Sheppard Mullin continues to see a lot of interest in the Medicare Advantage (MA) marketplace from our managed care payor clients, as well as our health system clients, many of whom are well-positioned to enter this space as provider sponsored health plans.

The most recent MA Call Letter, “Announcement of Calendar Year (CY) 2018 Medicare Advantage Capitation Rates and Medicare Advantage and Part D Payment Policies and Final Call Letter and Request for Information” (Call Letter) ( was published on April 3, 2017.

In significant part, the Call Letter signals business as usual for MA plans. For example, plans will receive a less-than-inspiring .45% average revenue increase for CY 2018. Nevertheless, several themes have emerged from the Call Letter that are worth consideration – for example, the Call Letter allows greater flexibility to plans to develop and implement innovative payment and service delivery models, and the Call Letter invites stakeholders and the public to provide input regarding changes to the MA program.

Through the Call Letter, CMS is signaling the industry to watch the following areas:

  • MA Value-Based Insurance Design Model
  • Part D Enhanced Medication Management Therapy Model
  • Benchmark Cap
  • Calculation of FFS Spending

MA Value-Based Insurance Design Model

The MA Value-Based Insurance Design (VBID) Model presents an opportunity for participating plans to offer supplemental benefits or reduced cost sharing to enrollees with specified chronic conditions. The purpose of the model is to test whether this can improve health outcomes and lower expenditures for enrollees. Currently, there are eleven (11) MA and MA-Prescription Drug (PD) plans participating in the VBID Model. In 2017, these conditions include: diabetes, congestive heart failure, COPD, past stroke, hypertension, CAD, mood disorders and combinations of these categories. This model, which began on January 1, 2017, will continue through December 31, 2021. For more details:

In related news, on April 6, 2017, Representative Diane Black (R-TN) introduced H.R. 1995, cosponsored by Earl Blumenauer (D-OR), Cathy McMorris (R-WA) and Debbie Dingell (D-MI), which seeks to provide for national testing of the MA VBID Model by expanding the MA-VBID demonstration to all 50 states. You can read a summary of the bill here:

Part D Enhanced Medication Management Therapy Model

Another model coming out of the CMS Innovation Center is the Part D Enhanced Medication Management (EMMT) Model. The EMMT Model is testing whether giving Part D sponsors additional payment incentives, as well as regulatory flexibility, promotes improved therapeutic outcomes and reduces net Medicare expenditures. We may see an expansion of the EMMT Model to all states as stakeholders have expressed concern regarding the potential for the improvements in quality resulting from these tests to adversely influence the Star Ratings of contracts that are ineligible to participate.

Benchmark Cap

The benchmark cap was implemented by the Affordable Care Act (ACA) and caps MA payment at the pre-ACA level, plus growth updates). However, this policy has been problematic for high quality MA plans with a Star rating over 4, as these plans may not receive the quality incentive if they are in a capped county. As background, MA payments are tied to quality through the program’s Star Rating system, which rewards plans with a 4-Star rating or higher (up to 5 Stars) with a Quality Bonus Payment (QBP). Many in the industry believe CMS has the discretionary authority to eliminate the benchmark cap or to remove quality bonuses from the calculation. In the Call Letter, CMS expressed that it shares the plans’ concerns regarding the cap. However, its position is that the benchmark cap is a statutory provision that will continue to be in effect for 2018.

Calculation of FFS Spending

For context, CMS uses claims (diagnosis and cost information) from Medicare FFS beneficiaries to calculate risk scores, and then uses risk scores to estimate payments for MA plans. Risk scores estimate costs for both beneficiary characteristics (gender, for example) and health conditions. These scores are intended to account for the degree to which a MA beneficiary’s expected costs differ from the expected costs of the average Medicare FFS beneficiary. Every year, the average risk score changes due to both how visits are coded, as well as the health of the Medicare population. The current model was designed based upon 2015 FFS data to generate an average risk score of 1.0. Going forward, CMS must apply a normalization factor so that the average risk score remains at 1.0. The higher the normalization factor, the lower the risk score, which ultimately lowers payments to plans.

The CY 2018 factor is 1.017, which is believed by many in the industry to be incorrect and artificially high due changes in diagnostic coding patterns resulting from ICD 10 implementation and changing payment incentives in FFS Medicare. CMS disagrees and in the Call Letter stated that the increases are not due to an aberration. The agency acknowledged “the uncertainty caused by significant changes in the normalization factor.” As a result, CMS promised to explore options for providing greater stability between payment years