On April 1, 2024, the US Centers for Medicare & Medicaid Services (CMS) released the Announcement of Calendar Year (CY) 2025 Medicare Advantage (MA) Capitation Rates and Part C and D Payment Policies (Rate Announcement). CMS also issued a press release, fact sheet and Part D redesign program instructions. The Rate Announcement is released on an annual basis and includes updates to the capitation and risk adjustment methodologies used to calculate MA plan payments, as well as other payment policies that impact Part D. The Rate Announcement largely finalizes the policies CMS previously proposed in its Advance Notice released on January 31, 2024.
Among other provisions, the Rate Announcement includes the following updates:
MA Payment Changes/Growth Rates: The effective growth rate for 2025 MA non-end-stage renal disease (ESRD) rates is 2.33%. Accounting for the impact of the benchmark rate cap, MA rebate and other policies, the net impact on the Medicare trust funds for CY 2025 is expected to be $8.8 billion. Payments from the government to MA organizations (MAOs) will increase by 3.70% on average from 2024 to 2025, as finalized in the Rate Announcement. Below is the year-to-year percentage change in MAO payments, which did not significantly change from the 2025 Advance Notice.
Part C Risk Adjustment Model: For CY 2024, CMS implemented several changes to the hierarchical condition category (HCC) risk adjustment model, including restructuring the condition categories using the ICD-10 classification system, updating the underlying fee-for-service (FFS) data years, and revising the denominator year that is used in determining the average per capita predicted expenditures to create relative factors in the HCC model. Risk scores for CY 2024 are deduced using a blend of the risk scores calculated with the 2020 CMS-HCC model and those calculated with the 2024 CMS-HCC model. For CY 2025, CMS will continue this phased-in approach, despite pushback from stakeholders, and will calculate CY 2025 risk scores using 33% of the risk score calculated with the 2020 model and 67% of the risk score calculated with the 2024 model. The CY 2025 impact on MA risk scores of the blended models (compared to the blend in CY 2024) will be -2.45%, representing $9.2 billion in estimated net savings to the Medicare trust fund in 2025.
CMS will use a calculation methodology for normalization factors that more accurately accounts for the impact of the COVID-19 pandemic. The methodology will allow CMS to incorporate recent average FFS risk scores without excluding any years of risk scores and includes using a COVID-19 “indicator flag” to differentiate risk scores that were based on diagnoses from before and after the onset of COVID-19.
Part D Benefit/Inflation Reduction Act of 2022 (IRA): The Rate Announcement discusses several updates the IRA made for 2025, including:
As a result of the IRA, CMS finalized updates to the Part D risk adjustment model to reflect the Part D benefit design.
CMS is required to update the parameters for the defined standard Part D drug benefit annually. This is meant to ensure that the actuarial value of the drug benefit tracks changes in Part D expenses. For non-low-income subsidy beneficiaries, the Rate Announcement outlines the benefit parameters for defined standard benefits in 2025 as follows:
Part C and D Star Ratings: The Rate Announcement includes the list of measures that will be used to calculate the 2025 Star Ratings, as well as a list of the emergency areas that were affected by emergency declarations in 2023 for purposes of making adjustments under the extreme and uncontrollable circumstances policy. Other updates include:
Medicare Plan Finder Drug Pricing Measure (Part D). In the Rate Announcement, CMS discusses feedback regarding the potential new measures, as well as the ongoing work it is undertaking to develop measures in these areas. In most instances, stakeholders requested additional information, raised potential challenges or expressed mixed support with the measure concepts. CMS notes that it will share this feedback with the NCQA and will provide additional information to support any proposals for new display measures in the future.
McDermott Will & Emery will host a webinar breaking down the policies announced in the Rate Announcement and forthcoming CY 2025 Medicare Advantage and Part D Final Rule. Date and time to be released upon publication of the final rule.
For more information, please contact Kristen O’Brien, Mary Moll Alexandre (McDermott Will & Emery – Partner) and Emily R. Curran (McDermott Will & Emery – Associate).
