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2022 Medicare Advantage Advance Notice: 5 Key Takeaways

by Tom Kornfield, Senior Consultant, Avalere and Matthew Caminiti, Senior Solutions Engineer, Inovalon, on December 21, 2020
Tom Kornfield, Senior Consultant, Avalere and Matthew Caminiti, Senior Solutions Engineer, Inovalon

The release of Part I and II of the 2022 Advance Notice came several months earlier than its typical release, along with the close of the comment period on November 30. Part I included proposed changes to the Medicare Advantage (MA) and Part D payment methodologies and Part II mentioned the possible early release of the Final Rate Announcement and Final MA Rule. This significant shift in the Centers for Medicare and Medicaid Services’ (CMS) timelines was a strategic decision on the part of CMS to provide Part D sponsors and Medicare Advantage organizations time to prepare for 2022 bids.

While health plans may benefit from having additional time to navigate the uncertainty of estimating 2022 plan costs as a result of COVID-19, there is also concern that CMS’ rate updates may not fully account for the true impact of reduced utilization attributed to the COVID-19 pandemic.

After conducting a thorough review and analysis of the proposed changes in the 2022 Advance Notice and summarizing five of the most significant takeaways, the goal is to provide organizations with an understanding of how the proposal might impact risk adjustment factors (RAF) and quality scores, and to provide guidance on opportunities to adapt your Medicare Advantage regulatory strategy in response.

Medicare Advantage Advance Notice Timeline

1. Revenue Impact on MA Plans

The CMS bottom-line estimate tells us that MA plans can expect an average increase in revenue of approximately 2.82%, which is an increase from 1.66% for CY 2021. This is based on CMS’ expectation that spending will increase in 2021 at a higher rate than was previously projected.

Key Plan Payment Impact

Year-to-Year Percent Change in Impact 2021 Rate Announcement 2022 Advance Notice
Medicare Advantage Growth Rate 4.07% 4.55%
Rebasing/Re-Pricing -0.35% TBD*
Changes to Star Ratings 0.23% -0.34%
Medicare Advantage Coding Intensity Adjustment 0.0% 0.0%
Risk Model Revision 0.25% 0.25%
Encounter Data Transition 0.0% 0.0%
Normalization -2.54% -1.64%
Expected Average Change in Revenue (TOTAL) 1.66% 2.82%**

4.07 to 4.55% changes to Medicare Advantage growth rate is the main driver that determines plan payment impacts

*Rebasing/re-pricing impact is dependent on the final average geographic adjustment index and will be available with the publication of the CY 2022 Rate Announcement.
**This does not include the adjustment for the underlying coding trend

2. Shift to 100% Encounter Data Submissions (EDS)

To minimize a negative impact on risk adjustment submissions, health plans should be prepared to make the full transition to Encounter Data Submissions (EDS) under the 2020 CMS-HCC model. Although EDS was introduced in 2012, its use to calculate risk scores was phased in over several years alongside continued use of the Risk Adjustment Payment System (RAPS). Beginning with Payment Year (PY) 2022, which primarily covers 2021 dates of service (DOS), 100% of risk scores for Medicare Advantage Organizations (MAOs) will be calculated based on EDS and RAPS will no longer be used. With this move, CMS reinforces the value of accurate and complete encounter data in improving efficiency, quality, and reducing costs through data-driven patient care.

3. The Normalization Factor Will Likely Reduce Payments

The normalization factor is an annual technical adjustment made to plan risk scores as a way of calibrating the CMS-HCC model, accounting for the most recent data, coding and population changes. The proposed 2021 normalization factor is estimated to reduce payments by 1.64%. This may be due to growth in use of risk scores in fee-for-service since 2017, resulting from increases associated with more accurate coding from Accountable Care Organizations (ACOs).

CMS HCC Model Normalization, 2013-2022

The normalization adjustment suggests that health plans may have a slightly greater at-risk population since many members have not maintained regular visits with their providers due to COVID-19 limitations. Health plans should continue to monitor utilization to understand the effects of normalization adjustments on payments.

4. COVID-19 Impact on Utilization and Risk Adjustment

While not tied to the Advance Notice specifically, we recognize that the impacts of COVID-19 on utilization and risk adjustment in 2020 are of concern to health plans. Healthcare systems are observing members delaying or canceling provider visits for needed care due to safety concerns related to the pandemic. Decreased utilization has given providers fewer opportunities to manage patient care and accurately document patient diagnoses, even after accounting for the fact that CMS now includes diagnoses obtained from telehealth visits when calculating risk scores. This has resulted in lower risk scores compared to bids, and a reduction in risk adjustment payments to MA plans.

The anticipated impact of COVID-19 on risk scores is summarized below. For a more in-depth explanation and analysis of the potential impact, please access the webinar, “Impact of 2022 CMS Advance Notice”.

Avalere modeled three 2021 risk score impact scenarios to compare to estimated scores without the COVID-19 pandemic:

Baseline (Mid-Year 2020) Risk Score* Initial 2021 Risk Score** Mid-Year 2021 Risk Score Impact Scenarios
Low Medium High
Assumed Reduction in Claims Compared to the Mid-Year 2020 Baseline, July- December 2020 N/A N/A 50% 65% 80%
Estimated Risk Score 1.000 0.965 0.937 0.923 0.904
Percent Decrease in Risk Score Due to Pandemic N/A -3.50% -6.30% -7.70% -9.60%
Percent Decrease in Risk Score Due to Pandemic N/A -3.50% -6.30% -7.70% -9.60%

*Note: Risk scores are standardized to equal a 1.000 for the baseline.
**Uses diagnoses from July 2019 to June 2020.

5. Stars and Measure Updates

While there are no major unexpected changes to the CMS Star Ratings program, there are items worth noting. First is the increase in weight to 4 from 2 for the Consumer Assessment of Healthcare Providers & Systems (CAHPS) measures. While CMS expects this will increase Star Ratings overall for health plans, particularly smaller plans, the effect will vary by plan. Health plans should look for strategies to increase member engagement, as this change will have a substantial impact on overall Star Ratings and the CAHPS survey, which relies largely on member reported data and can be difficult to influence.

Another noteworthy update that will be phased in beginning with 2024 Star Ratings is the use of the Tukey methodology. Using this methodology to set cut points should prevent outliers from having an outsized effect on Star Measure benchmarks, and therefore, health plan Star Ratings. CMS estimates that this provision will result in savings of $5.7B.

One area that may have caught some plans off guard is the uncertainty created by the current pandemic and decisions around how cut points are being calculated. To mitigate the impact of COVID-19 on Star Ratings, CMS is removing the guardrails for Measure Year (MY) 2022 ratings and expanding the hold harmless provision for Part C and D improvement measures. Lastly, CMS is allowing flexibility when identifying ART, CBP, CDC and/or SPC by removing the denominator restriction to allow one outpatient visit, e-visit or virtual check-in.

For a much deeper dive into the Star Measure updates, including 2023 Star Ratings and beyond, please access our on-demand webinar, Achieving Star Ratings Excellence in a Brave New World.

Call to Action

To understand opportunities and recalibrate strategy for 2021 (PY 2022), health plans should take the following actions:

  • Conduct an analysis to estimate initial risk scores for 2021 (PY 2022) prior to receipt of the January MMR to avoid any surprises.
  • Assess current performance and patient experience to identify opportunities to improve against Star measures, evaluate activities in these areas to provide insights that will help you to improve performance, and continue to provide CMS with feedback.
  • Closely review submissions programs and encounter data strategies to fully understand the implications of a full transition to EDS. There are additional technological requirements that come with this shift and for some plans, this could translate for a need for additional resources, requiring potential infrastructure updates. Now is the time to assess the capabilities of your current EDS process and determine the need to deploy resources to avoid revenue loss due to claims errors or delays that may result in non-compliant data.

If you have questions on what CMS has proposed or are looking for expert analysis to better understand the proposal’s impact on your organization, please contact us today to set up time to speak with one of our subject matter experts.

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