Insights^

On April 10, 2025, the Medicare Payment Advisory Commission (MedPAC) met to discuss work for their June 2025 report and beyond. The June report contains recommendations and research on the future of Medicare and is usually filled with new ideas and/or innovations. Today’s sessions focused on proposed reforms to the physician fee schedule (PFS), a comparison of stand-alone Medicare prescription drug plans (PDPs) and Medicare Advantage-Prescription Drug (MA-PD) Plans, discussions about MA supplemental benefits, and a look at the impact of MA plans on rural areas.

PHYSICIAN PAYMENT FORMULA

The first session of the day focused on reforming updates to and ensuring the accuracy of the Medicare PFS. Staff reviewed data presented in March regarding the inadequacy of physician payment updates and the accuracy of the fee schedule Relative Value Units (RVUs). They then voted on two recommendations for the June report.

The first recommendation is: “The Congress should replace the current-law updates to the PFS with an annual update based on a portion of the growth in the Medicare Economic Index (MEI) (Such as MEI minus 1 percentage point.” Commissioners voted unanimously in favor (17-0). Discussion centered around the fact that Commissioners would have liked to have set an actual number (i.e., MEI minus 1) and a minimum or maximum limit on the amount of the payment update. The Chairman pointed out, however, that they wanted to keep things general to give Congress flexibility to implement this recommendation.

For the second recommendation, the staff again presented three examples of potential areas of inaccuracy in RVUs, focusing on concerns that the MEI used to update RVUs is outdated; the need to update global surgical codes to truly address care practices; and inaccuracy in practice expense (PE) RVUs. In the PE RVUs, staff showed that a significant number of physicians no longer have offices outside of the hospital, so indirect PE payments might need to be suspended for these types of physicians.

The second recommendation, which passed unanimously, is: “The Congress should direct the Secretary to improve the accuracy of Medicare’s relative payment rates for clinical services by collecting and using timely data that reflect the costs of delivering care. Again, this was a very general recommendation. The Commissioners’ discussion centered around the fact that they think RVUs are misvalued (some said due to the American Medical Association’s RVS Update Committee RUC process, others said that it is a function of data over time).

This will be a chapter in MedPAC’s June Report to Congress.

STRUCTURAL DIFFERENCES BETWEEN THE PDP AND MA–PD MARKETS

The second session focused on the differences between stand-alone PDPs for fee-for-service (FFS) beneficiaries and the MA–PDs for beneficiaries who choose to enroll in MA. Staff presented additional data explaining the two different systems, how rates were set, payment mechanisms, etc. They also focused on structural issues between the two plan types and discussed changes coming in 2025 from the Centers for Medicare and Medicaid Services (CMS).

Staff showed more data showing that plan offerings and enrollment are continuing to shift away from standalone PDPs. This time, they dug into not just overall numbers, but also into data on low-income subsidy (LIS) beneficiaries.

Staff found four trends. First, the average premiums charged by PDPs exceed those of MA-PDs. Second, fewer PDPs qualify as premium-free to beneficiaries with LIS. Third, PDPs have higher average gross costs but lower risk scores than MA-PDs. Fourth, PDPs are more likely to incur losses compared with MA-PDs.

Staff also looked at the structural reasons for differences between the plans, including MA rebates, the fact that MA-PDPs can adjust premiums after CMS published average amounts, the fact that MA PDs can segment the market by LIS status, and the fact that MA PDs can document additional diagnoses, which enables them to have higher risk scores.

The Commissioners again expressed concerns that stand-alone PDPs might disappear altogether due to unfair competition with MA-PDs, which Commissioners said was unfair to beneficiaries in Medicare FFS because these are the plans those beneficiaries use. Commissioners are concerned that without stand-alone PDPs, traditional FFS will be erased or will be used only for high-income beneficiaries who can afford higher out-of-pocket costs.

Commissioners pointed out that having MA PDPs is not a negative thing, as they can lead to more coordination on beneficiary care and maybe more innovation. A few Commissioners stressed that they would not want to have any recommendations in this area until they see the effects of new risk stabilization payments being rolled out by CMS this year.

As for the next steps, Commissioners also want to investigate the impacts on pharmacy viability from these two types of plans and research into biosimilars.

While there were no recommendations on this topic, this will be a chapter in the June Report to Congress.

ASSESSING THE UTILIZATION AND DELIVERY OF MEDICARE ADVANTAGE SUPPLEMENTAL BENEFITS

In the third session, staff reviewed work on MA supplemental benefits, which are extra benefits delivered by MA plans to beneficiaries as part of their enrollment, like dentistry or vision care. Staff went through a background on the benefits, discussed how MA plans administer these benefits, and what data they do and do not have on these benefits.

Staff reviewed what shares of MA plan rebates are being used on non-Medicare services. For conventional MA plans, dental benefits account for the largest share of non-Medicare supplemental benefits. Special needs plans (SNPs) are using a large amount of their rebates for “other” services like home modifications or home-delivered meals. Commissioners pointed out that this was not surprising, given that Duals are covered under Medicare and Medicaid, so Medicaid is wrapping around traditional benefits; hence, they have a larger amount of capital to use on non-transitional benefits.

Staff outlined the data, or lack thereof, showing that very few claims are available to measure usage or efficacy of these supplemental benefits.

Commissioners had a lot of questions about benefit utilization, how to measure efficacy/outcomes, and beneficiary knowledge about these benefits. Commissioners also discuss standardizing some supplemental benefits and how to create a parallel supplemental benefit in FFS Medicare. Commissioners even threw out the idea of creating an HSA for beneficiaries and letting them choose what supplemental benefits they want to use. The Chairman said they need a lot more data in this area and need to look at the cost of acquiring the data.

This will be a chapter in the June Report to Congress.

EXPLORING THE EFFECT OF MEDICARE ADVANTAGE ON RURAL HOSPITALS

Staff presented a new analysis examining the effect of Medicare Advantage penetration on rural hospitals in their markets. The Commission has been hearing from rural providers for years that MA plans are negatively affecting their profitability through prior authorization, steering patients away from their facilities, and lowering payment rates.

First, staff examined MA growth in rural areas. In addition to growing enrollment volumes, staff found that three insurers control 60% of the rural enrollee market.

After examining financial and volume effects through various calculations, the staff found:

• There is some evidence that MA expansion results in fewer inpatient admissions at CAHs.
• No statistically significant effect of MA expansion on revenue, costs, or profits
• Price for FFS and potentially MA patients increases when volume declines and, in the face of prospective payment system (PPS) hospitals, when volume shifts from FFS to MA.

Commissioners had 45 minutes worth of questions on the analysis and a robust debate about the true impact of MA on rural providers. Some Commissioners said the market was working as it should, and this was a political ploy since some people don’t like MA. Others said this was a true problem and that MA plans use their large market leverage to handicap hospitals through prior authorization and denials.

At the end, the Chairman pointed out that the session combined rural care and MA, and that they started here because MedPAC wanted to answer claims being made. He said that there would be no recommendations, and they would continue to dig into these issues throughout the next cycle.

On April 10, 2025, the Medicaid and CHIP Payment and Access Commission (MACPAC) held the first day of its April meeting. Some sessions had recommendations that will be voted on tomorrow. Topics in the discussion included the following: Medicaid in Context, Children and Youth with Special Health Care Needs (CYSHCN) Transitions of Care, Timely Access to Home and Community Based Services, Access to Medications for Opioid Use Disorder, Understanding the Program of All-Inclusive Care for the Elderly (PACE) Model, Self-Direction for Home-and-Community-based services, and AI in the Prior Authorization Process.

MEDICAID IN CONTEXT: KEY STATISTICS AND TRENDS AND PAYMENT AND FINANCING

MACPAC staff offered a comprehensive overview of Medicaid, highlighting key statistics and trends across eligibility, demographics, spending, and service coverage. In FY 2024, approximately 88.1 million individuals were enrolled in Medicaid, with a significant portion in the newly eligible adult group, while historically over half were part of child, aged, or disabled categories. Demographically, Medicaid and CHIP enrollees in 2023 were predominantly under 65, female, and from low-income households, with racial diversity including significant Hispanic and Black populations. Medicaid spending nearly doubled from 2013 to 2023, reaching $894.2 billion, with managed care covering the majority of enrollees across all eligibility groups. Medicaid plays a critical role in the health care system, covering nearly a third of the U.S. population and funding a significant portion of national health expenditures. It is also the largest payer of maternity care and long-term services and supports (LTSS), including both home- and community-based services (HCBS) and institutional care.

The second presentation provided a comprehensive overview of the Medicaid financing structure, emphasizing the federal-state partnership. It outlined how the federal government shares costs with states through the Federal Medical Assistance Percentage (FMAP), with variations depending on state income levels. The presentation detailed both federal and non-federal funding sources, such as provider taxes and intergovernmental transfers, and explained the types of payments made to providers, including base, supplemental, and directed payments. It highlighted how these payments affect provider revenues, particularly hospitals, and underscored the complexity of Medicaid financing and its critical role in supporting health care infrastructure, especially in rural areas. The presentation also addressed improper payments and the implications of Medicaid policy on state budgets and provider sustainability.

During the discussion, Commissioners explored various aspects of Medicaid financing and coverage. Commissioner Heidi Allen asked about the FPL group and noted enrollment growth after expansion. Commissioner Angelo Giardino highlighted Medicaid’s importance in rural areas and the reliance of hospitals on Medicaid revenue. Commissioner Doug Brown confirmed spending includes expansion populations, while Commissioner Jami Synder asked about HCBS services like personal care and 24-hour support. Commissioner Michael Nardone requested updated data on dual eligibles, and Commissioner Dennis Heaphy emphasized showing LTSS as a value-based investment and raised concerns about fraud. Commissioner Carolyn Ingram asked about undocumented immigrants—staff noted only emergency coverage is allowed—and flagged tribal rural issues. Commissioners also raised concerns about documentation, outdated data, and payment accuracy.

CHILDREN AND YOUTH WITH SPECIAL HEALTH CARE NEEDS (CYSHCN): TRANSITIONS OF CARE

The next session focused on the challenges and policy recommendations for improving the transition from pediatric to adult care for youth with special health care needs, nearly half of whom are covered by Medicaid. It highlighted gaps in federal guidance, inconsistent state practices, limited data collection, and weak interagency coordination. The presentation included four recommendations for the June 2025 Report to Congress:

• Require all states to develop a transition strategy including individualized care plans
• Direct CMS to issue guidance on existing authorities for funding transition-related services
• Require states to collect and report data on transition service use and outcomes
• Mandate that inter-agency agreements between Medicaid and Title V agencies specify roles in supporting transitions. These efforts aim to enhance continuity of care, improve outcomes, and better support youth and families through a complex healthcare shift.

TIMELY ACCESS HCBS: LEVEL OF CARE DETERMINATIONS AND PERSON-CENTERED SERVICE PLANNING PROCESSES

The following session examined how states manage two essential components of HCBS access for Medicaid beneficiaries: determining eligibility through Level of Care (LOC) assessments and developing individualized Person-Centered Service Plans (PCSPs). LOC determinations assess whether an individual meets the institutional level of care required to qualify for HCBS, and are conducted by various entities, including Medicaid agencies, other state departments, contractors, and managed care organizations. While 32 states have set timelines for conducting assessments (ranging from 2 to 45 days), and 17 states must be timely, culturally appropriate, and led by the individual to the extent possible, with most states requiring development within 30–45 days and annual reviews. States commonly allow professionals such as case managers or nurses to develop the plans, and many have adopted e-signatures to streamline the process.

Insights from interviews with officials in seven states conducted in 2024 revealed a general understanding of federal requirements and widespread agreement on the value of virtual options in certain scenarios, though in-person meetings remain preferred. Many states integrate LOC assessments and PCSP development into the same meeting, which shortens timelines and improves coordination. Officials emphasized that meeting timeframes depend on both staffing and cooperation from healthcare providers. They also noted that while states understand the flexibilities available to them, continued support from CMS—particularly around workforce capacity and streamlining documentation—could further enhance service delivery.

Commissioners discussed the Medicaid eligibility process for HCBS, focusing on the separate timelines for functional and financial eligibility. Commissioner Patti Killingsworth noted the process does not have to be linear, as many states wait to complete steps until eligibility seems likely. Commissioner Michael Nardone questioned delays in financial eligibility and stressed the need for real-world examples to understand what happens during that time. Commissioner Dennis Heaphy highlighted the distinction between eligibility and service planning and emphasized the role of environment in assessing disability. In response to his question, staff explained that assessments are typically conducted by caseworkers, nurses, or contracted professionals, depending on the state.

ACCESS TO MOUD IN MEDICAID

The next presentation provided an overview of Medicaid’s role in improving access to effective treatments like methadone, buprenorphine, and naltrexone. While coverage has expanded due to policy changes— such as telehealth flexibilities and the removal of prescribing restrictions—utilization remains inconsistent across states and demographic groups, with younger adults and non-White beneficiaries less likely to receive treatment. One-third of U.S. counties lack Medicaid-serving MOUD providers, and stigma, limited provider capacity, and utilization management strategies like prior authorization and dosage caps continue to present major barriers.

During the discussion, commissioners raised several issues for future exploration. Commissioner Jennifer Gerstorff emphasized the need to frame OUD as a chronic medical condition rather than a personal weakness and expressed interest in longitudinal studies on treatment success by MOUD type. Commissioner Doug Brown flagged data gaps on extended-release products and physician reimbursement concerns that may limit their use. Commissioners Carolyn Ingram and John McCarthy questioned why Medicaid spending and payment rates for MOUD were not included and suggested examining these in the future. Commissioner Sonja Bjork requested more analysis of access in rural areas, while Commissioner Michael Nardone asked for a deeper dive into state-level variation and whether payment rates play a role. Commissioner Gerstorff also asked whether the report could explore cost savings from expanded access. Staff noted these are important considerations for future MACPAC work.

UNDERSTANDING THE PACE MODEL

The next session reviewed how PACE delivers integrated Medicare and Medicaid services. As of March 2025, over 82,000 people were enrolled across 33 states and D.C., with most being dually eligible. Enrollment is often delayed by lengthy eligibility and application processes, and services are coordinated through interdisciplinary teams at PACE centers. While PACE offers comprehensive benefits, some advocates noted limited home-based services. Oversight involves both federal and state audits and reporting. In FY 2023, Medicaid spent $3.9 billion on PACE, with states setting payment rates as a percentage of expected costs outside the program. MACPAC staff will continue to analyze the model and seek commissioner input for future work.

During the discussion, Commissioners shared mixed perspectives on the PACE model’s value and potential for expansion. Commissioner Patti Killingsworth praised its integrated approach to care but raised concerns about cost-effectiveness, noting the small enrollment of 82,000 and high per-person spending of $48,000. She questioned whether the program’s success was due to administrative f lexibility rather than broader applicability. Commissioner Dennis Heaphy asked what makes the PACE population unique and expressed concern about possible “cherry-picking” or forced transitions to nursing homes. Commissioner Michael Nardone emphasized the strong services for dual eligibles and suggested exploring trends in Medicaid-only PACE participants, including their age and Medicare eligibility status.

Commissioner Carolyn Ingram raised concerns about conflict of interest in the eligibility determination process, where the provider decides who is safe to live in the community, and noted a lack of federal quality standards. She also questioned how rates are set and called for recommendations that address integrated care requirements. Commissioner Heidi Allen pushed back, arguing that while PACE is not for everyone, it is a successful model worth scaling, and comparisons to other programs—like hospital readmission rates—may not be fair. Overall, Commissioners agreed further exploration is needed around cost, accountability, and future recommendations.

SELF-DIRECTION FOR MEDICAID HCBS

The final session of the day was presented by Sanmi Koyejo, PhD, Associate Professor, Stanford University Department of Computer Science and Principal Investigator, Stanford Trustworthy AI Research, Heather McComas, PharmD, Director of Administrative Simplification Initiatives, American Medical Association, and Wayne Turner, JD, Senior Attorney, National Health Law Program. They explored the promises and risks of using AI in Medicaid, particularly around prior authorization and care management. Ms. McComas emphasized that while AI will not fix prior authorization, it could reduce paperwork and clinician burden if applied properly—but warned of risks like treatment abandonment, impersonal care, and biased algorithms. Mr. Turner and Dr. Koyejo echoed concerns that AI, if built on biased or flawed data, could worsen access by wrongly denying care, especially for people with chronic conditions. They stressed the importance of transparency, testing, and ensuring individuals are treated with personalized consideration.

They also highlighted the regulatory challenges, especially with third-party entities using opaque AI tools. Ms. McComas noted cybersecurity and HIPAA concerns, particularly with smaller providers and underrepresented patient groups. Mr. Turner and Dr. Koyejo discussed potential Medicaid-specific uses, such as determining hours of private duty nursing or automating simpler protocols. During the broader Commission conversation, members raised questions about best practices for reducing denial rates, ensuring equitable outcomes, and how AI could trigger external reviews if denial thresholds are exceeded. There were also concerns about AI access in rural areas, the skillsets policymakers need, and the need for rules that ensure human oversight in clinical decisions. Overall, the group emphasized balancing innovation with transparency, equity, and patient-centered care.

On April 7, 2025, the Centers for Medicare and Medicaid (CMS) released its final Calendar Year (CY) 2026 Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies (the CY 2026 Rate Announcement). The Press Release can be found here. The fact sheet can be found here. The final Part D Redesign program instructions can be found here. (No changes were made to the redesign program, but CMS answered comments on pages 3-20). Below you will find a summary of major provisions.

MEDICARE ADVANTAGE PROVISIONS

Payment Updates

The Advanced Notice proposes to increase MA payments by 5.06%, a large update from the 3.7% last year, or $25 billion, from CY 2025-2026. This takes into account a growth rate of 9.04%, a negative adjustment for fee-for-service (FFS) normalization of -3.01%, a -0.69% decline for changes in star ratings, and other changes. The growth rate is based off Medicare FFS per capita costs as estimated by the Office of the Actuary.

In 2024, CMS initiated a three-year, phased-in approach for removing the medical education costs (related to services MA enrollees receive) from the historical and projected expenditures supporting the FFS costs that are included in the growth rate calculations. For 2026, CMS will complete the phasein of the technical adjustment by applying 100% of the adjustment for MA-related medical education costs.

Risk Adjustment Model Updates

In this notice, CMS finalized their 3-year phase-in of a new risk adjustment model. For CY2026, CMS will be calculating Hierarchical Condition Category (HCC risk) scores only through the new model. This update includes restructured condition categories using ICD-10 with updates for the underlying data years (this year, using data from 2022 and 2023). They have also updated the denominator year to determine the average per capita predicted expenditures. The overall impact of this new risk score model is -3.01%. CMS published a list of risk adjustment coefficients and predicted ratio tables for all factors starting on page 123 of the final notice.

The update will be different for Programs of All-Inclusive Care for the Elderly (PACE). CMS does not have complete encounter data for PACE and, as such, has not tied their risk score update to the standard MA risk score update. CMS hopes to have more encounter data starting from service dates in 2025 that they will be able to use in the future. For now, CMS is proposing to use a blend of the PACE HCC model and the MA HCC model over the next 5 years. While CMS did receive some comments asking for a longer timeline, CMS indicated they will be staying with the 5-year phase in.

CMS will also continue to consider frailty scores for the PACE population and certain D-SNPs (Fully Integrated Dual Eligible Special Needs Plans [FIDE SNPs]) when calculating payments.

PART D PLAN UPDATES

Standard Benefit Revisions

Below are the changes to the newly defined standard Part D drug benefit for CY 2026:

• Annual deductible. The enrollee pays 100 percent of their gross covered prescription drug costs (GCPDC) until the deductible of $615 for CY 2025 ($590 in 2025) is met.
• Initial coverage. The enrollee pays 25 percent coinsurance for covered Part D drugs. The sponsor typically pays 65 percent of the cost of applicable drugs and 75 percent of the cost of all other covered Part D drugs. The manufacturer, through the Discount Program, typically covers 10 percent of the cost of applicable drugs. In the initial coverage phase, CMS will pay a 10 percent subsidy for selected drugs during a price applicability period. This phase ends when the enrollee has reached the annual out-of-pocket (OOP) spending threshold of $2,100 for CY 2026 ($2,000 in 2025).
• Catastrophic. The enrollee pays no cost sharing for covered Part D drugs. Part D plan sponsors typically pay 60 percent of the costs of all covered Part D drugs. The manufacturer pays a discount, typically equal to 20 percent, for applicable drugs. CMS pays a reinsurance subsidy equal to 20 percent of the costs of applicable drugs, and equivalent to 40 percent of the costs of all other covered Part D drugs that are not applicable drugs. In the catastrophic phase, CMS will provide 40 percent reinsurance for selected drugs during a price applicability period.

Part D Risk Adjustment

CMS is proposing updates to the Part D risk adjustment model to reflect the Inflation Reduction Act’s (IRA’s) changes to the Part D benefit for CY 2026 – the continued implementation of the Manufacturer Discount Program and the updated OOP threshold ($2100 this year, compared to $2000 last year), as well as the new Medicare Drug Price Negotiation Program – as well as calibrating the model using more recent data years (2022 diagnoses and 2023 costs). These updates to the Part D risk adjustment model are designed to help plan sponsors develop accurate bids for CY 2026.

For the risk adjustment models for Part D (RxHCC), CMS is proposing the following changes (more details can be found starting on page 123 of the notice):

• Adjusting the annual OOP thresholds for pre-IRA data years to estimate what the threshold would have been in the prior year if the IRA were in place at the time. (P. 94 of the proposed notice – no changes in final)
• Increasing manufacturer discounts for specified manufacturers and specified small manufacturers according to the phase-in schedules under sections 1860D-14C(g)(4)(B) and (C) of the IRA. (P. 95 of the proposed notice – no changes in final)
• Adjusting gross drug costs to account for the Maximum Fair Prices (MFPs) of the selected drugs for 2026 as part of the Medicare Drug Price Negotiation Program. (P. 79)
• Updating the underlying data used in the model calibration to more recent years, specifically using diagnoses from 2022 FFS claims and MA encounter data records and gross drug costs from 2023 PDEs (the RxHCC model being proposed solely for PACE organizations will continue to use 2018 diagnoses and 2019 costs) (P. 97 of the proposed notice – no changes in final)
• Updating the denominator year from 2022 to 2023 (the RxHCC model being proposed solely for PACE organization will continue to use a 2020 denominator) (P. 98 of the proposed notice – no changes in f inal). As in MA, the PACE-only model is being phased out over time.
• For the risk sharing corridors, CMS examined plan risk sharing amounts and found significant variation year to year and among plan sponsors, so CMS is choosing to keep the risk sharing corridors unchanged. So, the risk percentages for the first and second thresholds remain at +/- 5 percent and +/-10 percent of the target amount, respectively, for CY 2026. The payment adjustments for the first and second corridors are 50 percent and 80 percent, respectively.

MA and Part D Star Ratings

Star Ratings updates include providing the list of eligible disasters for adjustment, non-substantive measure specification updates, and the list of measures included in the Part C and D improvement measures and Categorical Adjustment Index for the 2026 Star Ratings. CMS is adding one new measure to the 2026 Star Ratings – Kidney Health Evaluation for Patients with Diabetes. There are also two measures (Improving or Maintaining Physical Health and Improving or Maintaining Mental Health) returning to the 2026 Star Ratings after substantive specification changes. The list of total star ratings measures begins on page 112 of the advanced notice.

For 2026 star ratings, the deadlines for plans to review their complaints tracking model (CTM) data is May 30, 2025, and to June 30, 2025, to request a review of 2024 appeals data. (March 31, 2026, to review CTM data for 2027 Star Ratings)

CMS is also adjusting star ratings in 2026 for plans in disaster areas. For those contracts with at least 25 percent of enrollees in a FEMA-designated Individual Assistance area in 2024, contracts will receive the higher of either their current ratings or the prior year ratings.

See page 104 of the rule for a list of individual counties. The final notice also added Los Angeles county and the state of California to this list due to their recent wildfires.

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.