Fact Sheets

Fact Sheet: Moving Medicare Advantage and Part D Forward

Fact Sheet: Moving Medicare Advantage and Part D Forward

CMS announces final 2016 payment and policy updates for Medicare Advantage and Part D

On April 6, CMS released final updates to the Medicare Advantage and Part D programs through the 2016 Rate Announcement and Call Letter. The finalized policies will continue to strengthen the growing Medicare Advantage program, and continue the successful implementation of the Affordable Care Act’s reforms that improve quality and provide greater protections for beneficiaries and value for taxpayers.  

The 2016 Medicare Advantage and Part D Rate Announcement and Call Letter are available at: under “Announcements and Documents.”

CMS released the Advance Notice and Draft Call Letter on Friday, February 20, 2015. CMS accepted comments through Friday, March 6, during which time CMS received a significant amount of feedback on the proposed policies. CMS reviewed comments closely, and adjusted some policies in response to stakeholder concerns in the final version released today. 

Recent Trends in Medicare Advantage and Part D

In recent years, both the Medicare Advantage (MA) and Part D programs have continued to grow, quality of participating plans has continued to increase, and premiums have remained stable. In the MA program:

  • Enrollment continues to grow – MA enrollment has increased by 42 percent since passage of the Affordable Care Act in 2010 to an all-time high of more than 16 million beneficiaries, with nearly 30 percent of Medicare beneficiaries enrolled in an MA plan.
  • Plan quality continues to improve – In 2015, 60 percent of MA enrollees will be enrolled in a 4 or 5 star plan, compared to an estimated 17 percent back in 2009.
  • Premiums remain affordable – Average premiums today are lower than before the Affordable Care Act went into effect, dropping 6 percent between 2010 and 2015.

Moving the Medicare Program Forward – Greater Value for the Programs

The 2016 Rate Announcement and Call Letter continue to advance broader efforts at the Department of Health and Human Services and CMS to move the Medicare Advantage and Part D programs toward value and quality. On January 26, Secretary Burwell announced a new initiative to move the Medicare program, and the health care system at large, toward paying providers based on the quality, rather than the quantity of care they give patients.  Through the policies finalized in the Rate Announcement and Call Letter, CMS is moving to further align the Medicare Advantage and Part D programs with those goals.  

  • Higher Quality of Care­ – The 2016 Call Letter includes updates to the star rating system used to assess the performance of plans in providing enrollees with high quality care.  These updates would strengthen the accuracy of the evaluation system.  The Call Letter also includes a commitment to further study the relationship between dual-eligible or Low Income Subsidy (LIS) status enrollees and plan performance. 
  • More Information for Enrollees – The 2016 Call Letter will drive improvements to the information available to beneficiaries regarding plan networks, including an emphasis on requirements for plans to maintain accurate provider directories for beneficiaries. 
  • Payment Reform – The 2016 Call Letter announces CMS’ intention to work with plans to collect information on the adoption of valued-based payment models among health plans.

2016 Rate Announcement

In the 2016 Rate Announcement, CMS finalized updates to the methodologies used to pay MA plans and Part D sponsors that are intended to improve payment accuracy and encourage quality. 

As in previous years, due to Affordable Care Act provisions, CMS continues to move payments towards aligning MA program payments with payments made for beneficiaries in Fee for Service Medicare, helping to ensure fairness in the program. 

Net Payment Impact

The chart below shows the expected impact of the proposed policy changes on plan payments relative to last year.  

Year-to-Year Percentage Change in Payment





Advance Notice


Rate Announcement

Effective Growth Rate




Transition to ACA rules



- 0.8%





Improved star ratings




Risk model revision


- 1.7%


MA coding intensity adjustment


  - 0.25%




- 0.4%


Expected Average Change in Revenue from Advance Notice Policies




Coding trend




Expected Average Change in Revenue








1 Rebasing/re-pricing impact was dependent on finalizing average geographic adjustment index

2The 2.5 percentage point increase from the Advance Notice to the Final Notice comprises 1.9 percentage points of additional FFS spending through 2015, an underlying additional FFS trend rate of 0.6 percent for 2016, and 0.1 percent for the assumption that Congress will enact the pending legislation to permanently fix the SGR. Numbers do not add to rounding.

Updated Growth Rate

The 2016 rate announcement reflects an underlying per capita growth of 1.9 percentage points of additional FFS spending for 2014 and 2015 and 0.6 percent for 2016, and 0.1 percent for the assumption that Congress will enact the pending legislation to permanently fix the SGR. The updated growth rates reflect the Office of the Actuaries’ best estimate of Medicare spending and are not the product of discretionary CMS policy. The underlying per capita FFS costs continue to demonstrate a historically slow health care growth rate and that growth rate remains below the per capita gross domestic product growth rate. Initial information from Medicare actuaries suggests that contributing factors behind the change from the preliminary growth rate include higher than expected spending on inpatient hospitalizations and some intermediary services such as therapy, rural health clinics and federally qualified health centers.  As always, when changes occur, we’ll continue to watch developments closely and work to understand these factors in greater detail.

Coding Pattern Adjustment

Each year, as required by law, CMS makes an adjustment to plan payments to reflect differences in diagnosis coding between Medicare Advantage organizations and Fee-for-Service (FFS) providers.  For CY 2016, CMS finalized the proposed policy to make an adjustment reflective of the statutory minimum of 5.41 percent.   

Risk Adjustment Model

For CY 2015, CMS used the 2013 CMS-HCC and 2014 CMS-HCC models, blending the resulting risk scores from each model at 67 percent and 33 percent, respectively. In the 2016 Rate Notice, CMS finalized the proposed policy to end the blend and calculate risk scores based entirely on the 2014 CMS-HCC model. This revised model comprises both an update to the data years used to recalibrate the model, and a clinical update to the disease categories to reflect more recent clinical experience.  The advantages of using this model include reflecting more recent utilization and costs, being more clinically accurate, and including updates to accommodate ICD-10 codes. 

Using Encounter Data

Historically, CMS calculated risk scores using diagnoses submitted from FFS providers and diagnoses submitted by MA plans into CMS’ Risk Adjustment Processing System (RAPS).  In recent years, CMS began collecting encounter data from MA plans to develop more accurate payment models. In 2015, CMS added Encounter Data as an additional source of diagnostic data used to calculate risk scores. For 2016, CMS finalized the proposal to use encounter data to calculate risk scores, by blending encounter data-based risk scores with RAPS-based risk scores.

Part D Risk Adjustment Model

For 2016, CMS finalized the proposed updates to the Part D risk adjustment model encompassing the following changes:

  • Update to reflect the 2016 benefit structure;
  • Updates to the data years used to calibrate the model;
  • Clinical update to the diagnoses included in some prescription drug hierarchical condition categories (RxHCCs);
  • Inclusion of Part D data for Medicare Advantage- Part D sponsors in the model calibration; and
  • An actuarial adjustment to the Chronic Viral Hepatitis C RxHCC.

This Part D model is designed to improve predictive accuracy.

2016 Call Letter

In the 2016 Call Letter, CMS finalized a number of proposed improvements to the Medicare Advantage and Part D programs.   These updates are intended to drive quality improvement in the care enrollees receive, as well as to strengthen beneficiary protections within the program.

Value-Based Contracting

In January 2015, the Secretary announced the Administration’s vision for moving the health care system toward paying providers based on quality rather than the quantity of care they provide. In the Call Letter, CMS continues to signal an intention to begin working with plans participating in Medicare Advantage to better understand, through a voluntary effort, the extent to which they use value-based payment models to compensate providers offering services to their enrollees.

Recently, the Department of Health & Human Services (HHS) launched the Health Care Payment Learning and Action Network to help advance the work being done across sectors to increase the adoption of value-based payments and alternative payment models. Information about this initiative and how to participate can be found at

Changes to Star Ratings

Last fall, CMS released a Request for Information (RFI) seeking research or analyses that could demonstrate a causal relationship between dual-eligible or LIS status of a plan’s enrollees and a plan’s ability to achieve high star ratings. After reviewing the results of this RFI and conducting extensive research, CMS proposed to reduce by 50 percent the weight of seven targeted measures for 2016. 

Based on stakeholder concerns, CMS decided not to finalize the proposed policy and will make no changes to the 2016 Star Ratings for dual-eligible or LIS effects.  While many commenters appreciated CMS’ focus on this subject, commenters did not feel the interim solution was the appropriate step. Given the uncertainty about the appropriate payment response, any adjustments will be based on further in-depth examination of the issue by CMS and HHS, and external measure developers, to determine the driving factors for the difference that has been observed in the preliminary research. CMS will also continue to consider appropriate interim adjustments.  

Accuracy of Provider Directories

Under current program rules, Medicare Advantage Organizations are required to maintain accurate provider network directories for the benefit of enrollees. CMS finalized the proposed reinforcement of existing rules regarding the accuracy of these directories to make certain plans are aware of their responsibility to maintain accurate directories. CMS also clarified its expectation that plans update directories in real time, and have regular, ongoing communications with providers to ascertain their availability and, specifically, whether they are accepting new patients.

Preferred Cost Sharing Pharmacies (PCSP)

Part D plans have the ability to form networks of pharmacies that offer “preferred cost sharing;” or lower cost sharing arrangements for beneficiaries than those offered by other network pharmacies.  Part D plans must maintain network adequacy standards for all network pharmacies, though there are no comparable standards for access to preferred cost sharing pharmacies. CMS is not seeking to establish such standards; however, based on recent research, CMS is concerned about some plans’ beneficiary access to preferred cost sharing pharmacies and about the transparency of preferred cost sharing pharmacy network access. CMS therefore proposed to publish information on Preferred Cost Sharing Pharmacies access levels for each plan offering a preferred cost sharing benefit structure. CMS also proposed to work with plans that are outliers with respect to access to preferred cost sharing networks to either improve access or prevent plans from marketing themselves as offering preferred cost sharing in areas where the benefit is not meaningfully available. 

CMS finalized the majority of the proposed policy, with a few modifications.  Rather than working with outliers individually during bid negotiation, CMS will require plans that are outliers with respect to preferred cost sharing pharmacy access to affirmatively disclose their outlier status in 2016 marketing materials. Prior to approving 2016 bids, CMS will also work with plans that have been identified as extreme outliers to address concerns about beneficiary access and marketing representations. Finally, CMS will move forward with its proposal to publish information on preferred cost sharing pharmacy access for all plans offering preferred cost sharing.

Total Beneficiary Cost

Through the bid process, CMS tracks the Part C Total Beneficiary Cost (TBC) in Medicare Advantage, which assesses the collective impact on plan enrollees of changes in premiums, benefits, and other factors on plan enrollees. By statute, CMS has authority to deny bids that propose too significant an increase in costs or decrease in benefits. As with last year, CMS intends to keep the level of acceptable increase to $32 per member per month. To support continued quality improvement, this year, CMS finalized the proposed policy to modify the Part C TBC evaluation methodology for plans experiencing large overall adjustments resulting from quality increases and decreases.