How new Medicare Advantage changes impact payers and providers

In recent weeks, the Centers for Medicare and Medicaid Services (CMS) has taken steps to overhaul parts of the Medicare Advantage (MA) program to drive increases in cost containment, consumer protections, and interoperability and data accessibility — all with an eye toward improving the consumer experience. 

Medicare Advantage background

The MA program, which was created by Congress nearly 20 years ago to improve care quality by paying private health insurers for enrollees’ expenses, is on track to account for more than 50% of the eligible Medicare population in 2023.¹ The program’s popularity among Medicare beneficiaries — and the resulting increase in federal spending on Medicare Advantage plans — has drawn increased scrutiny from Congress and federal watchdog groups, particularly related to risk adjustment, prior authorization and marketing practices.

This scrutiny, along with recent rulemaking from CMS, forbode significant implications for payers and providers. Below, we highlight four key regulatory and legislative focus areas of the MA program — and actions payers and providers can take as they navigate the evolving landscape.

1. Risk adjustment and medical coding intensity

Risk adjustment, the process of predicting health care costs by assigning a risk score to beneficiaries based on their health status, has been the focus of congressional hearings and reports from the U.S. Department of Health and Human Services Office of Inspector General (HHS OIG) and the Government Accountability Office for several years.

The concern is that the current risk adjustment process motivates some health plans to generate documentation that depicts beneficiaries as more ill than they actually are to maximize risk-adjusted payments. Estimates suggest this type of upcoding could be increasing risk-adjusted payments into the billions of dollars — which is particularly concerning as lawmakers grapple with ways to prolong the Medicare Trust Fund, which the Medicare trustees estimate will become insolvent in 2031.²

But in February 2023, after nearly two decades of debate, CMS finalized a much-awaited rule³ that updates the MA Risk Adjustment Data Validation (RADV) program and improves HHS’ ability to recoup RADV overpayments. Under the rule, CMS will now extrapolate RADV audit findings and apply the sample error rate across the whole plan, starting with the 2018 performance year. This change is expected to result in the recovery of $479 million in overpayments from Medicare Advantage plans for 2018 and $4.7 billion for plan years 2023 to 2032. Health plans say that CMS’ sweeping new policy and exclusion of a so-called fee-for-service adjuster will increase costs, reduce choice and limit their ability to effectively manage seniors’ health. 

CMS also recently finalized its Calendar Year (CY) 2024 MA Rate Announcement,⁴ which includes a 2.16% revenue cut tied to proposed MA risk model revisions and projects a 3.32% payment bump for 2024 — a sharp decrease from the more than 8% payment bump for 2023, but up from the small 1.03% bump CMS originally projected in the advance notice. The announcement includes several substantial updates to the medical coding system and other data used for the risk adjustment model and targets conditions CMS deems subject to more coding variation, which will be phased in over three years.

Industry action steps

Between the RADV program changes and proposed risk model revisions, risk adjustment programs are quickly working to find their footing in what could become a new normal. Health plans and risk-bearing delegates should carefully assess the impact that these sweeping changes will have on their current operating models, programs and internal controls to inform future state program design (likely with an eye toward program cost reduction and certainly consistent with compliance and other internal controls functions). Additionally, given the timing associated with these changes, health plans should quickly assess tactical readiness and no regret operational, technology and strategic responses across prospective and retrospective programs.

2. Prior authorization and inappropriate denials

Common among health plans, the prior authorization process requires insurers’ advance approval for specific health care services. While this area has been ripe for reform for some time, a recent study by the HHS OIG⁵ revealed that the MA program’s capitated payment model incentivized some MA Organizations (MAOs) to delay or deny prior authorization requests for medically necessary services. Although these instances appear to comprise a minority of claims filed, they also prompted CMS to propose new regulations in December 2022.

CMS' prior authorization proposed rule would require an electronic prior authorization process with a condensed timeline for payers to respond, along with other policies aimed at driving greater efficiency and transparency. For example, CMS proposed adding prior authorization decisions into patient access, provider access, payer-to-payer application programming interfaces (APIs), and the creation of a new prior authorization requirements, documentation and decision (PARDD) API to streamline electronic communication.⁶

Under a separate final rule, CMS added requirements around continuity of care so that approval of prior authorization is valid for the full duration of treatment for a specific ailment or condition, starting in 2024.⁷If each of these proposals are finalized, they could drive congressional action in this space by passing a bipartisan bill that gained traction in the last Congress. Among other things, the bill would require HHS to establish a process for “real-time decisions” for items and services that are routinely approved, encourage plans to adopt prior authorization programs that adhere to evidence-based medical guidelines, and add new transparency requirements for MA plans.⁸

Industry action steps

For payers and providers that are seeking to transform their prior authorization practices to both improve patient experience and get ahead of looming regulations, baking collaboration around prior authorization into the contracting process is an important step. This will enable greater pricing transparency and the earlier collection of vital health information, which can help mitigate the incentives for some of the questionable practices observed by HHS OIG and others.

Stakeholders also may want to explore implementing systems that reward proactive measures around health data collection. On the electronic prior authorization front, investing in automation now is a leading practice that can help drive both pricing transparency and interoperability between payers and providers.

3. Medicare Advantage plans marketing practices

From both a regulatory and legislative perspective, marketing activities for Medicare Advantage plans have faced increased scrutiny in recent months. First, CMS’ final rule for contract year 2024 contains new marketing requirements aimed at protecting beneficiaries from confusing or misleading advertisements, while also equipping them with additional information to make informed decisions about their health coverage.⁹

CMS also discussed implementing a “secret shopping” initiative whereby the agency would evaluate the transparency and candor of television and newspaper ads, mailers and internet search results that beneficiaries encounter as they search for an MA health plan. In addition, the agency has pledged to rein in television ads for MA plans in 2023 and beyond through increased oversight and ramped-up reviews of related marketing materials. On the legislative side, the Senate Finance Committee issued a new report in 2022 on deceptive and aggressive marketing practices around MA,¹⁰ with committee members applauding recent regulatory activity to tamp down on deceptive marketing and calling for additional action.

Industry action steps

These CMS investigations and restrictions on marketing materials are expected to limit current tactics employed by many MA plans to stand out in the ever-growing MA market. As such, payer leaders should reconsider using mailers that say “bill due” or “final notice,” as well as those that offer incentives such as free gifts. Provisions around reduced television airtime will also force brands to think more creatively about their omnichannel marketing efforts, as television has traditionally been the most impactful awareness-building channel, tied closely to inbound sales calls. But new health literacy requirements should be a welcome change to MA marketers who have struggled for years to help seniors understand the complex Medicare ecosystem and obtain CMS approval for easily digestible language in their materials. 

In the long run, brands that embrace these CMS reforms and adopt innovative marketing techniques will be better positioned to earn seniors’ trust, which is critical for gaining and retaining membership. Innovation will be paramount as risk adjustment changes are expected to limit payers’ future revenue, which could result in smaller marketing budgets at the same time plans experience more pressure from leadership to increase market share. 

4. Star ratings and quality updates

Cumulatively, these changes to the MA program are intended to enhance consumer protection for seniors. To that end, CMS also finalized changes to the Medicare star ratings system, which was originally established to enable consumers to compare plan costs and benefits. In the 2024 rate announcement, CMS said updates to the star ratings program are projected to lead to a 1.24% year-over-year cut in payment – this comes after CMS in fiscal year 2023 saw a decline in star ratings.

Other changes to the rating system include the addition of a health equity index reward, implementation of risk adjustment for the medication adherence measures based on sociodemographic status (SDS) and introduction of digital quality measures. CMS is also adding a web-based mode, as an addition to the current mixed mode protocol for the Consumer Assessment of Healthcare Providers and Systems (CAHPS) survey, which would enable plans to achieve a higher response rate.

Additionally, the administration is proposing a universal foundation of quality metrics that will apply across as many CMS quality-rating and value-based care programs as possible, aimed at standardizing and streamlining quality metrics to the most meaningful, while reducing reporting burden and permitting comparisons to drive quality improvement.

Industry action steps

Health plans have an opportunity to boost their star ratings by leveraging an end-to-end approach that utilizes dashboards and last-mile integration to demystify the process. This can help them uncover areas for targeted intervention and optimization, reveal impactful steps to drive results and measure progress for continuous improvement. In addition, by linking supplemental benefits (e.g., transportation to doctor appointments) with star ratings, insurers may be able to develop greater opportunities to interact with beneficiaries.

Rohit Arora and Matthew Vaughn contributed to this publication.