (VBP) PROGRAM

As CMS has done in all other payment rules, CMS is proposing to remove the SNF VBP Program’s Health Equity Adjustment from the VBP methodology beginning in FY 2027.

CMS also released the performance standards for the remaining VBP measures for FY 2028.

SNF QUALITY REPORTING PROGRAM (QRP)

Aligning with changes the new Administration is making on equity and social determinants of health in all proposed rules, CMS is proposing to remove four standardized patient assessment data elements beginning in FY 2027, including: one item for Living Situation (R0310); two items for Food (R0320A and R0320B); and one item for Utilities (R0330). CMS has stated that removing these reporting requirements will save SNFs $2,228,563.12 annually. SNFs will not be required to collect this data beginning with patients admitted on or after October 1, 2025.

CMS also seeks input on several RFIs, specifically: 1) future measure concepts on the topics of delirium, interoperability, nutrition, and well-being; 2) revisions to the current data submission deadlines for assessment data from 4.5 months to 45 days; and 3) advancing digital quality measurement and the use of Fast Healthcare Interoperability Resources® in the SNF QRP. For the latter, a detailed list of questions starts on page 59 of the rule.

FEEDBACK

CMS is also asking for input on many aspects of the rule from stakeholders. Below we highlight some of their requests for feedback:

• For the overall Medicare program, CMS is putting out an RFI asking stakeholders to identify areas that are redundant or burdensome in Medicare regulations, including in conditions of participation, value-based purchasing, quality and safety reporting, telehealth and digital health. The deadline for comments is June 10, 2025.
• For SNF quality, CMS would like feedback on RFIs on:
  • Future measure concepts for the SNF QRP;
  • Potential revisions to the data submission deadlines for assessment data collected for the SNF QRP; and
  • Advancing digital quality measurement in SNFs.