Fact Sheets




The Centers for Medicare & Medicaid Services (CMS) today issued the “Advance Notice” of changes in methods that will be used to calculate capitation rates for payments to Medicare Advantage organizations for 2010.   The Advance Notice also announces policy and technical changes to the payment methodology for Medicare Advantage and Medicare prescription drug plans.  The Advance Notice is issued annually 45 days before the final rates are announced, in accordance with statute.  


The technical adjustments announced in the Advance Notice issued today include a preliminary estimate of a 0.5 percent increase in the National Per Capita Medicare Advantage Growth Percentage.    For 2010, Part C capitation rates will be based on 2009’s county capitation rates updated by the Medicare Advantage Growth Percentage.  The Growth Percentage is the estimated growth in per capita expenditures for all Medicare beneficiaries whether they are receiving their coverage through Medicare Advantage or Medicare prescription drug plans.  The final capitation rates for each county will be announced in the Rate Announcement scheduled for publication on April 6, 2009.  The county capitation rates define the upper limit for CMS payments to Medicare Advantage plans.


The Advance Notice also describes changes in risk adjustment of payments to Medicare Advantage and to Medicare prescription drug plans. Under risk adjustment, higher payments are directed to plans enrolling beneficiaries with greater health care costs.   The notice announces preliminary estimates of the normalization factors used to maintain average Part C and Part D risk scores at 1.0 in the payment year.  The preliminary estimate of the normalization factor applied to Part C risk scores for aged and disabled beneficiaries is 1.041.


The preliminary estimate of the normalization factor that applied to Part D risk scores is 1.146.   CMS has changed the calculation of the Part D normalization factor to take into account only those beneficiaries who actually enroll in a Part D plan, as opposed to all those beneficiaries who are eligible to enroll in a Part D plan. CMS anticipates that this change, to help ensure that the average enrollee risk score is equal to 1.0 and to keep the beneficiary premium at the appropriate proportion of plan payments, will place upward pressure on beneficiary premiums while reducing the amount paid by the government.



CMS is planning to make an adjustment for differences in coding patterns between Medicare Advantage plans and Medicare Part A and Part B providers identified by CMS, as required by statute.   The adjustment is calculated based on the amount by which the disease scores for beneficiaries in Medicare Advantage have grown faster than disease scores for beneficiaries in Original Medicare over the period 2008 to 2010.  The adjustment will be applied as a uniform 3.74 percentage reduction to all plans’ Part C risk scores in 2010.


The Advance Notice also announces the annual updates to the Medicare Part D benefit parameters.   Every year CMS is required to update the statutory parameters for the defined standard Part D prescription drug benefit.  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 3.13 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 2.06 percent. The 2010 Part D benefit parameters outlined in the Notice are provided in the table below.



Part D Benefit Parameters

2009 2010
Defined Standard Benefit    
Deductible $295 $305
Initial Coverage Limit $2,700  $2,780
Out-of-Pocket Threshold $4,350  $4,500

Minimum Cost-sharing for Generic/Preferred

Multi-Source Drugs in the Catastrophic Phase

$2.40 $2.50

Minimum Cost-sharing for Other Drugs in the

Catastrophic Phase

$6.00 $6.20
Retiree Drug Subsidy    
Cost Threshold $295 $305
Cost Limit $6,000 $6,200


CMS calculates a Medicare Secondary Payer (MSP) adjustment for each Medicare Advantage contract that for the past several years has been based on survey data received from plans on their working aged and working disabled enrollees.   The 2010 Advance Notice states that survey data from plans will no longer be required because CMS now has an in-house source of MSP information from the coordination-of-benefits (COB) contractor that maintains a comprehensive health care insurance profile on all Medicare beneficiaries.  Under this approach, monthly payments will be adjusted for MSP status at the beneficiary level using CMS’ COB information.  



Under the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA), beginning in plan year 2011 Medicare Advantage private fee-for-service (FFS) plans that are operating in a network area must meet the access standards through contracts with providers.   The Advance Notice announces the geographic areas that qualify as “network areas” for 2011.


Pursuant to a final rule with comment period, published on Jan. 12, 2009, 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.


Other provisions in the Advance Notice:


  • Remind Medicare Advantage plans that under MIPPA, the cost of indirect medical education is being phased out of the Medicare Advantage rates.   The maximum adjustment reduction is 0.60 percent; and
  • Announce that, based on a CMS Office of the Actuary analysis, no adjustment to per capita FFS costs is warranted 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 FFS Medicare instead.


The Advance Notice may be viewed at


Comments on the Advance Notice are invited and must be submitted by 6 p.m. EST on Friday, March 6, 2009.   Comments may be submitted by e-mail to


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