NOTE: The abstract below is a shortened version of the RADAR on Medicare Advantage article “Rate Notice Cites COVID Costs, Leaves Some Issues Unresolved.”

By Lauren Flynn Kelly

CMS on Jan. 15 released the 2022 Medicare Advantage and Part D Rate Announcement, indicating that MA organizations will see an average reimbursement increase of more than 4%. At the same time, CMS issued a 272-page rule finalizing several Part D policies that will largely apply to the 2022 plan year.

Although neither document contained anything “earth shattering,” the hefty pay increase is welcome news to plans as they face cost unknowns due to the ongoing COVID-19 pandemic, suggests Milliman Principal and Consulting Actuary Brad Piper.

Two factors that appeared to contribute to the higher-than-anticipated payment increase are the fee-for-service (FFS) Medicare growth rate, which was estimated to be 4.55% in the Advance Notice and was 5.59% in the final rate notice, and a slightly smaller dent in reimbursement due to an average reduction in star ratings of 0.28%, compared with CMS’s original projection of 0.34%. All-in, the agency projected an average change in revenue of 4.08% for 2022.

The agency’s rate estimates also considered the impact of COVID-19 on health care costs. As the pandemic drags on, some of the care that patients put off in 2020 “is now assumed to be deferred until a later date, and that deferred care is now expected to be more intensive than was assumed in the Advance Notice,” CMS explained.

On the Part D side, CMS finalized the use of the updated RxHCC risk adjustment model, using diagnosis data from 2017 FFS claims and MA encounter data submissions, along with expenditure data from 2018 prescription drug events. With this update, “it looks like they decided to use four years of [claims/encounter] data and drop off 2015,” which is when CMS began mandating the use of ICD-10 in medical coding in Medicare, points out Shelly Brandel, who is also a principal and consulting actuary with Milliman.

Regarding risk adjustment in MA, however, CMS did not follow commenters’ suggestions to address the potential negative impact of the pandemic on risk scores.

Nevertheless, the rate increase is higher than those of the previous three years, serving to ease some concerns related to costs, as plans in 2022 can expect to pay for COVID-19 vaccines and the return of some deferred care, observes Piper.