This is the first of two articles related to CMS payment proposals. The content below covers the recently announced Calendar Year (CY) 2027 Advance Notice of Methodological Changes for Medicare Advantage (MA) Capitation Rates and MA and Part D Payment Policies (the CY 2027 Advance Notice). The second article coming on Monday, Feb. 16, will discuss the 2027 SNF PPS rule and any lessons gleaned from the MA advance notice.  

That thud you heard last week was Wall Street’s negative reaction to the announcement by the Centers for Medicare and Medicaid Services (CMS) that it proposes to only raise Medicare Advantage (MA) plan rates by a pedestrian 0.09 percent for Calendar Year 2027, or in dollar terms by around $700 million.

Expectations were for a much higher rate increase in the area of 4 to 6 percent for 2027 to help cover the increasing costs MA plans are experiencing from higher utilization and higher acuity customers. Or, so the Street (and plans) thought.

Insurers have staked out the position that with a flat payment increase, they will have to pass on costs to consumers via higher premiums, possible benefit cuts, or the exit from certain markets. UnitedHealth Group said in an earnings call that it projects a contraction of some 1 to 1.4 million members in its MA plans for 2026, for example.

Beyond the rate development, the CMS proposal put teeth into the Trump Administration’s desire to find what it deems as waste in federal government healthcare spending, according to Martin Allen, former senior vice president of reimbursement policy, American Health Care Association/National Center for Assisted Living (AHCA/NCAL). 

CMS did this in the Advance Notice by addressing, among other items, the coding differences between MA and traditional Medicare by excluding diagnoses from unlinked chart review records (CRRs) from the MA risk score calculation. “They think these are improper payments,” Allen said.

Ending the practice of upcoding, or the diagnoses based on unlinked CRRs, would mean that payers can no longer bill CMS or add a diagnosis to a MA beneficiaries’ records. The change would not affect reimbursement for diagnoses linked with medical encounters.

To put it in perspective, Jay Gormley, chief investment officer and COO, Advisory, Zimmet Healthcare Services Group, said “MA plans pay more when their enrollees appear sicker on paper, and CMS believes that diagnosis coding in MA has grown faster than actual patient complexity.”

Screws Tighten on Plans

When asked if the CMS proposal is part of a comeuppance for MA plans, Allen said it could very well be the case. “I think the chickens coming home to roost is fair, but I don’t include provider-owned plans in that. There’s a matter of scale. When people in the industry think about MA, it’s the large plans that dominate 70 percent-plus of the market,’ he said.

“I don’t have any sympathy for CMS applying the same compliance and oversight measures to these plans as they do to SNFs every day. All you have to do is read the trade press any week to hear about survey and certification issues, Medicare claim audits, OIG, RAC, CMPs, etc., etc.”

Further, Allen said this is also an extension of the administration’s focus on what they consider to be fraud and abuse. “Identifying overpayments like this is part of it.”

A memo from ATI Advisory said while these figures in the MA Advance Notice suggest relative stability at the aggregate level, they mask meaningful variation driven by proposed changes to risk adjustment, data sources, and operational requirements.

“As with prior years, the final rate announcement in April could differ once CMS finalizes the normalization factor and incorporates updated Medicare data into model recalibration,” the consultants said.

Impact on SNFs?

Gormley said the real story is CMS continuing to tighten the screws on MA payments. “These regs allow for overall program growth but place firm limits on how much of that growth can come from documentation and coding alone,” he said.

At the margin, a flat rate update matters. With limited incremental revenue and rising medical costs, plans become more selective about where they participate, prioritizing core, higher-density markets while pulling back from marginal or lower-enrollment areas.

“That dynamic is already evident, with several large insurers reducing plan offerings and exiting counties. Rather than fueling expansion, flat updates incentivize retrenchment, margin protection, and tighter network management, tempering MA penetration growth across the market,” Gormley said.

On the question of what the impact will be on SNFs/MA SNF rates, he said at a high level, the relatively flat MA capitation update (compared to roughly 5% last year) “is unlikely to have a meaningful direct impact on SNF rates or day-to-day SNF operations.”

This is because existing contracts largely govern MA SNF rates, and in practice, plans have limited ability and incentive to alter rates materially in either direction in the near term. “Moreover, when plans aim to manage costs under tighter economics, nursing homes typically rank well below higher-spending categories such as hospitals, pharmacies, and physician services,” Gormley said.

“If anything, the dynamic may be modestly favorable for SNFs. Tighter MA economics could accelerate plan pullbacks from select markets or products, pushing some beneficiaries back into traditional fee-for-service Medicare, which is generally more favorable for SNF reimbursement and utilization.”

While there may be localized effects (particularly in markets with heavy I-SNP penetration, which account for roughly 15 percent of long-term care beneficiaries), the aggregate impact on SNFs is likely to be limited and not a major near-term concern, he said.

I-SNP refers to Institutional Special Needs Plans.

Allen agrees, saying if the provider plans internally owned by the SNF, there won’t be any change, but noted there are many large health plans that also own I-SNPs, and all of those plans will see the after-effects of the CMS new take on MA plan payment and regulation.

Pruitt Sees I-SNP Strength

In talking to a leading operator in the provider-led I-SNP and D-SNP (Dual Eligible Special Needs Plans) space, the reaction to the MA proposal by CMS is mixed. Neil Pruitt, chairman and CEO of PruittHealth, said for the I-SNP, “which is the vast majority of our patients, we anticipate that the proposal could actually be beneficial because it really skews to more resources for higher-acuity patients, which is what we generally serve.”

Not so much for the D-SNP, which he said will have “kind of the opposite effect for us because of the lower-acuity patients in the community.”

Pruitt said, “I think you are seeing CMS trying to align resources, it does seem like they have taken a lot of the resources out of the system so we are actively modeling that now, again this could be a positive for provider-owned I-SNPs.”

Allen said this makes sense given the CMS efforts will likely benefit I-SNPs more than D-SNPs because of the higher acuity of ISNP residents. “Removing unlinked diagnosis coding [relying on encounter coding/what clinicians document] may increase I-SNP risk scores more than D-SNPs that have chronic conditions with lower acuity,” he said.

Pruitt noted that uptake of the I-SNP has been good, with about 60 percent of eligible patients enrolled. As for what larger MA plans do in the wake of the CMS proposal, he expects to see benefit cutbacks that will tighten up plan offerings, “which will make us even more competitive.”

On the CMS attention to upcoding practices, he said, “We don’t do unlinked chart reviews and audio-only telehealth or external retrospective records sweeps. So, a lot of the practices that large insurers do we don’t do and don’t see that affecting us.”

AHCA Looks to April

From the industry point of view on the MA rate proposal, Nisha Hammel, vice president, reimbursement policy and population health at AHCA/NCAL, said more clarity on the effects of the lower-than-expected rates are still unfolding and will become clearer once CMS releases the final rate announcement in April.

“The full impact depends on how plans ultimately respond, which could have meaningful implications for beneficiaries and SNF providers. We may see increased network tightening or selective contracting as plans look to manage costs, but it’s too early to draw any conclusions,” she said.

Striking a positive tone for provider-led plans and echoing some of what Pruitt related, Hammel said provider offerings “may be better positioned as these plans typically deliver high-touch primary care and make clinical decisions at the bedside, which results in diagnoses being documented through direct patient encounters. So, this makes them less exposed to changes CMS makes around diagnosis sources, which we saw in this Advance Notice.”

Read the Jan. 26 Park Place Live article on the Advance Notice at https://tinyurl.com/3a9a2rxz.

Questions or comments? Contact Patrick Connole at pconnole@parkplacelive.com.