The April 3, 2017 release of the 2018 Rate Announcement and Call Letter brought some welcome news for Medicare Advantage organizations and Part D sponsors (collectively, sponsors) and could signal improved transparency by the Centers for Medicare & Medicaid Services (CMS) in its regulation of sponsors. House Ways and Means Committee Chairman Kevin Brady (R-TX) and Health Subcommittee Chairman Pat Tiberi (R-OH) issued a joint statement in response to the CMS Rate Announcement:

We are encouraged the Trump Administration took steps to roll back some of the Obama Administration’s flawed payment policies that would have negatively impacted nearly 18 million seniors. We are also pleased that HHS Secretary Price recognized the importance of protecting access to Medicare Advantage, including for patients suffering from kidney disease—a bipartisan priority on our Committee. We look forward to working with the new Administration on policies that promote innovation and competition, improve the quality and coordination of care, and deliver our seniors flexibility and choice in Medicare.

MA Employer Group Waiver Plans (EGWPs).  With CMS’s waiver last year of the bid submission requirement for MA EGWPs, payment rates for these plans have been administratively set based on a blend of EGWP bids and individual market plan bids.  CMS solicited comments in the 2018 Advance Notice on whether it should use only individual market plan bids from 2017 to calculate the bid-to-benchmark ratios for the 2018 MA EGWP payment rates, or whether it should continue to use the bid-to-benchmark ratios applied in calculating the 2017 MA EGWP payment rates. CMS decided to pause the transition to 100% individual market plan bids with the result that 2018 MA EGWP payment rates will continue to reflect a blend of individual market plan bids from 2016 and EGWP bids from 2016, with individual market plan bids weighted by 50% and EGWP bids weighted by 50%.

Prior to making a final decision on MA EGWP payment rates, CMS wants to develop a better understanding of the impact the new payment methodology is having on beneficiaries. CMS intends to seek input and data from EGWP sponsors and other stakeholders on changes in plan offerings in 2017 and 2018 and associated beneficiary impacts.  This pause should not be viewed as a sign of CMS returning to pre-2017 payment practices as “CMS continues to believe that the policy of allowing MAOs to submit composite bids and benefit packages is not an appropriate methodology for payment given the lack of competition and transparency associated with EGWP bids received prior to 2017.”

Encounter Data as a Diagnosis Source for 2018.  For Payment Year (PY) 2017, CMS continued its transition to Encounter Data-based risk scores by calculating the risk score for payment purposes as a blend of two risk scores, weighting the risk score calculated with diagnoses from the Risk Adjustment Processing System (RAPS) and fee-for-service (FFS) by 75% and the risk score calculated with diagnoses from the Encounter Data System (EDS) and FFS by 25%.  CMS proposed to continue that same blend for PY2018 as well as to apply a uniform industry-wide adjustment to the encounter data-based portion of the blended risk score.

In an about-face, CMS announced that it will calculate 2018 risk scores using an 85% RAPS/15% EDS blend.  While it stepped back from the 75%/25% blend proposed in the 2018 Advance Notice, CMS did not revert to the 90% RAPS/10% EDS blend used for PY 2016 because it “wanted to maintain an incentive for plans to submit complete data and demonstrate [its] intention to continue using encounter data to calculate payments.”  CMS’s decision not to continue the 75%/25% blend for 2018 was in recognition of the operational issues that exist in its transition to and implementation of an encounter based system.  These issues were the subject of a GAO report earlier this year.

Beneficiary Access and Performance Problems (BAPP) Measure. The current BAPP measure under CMS’s Star Rating program is based on CMS’s sanctions (this element was suspended in March 2016), civil money penalties (CMPs) related to beneficiary access, and Compliance Activity Module (CAM) data and has been in use for Star Ratings since 2010.  CMS proposed several changes to the BAPP measure for 2018 including: (1) changing the data timeframe to the time period from July of the measurement year to June of the following year in response to requests for more recent data to be used for the CMP portion of the BAPP measure; (2) applying the same deduction for each contract held by a parent organization cited in a CMP notice; and (3) capping the total deduction for a contract for CMPs at 40 points instead of 40 points per CMP.

CMS decided to retain the current BAPP measure in the 2018 Star Ratings.  The reduction in the overall and summary Star Ratings of contracts that are under sanction for the 2018 Star Ratings will not be reinstated.  For 2019, CMS intends to remove all enforcement actions and the reduction for plans under sanction due to audit from this measure.  As a result, the current BAPP measure will be retired for the 2019 Star Ratings and CMS expects to introduce a revised BAPP measure on the 2019 display page.  Finally, CMS is considering whether it is feasible to revise the BAPP measure to no longer include enforcement actions, and instead base it only on CAM data and still have an accurate and valid measure of beneficiary access.

Medicare Advantage and Reinsurance. CMS surprised many when it unexpectedly announced in the 2018 Advance Notice that “quota share arrangements, a pro rata reinsurance where the insurer and the reinsurer share risk (possibly from the first dollar of coverage) based upon an agreed percentage . . . [are] not permissible” under 42 U.S.C. § 1395w-25.  This statement threatened to expose Medicare Advantage organizations that have entered into quota share reinsurance arrangements to enforcement actions for noncompliance with CMS requirements.

Commenters to the Advance Notice educated CMS on quota share reinsurance arrangements including that Medicare Advantage organizations “continue to be responsible to enrollees for full risk of the MA services when the organization has reinsurance arrangements.”  In response, CMS did not proceed with the interpretation that quota share reinsurance is not permitted by the statute.   CMS acknowledged that “the details of an arrangement (whether reinsurance or otherwise) for an MAO to share, transfer, or otherwise shift the risks identified in the exceptions listed in the statute are generally not limited by the statutory text.  The statute permits MA organizations to share risk proportionally, so long as the risk (the type and amount) is in the exceptions.”

Request for Information.  CMS solicits ideas for regulatory, sub-regulatory, policy, practice and procedural changes to better accomplish these goals of benefit flexibility and efficiency.  According to CMS, ideas could include recommendations regarding benefit design, operational or network composition flexibility, supporting the doctor-patient relationship in care delivery, and facilitating individual preferences.  Other ideas include recommendations regarding changes to the way plans are paid and monitored and measured.  Another area could be recommendations regarding when and how CMS issues regulations and policies and how CMS can simplify rules and policies for beneficiaries, providers and plans.  CMS asks for clear and concise proposals that include data and specific examples that could be implemented within the law to increase benefit flexibility, innovation and more affordable plan choices for beneficiaries.  CMS welcomes analysis of its authority for any proposals that involve novel legal questions.  Submissions are due by April 24, 2017 and should be sent to with “2017 Transformation Ideas” in the subject line.