Press Releases



The Centers for Medicare & Medicaid Services announced today that Medicare+Choice reimbursement in 2004 will, in most counties in the United States, be larger than the two percent minimum increase guaranteed by law.  However, payments will only increase by the two percent minimum for most beneficiaries enrolled in Medicare+Choice plans, since most beneficiaries are concentrated in the counties due to receive the minimum payment increase.

Today's announcement contains CMS’   preliminary estimates of the national growth rate used for determining the increases in Medicare+Choice payment rates in all counties. The increases for 2004 include an adjustment for changes in the growth estimates for previous years. The final new rates for all counties will be announced on May 12, as required by law.

“While today’s announcement is promising, we still need to see what the final payment rates will be in 2004,” said CMS Administrator Tom Scully.   “Medicare beneficiaries really don’t want to see any more plans reduce their benefits or leave the program.

“Millions of Medicare beneficiaries enrolled in these plans like having a choice in how they get their health care and President Bush’s framework to modernize Medicare will expand those choices while strengthening the existing managed care program,” Scully said.   “At the same time, we need to make sure we pay the health plans appropriately and accurately for the specialized services they deliver to the sickest and the frail Medicare beneficiaries.”

In the notice posted today on the CMS website at, CMS also announced that it will phase in more accurate risk adjustment methodologies to help Medicare managed care plans that enroll the sickest beneficiaries.   For the first time, in 2004, payments to Medicare+Choice plans will reflect the new risk adjustment methodology based on both diagnoses from inpatient hospitalizations and outpatient and physician settings.  The new methodology, called the CMS-HCC model, is expected to increase payments to plans that care for the sickest beneficiaries – those patients who stand to gain the most from managed care's focus on coordinating care.

CMS currently pays Medicare health plans a fixed monthly amount per beneficiary, adjusted by factors such as age, sex, and Medicaid status and inpatient hospital diagnoses.   Risk adjustment looks at a person's diagnosis in one year and predicts how much, if any, additional cost there will be for that person the next year. The payment formula was established by Congress in the Balanced Budget Act of 1997 and most recently, in the Benefits Improvement and Protection Act of 2000 (BIPA), Congress required that CMS begin adjusting payments in 2004 based on diagnoses from inpatient, outpatient, and physician settings. 

CMS is required to phase in the risk adjustment payment method over eight years.   In 2004, 30 percent of a plan's payment for each Medicare+Choice beneficiary will use the new risk adjusters, while 70 percent of the payment for each beneficiary will be based on the previous system.  From 2000 to 2003, only 10 percent of a plan’s payment was based on risk adjusters.  The full effects of risk adjustment will be phased in between 2004 and 2007.

Today’s notice also includes provisions to ensure that CMS pays accurately for treating frail elderly enrolled in specialty plans.   Specialty plans include PACE plans (Program for All-inclusive Care for the Elderly) and certain demonstrations that have a high proportion of frail elderly enrollees.  CMS has found that adjustment is needed to pay accurately for community-based beneficiaries enrolled in these specialty plans.

For PACE plans, the new frailty adjustor will be based on activities of daily living (ADLs) such as dressing, eating or walking.   It allows CMS to base PACE organization payments on the Medicare+Choice payment rates and also take into account the level of frailty of PACE enrollees.  In 2004, only 10 percent of payments will use the new risk and frailty adjusters and the remaining 90 percent will be based on a plan’s current payment methodology.  The full effects of risk/frailty adjustment will be phased in by 2008.