2014 Final Call Letter: CMS Raises Medicare Advantage Rates But Foreshadows Other Significant Program Changes

Author:Mr Roy Albert, Theresa C. Carnegie and Tara E. Swenson
Profession:Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

After receiving many comments on its Draft Call Letter, CMS published its Contract Year 2014 Final Call Letter on April 1, 2013. The Final Call Letter addresses a wide variety of issues that will affect all parties involved in Medicare Advantage ("MA") and Medicare Part D arrangements, including plans, beneficiaries, providers, and administrative services entities, such as pharmacy benefit managers ("PBMs"). In addition to announcing and explaining changes that parties must adapt to for CY 2014, CMS also provides insight into program modifications it is considering for CY 2015. Below we discuss some of the important changes that will affect plans, providers, and beneficiaries, and we highlight areas where CMS scrutiny is increasing.

Changes to Plan Reimbursement and Administration

Payment Increase - CMS Assumes Physician Fee Schedule Fix

CMS heeded the call from many commenters who took issue with CMS's proposed methodology that would have led to MA rate reductions in 2014. The Social Security Act mandates that the MA growth percentage reflect HHS's estimate of the per capita rate of growth in expenditures. The Draft Call Letter assumed a 25% reduction to the physician fee schedule based on no fix to the sustainable growth rate. In the Final Call Letter, CMS shifted its position to instead assume Congressional action to fix rate reductions and a 0% change for the 2014 physician fee schedule. The result of this change is monumental - instead of a 2.2% decrease, MA rates are expected to increase by 3.3%. Members of Congress and industry groups have praised CMS's revised position. Annual rate setting is always a critical issue for Medicare Advantage Organizations ("MAOs") and they will collectively breathe a sigh of relief, for now, given how close CMS came to finalizing the significant rate reductions.

Updated CMS-HCC Risk Adjustment Model/Recalibration

CMS responded to commenters requesting that CMS delay implementation of the updated CMS-HCC risk adjustment model proposed in the Draft Call Letter. The updated CMS-HCC model applies more current data in updates and includes clinical revisions of diagnoses in each HCC. Stakeholders identified a wide range of concerns with the new CMS-HCC model, including that it could decrease risk scores and payments, and negatively impact MA plans with a significant number of chronic conditions. As a result, CMS elected to finalize the proposed model, but limited the impact of the change by blending the risk scores to take into account both the 2013 and the 2014 CMS-HCC models. For 2014, CMS will weigh the normalized risk scores from the 2013 model by 25%, and the normalized risk scores from the clinically revised model by 75%. Although CMS may have mitigated some of stakeholders' concerns by blending the risk scores to take into account the 2013 and 2014 models, MA plans should be aware of the specific clinical changes made to the CMS-HCC model that may impact risk scores and plan payments. CMS also adopted an MA Coding Adjuster of 4.91%. Some commenters were concerned that the Coding Adjuster and CMS-HCC risk adjustment model changes were duplicative but CMS believes that it has accounted for the changes to the risk adjustment model when it calculated the Coding Adjuster and therefore there is no duplication.

CMS Questions Value of MA Health Risk Assessments

CMS received many comments about its proposal to require MA plans to "flag" diagnosis codes reported as a result of a Health Risk Assessment ("HRA") and to potentially exclude diagnoses reported through an HRA and for which the beneficiary did not receive follow-up care. CMS has delayed the "flag" requirement until 2014 dates of service and intends to propose and finalize a policy regarding the extent to which diagnoses from HRAs, without follow-up care, may be used to calculate risk scores for payment year 2015.

In its Draft Call Letter, CMS announced that it was considering whether or not the MA HRAs provide valuable information for risk adjustment purposes. CMS recognized that HRAs can identify gaps in care, contribute to improved care, and promote prevention, but was concerned that these evaluations were used to collect diagnoses codes and do not result in follow-up care or treatment for the beneficiary. Multiple commenters were concerned that the proposal conflicted with the current CMS-HCC risk adjustment...

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