How the 340B remedy payments will affect upcoming Medicare Advantage payment rates

Hospital advocates found reason for concern in a narrow aspect of the Medicare Advantage (MA) final payment rate notice for 2026.

With health plans lauding the average 5.06%, $25 billion revenue increase they’re projected to reap in the upcoming year, hospitals may wonder about adverse impacts from an applied reduction in CMS’s calculation of the payment rate.

In determining the MA rate based on Medicare fee-for-service (FFS) per capita costs, CMS included the reduction that begins next year in the across-the-board payment rate for Medicare Part B services.

The 0.5% reduction is scheduled to last from 2026 through 2041 after hospitals in 2024 received a $9 billion remedy payment as compensation for previous underpayments made through the 340B Drug Pricing Program. Hospitals received higher payments for nondrug items and services during the four-plus years when the diminished 340B rate was in effect, leading CMS to incorporate the reduction that starts next year for the sake of budget neutrality.

“We understand from commenters that FFS rates, including the 340B adjustment, could potentially have downstream effects on how much MA organizations pay providers under their MA contracts,” CMS wrote in the final rate notice.

Falling on deaf ears

Commenters responding to the MA advance rate notice published in January said CMS’s calculation amounts to a double-win for health plans. The 340B remedy applied only in traditional Medicare, not in MA, meaning MA plans did not have to shell out remedy payments yet still stand to benefit through the resulting reduction in the MA rate calculation.

“The commenters believe that CMS’s approach would benefit MA plans and result in MA plans underpaying hospitals for 340B drugs between 2018 and 2022 and again underpaying hospitals for nondrug items and services beginning in CY 2026,” the agency acknowledged in the rate notice.

One commenter suggested CMS should consider alternative approaches such as paying out an additional 340B remedy on behalf of MA plans or issuing an MA rate increase to be allocated as payment to 340B hospitals.

CMS responded that it is bound by the Medicare statute to compute MA rates based on per capita costs in Medicare FFS, and those costs are necessarily affected by the 2026 reduction in the Part B payment rate.

Conversely, the lump-sum remedy payments “do not change the amount ‘payable’ in 2026 for Medicare Part B” and thus do not factor into the MA rate determination, the agency wrote.

The Medicare statute “prohibits CMS from interfering in how much MA organizations pay contracted providers or direct[ing] how MA plans pay providers for particular items or services, like 340B-acquired drugs,” according to the rate notice.

The spigot opens

Even with rates dampened by the 340B adjustment, MA plans still appear set to receive ample funding that potentially will filter down to providers.

The 5.06% projected average change in revenue for MA plans is a big jump from the 2.23% rate that was generated in the initial estimates provided by the Biden administration. CMS said the difference stemmed from an increase (from 5.93% to 9.04%) in the effective growth rate, meaning the actuarial estimate of Medicare FFS per capita costs. The 5.06% increase is a base-payment tally that does not incorporate an estimated 2.1% raise generated via risk scoring.

As an initial sign of the Trump administration’s philosophy toward MA, the projected increase suggests an inclination to grow the program rather than to primarily focus on curbing fraud, waste and abuse of the sort that allegedly takes place through practices such as upcoding.

Dr. Mehmet Oz, who is set to begin as CMS administrator after being confirmed by the Senate on April 3, has praised MA and at one point even described the benefits of a theoretical Medicare Advantage for All system. During his confirmation hearing, however, he also pledged to crack down on plans that engage in upcoding.

MA plans also stand to profit from a previously reported decision to eschew a Biden administration proposal that would have established coverage of GLP-1 drugs in Medicare and Medicaid.

In a separate matter, health plan representatives commented that hospitals in California and Upstate New York have benefited from changes to the Medicare wage index going into FY24, without corresponding increases in federal payments to MA plans serving those areas. CMS did not sound inclined to take any action in response.

A shift in modeling

Implementation of a new risk adjustment model for MA health plans began in 2024 and is concluding this year. The hope is that the completion of the phase-in period, in which the model is shifting from ICD-9 to ICD-10 while streamlining the diagnostic-code set, will reduce administrative burden on all MA stakeholders.

Concerns about the risk adjustment model continue to center on higher costs and reduced access for beneficiaries in certain plans, such as those that serve members who have complex chronic conditions or are dually eligible for Medicare and Medicaid.

“Revisions to the CMS-HCC risk adjustment model improve payment accuracy, but as with every update of the risk adjustment model, the impact on each plan can vary, depending on the demographic and health characteristics of their enrollees,” CMS wrote in the final rate notice.

Another issue raised about the notice was the 5.9% coding pattern adjustment, which reflects the differences in coding between MA and Medicare FFS. Some comments suggested the relatively low coding adjustment and the new risk adjustment model create incentives for plans to code enrollees with as many conditions as possible.

CMS also is continuing its push to streamline MA and Part D star ratings to align with the Universal Foundation quality-measure set. The idea is to reduce the compliance burden on all stakeholders and to better focus the ratings program on outcomes rather than process measures.

Part D changes codified

CMS also published regulations continuing the Part D benefits redesign as established in the Inflation Reduction Act. See the regulations and a summary fact sheet.