The Congressional Research Service (CRS) has published a review of the proposed payment methodology changes in the CY 2027 Medicare Advantage (MA) Advance Notice that came out in late January.

Zimmet Healthcare Services Group’s Jay Gormley has further analyzed the CRS findings for projected impacts on skilled nursing facilities (SNFs), detailing which features in the proposal need to be monitored when the final rule comes out in early April.

Gormley, chief investment officer and COO, Advisory, for Zimmet, said in the group’s weekly “Advisory Digest,” that MA plans are paid a capitated per-member per-month amount determined by comparing a plan’s bid (expected cost of providing Medicare services) to a county-level benchmark, representing the maximum payment the Centers for Medicare and Medicaid Services (CMS) will make.

“If a plan bids below the benchmark, it receives its bid plus a rebate [50–70 percent depending on the quality rating], which must be returned to beneficiaries as additional benefits or reduced premiums. If the bid exceeds the benchmark, the plan payment equals the benchmark, and beneficiaries pay the difference through a premium.”

MA Growth Levels Out

While MA enrollment remains large, growth has steadied of late with a disproportionate share of recent gains in Special Needs Plans, particularly Chronic Condition Special Needs Plans (C-SNPs). When the draft rule came out in January, CMS projected a 0.09 percent payment increase before accounting for risk-score growth, and 2.54 percent average revenue growth after incorporating expected increases in plan risk scores.

The key growth factor for 2027 is the Fee-for-Service (FFS) United States Per Capita Cost (USPCC), which CMS estimates will increase 5.10 percent year-over-year. County benchmarks are then adjusted based on relative FFS spending levels (95 percent to 115 percent of FFS, depending on the county quartile) and increased for high-quality plans (up to a 5-percentage point benchmark bonus for plans rated four stars or higher).

After the bid-benchmark comparison determines a base payment, MA payments are risk-adjusted using the CMS-HCC (Hierarchical Condition Categories) model. Risk scores increase payments for beneficiaries with diagnoses associated with higher expected costs.

Changes to Watch

Gormley said several proposed changes are intended to tighten risk-adjustment rules and reduce coding-related revenue growth, including:

• Continuation of the statutory 5.9 percent coding intensity adjustment applied to MA risk scores
  
  

• Updates to the CMS-HCC model using more recent diagnosis and expenditure data
  
  

• Model normalization adjustments expected to reduce risk scores
  
  

• Elimination of diagnoses captured through audio-only encounters for risk adjustment
  
  

• Exclusion of diagnoses submitted through unlinked chart reviews not tied to an encounter

“These last two are very important to understand. For years, plans have employed teams whose whole sole job is to optimize risk scores. Now CMS is saying that you can’t code for diagnoses that are captured specifically for these purposes… they have to be part of a ‘regular’ [i.e., tied to care] visit,” Gormley said.

“Taken together, the model update and normalization changes are estimated to reduce plan revenue by approximately 3.32 percent on average, with additional reductions possible from the encounter documentation restrictions.”

C-SNPs Set the Pace

One likely response to tighter risk-adjustment rules is more growth in C-SNPs. “As CMS tightens documentation rules and removes certain diagnosis sources from risk adjustment, plans may increasingly rely on product design and targeted enrollment rather than aggressive coding practices to sustain risk scores,” he said.

In practical terms, narrowing eligibility to populations with higher underlying acuity can partially offset the revenue pressure from risk-adjustment reforms.

From an institutional post-acute perspective, however, many of the encounters that drive risk adjustment simply do not occur in SNFs, particularly during short-stay rehabilitation episodes. Risk-adjustment diagnoses are typically captured through physician office visits, specialty care encounters, or community-based assessments rather than during an SNF stay.

Outside Institutional Special Needs Plans (I-SNPs), SNFs have historically not been a major source of encounter data used to generate HCC diagnoses. That dynamic could begin to shift somewhat if plans view post-acute settings as another opportunity to capture diagnoses under the tighter rules, Gormley said.

“While SNFs have not traditionally driven risk coding, increased use of plan-embedded clinicians or documentation initiatives in facilities could modestly expand the role of post-acute encounters in risk-adjustment workflows,” he said.

Comments or questions? Contact Patrick Connole at pconnole@parkplacelive.com.