The Centers for Medicare & Medicaid Services (CMS) has released its Advance Notice of Methodological Changes for Calendar Year (CY) 2024 for Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies that would update program policies for Medicare Advantage and Medicare Part D beginning in 2024, if finalized. Notably, CMS proposals center on implementing provisions of the Inflation Reduction Act of 2022 (IRA) related to the Part D benefit for 2024. A press release and fact sheet were also released. Proposals include the following:

• Technical changes to effective growth rates for calculating MA payments,
• IRA-related changes to the Part D benefit,
• Changes to MA risk adjustment methodology,
• Continued Part D risk adjustment model with plans for 2025 IRA-related changes,
• Continued End Stage Renal Disease risk adjustment model, and
• Adjustments to Fee-for-Service (FFS) per capita costs in Puerto Rico.

If all the proposals are finalized, CMS anticipates a 1.03 % increase in MA plan payments compared to last year.

Public comments on the Advance Notice must be submitted by March 3, 2023. If finalized, changes in the Advance Notice would be published in the 2023 Rate Announcement no later than April 3, 2023.

CMS PROPOSES TECHNICAL UPDATE TO EFFECTIVE GROWTH RATE USED TO DETERMINE MA PAYMENT

The effective growth rate reflects the current estimate of growth in benchmarks used to determine payment for Medicare Advantage plans. The growth rate is calculated using the growth in Medicare FFS per capita costs, as estimated by the Office of the Actuary.

For 2024, CMS proposes a technical correction to the per capita cost calculations related to indirect and direct medical education costs associated with services furnished to MA enrollees. This correction results in a one-time adjustment to the growth rates. The resulting effective growth rate (FFS growth percentage) for 2024 is estimated to be 2.09%, with a net impact of $7.3 billion.

AS REQUIRED UNDER THE INFLATION REDUCTION ACT OF 2022, CMS PROPOSES CHANGES TO IMPLEMENT PART D RELATED PROVISIONS

The Inflation Reduction Act of 2022 (IRA) requires several changes to the Part D benefit. To implement these changes, CMS has proposed the following changes for 2024. CMS plans to address provisions that will be effective in 2025 and beyond in future Advance Notices and Rate Announcements.

Elimination of Beneficiary Out-of-pocket Costs in the Catastrophic Phase

To implement section 11201(a) of the IRA, CMS proposes to eliminate the 5% beneficiary coinsurance for covered Part D drugs above the annual out-of-pocket (OOP) amount in the catastrophic phase of coverage beginning in CY 2024. With this change, Part D sponsors would be liable for 20% of costs incurred after a Part D beneficiary has incurred costs that exceed the annual OOP threshold for CY 2024, as compared to approximately 15 percent in prior coverage years.

Expansion of Full Low-Income Subsidy and Sunset of Partial Low Income Subsidy Regarding section 11404 of the IRA, beginning in CY 2024, CMS proposes that the Part D Low-Income Subsidy (LIS) program be expanded by specifically increasing the income limits for the full LIS benefit from 135 percent of the federal poverty limit (FPL) to 150 percent of the FPL. To be eligible for the full LIS benefit, Medicare beneficiaries must earn between 135 percent and 150 percent of the FPL in CY 2024, meet the resources requirements under either of sections 1860D-14(a)(3)(D) or (E) of the Social Security Act, and have been eligible for the partial LIS benefit absent the enactment of the IRA. Under these changes, these beneficiaries would be eligible for full low-income premium and cost-sharing subsidies, and a $0 deductible.

 Part D Premium Stabilization

As part of implementation of section 11102 of the IRA, beginning in CY 2024, CMS proposes that the base beneficiary premium (BBP) growth will be capped at 6 percent. The BBP for Part D is limited to the lesser of a 6 percent annual increase or the amount that would otherwise apply under the prior methodology if the IRA were not enacted.

Specifically for CY 2024, the BPP will be the lesser of the BBP per the prior methodology before if the IRA had not been enacted or 106 percent of the CY 2023 BBP, $32.74.[1] During the usual timeframe after CY 2024 bids have been submitted, CMS plans to release a Health Plan Management System (HPMS) Memorandum titled “Annual Release of Part D National Average Bid Amount and Other Part C & D Bid Information” which will provide more information on the BBP calculation for CY 2024.

Continuation of Existing IRA-related Policies for Insulin and Vaccines

Per statute, CMS will continue its IRA-related cost-sharing policies regarding insulin and vaccines recommended by the Advisory Committee on Immunization Practices (ACIP).

Specifically, for CY 2024, CMS will continue its policy where a deductible will not be charged for any Part D covered insulin product. Also, in the initial coverage phase and the coverage gap phase, cost sharing may not exceed the applicable copayment amount, which for CY 2024 is $35 for a month’s supply of each covered insulin product.

In addition, for CY 2024, CMS will continue its current deductible policy for adult ACIP-recommended vaccines. Vaccines will be exempt from any co-insurance or other cost sharing (e.g., cost sharing for vaccine administration and dispensing fees) during the initial coverage and coverage gap phases.

CMS PROPOSES CHANGES TO MA RISK ADJUSTMENT METHODOLOGY

For CY 2024, CMS proposes to adopt a modified version of the 2020 Part C hierarchical condition categories model (CMS-HCC model) in Part C payment for aged and disabled beneficiaries enrolled in MA plans. As proposed, the 2024 model has the same structure as the 2020 model with eight model segments, but would include several technical updates:

• Updating data years used for model calibration from 2014 diagnoses and 2015 expenditures to 2018 diagnoses and 2019 expenditures,
• Updating the denominator year to determine the average per capita predicted expenditures to establish model relative factors from 2015 to 2020,^[2] and
• Reclassifying HCCs using the International Classification of Diseases (ICD)-10-CM system instead of the ICD-9-CM system.

CMS also proposes removing several HCCs in order l to minimize the impact on risk scores MA coding variation from Medicare FFS. See Table II-4 of the CY 2024 Advance Notice for a comparison of HCC differences between the proposed and current CMS-HCC risk adjustment models.

CMS believes these changes will more accurately reflect cost and utilization patterns, result in more appropriate HCC relative weights, as well as reflect possible changes to physician coding patterns in response to the ICD-10 system.

Relative to last year, CMS projects that the MA payment impact of risk score changes is  -3.12%, which represents a $11.0 billion net savings to Medicare in 2024.

CMS TO CONTINUE PART D RISK ADJUSTMENT FOR CY 2024, WILL PROPOSE CHANGES IN 2025 IN CONSIDERATION OF THE IRA

For CY 2024, CMS proposes to continue using the 2023 Prescription Drug Hierarchical Condition Category (RxHCC) risk adjustment model for Part D as adopted in CY 2023. If finalized, this means that CMS will base RxHCCs on risk adjustment-eligible diagnoses from Medicare FFS claims and encounter data for organizations other than the Program of All-Inclusive Care for the Elderly (PACE). For PACE organizations in CY 2024, CMS proposes to continue using the RxHCC risk adjustment model to calculate Part D risk scores as adopted in CY 2020.

Because there is no change, CMS indicates that no economic impact applies.

However, CMS notes that the risk adjustment model in CY 2024 will not include changes in Part D benefit parameters due the timing of the IRA’s enactment. Accordingly, CMS will recalibrate the Part D RxHCC model from an updated benefit structure and propose changes for CY 2025.

CMS TO CONTINUE END STAGE RENAL DISEASE RISK ADJUSTMENT MODEL FOR CY 2024

CMS uses a separate model (not the CMS hierarchical condition categories (CMS-HCC) model) to calculate risk scores applied in payment for Medicare Part A and Part B benefits provided to end stage renal disease (ESRD) beneficiaries when enrolled in MA plans, Program of All-Inclusive Care for the Elderly (PACE) organizations, and certain demonstrations.

For CY 2024, CMS proposes to continue using the risk adjustment model as adopted in CY 2023. If finalized, this means that CMS will calculate risk scores from Medicare FFS claims and encounter data for organizations other than the PACE. For PACE organizations in CY 2024, CMS proposes to continue using the risk adjustment model to calculate risk scores as adopted since 2015.

Because there is no change, CMS indicates that no economic impact applies.

AGENCY CONSIDERS ADDITIONAL ADJUSTMENT TO FFS PER CAPITA COSTS IN PUERTO RICO

Since 2016, the Office of the Actuary has adjusted the fee for service experience for Medicare beneficiaries in Puerto Rico, due to the high number of beneficiaries in Puerto Rico receiving benefits through Medicare Advantage as compared to FFS. The proposed policies under consideration would provide stability for MA plans and beneficiaries in 2024 by using the higher cost of beneficiaries in FFS with both Medicare Parts A and B, through an adjustment reflective of the number of beneficiaries with zero claims. The adjustment will be determined through an analysis of FFS claims occurring 2017-2021.

The net impact on the Medicare Trust Fund for implementing the zero-claims adjustment in Puerto Rico for CY2024 is expected to be $280 million.

CMS CONSIDERS A CORE SET OF STAR RATINGS MEASURES ACROSS QUALITY RATING AND VALUE-BASED CARE PROGRAMS

Star Ratings are a quality rating system for Medicare Advantage (Part C) and Medicare Part D prescription drug plans. These ratings are released annually and consist of a one-to-five-point scale (with five indicating excellent performance). Measures used to calculate 2024 Star Ratings are included in Table IV-1 of the Advance Notice.

Proposed updates include a list specifying eligible disasters for adjustment, changes to several measure specifications, a list of Part C and D Improvement measures, and the Categorical Adjustment Index for the 2024 Star Ratings.

The Agency also seeks input on potential substantive measure specification updates, new measure concepts, and the addition of measures to align with other CMS programs. Notably, CMS is considering a “Universal Foundation” of quality measures, which would be a core set of measures that are aligned across programs.

The projected payment impact of the proposed policy changes for Star Ratings will be  -1.24 percent. CMS notes that the 2023 Star Ratings used for 2024 Quality Bonus Payments are, on average, lower than the 2022 Star Ratings. This is due to the fact that the adjustments made during the COVID-19 PHE are not included in the 2023 Star Ratings for most measures and there were additional methodological changes from the prior year.

PROPOSED PART D BENEFIT PARAMETERS FOR 2024 PLAN YEAR

Standard Benefit	2023	2024 (Draft)
Deductible Beneficiary is responsible for 100% of drug costs.	$505	$545
Initial Coverage Limit Beneficiary is responsible for 25% of drug costs and the plan sponsor is responsible for 75% of drug costs, until total drug costs reach $5,030.	$4,660	$5,030
Out-of-Pocket Threshold Beneficiary is in the coverage gap until out-of-pocket spending (including the value of any manufacturer rebates) reaches $8,000. During this time, the beneficiary is responsible for 25% of drug costs. For 2023 and 2024, manufacturers are responsible for 70% of drug costs for branded products, via rebate. Plan sponsors are responsible for 5% of drug costs for branded products and 75% of drug costs for generic products.	$7,400	$8,000
Standard Benefit	2023	2024 (Draft)
Catastrophic Coverage Beginning in CY 2024, under the Inflation Reduction Act, there is no cost sharing for covered Part D drugs above the annual out-of-pocket threshold. To eliminate beneficiary cost-sharing in the catastrophic phase, Part D sponsors will be liable for 20 percent of costs incurred after a beneficiary exceeds the out-of-pocket-threshold, as opposed to 15 percent in prior years. The 2023 cost-sharing for beneficiaries in the catastrophic phase was the greater of 5% or the below: Generic/Preferred Multi-Source Drug Other	$4.15 $10.35	N/A N/A
Maximum Copayments for Non-Institutionalized Dual Eligibles
Up to 100% of federal poverty level (FPL) Generic/Preferred Multi-Source Drug Other	$1.45 $4.30	$1.55 $4.60
Between 100% and 150% of FPL Generic/Preferred Multi-Source Drug Brand Drug	$4.15 $10.35	$4.50 $11.20
Partial Subsidy Deductible Coinsurance up to out-of-pocket threshold Maximum copayments above Out-of-Pocket (OOP) threshold Generic/Preferred Multi-Source Drug Other	$104 15%   $4.15 $10.35	N/A N/A   N/A N/A

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This Applied Policy® Summary was prepared by Stephanie Lomas with support from the Applied Policy team of health policy experts. If you have any questions or need more information, please contact Stephanie Lomas at slomas@appliedpolicy.com or at 202-558-5272.

[1] CMS. Annual Release of Part D National Average Bid Amount and Other Part C & D Bid Information. July 29, 2022 https://www.cms.gov/files/document/july-29-2022-parts-c-d-announcement.pdf

[2] As proposed, CMS notes the denominator is $10,402.34.