Fact sheet



The Centers for Medicare & Medicaid Services (CMS) today issued the Announcement of Calendar Year (CY) 2010 Medicare Advantage Capitation Rates and Medicare Advantage and Part D Payment Policies.  The Announcement updates and makes final provisions of the Advance Notice that CMS released on February 20, 2009, and responds to comments on that Notice.


The Announcement makes final the Part C and D payment policies and methods CMS will use to calculate 2010 Part C capitation payment rates.  These changes are explained below.


Medicare Advantage Growth Percentage


For the Medicare Advantage (MA) program, CMS calculates a unique capitation rate for each county.   These MA capitation rates define the upper limit for Part C payments to plans.  For 2010, the law requires that Part C capitation rates be based on the 2009 capitation rates for counties updated by the Medicare Advantage Growth Percentage. 


The Advance Notice included a preliminary estimate of a 0.5 percent increase in the National Per Capita Medicare Advantage Growth Percentage.  The Announcement includes a Medicare Advantage Growth Percentage of 0.81 percent  As with the preliminary estimate in the Advance Notice, the final growth percentage will reflect the estimated 21 percent physician fee reduction for 2010 contained in current law  The Announcement provides a Web link to the final capitation rates for each county.


Risk Adjustment


The Announcement also describes changes in the methodology used to adjust payments to Medicare Advantage organizations and sponsors of Medicare prescription drug plans to ensure that capitated payments to plans reflect the health status and associated cost differences of individual enrollees.  Under risk adjustment, higher payments are directed to plans that enroll beneficiaries with greater health care costs.  To ensure that the risk adjustment of payments is budget neutral, CMS makes several adjustments to beneficiary risk scores.  The Announcement provides the final 2010 factors for these adjustments.


The Announcement finalizes the normalization factors used under risk adjustment to balance the growth in Part C and Part D risk scores and maintain a constant 1.0 average in each payment year.  The normalization factor to be applied to Part C risk scores in 2010 for aged and disabled beneficiaries is 1.041.  The Part D normalization factor is 1.146.  As previously announced in the Advance Notice, in 2010, the Part D normalization factor will take into account only those beneficiaries who actually have enrolled in a Part D plan, as opposed to all Part D-eligible beneficiaries.  CMS anticipates that this change will help ensure that the beneficiary premium is at the appropriate proportion of plan payments.


Coding Pattern Differences Adjustment


For the first time, for plan year 2010, CMS will make a “coding pattern differences adjustment” to Medicare Advantage risk scores, reducing MA payments to account for differences in disease coding patterns between MA organizations under Part C and the Original Medicare program (Parts A and B).  CMS is required by law to adjust MA payments where it finds differences in coding patterns between Medicare Advantage plans and Part A and Part B providers   The MA coding pattern differences adjustment factor will adjust for the growth in MA risk scores that occurs above and beyond the average growth captured in the normalization factor.


The adjustment will be applied as a uniform 3.41 percentage reduction to all plans’ Part C risk scores in 2010.  CMS calculated the coding pattern differences adjustment factor using the methodology described in Advance Notice, with some modifications made in response to stakeholder concerns.


Part D Benefit Parameters


The Announcement updates the statutory parameters for the defined standard Part D prescription drug benefit.  Updating the parameters helps ensure that the government’s share of Part D costs remains constant over time.  The annual percentage increase in average per capita Part D spending -- used to update the deductible, initial coverage limit, and out-of-pocket threshold for the defined standard benefit for 2010 -- is 4.66 percent.  The annual percentage increase in the Consumer Price Index -- used to update the 2010 maximum copayments below the out-of-pocket threshold for certain dual eligible enrollees -- is approximately 2.65 percent.  CMS revised these percentages to correct calculation errors identified following release of the Advance Notice.  As a result, several of the 2010 Part D benefit parameters differ from those in the Advance Notice (see the table below).



Part D Benefit Parameters



Advance Notice




Defined Standard Benefit      
Deductible $295 $305 $310
Initial Coverage Limit $2,700 $2,780 $2,830
Out-of-Pocket Threshold $4,350  $4,500 $4,550
Minimum Cost-sharing for Generic/Preferred Multi-Source Drugs in the Catastrophic Phase $2.40 $2.50 $2.50
Minimum Cost-sharing for Other Drugs in the Catastrophic Phase $6.00 $6.20 $6.30
Retiree Drug Subsidy      
Cost Threshold $295 $305 $310
Cost Limit $6,000 $6,200 $6,300





Indirect Medical Education Adjustment Phase-out

In addition, the 2010 rates announced today reflect a provision in the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) that requires a multi-year phase-out of the inclusion of costs of indirect medical education in Medicare Advantage rates.  The maximum reduction as part of this phase-out is approximately 0.60 percent per year.


Medicare Secondary Payer Adjustment


Starting in 2010, CMS will use an in-house data source that contains a comprehensive health care insurance profile on all Medicare beneficiaries to identify those beneficiaries who have a payer that is primary to Medicare.   As a result of this change in data source, plans will no longer be required to survey enrollees regarding other payers. 


Private Fee-For-Service Network Provisions


Under MIPPA, beginning in plan year 2011 Medicare Advantage private fee-for-service (FFS) plans that are operating in a “network area” must meet MA access standards through contracts with providers.  The Advance Notice announced the geographic areas that qualify as “network areas” for 2011.  There is no change to this list of “network areas” in the Announcement.


Part D Drug Cost Reporting


Pursuant to a final rule with comment period, published on Jan. 12, 2009, and effective for plan year 2010, Part D sponsors must use the amount paid to the pharmacy as the basis for determining beneficiary cost sharing, developing Part D bids, and reporting drug costs to CMS.  Part D sponsors that contract with a pharmacy benefit manager (PBM) are no longer permitted to use the amount paid to the PBM to report drug costs to CMS and to determine beneficiary cost sharing.  The Advance Notice reminds Part D sponsors to take this change into account in developing their Part D bids for 2010.  There is no change to this item in the Announcement.


Veterans’ Health Care Benefits Adjustment


The statute requires that CMS make an adjustment to per capita fee-for service (FFS) costs to reflect differences in costs attributable to use of services received by individuals eligible for Veteran’s benefits and the Department of Defense.  The Announcement states that, based on a CMS Office of the Actuary analysis, no such adjustment is warranted in 2010 for the additional amount that would have been paid by Medicare if beneficiaries who received care from Department of Veterans Affairs had received that care through Original Medicare instead.   The Office of the Actuary anticipates conducting a similar analysis for beneficiaries who received care from the Department of Defense once those data become available.


The Announcement of Calendar Year (CY) 2010 Medicare Advantage Capitation Rates and Medicare Advantage and Part D Payment Policies may be viewed at


A news release on the Announcement may be viewed at


# # #