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Home   >   Blog   >   2021 Medicare Advantage Advance Notice | What You Need to Know

2021 Medicare Advantage Advance Notice | What You Need to Know

by Tom Kornfield, Senior Consultant, Avalere and Matthew Caminiti, Senior Solutions Engineer, Inovalon, on February 27, 2020
Tom Kornfield, Senior Consultant, Avalere and Matthew Caminiti, Senior Solutions Engineer, Inovalon

Each year, CMS releases the Advance Notice of Methodological Changes for Calendar Year (CY) 2021 for Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies, Part I and Part II with comments due prior to the release of the Final Call Letter. This year, CMS switched things up and will not be publishing a Final Call Letter. Comments on Part I and II of the Advance Notice are due March 6, with comments on the CY 2021 MA and Part D Proposed Rule due a month later on April 6. The Announcement of Calendar Year (CY) 2020 Medicare Advantage Capitation Rates and Medicare Advantage and Part D Payment Policies will be released on April 6. So, what does this mean for MA plans trying to prepare for a bid deadline of June 1?

The compressed timeline means plans could experience operational challenges for 2021 if the rule is finalized after June 1, creating uncertainty around how changes implemented in the proposed rule will be finalized before bid submissions. We discuss these concerns – along with implications on the most impactful proposals and their impact on MA stakeholders – here.

CMS Medicare Advantage Timeline

Payment Updates for MA Plans

CMS continues to propose phasing in the new payment model and the use of encounter data, which isn’t a big surprise. The Alternative Payment Condition Count (APCC) model would be phased in at 75% of the risk score, with the traditional payment model, 2017 CMS-HCC, accounting for 25% of the risk score. Similarly, the use of encounter data to calculate risk score for payment year 2021 is increasing from a weight of 50% to 75%. RAPS is on its way to being phased out completely for payment year 2022, with a reduction in weight from 50% to 25%.  This means that with a greater percentage of encounter data used, health plans will need to pay even closer attention to the quality of their encounter data to ensure accuracy.

In addition, the bottom-line impact on MA plans for 2021 shows a lower payment increase than in 2020. There are several factors that impact the expected average change in revenue. The two with the greatest impact for 2021 are the effective MA growth rate and the normalization factor.

CMS announced in the 2020 Final Announcement the effective growth rate was 5.62%, which decreased to 2.99% based on the 2021 Advance Notice. The proposed normalization factor continues to trend upward, resulting in an estimated 2.54% reduction in payments for 2021, compared to a 3.08% reduction in payments from 2020. After accounting for changes to Star Ratings and the risk model revision, along with other factors, the expected average change in revenue based on the 2021 Advance Notice is 0.93%. Compared to 2.53% in 2020, this will result in lower payments compared to last year.

Expected Average Change in Revenue

Year-to-Year Percent Change in Impact 2020 Final Announcement 2021 Advance Notice
Effective Growth Rate 5.62% 2.99%
Rebasing/Re-Pricing -0.02% TBD*
Changes to Star Ratings -0.14% 0.23%
Medicare Advantage Coding Intensity Adjustment 0.0% 0.0%
Risk Model Revision 0.21% 0.25%
Encounter Data Transition -0.06% 0.0%
Normalization -3.08% -2.54%
Expected Average Change in Revenue (TOTAL) 2.53% 0.93%

*Rebasing/re-pricing impact is dependent on finalization of average geographic adjustment index and will be available with the publication of the 2021 Rate Announcement.

Other MA Regulatory Implications

Another significant change in 2021 pertains to Medicare-eligible individuals with end-stage renal disease (ESRD). As of January 1, 2021, ESRD beneficiaries will be allowed to enroll in MA plans rather than being restricted to Special Needs Plans. So, how will this affect payment rates? Payments to MA plans for ESRD patients are set at the state level rather than the county level. Based on an Avalere analysis of the top 15 metropolitan statistical areas with the most ESRD patients enrolled in fee-for-service (FFS), 10 had ESRD FFS costs that exceeded the proposed MA payment rate, suggesting that payments for patients in highly populated regions may be significantly below actual patient costs. Additionally, kidney acquisition costs for transplants must be excluded from MA benchmarks starting in 2021. These acquisition costs must be covered under FFS Medicare, which will reduce payments to MA plans by $594 million in 2021 and by $1.3 billion by 2030.

Star Ratings Updates

CMS has proposed several changes to the Star Rating program, from Star Rating measure changes to cut point methodology changes, which may save approximately $4.4 billion over 10 years. Patient experience, complaints and access measures carry a 2x weighting today, but in the 2021 Proposed Rule, these weights would increase to 4x for 2023 Star Ratings. For non-CAHPS® measures, CMS proposed to adopt the Tukey outer fence statistical methodology, which will remove outliers on the lower end of the measure scores, resulting in an increase to the 1-Star and 2-Star Rating thresholds and significant payment savings.

Revised Cut Point Methodology

The 2022 Star Rating Year (2020 Measurement Year) Clustering Algorithm measure cut points are determined by applying a clustering algorithm (Tukey method) to the numeric value from all contracts.

  • Seeks to create distinct clusters based on similar values
  • CMS plans to use mean resampling to reduce the effect of outliers (prevent a small # of low or highly compliant plans from skewing cut points)
  • Proposed guardrail to restrict cut point movement both above and below last year’s cut point

Care for Older Adults – Medication Review Rates

Call to Action

Risk adjustment models, effective growth rates, higher normalization factors combined with changes to Star Rating measures and cut point methodology result in lower payments to MA plans and decreased Quality Bonus Payments (QBPs). Factoring in the implications of the proposed payments for ESRD beneficiaries, some MA plans will see an event greater negative impact.

Mark your calendars for March 6, 2020, when comments are due on Part I and II of the Advance Notice and April 6, 2020, when comments are due on the Proposed Rule. Since the rate announcement is also released on April 6, 2020, and MA plan bids are due June 1, 2020, prioritize your comments and specify items that need be expedited by CMS for the 2021 submissions.


For a comprehensive, data-driven analysis of the proposed rule, quality and payment-related policy updates, and risk adjustment model changes outlined in the CMS 2021 Advance Notice, check out this on-demand webinar.

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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