Comments on the 2025 Medicare Part C and D Advance Notice

Matthew Fiedler and Richard Frank commented on provisions of the 2025 Medicare Part C and D Advance Notice published by the Centers for Medicare and Medicaid Services (CMS). The letter makes two main points on CMS’ proposals related to Medicare Advantage (MA) and Part D risk adjustment:

• CMS’ proposed new method for calculating MA risk score normalization factors would generate more accurate factors and, in turn, more accurate MA payments. The method CMS has previously used to project average fee-for-service (FFS) risk scores—and, in turn, set MA risk score normalization factors—would likely perform poorly in the face of the unusual risk score dynamics that have followed the COVID-19 pandemic. Relying on this past method would likely cause CMS to pay MA plans more than it intends, whereas CMS’ proposed method would likely be relatively accurate. CMS’ proposed method does implicitly (and implausibly) assume that the pandemic’s effects on risk scores are permanent, but alternative methods that allow the pandemic’s effects to fade over time produce very similar estimates for 2025.
• Separately normalizing risk scores for standalone Part D prescription drug plans (PDPs) and MA prescription drug plans (MA-PDs) would place PDPs and MA-PDs on a more level playing field. Average observed risk scores are higher in MA-PDs than in PDPs. However, evidence suggests that MA-PD risk scores overstate the actual risk of MA-PD enrollees due to higher coding intensity in MA and favorable selection into MA. In reality, MA-PD enrollees are likely no higher risk—and may actually be lower risk—than PDP enrollees. CMS’ proposal to separately normalize MA-PD and PDP risk scores so that each market segment has an average risk score of 1.0 would therefore help level the playing field between the two plan types. Indeed, placing MA-PDs and PDPs on a truly level playing field may actually require going farther than CMS proposes.

Read the full comment letter here.