2019 CMS Advance Notice Summary – An Encouraging First Look at Next Year

The Centers for Medicare & Medicaid Services (CMS) released the Advance Notice of Methodological Changes for Calendar Year 2019 Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies – the 2019 Advance Notice. Part 1, released in December 2017, covered changes to CMS’ Hierarchical Condition Categories (CMS-HCC) risk adjustment model, while Part 2 outlined planned changes to MA capitation rates applied under Part C, and other regulatory changes that will affect plan reimbursement.

Here is a summary of the Advance Notice’s proposed modifications. Our team continues to evaluate the impact of these regulatory changes, as currently proposed and in their final incarnation, with the final announcement being released on April 2, 2018. Unlike previous releases, the 2019 Advance Notice suggests strong underlying fundamentals and opportunity for MA Plans.

2019 MA Growth Rates

Because the Affordable Care Act (ACA) Part C county benchmark methodology has been fully implemented, benchmarks will be calculated as the specified percentage (95 percent, 100 percent, 107.5 percent, or 115 percent) multiplied by projected fee-for-service (FFS) rates. CMS estimates 2019 FFS growth at 4.08 percent, which includes an underlying trend of 3.81 percent plus an update of the 2018 US per capita costs (USPCC) 0.27 percent estimate.

The applicable amount (the pre-ACA payment methodology) is still relevant because it continues to be used as a cap on payments. The MA growth percentage for aged and disabled enrollees used to calculate the applicable amount is projected at 5.44 percent (higher due to restatement of prior estimates). Both projections are likely to change slightly in April’s final announcement.

Of note is the 4.35 percent effective growth rate for 2019, calculated using a blended growth rate to recognize some counties are subject to the applicable cap, while others will be subject to USPCC rate change. County-specific growth rates will also vary depending on FFS rebasing that CMS will complete in the final announcement.

This payment growth reflects the largest increase in MA benchmarks in several years; however, underlying medical trends are also higher. The increase reflects CMS’ expectations that MA claims cost trends could be rising, influenced heavily by a 2019’s larger increase in Perspective Payment System (PPS) market baskets.

CMS HCC and RxHCC Risk Adjustment Models

The 21st Century Cures Act provides CMS with a new focus on improving predictability of the risk adjustment (RA) model’s claim cost. CMS is proposing changes to several aspects of CMS-HCC risk adjustment model for 2019.

• It will be calibrated using 2014 diagnosis data to predict 2015 costs, which are then adjusted forward to the payment year.
• It will include coefficients to reflect comorbidity of members diagnosed with multiple payment HCCs. Additional risk factors will be added to reflect the count of payment HCCs with which a member has been diagnosed.
• New HCC categories will be introduced for Mental Health, Substance Use, and Chronic Kidney Disease. CMS proposed revision of diagnosis mappings to HCCs and renumbering specific HCCs within these categories.

CMS will phase-in changes to the CMS-HCC model over a three-year period. The new model is proposed to be weighted 25 percent in 2019, increasing by 25 percent until fully phased-in, starting in 2022. The current model will be weighted 75 percent in 2019 and phased-out by 2022.

CMS estimates changes proposed to the CMS-HCC model for 2019 will increase payments to MA plans nationwide by 0.28 percent, but the final impact will vary considerably by plan. 

CMS also plans to update the CMS RxHCC model for 2019. Consistent with PY2018, the PY2019 model is calibrated using 2014 diagnosis reflecting 2015 expenditure data. However, the new model will reflect the 2019 Part D benefit structure to ensure the value of member cost sharing remains consistent.

Adjustment for MA Coding Pattern Differences

In 2010, CMS began reflecting an observed difference in how MA plans were coding diagnoses versus FFS Medicare. In 2010, CMS reduced risk scores for MA organizations by 3.41 percent, and 4.91 percent for 2014. Each year since, the American Taxpayers Relief Act of 2012 required coding intensity adjustment to increase by 0.25 percent and required MA coding adjustment be at least 5.90 percent by 2020. The 2018 adjustment is 5.91 percent, and CMS is proposing the statutory minimum of 5.90 percent, which means effectively no change to coding intensity adjustment for 2019.

Normalization Factors

Because Part C and Part D risk score models were recalibrated, coefficients for these models are now based on more current data. Since risk scores tend to change over time, CMS needs to normalize them in the future to continue to produce a budget neutral (1.0) risk score. At the time of the Advance Notice, CMS expects Part C normalization factors to be 1.041 for the CMS-HCC risk adjustment model (which will be weighted at 75 percent) and 1.038 for the new Payment Condition Count model (weighted at 25 percent). Since the normalization factor was 1.017 in 2018, this will result in a Part C revenue decrease to plans of about 2.25 percent for 2019. The 2019 normalization factor for the CMS-RxHCC model is projected at 1.020.

Transition from RAPS to EDPS

CMS proposed continued use of encounter data (versus RAPS submissions) in calculating risk scores. The risk scores calculated using encounter data will be weighted at 25 percent in 2019 (versus 15 percent in 2018). CMS estimates this will only have a 0.04 percent impact on plans in 2019. However, we expect this will vary significantly by Medicare Advantage Organization. Plans should continue to ensure processes are in place to gather and report encounter data, while quickly troubleshooting submission issues.

Star Program Changes

For 2019, CMS is proposing that when two or more MA / MAPD / PDP contracts of the same plan type under the same legal entity are consolidated, the Quality Bonus Payment (QBP) rating will be the enrollment weighted average of QBP ratings from surviving and consumed contracts. Some MA plans have recently used contract consolidation to achieve greater membership in 4+ Star contracts given performance variability across counties. With this rule, the ability to balance underlying quality performance across contracts will be unavailable, impacting contract reimbursement. Further, this rule was included in the recently passed Budget Bill with the Congressional Budget Office projecting this change to reduce Medicare spending by $520 million over 10 years. 

Ongoing Stars measures adjustments outlined in Part 2: 

• Adding two new Statin measures (Part C and Part D)
• Changing Medication Adherence (Part D), MPF Price Accuracy (Part D) and Members Choosing to Leave the Plan (Part C & D) measures to reflect calculation methodology updates
• Beneficiary Access and Performance Problems (Part C & D) will be permanently removed, and Reducing the Risk of Falling (Part C) will be temporarily removed while Health Outcomes Survey questions are reevaluated (a 2020 display measure)

Select MA Plans will also benefit from proposed statistical methodology that will employ scaled reductions (1-Star to 4-Star reduction) based on the degree of missing Independent Review Entity (IRE) data. This data impacts two Part C (Plans Make Timely Decisions about Reviewing Appeals Decisions) and two Part D measures (Appeals Auto-Forward and Appeals Upheld). Plans with systematic IRE completeness issues (as determined by an audit) receive 1-Star on these measures. The proposed methodology will allow for continued identification of inaccurate data but not unduly penalize Plans with incomplete or inaccurate data. 

The Notice also provides a view of Stars priorities for 2020 and beyond. Many changes and new measures are proposed as well as analysis of existing ratings measures to determine if scores should be terminated. CMS expressed a willingness to change Stars so they incent desired focus by MA Plans on specific outcomes for seniors.

Finally, MA Plans operating in areas where contract enrollees have been displaced due to a 2017 FEMA-designated disaster (such as Hurricane Harvey, Irma, Maria, or the California wildfires) will have additional flexibility related to Stars data collection and reporting, with Puerto Rico receiving the greatest latitude. 

Employer Group Waiver Plans

CMS proposed Part C Bid Pricing Tools (BPTs) will no longer be submitted for Employer Group Waiver Plans (EGWPs). Plans were once required to only submit Part C BPTs. CMS therefore eliminates more administrative burden.

However, CMS is also replacing the submission process for EGWPs with set payment rates using non-EGWP, individual bid amounts as the basis for plan payment. CMS has introduced this policy in phases. However, for 2019, CMS proposes to fully implement this policy. While the phase-in let EGWPs adjust to setting payment rates, full implementation may create additional reimbursement pressure for EGWPs. 

Conclusion

For MA Plans, the 2019 Advance Notice advances CMS priorities related to Risk Adjustment and Stars. It is critical MA Plans remain vigilant in ensuring underlying capabilities related to Reimbursement / Medical Cost Management, Risk Adjustment, and Stars can respond effectively to change.