CMS Changes Course on 2014 MA Rates, Announces Hike of More Than 3 Percent

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By Mindy Yochelson  


In a reversal of policy, the Centers for Medicare & Medicaid Services April 1 said it will assume that Congress will override an impending cut in Medicare physician payment in 2014 and announced that Medicare Advantage rates will increase by more than 3 percent in 2014, rather than decline by more than 2 percent as had been proposed.

The average combined effect of the estimated Medicare Advantage growth rate and the fee-for-service growth percentage in 2014 is a 3.3 percent increase, rather than the agency's draft estimate of a 2.2 percent drop, CMS said in the Announcement of Calendar Year (CY) 2014 Medicare Advantage Capitation Rates and Medicare Advantage and Part D Payment Policies and Final Call Letter.

The final estimate of the MA growth percentage in contract year 2014 is 2.96 percent, and the final estimate of the increase in the fee-for-service growth percentage is 3.53 percent.

In its February advance notice, issued 45 days before the final announcement, CMS projected the MA growth rate for 2014 would fall by 2.3 percent and the fee-for-service growth rate by 2.1 percent, with a negative 2.2 percent being the average of those two factors (see previous article).

The agency's previous method of calculating Medicare Advantage rates used the current legal situation--that the Medicare physician fee schedule will be reduced by about 25 percent in 2014 under the sustainable growth rate (SGR) formula. Because MA rates are linked to Medicare fee-for-service spending, when physician rates are cut, there is a related reduction in MA rates.

However, in the final announcement, CMS abandoned that method and calculated the final percentages based on the assumption of a zero percent change for the physician fee schedule for 2014.

Letters From Congress

An avalanche of letters from Congress encouraged CMS to assume that the physician payment cut will be reversed, as it has been for the past decade, thereby allowing a positive impact on rates paid to managed care plans in MA.

Republicans and Democrats, including the chairman and ranking member of the Senate Finance Committee, spoke out against a proposed reduction.

In addition, a last-minute legal analysis from the Congressional Research Service said that the Department of Health and Human Services has considerable discretion to interpret the law when deciding whether to take into consideration the impending cut in physician payments (see related article).

In response to the change, Sen. Orrin Hatch (R-Utah), ranking member on the Finance Committee, said April 1 that “CMS rightly acted to reverse course and implement a responsible rate that will preserve choices and ensure continued access to top-notch quality and affordable care for beneficiaries enrolled in the popular Medicare Advantage program.” The action “reflect[s] the strong bipartisan support for preventing such devastating cuts from occurring,” Hatch added.

The increase for MA plans for 2014 is similar to that for 2013, when it was 3.07 percent.

“The policies announced today further the agency's goal of improving payment accuracy in all our programs, while at the same time ensuring program stability and preserving beneficiary choice,” Jonathan Blum, CMS acting principal deputy administrator, said in an agency press statement.

Reaction From Insurers

America's Health Insurance Plans, the industry group that led the charge against the rate reduction, said April 1 that CMS has been responsive to Congress.

“CMS has taken an important step to help stabilize Medicare Advantage at a time when the program is facing significant challenges,” Karen Ignagni, president and chief executive officer, said in a statement. “We are currently reviewing the final rate announcement and will continue to work with policymakers in both parties to strengthen this critically important part of Medicare that provides high-quality, affordable coverage to more than 14 million seniors and people with disabilities.”

Changing Interpretation

In the final rate notice, CMS remarked that “numerous commenters requested that, when calculating the growth percentage estimates, CMS should assume that there will be a 'fix' to the physician payment rates produced by the sustainable growth rate (SGR) formula in 2014 as there has been for the last eleven years.”

Commenters requested that CMS “avoid subjecting MA plans to a reduction in rates based on an estimate of Medicare spending growth that is lower than it would turn out to be if a fix is enacted,” the notice said.


CMS says it is using a “best estimate of what [it] believes actually will occur to the physician fee schedule for the following year based on recent history.”  



“Accordingly, we are accepting the commenters' recommendation that we change our interpretation of how we calculate the estimate of projected per capita rate of growth … from an estimate of what would occur to the physician fee schedule for the following year under current law to a best estimate of what CMS believes actually will occur to the physician fee schedule for the following year based on recent history.”

Part D Benefit

For the Part D drug benefit, the deductible and out-of-pocket limit for the defined standard prescription drug plan will be lower in 2014 than for 2013.

The amounts are the same as in the advance notice: the Part D deductible will decrease from $325 to $310. The initial coverage limit--or the total drug costs after the deductible before hitting the coverage gap--will drop from $2,970 to $2,850. The out-of-pocket threshold (the amount the beneficiary pays before hitting the catastrophic phase) will decrease from $4,750 to $4,550.

2014 Call Letter

The Call Letter, an attachment to the rate notice, develops policy for Part D and Part C (Medicare Advantage) program operations.

In a change from the draft February release, CMS in the final Call Letter said it will reduce the amount of permissible increases in beneficiary costs imposed by MA plans from $36 per member per month to $34.

The draft had proposed a $30 cap in “total beneficiary costs.”

The Medicare Payment Advisory Commission had cautioned about the proposal in a comment letter (see related article).

MedPAC, which advises Congress on Medicare policy, said that MA plans should have the flexibility to tailor their offerings as their costs change and beneficiaries will respond accordingly.

By Mindy Yochelson  

The final announcement is at

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