Announcement of Calendar Year (CY) 2017 Medicare Advantage Capitation Rates and Medicare Advantage and Part D Payment Policies and Final Call Letter

April 4, 2016

NOTE TO: Medicare Advantage Organizations, Prescription Drug Plan Sponsors, and

Other Interested Parties

Subject: Announcement of Calendar Year (CY) 2017 Medicare Advantage Capitation

Rates and Medicare Advantage and Part D Payment Policies and Final Call Letter

In accordance with section 1853(b)(1) of the Social Security Act, we are notifying you of the

annual Medicare Advantage (MA) capitation rate for each MA payment area for CY 2017 and

the risk and other factors to be used in adjusting such rates. The capitation rate tables for 2017

are posted on the Centers for Medicare & Medicaid Services (CMS) web site at

http://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/index.html under

Ratebooks and Supporting Data. The statutory component of the regional benchmarks,

transitional phase-in periods for the Affordable Care Act rates, qualifying counties, and each

county’s applicable percentage are also posted at this website.

Attachment I shows the final estimates of the National Per Capita MA Growth Percentage for

2017 and the National Medicare Fee-for-Service (FFS) Growth Percentage for 2017. These

growth rates will be used to calculate the 2017 capitation rates. As discussed in Attachment I,

the final estimate of the National Per Capita MA Growth Percentage for combined aged and

disabled beneficiaries is 3.08 percent, and the final estimate of the FFS Growth Percentage is

3.12 percent. Attachment II provides a set of tables that summarizes many of the key Medicare

assumptions used in the calculation of the National Per Capita MA Growth Percentage.

Section 1853(b)(4) of the Act requires CMS to release county-specific per capita FFS

expenditure information on an annual basis, beginning with March 1, 2001. In accordance with

this requirement, FFS data for CY 2014 are being posted on the above website.

Attachment II details the key assumptions and financial information behind the growth

percentages presented in Attachment I.

Attachment III presents responses to Part C payment related comments on the Advance Notice of

Methodological Changes for CY 2017 MA Capitation Rates and Part C and Part D Payment

Policies (Advance Notice).

Attachment IV presents responses to Part D payment related comments on the Advance Notice.

Attachment V shows the final Part D benefit parameters and contains details on how they are

updated.

Attachment VI shows the CMS-HCC and RxHCC Risk Adjustment Factors

Attachment VII presents the final Call Letter.

We received many submissions in response to CMS’ request for comments on the Advance

Notice/Call Letter, published on February 19, 2016. Comments were received from professional

organizations, MA and Part D sponsors, advocacy groups, the pharmaceutical industry, members

of congress, pharmacy benefit managers, pharmacies, and concerned citizens.

Key Changes from the Advance Notice:

Growth Percentages: Attachment I provides the final estimates of the National MA Growth

Percentage and the FFS Growth Percentage and information on deductibles for MSAs.

Calculation of FFS Rates: We are finalizing the methodology that we proposed for calculating

FFS rates with two modifications. First, the rebasing of DME claims in non-competitively bid

areas (non-CBAs) are based on the blended fee amounts instead of the proposed use of the fully

adjusted fees. The blended payments, which have been used in payment since January 2016, are

based on 50 percent of the unadjusted fee schedule amount and 50 percent of the fully adjusted

fee amounts scheduled to be implemented in July 2016. This change is being made because the

fully adjusted fees for 2016 have not yet been announced. Second, the Secretary has directed the

Office of the Actuary to adjust the fee-for-service experience for beneficiaries enrolled in Puerto

Rico to reflect the propensity of zero dollar claimants nationwide.

Medicare Advantage Employer Group Waiver Plans: We are finalizing the methodology that we

proposed for calculating EGWP county payment rates with two modifications. First, in order to

release final EGWP county payment rates in the Rate Announcement, we will use the average

bid-to-benchmark ratio for individual market plan bids from the prior payment year to calculate

the Part C base payment amounts for EGWPs. For example, the EGWP county payment rates

for 2017 have been calculated using 2016 bid-to-benchmark ratios. Second, to provide

employers and MAOs more time to adapt to this payment change, we are providing a two-year

transition to the new EGWP county payment rate methodology. More details about the final

policy are discussed in Section F of Attachment III below.

CMS-HCC Risk Adjustment Models for CY2017: We will fully implement the 2017 CMS-HCC

Risk Adjustment model proposed in the Advance Notice, but have updated the coefficients using an

updated denominator. Attachment VI contains the revised coefficients.

Normalization Factors: CMS is updating the 2017 normalization factors that were proposed in

the Advance Notice. The 2017 Normalization factors are as follows:

CMS-HCC model used for MA plans is 0.998.

CMS-HCC model used for PACE organizations is 1.051.

CMS-HCC ESRD functioning graft model is 1.051.

CMS-HCC ESRD dialysis model is 0.994.

RxHCC model is 0.976.

Encounter data as a diagnoses source for 2017: CMS will calculate 2017 risk scores by adding

25% of the risk score using encounter data and FFS diagnoses with 75% of the risk score using

RAPS and FFS diagnoses.

Proposals Adopted as Issued in the Advance Notice:

As in past years, policies proposed in the Advance Notice that are not modified or retracted in

the Rate Announcement become effective in the upcoming payment year. Clarifications in the

Rate Announcement supersede materials in the Advance Notice.

MA Benchmark, Quality Bonus Payments and Rebate: The Affordable Care Act (ACA)

established a new benchmark methodology beginning in 2012. In the Advance Notice we

announced the continued implementation of the methodology used to derive the benchmark

county rates, how the qualifying bonus counties will be identified, and how transitional phase in

periods were determined. The continued applicability of the star system was also announced.

This Announcement finalizes these proposals.

IME Phase Out: For 2017, CMS will continue phasing out indirect medical education amounts

from MA capitation rates.

ESRD State Rates: We will continue to determine the 2017 ESRD dialysis rates by state as we

specified in the Advance Notice.

Clinical Trials: We are continuing the policy of paying on an FFS basis for qualified clinical

trial items and services provided to MA plan members that are covered under National

Coverage Determination 310.1.

Location of Network Areas for PFFS Plans in Plan Year 2018: The list of network areas for plan

year 2018 is available on the CMS website at http://www.cms.gov/PrivateFeeforServicePlans/,

under PFFS Plan Network Requirements.

Adjustment for MA Coding Pattern Differences: We will implement an MA coding pattern

difference adjustment of 5.66 percent for payment year 2017.

Frailty Adjustment for PACE organizations and FIDE SNPs: We are finalizing the 2017 frailty

factors as proposed.

Medical Loss Ratio Credibility Adjustment: We are finalizing the credibility adjustment factors

as published in the MLR final rule (CMS-4173-F).

RxHCC Risk Adjustment Model: We will implement the updated RxHCC Risk adjustment

model proposed in the Advance Notice. Attachment VI contains the risk adjustment factors for

the RxHCC model.

Part D Risk Sharing: The 2017 threshold risk percentages and parameters for Part D risk sharing

will be finalized as stated in the Advance Notice.

Part D Benefit Parameters: Attachment V provides the 2017 Part D benefit parameters for the

defined standard benefit, low-income subsidy, and retiree drug subsidy.

Part D Calendar Year Employer Group Waiver Plans: We are finalizing the Part D CY EGWP

prospective reinsurance policy as proposed.

/ s /

Sean Cavanaugh

Deputy Administrator, Centers for Medicare and Medicaid Services

Director, Center for Medicare

/ s /

Jennifer Wuggazer Lazio, F.S.A., M.A.A.A.

Director

Parts C & D Actuarial Group

Office of the Actuary

Attachments

2017 ANNOUNCEMENT

TABLE OF CONTENTS

Subject: Announcement of Calendar Year (CY) 2017 Medicare Advantage Capitation Rates

and Medicare Advantage and Part D Payment Policies and Final Call Letter ......... 1

Key Changes from the Advance Notice: ...................................... 3

Proposals Adopted as Issued in the Advance Notice: ............................. 4

Attachment I. Final Estimates of the National Per Capita Growth Percentage and the

National Medicare Fee-for-Service Growth Percentage for Calendar Year 2017 ...... 8

Attachment II. Key Assumptions and Financial Information ......................... 10

Attachment III. Responses to Public Comments on Part C Payment Policy .............. 19

Section A. Final Estimate of the National Per Capita Growth Percentage and the Fee-

for-Service (FFS) Growth Percentage for Calendar Year 2017 ................ 19

Section B. MA Benchmark, Quality Bonus Payments and Rebate .................. 21

Section C. Calculation of Fee for Service Cost ................................ 23

Section D. ESRD Rates ................................................. 26

Section E. Clinical Trials ............................................... 26

Section F. MA Employer Group Waiver Plans ................................ 27

Section G. CMS-HCC Risk Adjustment Model for CY 2017 ..................... 44

Section H. Medicare Advantage Coding Pattern Adjustment ...................... 53

Section I. Normalization Factors .......................................... 56

Section J. Frailty Adjustment for PACE organizations and FIDE SNPs .............. 59

Section K. Encounter Data as a Diagnosis Source for 2017 ....................... 60

Attachment IV. Responses to Public Comments on Part D Payment Policy .............. 63

Section A. Update of the RxHCC Model .................................... 63

Section B. Encounter Data as a Diagnosis Source for 2017 ....................... 63

Section C. Part D Risk Sharing ........................................... 64

Section D. Medicare Part D Benefit Parameters: Annual Adjustments for Defined

Standard Benefit, Low-Income Subsidy, and Retiree Drug Subsidy in 2017 ....... 64

Section E. Part D Calendar Year Employer Group Waiver Plans ................... 65

Attachment V. Final Updated Part D Benefit Parameters for Defined Standard Benefit,

Low-Income Subsidy, and Retiree Drug Subsidy ............................ 68

Section A. Annual Percentage Increase in Average Expenditures for Part D Drugs per

Eligible Beneficiary (API) ........................................... 70

Section B. Annual Percentage Increase in Consumer Price Index (CPI) .............. 70

Section C. Calculation Methodology ....................................... 71

Section D. Retiree Drug Subsidy Amounts ................................... 74

Section E. Estimated Total Covered Part D Spending at Out-of-Pocket Threshold for

Applicable Beneficiaries ............................................ 74

Attachment VI. CMS-HCC and RxHCC Risk Adjustment Factors ..................... 77

Table VI-1. 2017 CMS-HCC Model Relative Factors for Community and Institutional

Beneficiaries .................................................... 78

Table VI-2. 2017 CMS-HCC Model Relative Factors for Aged and Disabled New

Enrollees ....................................................... 85

Table VI-3. 2017 CMS-HCC Model Relative Factors for New Enrollees in Chronic

Condition Special Needs Plans (C-SNPs) ................................ 86

Table VI-4. Disease Hierarchies for the 2017 CMS-HCC Model ................... 87

Table VI-5. RxHCC Model Relative Factors for Continuing Enrollees ............... 88

Table VI-6. RxHCC Model Relative Factors for New Enrollees, Non‑Low Income ..... 93

Table VI-7. RxHCC Model Relative Factors for New Enrollees, Low Income ......... 94

Table VI-8. RxHCC Model Relative Factors for New Enrollees, Institutional .......... 95

Table VI-9. List of Disease Hierarchies for RxHCC Model ....................... 96

Attachment VII: CY 2017 Final Call Letter ..................................... 97

How to Use This Call Letter ............................................... 101

Section I – Parts C and D .................................................. 102

Section II – Part C ....................................................... 156

Section III – Part D ...................................................... 186

Section IV – Medicare-Medicaid Plans........................................ 223

Medicare-Medicaid Plan Annual Requirements and Timeline for CY 2017 .......... 223

Appendix 1 – Contract Year 2017 Guidance for Prescription Drug Plan (PDP) Renewals and

Non-Renewals (Updated) ............................................ 228

Appendix 2 – Contract Year 2017 Guidance for Prescription Drug Plan (PDP) Renewals and

Non-Renewals Table ............................................... 232

Appendix 3 – Improvement Measures (Part C & D) .............................. 237

Appendix 4 - 2017 Draft Call Letter Star Ratings Summary of Comments and Responses .. 240

Appendix 5 – Adjusted Measure Selection Criteria ............................... 250

Attachment I. Final Estimates of the National Per Capita Growth Percentage and the

National Medicare Fee-for-Service Growth Percentage for Calendar Year 2017

The Table I-1 below shows the National Per Capita MA Growth Percentage (NPCMAGP) for

2017. We have calculated the final MA Growth Percentage and the FFS Growth Percentage

based on the assumption of a 0.5 percent update for the physician fee schedule for 2017.

An adjustment of 0.1 percent for the combined aged and disabled is included in the NPCMAGP

to account for corrections to prior years’ estimates as required by section 1853(c)(6)(C). The

combined aged and disabled change is used in the development of the ratebook.

Table I-1 - National Per Capita MA Growth Percentage for 2017

Prior Changes

Current Changes

2003 to 2016

2016 to 2017

2003 to 2017

NPCMAGP for 2017

With §1853(c)(6)(C)

adjustment

Aged+Disabled

50.20%

50.35%

2.98%

54.84%

3.08%

Current changes for 2003-2017 divided by the prior changes for 2003 to 2016.

The Affordable Care Act of 2010 requires the Medicare Advantage benchmark amounts be tied

to a percentage of the county FFS amounts. Table I-2 below provides the change in the FFS

USPCC which will be used in the development for the county benchmark. The percentage

change in the FFS USPCC is shown as the current projected FFS USPCC for 2017 divided by

projected FFS USPCC for 2016 as estimated in the 2016 Rate Announcement released on April

6, 2015.

Table I-2 – FFS USPCC Growth Percentage for CY 2017

Aged + Disabled

Dialysis –only ESRD

Current projected 2017 FFS USPCC

$825.20

$7,023.24

Prior projected 2016 FFS USPCC

$800.21

$7,155.20

Percent change

3.12%

−1.84%

Table I-3 below shows the monthly actuarial value of the Medicare deductible and coinsurance

for 2016 and 2017. In addition, for 2017, the actuarial value of deductibles and coinsurance is

being shown for non-ESRD only, since the plan bids will not include ESRD benefits in 2017.

These data were furnished by the Office of the Actuary.

Table I-3 - Monthly Actuarial Value of Medicare Deductible and Coinsurance for 2016 and 2017

2016

2017

Change

2017 non-ESRD

Part A Benefits

$39.57

$39.43

−0.4%

$37.52

Part B Benefits

$118.86

$125.73

5.8%

$116.05

Total Medicare

$158.43

$165.16

4.2%

$153.57

Includes the amounts for outpatient psychiatric charges.

Medical Savings Account (MSA) Plans. The maximum deductible for current law MSA plans

for 2017 is $11,650.

Attachment II. Key Assumptions and Financial Information

The USPCCs are the basis for the National Per Capita MA Growth Percentage. Attached is a

table that compares last year’s estimate of United States Per Capita Costs (USPCC) with current

estimates for 2003 to 2018. In addition, this table shows the current projections of the USPCCs

through 2019. We are also providing an attached set of tables that summarize many of the key

Medicare assumptions used in the calculation of the USPCCs. Most of the tables include

information for the years 2003 through 2019.

Most of the tables in this attachment present combined aged and disabled non-ESRD data. The

ESRD information presented is for the combined aged-ESRD, disabled-ESRD and ESRD only.

All of the information provided in this enclosure applies to the Medicare Part A and Part B

programs. Caution should be employed in the use of this information. It is based upon

nationwide averages, and local conditions can differ substantially from conditions nationwide.

None of the data presented here pertain to the Medicare prescription drug benefit.

Comparison of Current & Previous Estimates of the Total USPCC – Non-ESRD

Part A

Part B

Part A & Part B

Calendar

Year

Current

Estimate

Last

Year’s

Estimate

Current

Estimate

Last

Year’s

Estimate

Current

Estimate

Last

Year’s

Estimate

Ratio

2003

$296.18

296.18

$247.66

247.64

$543.84

$543.82

1.000

2004

$314.08

314.08

$271.06

271.03

$585.14

$585.11

1.000

2005

$334.83

334.83

$292.86

292.83

$627.69

$627.66

1.000

2006

$345.30

345.30

$313.70

313.67

$659.00

$658.97

1.000

2007

$355.44

355.47

$330.68

330.65

$686.12

1.000

2008

$371.90

371.93

$351.04

351.01

$722.94

1.000

2009

$383.93

383.89

$367.93

367.92

$751.86

$751.81

1.000

2010

$382.99

385.42

$376.82

376.84

$759.81

$762.26

0.997

2011

$389.78

389.75

$386.31

386.33

$776.09

$776.08

1.000

2012

$379.28

379.07

$392.90

392.90

$772.18

$771.97

1.000

2013

$381.32

381.24

$399.73

400.31

$781.05

$781.55

0.999

2014

$371.80

371.91

$418.58

419.91

$790.38

$791.82

0.998

2015

$372.10

369.18

$432.53

430.51

$804.63

$799.69

1.006

2016

$375.95

375.14

$441.72

441.69

$817.67

$816.83

1.001

2017

$386.02

386.12

$456.04

460.23

$842.06

$846.35

0.995

2018

$397.89

405.23

$473.50

484.64

$871.39

$889.87

0.979

2019

$410.97

$503.55

$914.52

Comparison of Current & Previous Estimates of the FFS USPCC – Non-ESRD

Part A

Part B

Part A & Part B

Calendar

Year

Current

Estimate

Last

Year’s

Estimate

Current

Estimate

Last

Year’s

Estimate

Current

Estimate

Last

Year’s

Estimate

Ratio

2010

$369.90

$373.09

$374.91

$374.89

$744.81

$747.98

0.996

2011

$373.81

$373.73

$384.47

$758.28

$758.20

1.000

2012

$359.57

$359.23

$392.07

$392.02

$751.64

$751.25

1.001

2013

$365.58

$365.16

$395.99

$396.51

$761.57

$761.67

1.000

2014

$365.88

$364.88

$408.86

$409.90

$774.74

$774.78

1.000

2015

$368.23

$362.92

$426.30

$422.05

$794.53

$784.97

1.012

2016

$370.33

$368.54

$431.08

$431.67

$801.41

$800.21

1.001

2017

$378.95

$380.46

$446.25

$451.24

$825.20

$831.70

0.992

2018

$390.23

398.27

$462.98

473.81

$853.21

$872.08

0.978

2019

$402.64

$491.86

$894.50

Comparison of Current & Previous Estimates of the ESRD Dialysis-only FFS USPCC

Part A+B

Calendar

Year

Current

Estimate

Last Year’s

Estimate

Ratio

2010

$6,834.14

1.000

2011

$6,770.39

1.000

2012

$6,719.08

1.000

2013

$6,779.61

1.000

2014

$6,762.22

$6,863.06

0.985

2015

$6,815.23

$6,997.24

0.974

2016

$6,862.30

$7,155.20

0.959

2017

$7,023.24

$7,413.51

0.947

2018

$7,213.94

$7,731.47

0.933

2019

$7,455.35

Basis for ESRD Dialysis-only FFS USPCC Trend

Part A+B

Calendar

Year

All ESRD

Cumulative

FFS Trend

Adjustment

Factor for

Dialysis-

only

Adjusted

Dialysis-only

Cumulative

Trend

2015

1.0151

0.9929

1.0078

2016

1.0294

0.9858

1.0148

2017

1.0610

0.9789

1.0386

2018

1.0975

0.9720

1.0668

2019

1.1422

0.9652

1.1025

Summary of Key Projections

Part A

Year

Calendar Year

CPI Percent Change

Fiscal Year

PPS Update Factor

FY Part A Total Reimbursement

(Incurred)

2003

2.2%

3.0%

3.5%

2004

2.6%

3.4%

8.4%

2005

3.5%

3.3%

8.8%

2006

3.2%

3.7%

5.9%

2007

2.9%

3.4%

5.7%

2008

4.1%

2.7%

7.6%

2009

−0.7%

2.7%

6.7%

2010

2.1%

1.9%

3.0%

2011

3.6%

−0.6%

4.9%

2012

2.1%

−0.1%

0.5%

2013

1.4%

2.8%

4.6%

2014

1.5%

0.9%

0.5%

2015

−0.4%

1.4%

2.2%

2016

0.9%

3.9%

2017

2.8%

1.4%

5.5%

2018

2.6%

2.8%

6.1%

2019

2.6%

2.5%

6.2%

Part B

Physician Fee Schedule

Calendar Year

Fees

Residual

Part B Hospital

Total

2003

1.4%

4.5%

4.4%

6.8%

2004

3.8%

5.9%

11.1%

9.8%

2005

2.1%

3.2%

10.8%

7.0%

2006

0.2%

4.6%

5.1%

6.1%

2007

−1.4%

3.5%

8.3%

4.3%

2008

−0.3%

4.0%

6.3%

4.8%

2009

1.4%

1.6%

5.7%

4.0%

2010

2.3%

1.6%

6.6%

2.4%

2011

0.8%

2.3%

7.1%

2.3%

2012

−1.2%

1.0%

7.3%

1.7%

2013

−0.1%

0.2%

7.4%

0.8%

2014

0.5%

0.7%

12.6%

3.4%

2015

−0.4%

1.0%

6.0%

2.3%

2016

−0.4%

−0.6%

2.8%

1.6%

2017

0.4%

2.2%

8.0%

3.4%

2018

−0.3%

2.9%

7.2%

3.2%

2019

0.6%

6.3%

7.7%

6.0%

Percent change over prior year

Percent change in charges per Aged Part B enrollee.

Reflects the physician update and all legislation affecting physician services—for example, the addition of new preventative services enacted in

1997, 2000, and 2010.

Residual factors are factors other than price, including volume of services, intensity of services, and age/sex changes.

Medicare Enrollment Projections (In Millions)

Non-ESRD Total

Part A

Part B

Calendar Year

Aged

Disabled

Aged

Disabled

2003

34.437

5.961

33.038

5.215

2004

34.849

6.283

33.294

5.486

2005

35.257

6.610

33.621

5.776

2006

35.795

6.889

33.975

6.017

2007

36.447

7.167

34.465

6.245

2008

37.378

7.362

35.140

6.438

2009

38.257

7.574

35.832

6.664

2010

39.091

7.832

36.516

6.938

2011

39.930

8.163

37.229

7.247

2012

41.666

8.403

38.526

7.496

2013

43.066

8.620

39.759

7.725

2014

44.516

8.733

41.041

7.879

2015

45.714

8.712

42.280

7.926

2016

47.514

8.749

43.616

7.951

2017

49.089

8.788

44.992

7.991

2018

50.709

8.866

46.419

8.056

2019

52.395

8.937

47.894

8.121

Non-ESRD Fee for Service

Part A

Part B

Calendar Year

Aged

Disabled

Aged

Disabled

2003

29.593

5.628

28.097

4.875

2004

29.946

5.931

28.300

5.128

2005

30.014

6.178

28.287

5.339

2006

29.365

6.146

27.462

5.267

2007

28.838

6.226

26.782

5.297

2008

28.613

6.241

26.301

5.311

2009

28.563

6.288

26.071

5.374

2010

28.903

6.455

26.261

5.556

2011

29.190

6.650

26.421

5.730

2012

29.940

6.685

26.724

5.772

2013

30.309

6.683

26.928

5.783

2014

30.586

6.576

27.038

5.718

2015

30.751

6.349

27.243

5.559

2016

31.721

6.246

27.748

5.445

2017

32.427

6.165

28.251

5.364

2018

33.255

6.134

28.882

5.321

2019

34.159

6.097

29.571

5.278

ESRD

ESRD-Total

ESRD-Fee for Service

Calendar Year

Total Part A

Total Part B

Total Part A

Total Part B

2003

0.340

0.331

0.319

0.309

2004

0.353

0.342

0.332

0.321

2005

0.366

0.355

0.344

0.332

2006

0.382

0.370

0.353

0.340

2007

0.396

0.383

0.361

0.347

2008

0.411

0.397

0.367

0.353

2009

0.426

0.412

0.374

0.360

2010

0.442

0.428

0.388

0.373

2011

0.456

0.441

0.398

0.383

2012

0.471

0.455

0.408

0.393

2013

0.483

0.468

0.414

0.398

2014

0.495

0.480

0.416

0.401

2015

0.504

0.489

0.415

0.400

2016

0.514

0.500

0.419

0.404

2017

0.525

0.511

0.424

0.410

2018

0.536

0.522

0.432

0.417

2019

0.548

0.533

0.438

0.424

Part A Projections for non-ESRD (Aged+Disabled)

Calendar

Year

Inpatient Hospital

Aged + Disabled

SNF

Aged + Disabled

Home Health

Aged + Disabled

Managed Care

Aged + Disabled

Hospice: Total

Reimbursement

(in Millions)

Aged + Disabled

2003

2,594.78

370.63

124.28

457.87

5,733

2004

2,714.57

413.44

133.89

500.73

6,832

2005

2,818.21

450.54

140.87

602.29

8,016

2006

2,764.82

475.07

141.30

757.20

9,368

2007

2,707.49

504.24

143.72

905.77

10,518

2008

2,695.88

536.68

151.00

1,075.01

11,404

2009

2,651.47

551.67

153.86

1,246.31

12,274

2010

2,615.34

571.72

155.17

1,250.04

13,126

2011

2,602.24

624.93

143.61

1,300.70

14,034

2012

2,504.45

543.60

136.02

1,360.79

15,045

2013

2,493.61

542.29

133.48

1,400.15

15,466

2014

2,430.53

536.00

128.47

1,360.42

15,506

2015

2,377.54

545.49

124.77

1,411.88

16,212

2016

2,354.83

559.05

124.16

1,469.13

17,264

2017

2,368.01

579.59

125.79

1,554.41

18,522

2018

2,416.83

594.39

128.29

1,630.61

19,713

2019

2,471.56

617.19

133.78

1,713.00

21,218

Average reimbursement per enrollee on an incurred basis, except where noted. Does not reflect the effects of the Independent Payment Advisory

Board (IPAB)

Part B Projections for non-ESRD (Aged+Disabled)

Calendar Year

Physician Fee Schedule

Aged + Disabled

Part B Hospital

Aged + Disabled

Durable Medical Equipment

Aged + Disabled

2003

1226.49

364.77

196.96

2004

1343.99

418.85

195.61

2005

1397.41

477.65

196.83

2006

1396.39

497.47

197.78

2007

1368.35

526.92

195.68

2008

1367.83

555.09

200.92

2009

1375.29

592.77

183.61

2010

1413.77

628.55

183.76

2011

1440.63

668.61

175.58

2012

1396.64

704.50

173.34

2013

1353.67

743.47

152.30

2014

1334.67

820.85

128.34

2015

1338.07

857.87

134.19

2016

1312.82

871.92

126.40

2017

1320.19

925.58

123.34

2018

1356.84

982.07

129.93

2019

1444.54

1047.00

135.51

Calendar Year

Carrier Lab

Aged + Disabled

Other Carrier

Aged + Disabled

Intermediary Lab

Aged + Disabled

2003

73.73

329.81

75.18

2004

78.48

354.00

80.47

2005

82.71

362.81

84.16

2006

85.59

361.08

84.51

2007

90.65

363.52

84.38

2008

94.50

366.62

85.78

2009

101.80

385.20

79.19

2010

101.08

393.78

80.23

2011

102.08

406.81

83.19

2012

109.62

409.90

84.59

2013

109.51

409.29

81.78

2014

115.06

411.27

55.54

2015

118.87

416.70

56.21

2016

121.56

417.19

57.02

2017

117.81

423.92

54.73

2018

121.55

437.75

56.36

2019

125.25

451.37

58.09

Average reimbursement per enrollee on an incurred basis, except where noted. Does not reflect the effects of the Independent Payment Advisory

Board (IPAB)

Calendar Year

Other Intermediary

Aged + Disabled

Home Health

Aged + Disabled

Managed Care

Aged + Disabled

2003

113.99

136.75

421.40

2004

119.58

156.45

471.37

2005

139.78

179.44

560.31

2006

142.09

202.88

769.94

2007

151.16

232.33

931.18

2008

158.20

252.43

1104.26

2009

187.44

282.09

1203.83

2010

193.08

283.25

1221.65

2011

198.45

262.37

1277.69

2012

205.00

246.82

1368.93

2013

194.42

240.61

1498.09

2014

200.16

233.22

1709.38

2015

212.72

225.54

1816.00

2016

216.96

225.75

1936.62

2017

224.74

228.79

2038.46

2018

193.46

233.49

2155.04

2019

200.11

243.61

2333.89

Average reimbursement per enrollee on an incurred basis, except where noted. Does not reflect the effects of the Independent Payment Advisory

Board (IPAB)

2017 Projections by Service Category for non-ESRD (Aged+Disabled)*

Service Type

Current

Estimate

Last Year’s

Estimate

Ratio

Part A

Inpatient Hospital

2,368.01

2,364.02

1.002

SNF

579.59

591.47

0.980

Home Health

125.79

130.30

0.965

Managed Care

1,554.41

1,542.97

1.007

Part B

Physician Fee Schedule

1320.19

1,342.86

0.983

Part B Hospital

925.58

978.42

0.946

Durable Medical Equipment

123.34

118.56

1.040

Carrier Lab

117.81

116.00

1.016

Other Carrier

423.92

413.41

1.025

Intermediary Lab

54.73

55.41

0.988

Other Intermediary

224.74

183.63

1.224

Home Health

228.79

240.83

0.950

Managed Care

2038.46

2,060.97

0.989

Average reimbursement per enrollee on an incurred basis, except where noted.

Claims Processing Costs as a Fraction of Benefits

Calendar

Year

Part A

Part B

2003

0.001849

0.011194

2004

0.001676

0.010542

2005

0.001515

0.009540

2006

0.001245

0.007126

2007

0.000968

0.006067

2008

0.000944

0.006414

2009

0.000844

0.005455

2010

0.000773

0.005055

2011

0.000749

0.004396

2012

0.001008

0.003288

2013

0.000994

0.002846

2014

0.001003

0.002884

2015

0.000952

0.002730

2016

0.000952

0.002730

2017

0.000952

0.002730

2018

0.000952

0.002730

2019

0.000952

0.002730

Approximate Calculation of the USPCC, the National MA Growth Percentage for

Combined (Aged+Disabled) Beneficiaries, and the FFS USPCC (Aged+Disabled)

The following procedure will approximate the actual calculation of the USPCCs from the

underlying assumptions for the contract year for both Part A and Part B.

Part A:

The Part A USPCC can be approximated by using the assumptions in the tables titled “Part A

Projections Under Present Law for non-ESRD (Aged+Disabled)” and “Claims Processing Costs

as a Fraction of Benefits.” Information in the “Part A Projections” table is presented on a

calendar year per capita basis. First, add the per capita amounts over all types of providers

(excluding hospice). Next, multiply this amount by 1 plus the loading factor for administrative

expenses from the “Claims Processing Costs” table. Then, divide by 12 to put this amount on a

monthly basis.

Part B:

The Part B USPCC can be approximated by using the assumptions in the tables titled “Part B

Projections under Present Law for non-ESRD (Aged+Disabled)” and “Claims Processing Costs

as a Fraction of Benefits.” Information in the “Part B Projections” table is presented on a

calendar year per capita basis. First, add the per capita amounts over all types of providers.

Next, multiply by 1 plus the loading factor for administrative expenses and divide by 12 to put

this amount on a monthly basis.

The National Per Capita MA Growth Percentage:

The National Per Capita MA Growth Percentage for 2017 (before adjustment for prior years’

over/under estimates) is calculated by adding the USPCCs for Part A and Part B for 2017 and

then dividing by the sum of the current estimates of the USPCCs for Part A and Part B for 2016.

The FFS USPCC:

The tables used to calculate the total USPCC can also be used to approximate the calculations of

the FFS USPCC. The per capita data presented by type of provider in the projections tables for

both Part A and B are based on total enrollment. To approximate the FFS USPCCs, first add the

corresponding provider types under Part A and Part B separately. For the FFS calculations, do

not include the managed care provider type. Next, rebase the sum of the per capita amounts for

FFS enrollees, i.e., multiply the sum by total enrollees and divide by FFS enrollees. (The

enrollment tables in this attachment now also include FFS enrollment). Then, multiply by 1 plus

the loading factor for administrative expenses and divide by 12. The result will only be

approximate because there is an additional adjustment to the FFS data which accounts for cost

plan data which comes through the FFS data system. This cost plan data is in the total per capita

amounts by type of provider, but is removed for the FFS calculations.

Attachment III. Responses to Public Comments on Part C Payment Policy

Section A. Final Estimate of the National Per Capita Growth Percentage and the Fee-for-

Service (FFS) Growth Percentage for Calendar Year 2017

Comment: One commenter thanked CMS for providing timely data, including preliminary

estimates of the growth rates.

Response: CMS appreciates the support and will continue to provide timely data when possible.

Comment: CMS received one comment expressing appreciation for the details provided on the

factors used in the calculation of the growth rates.

Response: CMS appreciates the support.

Comment: Commenters requested more transparency regarding the calculation of the growth

rate. Commenters requested that CMS provide plans with a full explanation of the methodology

and assumptions underlying the growth rate, so that plans can conduct careful analysis and

provide meaningful comment

Response: We believe that we are providing useful information and support pertaining to

USPCC levels and trends. Key economic assumptions underlying the USPCCs are included in

attachment II of this payment notice. Consistent with prior years, we will publish additional

information regarding trends for the prior five years at https://www.cms.gov/Medicare/Health-

Plans/MedicareAdvtgSpecRateStats/FFS-Trends.html and will discuss this material on an

actuarial user group call.

Comment: One commenter requested an explanation on why the National Health Expenditures

forecasts show 3.3% per enrollee spending growth for Medicare in 2017, while the CMS

projected benchmark growth is lower than this.

Response: A key difference between the two baselines is that that total USPCC growth rate is

based on more complete historical experience than the NHE. Other differences between the

projections include the treatment of hospice benefits, covered population (e.g., ESRD),

administrative costs, sequestration, and bonuses for use of electronic health records.

Comment: Two commenters expressed concern that there may be significant adjustments

between the growth rate in the Advance Notice and the growth rate in the Rate Announcement,

as there has been in previous years. These commenters requested that CMS work to prevent

adjustments in order to avoid disruption to the MA program.

Response: Each release of the growth rates reflects our best estimate at that time of historical

program experience and projected trend. We always strive to improve our forecasting accuracy

with incorporation of additional data and the refinement of our analytic modeling.

Comment: One commenter asked that CMS not make any major adjustments to the growth rate

in the Rate Announcement because plans will not have a chance to review the changes and

provide comments. This commenter also suggested that CMS review all of its assumptions,

including any changes in assumptions from prior years, in order to avoid disruption in the MA

program.

Response: The growth percentages and total USPCC and FFS USPCCs reflected in Attachment

II of this payment announcement are based on the Office of the Actuary’s (OACT’s) best

estimate of historical project experience and program trend. We continue to believe that the best

practice is to base the growth rates on the most recent data and assumptions.

Comment: CMS received one comment asking for clarification on the meaningfulness of the

MA growth percentage now that all counties are phased in. This commenter requested that CMS

clarify whether the FFS growth percentage is now the driving number and if the MA growth rate

percentage will now only be used for calculating the benchmark cap. This commenter also

suggests that CMS present the FFS growth percentage before the MA growth percentage.

Response: The specified amounts, or FFS rates, are based on the FFS USPCC. Also, the

applicable amount, or pre-Affordable Care Act rate, established under SSA section 1853(k)(1) is

updated by the growth in the total USPCC. We will consider modifying the presentation of the

USPCCs and growth rates in future rate announcements.

Comment: Several commenters expressed concern that the ESRD growth rate is significantly

lower than the FFS and MA growth rates. Commenters requested additional information and

explanation for this difference. Commenters stated that they are worried that this negative

growth rate will have adverse effects on beneficiaries.

Response: The preliminary CY 2017 growth rate for the ESRD population reflects a prior period

adjustment of −4.35 percent. This adjustment is primarily due to lower experience for the

dialysis population for calendar year 2014 combined with a negative differential in the growth

rate in 2015 and 2016 between the total ESRD and dialysis-only populations. The increase from

2016 to 2017 tabulated on the current baseline is 2.04 percent. Combining the prior period

update of −4.35 percent and the current trend of 2.04 percent yields the preliminary 2017 ESRD

growth rate of −2.39 percent.

Also, we agree that the negative ESRD FFS USPCC update for 2017 could have an adverse

effect on beneficiary premiums and/or supplemental benefits. We encourage plan sponsors to

take into account beneficiary impacts in their design of 2017 MA and MA-PD plan benefits,

consistent with CMS’ policies.

Comment: Two commenters noted that ESRD rates have fluctuated from year to year. These

commenters stated that it is unclear why there would be such significant oscillation. These two

commenters stated that the fluctuation in ESRD rates make it difficult for plans to design and

maintain stable benefit packages, especially for such a vulnerable population. The commenters

requested that CMS provide additional details behind the significant year to year oscillations in

the ESRD calculations, as well as review the rates for accuracy.

Response: We agree that predictable growth rates for the ESRD population are important to

Medicare Advantage plans that cover the ESRD population. The recent trend in ESRD

population reflects several recent program changes including the bundling of Part B services,

audits conducted by Recovery Audit Contractors, the “two midnight” hospital policy, and the

implementation of DMEPOS competitive bidding.

Section B. MA Benchmark, Quality Bonus Payments and Rebate

Comment: Several commenters expressed concern that the pre-ACA rate cap penalizes high

quality plans and plans that offer services in higher-cost areas. Commenters suggested that CMS

review its options for exercising discretionary authority to remove the quality bonuses from the

benchmark cap calculation. One commenter believes that including the bonus in the cap

calculation contradicts the intent of Congress to provide quality bonuses to high performing

plans and to establish a value-based purchasing component in MA. Commenters believe that the

statute can be interpreted to allow the Secretary the discretion to exclude quality bonuses from

the benchmark cap calculation. One commenter indicated that the language used in section

1853(n)(4) refers to “taking into account” the quality bonuses, suggesting that the Secretary

could consider the quality bonus payments but then exercise discretion to omit them from the cap

calculation. Another commenter suggested that the Applicable Amount was a cap on the

blended benchmarks only during the Applicable Amount’s phase-out period; and since the

Applicable Amount is no longer included in the benchmark calculation, the statute does not

require the cap to remain in place for 2017.

Response: CMS shares the commenters’ concern about any rate-setting mechanism that

diminishes incentives for MA plans to continuously improve the care provided to Medicare

beneficiaries. While we appreciate the concerns of commenters, we do not believe we have the

discretion under section 1853(n)(4) of the Social Security Act to eliminate application of the pre-

ACA rate cap or exclude the bonus payment from the cap calculation. The bonus payment is

based on an increase to the “applicable percentage” which is a component of the benchmark

calculation itself. Further, the plain reading of the statute does not indicate congressional intent

to limit the benchmark cap to the transition period described in section 1853(n)(3) of the Act.

When Congress has wanted to authorize or mandate MA payment rules that apply for specific

periods of time, Congress has done so using specific date parameters; section 1853 of the Act

includes numerous examples of this.

Comment: One commenter requested clarification regarding quality bonus payments for low

enrollment plans. The commenter questioned whether quality bonus payments for low

enrollment plans should be based on an enrollment-weighted average of the Star Ratings earned

by the parent organization’s existing MA contracts.

Response: Section 1853(o)(3)(A)(ii) does not address the amount of the quality bonus payment

increase for low enrollment contracts. We interpret section 1853(o)(3) of the Act as establishing

two types of qualifying plans for purposes of applying the quality bonus, with the amount of the

quality bonus determined by the basis for treatment of the plan as a qualifying plan (i.e., whether

the amount is based on the score produced under the Star Rating system or based on the default

increase specified in the case of new MA plans). For the purpose of determining a quality bonus

percentage, the Advance Notice uses the term “new MA plan” to refer to an MA plan offered by

a parent organization that has not had another MA contract in the preceding three-year-period.

As discussed in the Advance Notice, we treat new MA plans and low enrollment plans (i.e.,

plans offered under a contract that lacks sufficient enrollment and data for the calculation of a

Star Rating) as qualifying plans that are eligible to receive a 3.5 percentage point quality bonus

percentage increase to the county rates. We believe that new MA plans and low enrollment

plans should receive the same treatment for the purpose of establishing the amount of quality

bonus payments because each type of plan has insufficient data available for the calculation of a

Star Rating. This is consistent with our treatment of low enrollment contracts for purposes of

determining the rebate available to the plan.

Comment: Two commenters suggested that CMS establish a minimum benchmark level for

counties in Puerto Rico, such as maintaining the MA benchmarks in Puerto Rico at previous

levels.

Response: We appreciate the concerns raised by the commenters. However, we do not believe

the approach suggested by these comments would be permissible under statute.

Comment: One commenter suggested that CMS reevaluate Puerto Rico’s eligibility for the

Qualifying County Bonus Payment. The commenter noted that, in 2016, Puerto Rico was the

only jurisdiction where all of its counties achieved two of the three conditions required to be

considered a qualifying county. The one criterion that Puerto Rico did not meet was that 2004

MA capitation must have been based on the amount specified in section 1853(c)(1)(B) for a

Metropolitan Statistical Area with a population of more than 250,000. While Puerto Rico has the

highest level of MA penetration in the nation (over 75%), the commenter believes that Puerto

Rico is disadvantaged by its population being divided into an unusually high number of counties

(78). The commenter suggested that CMS evaluate Puerto Rico’s eligibility for the Qualifying

County Bonus Payment by considering population counts by the Census Bureau’s Metropolitan

Areas (rather than by county), or by removing one of the three qualifying criteria for Puerto

Rico.

Response: We appreciate the concerns raised by the commenter. However, we do not believe the

approach suggested by these comments would be permissible under statute.

Section C. Calculation of Fee for Service Cost

Comment: Several commenters expressed concern regarding CMS rebasing in 2017 due to rate

unpredictability and fluctuation. Commenters noted that rebasing has occurred every year since

2012, and noted that it is not required annually by statute. One commenter proposed rebasing

FFS county rates every other year. A few commenters asked that CMS institute a regular

schedule of rebasing once every three years. Two commenters suggested that CMS adopt a

corridor to smooth the rebasing fluctuations whereby county benchmarks would be prevented

from increasing or decreasing by more than a specified amount.

Response: Given that MA county rates are based on FFS costs, we believe it is important to

update the FFS rates using the most current FFS data available. We stated in previous Rate

Announcements that we anticipate rebasing each year as a result. We do not believe that

“smoothing” the impacts of rebasing would be consistent with the statute’s requirement of

calculating the specified amount based on the estimated FFS rate for that county. We also note

that our method for calculating the county level rates includes a five-year average that provides

some measure of stability in the rates.

Comment: One commenter offered support for including shared savings and losses incurred

under the Medicare Shared Savings Program (MSSP) and Pioneer ACO programs. The

commenter requested that CMS consider including additional adjustments for other CMS/CMMI

programs, such as the Comprehensive Primary Care Initiative.

Response: We appreciate the support regarding the inclusion in the fee-for-service experience the

shared savings payment and shared losses made to MSSP and Pioneer ACOs. We recognize that

there are other CMS/CMMI programs with incentive payments for the years 2010-2014. Such

programs include the Comprehensive Primary Care Initiative, Physician Group Practice

Demonstration, and the Independence at Home Demonstration. Incentive payments made under

these programs are small relative to the MSSP and Pioneer ACO programs. Due to operational

challenges, CMS will not reflect the payments made under these programs in the CY 2017

ratebook. We will consider including payments made under additional CMS/CMMI programs in

future years.

Comment: One commenter requested more transparency on the calculation of the FFS rates, by

releasing county-level FFS costs of the most recent 5-year period. A few commenters requested

that information related to rebasing be released with the Advance Notice. One commenter asked

for additional information pertaining to the adjustment for care through the Veterans Health

Administration.

Response: We are publishing with the final Rate Announcement files that contain the wage

indices in each claim year (i.e., 2010-2014), and the wage indices for 2016 by county. We

annually publish, with the final Rate Announcement, files that contain the county-level

adjustments that are applied to the FFS costs, including the adjustment for Veterans Affairs. We

will consider publishing additional data with the Advance Notice in future years that can help

stakeholders understand the potential impacts of proposed changes in the Advance Notice.

Comment: One commenter requested that CMS apply a uniform approach in all counties to

calculate benchmarks on beneficiaries with both Part A and Part B coverage, as is currently done

in Puerto Rico. The commenter noted that other counties beyond Puerto Rico, such as in Hawaii,

have high MA penetration rates and low FFS Part B enrollment.

Response: While most Medicare beneficiaries are automatically enrolled in Part B and must opt

out to decline it, beneficiaries in Puerto Rico must take affirmative action to opt-in to Part B

coverage. As a result, CMS believes it is appropriate to adjust the FFS rate calculation in Puerto

Rico used to determine MA rates so that it is based on beneficiaries who are enrolled in both Part

A and Part B. We will consider expanding this Part A and Part B adjustment to all counties in the

future.

Comment: A few commenters expressed concern regarding the change of data source for county

designation of beneficiaries used in the summarization of risk scores. Commenters requested

that CMS provide more information regarding this change (such as information pertaining to the

accuracy of each data source, the mismatch rate between the two sources, and county-level

impacts of switching data sources).

Response: The change in county source for the risk score assignment will align the county codes

used to assign risk scores, claims, and enrollment. Based on the CY 2016 ratebook county

codes, risk score changes for 88 percent of the counties were within 2 percent. Further, only 5

percent of the counties had a change in risk score of greater than 5 percent due to the change in

the source of the beneficiary’s county code.

Comment: In the Advance Notice, CMS sought public comment on the possibility of adjusting

FFS experience in Puerto Rico to reflect the propensity of zero claimants nationwide. Several

commenters requested that CMS make an adjustment to the Puerto Rico MA rates to reflect the

prevalence of zero-dollar-claimants. Commenters reiterated that there is a larger proportion of

FFS Medicare beneficiaries in Puerto Rico with coverage for Medicare Parts A and B that have

no Medicare claim reimbursements compared to other jurisdictions, which they believe is

skewing the rate calculation for Puerto Rico. Commenters suggested that, to make such an

adjustment, CMS should identify beneficiaries with zero Medicare claim experience over 24

consecutive months (i.e., zero claims during a two-year period), and exclude these zero-claim

beneficiaries (and their risk score) when developing per capita costs. Commenters propose that

CMS would then apply an adjustment for the zero-claim beneficiaries.

Response: The Secretary has directed the Office of the Actuary to adjust the fee-for-service

experience for beneficiaries enrolled in Puerto Rico to reflect the propensity of zero dollar

claimants nationwide. For purposes of making this adjustment, consistent with the Secretary’s

instructions, the Office of the Actuary evaluated experience exclusively for beneficiaries that are

enrolled in both Parts A and B and are not dually eligible for VA coverage.

The study analyzed experience for calendar years 2011 through 2013 and only considered FFS

beneficiaries enrolled mid-year. On average, 14.3 percent of A&B Puerto Rico FFS

beneficiaries were found to have no Medicare claim reimbursements per year. This compares to

a nationwide, non-territory, proportion of 6.1 percent of FFS beneficiaries without Medicare

spending. These results were applied to the Puerto Rico FFS experience by adjusting the

weighting of the enrollment and risk scores for the zero-claim cohort to reflect the nationwide

proportion of zero-claim beneficiaries. The resulting impact was an average increase in the

standardized FFS costs in Puerto Rico of 4.4 percent for 2011 through 2013. Accordingly, a 4.4

percent adjustment was applied to the pre-standardized Puerto Rico FFS rates supporting the CY

2017 ratebook development.

Comment: A few commenters believe that FFS experience is not sufficient to establish accurate

MA benchmarks in Puerto Rico. Commenters expressed concern that FFS data used by CMS to

set the MA rates for Puerto Rico are not representative of the population to which rates are

applied, citing the lower dual-eligible penetration in FFS than exists in MA. Commenters noted

the low level of FFS enrollment in Puerto Rico, and furthermore noted that the FFS costs in

Puerto Rico appear to have low levels of health care utilization. Commenters suggested that

CMS not rebase rates in Puerto Rico for 2017 while there are concerns regarding the data used to

set MA benchmarks. One commenter requested that CMS use another jurisdiction as a proxy to

set benchmarks in Puerto Rico.

Response: We appreciate the concerns commenters have raised regarding Puerto Rico. As

explained in the Advance Notice, CMS believes that the FFS data in Puerto Rico is sufficient for

establishing accurate MA benchmarks as well as consistent with the statutory requirements. We

will continue to analyze these issues and consider whether any refinements to the methodology

may be warranted in future years.

Comment: One commenter requested that CMS adjust MA rates to account for anticipated

changes in Part A (SSI eligible simulation for Uncompensated Care) and Part B (Practice

Expense GPCI) rates through CMS rulemaking. The commenter noted that, as part of the FY

FFS rulemaking process, two specific issues are still being evaluated that could generate Part A

and Part B rate increases in the FFS program of Puerto Rico starting October 1st 2016 (Part A)

and January 1st 2017 (Part B). The commenter mentioned the timing of the rulemaking process

versus 2017 rate-setting, and was concerned about a potential imbalance in MA 2017 payments

if no adjustment were made to FFS costs.

Response: Consistent with prior years, we have adjusted the historical ratebook FFS data to

reflect payment parameters that are finalized at time of the Rate Announcement. Accordingly,

the CY 2017 ratebook repricing reflects the latest regulations for fiscal year 2016 (for example:

inpatient hospital, outpatient hospital, and skilled nursing facilities) and calendar year 2016 (for

example: geographic practice cost index, and DMEPOS payment schedules). Further, the Puerto

Rico inpatient hospital claims have been repriced to reflect the provisions of the Consolidated

Appropriations Act, 2016.

Comment: Two commenters expressed support regarding developing rates in Puerto Rico based

on claims and enrollment for beneficiaries with Part A eligibility and Part B enrollment. A few

commenters expressed support regarding the re-pricing of historical inpatient claims to include

the recent legislation that increased the Medicare inpatient payment rates for hospitals in Puerto

Rico.

Response: We appreciate the support.

Section D. ESRD Rates

Comment: Two commenters expressed concern regarding the volatility of the ESRD rates, citing

the decrease from the 2017 projection in the 2016 Rate Announcement. One of the commenters

suggested several rate-setting options such as not allowing ESRD rates to drop below the

previous year’s rate and/or carving-out organ acquisition costs from the ESRD rate.

Response: We appreciate the concerns the commenters raised. However, we do not believe the

approach suggested by these comments would be permissible under statute.

Section E. Clinical Trials

Comment: One commenter opposed our proposal to continue to pay on a fee-for-service basis

for qualified clinical trial items and services provided to MA enrollees in clinical trials that are

covered under the National Coverage Determinations (NCDs) on clinical trials. The commenter

recommended that we require MA plans to cover the cost of clinical trials. The commenter

incorrectly stated that, under CMS’ current policy, beneficiaries who wish to participate in

clinical trials are forced to relinquish their MA coverage and switch to FFS Medicare, where they

would be required to cover all deductibles, copays, and the 20 percent coinsurance for all charges

associated with clinical trial care. The commenter stated that this policy creates a disincentive

for Medicare enrollees with serious or life-threatening diseases, such as cancer, who may benefit

from innovative treatments and health care services through clinical trials. The commenter

indicated that, if individuals are discouraged from participating in clinical trials for cost reasons,

it will be more difficult for physicians to appropriately assess the therapeutic value of new drugs

and devices in the Medicare population until they are available in the general marketplace.

Response: As we stated in the Advance Notice, MA enrollees are able to participate in any

qualifying clinical trial that is open to beneficiaries in original Medicare. CMS does not require

MA enrollees to disenroll from their MA plan if they wish to participate in a clinical trial.

We note that our policy of paying on a fee-for-service basis for qualified clinical trial items and

services provided to MA enrollees only applies to clinical trials that meet the criteria to qualify

for coverage under the National Coverage Determination (NCD) for Routine Costs in Clinical

Trials (310.1) (Medicare NCD Manual, Pub. 100-3, Part 4, Section 310.1). CMS has previously

made the determination that all clinical trials that qualify for coverage under NCD 310.1 trigger

the significant cost threshold such that coverage and payment are controlled by 42 CFR

422.109(c). With respect to individual NCDs requiring coverage with evidence development

(CED), MAOs are responsible for covering items and services in CMS-approved clinical trials

that meet the requirements defined in the NCD, unless CMS determines, for each NCD, that the

significant cost threshold is exceeded for that item or service (see § 422.109).

We do not believe that our current policy creates a disincentive for MA enrollees to participate in

clinical trials, or that MA enrollees would have a greater incentive to participate in clinical trials

if MAOs were responsible for costs of qualified clinical trial items and services that are currently

covered on an FFS basis in clinical trials that qualify for coverage under NCD 310.1. Under our

clinical trials policy, for CY 2011 and subsequent years, MAOs must reimburse enrollees for the

difference between the FFS cost sharing for covered clinical trial services and the plan’s in-

network cost sharing for services of the same type, and the member’s cost sharing liabilities must

count towards the MA plan’s in-network out-of-pocket maximum. This cost-sharing

requirement applies to all qualifying clinical trials; MAOs cannot choose the clinical trials or

clinical trial items and services for which this policy applies. The requirement that MAOs

provide in-network cost-sharing for all qualifying clinical trials services means, in effect, that

MA plan enrollees incur the same cost-sharing for clinical trials services that they would incur if

the services were covered by the MAO, rather than by FFS Medicare. As we stated in the CY

2011 Rate Announcement, we believe this policy increases MA enrollees’ participation in, and

access to, clinical trial services.

For more information on these policies, please refer to the Medicare Managed Care Manual, Pub.

100-16, Chapter 4 (Benefits and Beneficiary Protections), section 10.7 (Clinical Trials).

Section F. MA Employer Group Waiver Plans

We are finalizing the methodology that we proposed for calculating EGWP county payment rates

with two modifications. First, in order to release final EGWP county payment rates in the Rate

Announcement, we will use the average bid-to-benchmark ratio for individual market plan bids,

including RPPOs, from the prior payment year to calculate the Part C base payment amounts for

EGWPs. For example, the EGWP county payment rates for 2017 have been calculated using

2016 bid-to-benchmark ratios. Second, to provide employers and MAOs more time to adapt to

this payment change, we are providing a two-year transition to the new EGWP county payment

rate methodology. Under this approach, for 2017, we have moderated the impact of the new

policy by blending individual market plan and EGWP bids to calculate the bid-to-benchmark

ratios (as described below). In 2018, we will fully implement the new policy and, therefore, will

use only individual market plan bids to calculate the bid-to-benchmark ratios.

We are finalizing the following methodology for calculating EGWP county payment rates:

 First, a weighted average bid-to-benchmark ratio for the prior payment year is calculated

at the quartile

level.

o For 2017, the bid-to-benchmark ratio has been calculated using a blend of

individual market plan bids and EGWP bids from 2016, with individual market

plan bids weighted by 50 percent and EGWP bids weighted by 50 percent. The

calculation is: [(weighted average of the intra-service area rate adjustment (ISAR)

adjusted county bid amounts for individual market plan bids by actual

enrollment)/(weighted average of the county standardized benchmarks for

individual market plan bids by actual enrollment)] x 50% plus [(weighted average

of the intra-service area rate adjustment (ISAR) adjusted county bid amounts for

EGWP bids by actual enrollment)/(weighted average of the county standardized

benchmarks for EGWP plan bids by actual enrollment)] x 50% = percentage by

quartile.

o For 2018 and future years, the bid-to-benchmark ratios will be calculated using

individual market plan bids only. The calculation will be: (weighted average of

the intra-service area rate adjustment (ISAR) adjusted county bid amounts by

actual enrollment)/(weighted average of the county standardized benchmarks by

actual enrollment) = percentage by quartile.

 The percentages are applied to each of the published 5%, 3.5% and 0% bonus county

ratebook rates for the payment year to establish Part C base payment amounts for EGWPs

based on their star rating for each county.

 In order to calculate a county rebate payment, each county level EGWP Part C base

payment amount is compared to the corresponding published 5%, 3.5% and 0% bonus

county benchmarks for the payment year to determine the amount of savings. The savings

As described in more detail in the Advance Notice, to determine the CY 2017 applicable

percentages, CMS ranks counties from highest to lowest based upon their 2016 average per

capita FFS costs and places the rates into four quartiles. When calculating the bid-to-benchmark

ratios CMS grouped them by the 2016 unblended quartiles, these bid-to-benchmark ratios are

then applied to the 2017 unblended quartiles.

Territories will not be included in the weighted average bid-to-benchmark ratio, but will be

assigned the weighted average of the quartile within which their counties fall.

amount is multiplied by the corresponding star rebate percentage to determine the Part C

EGWP county level rebate amount.

 The EGWP Part C base payment amount is added to the Part C EGWP rebate amount to

establish the county level EGWP total payment amount.

 The total payment amount will be risk adjusted in payment using beneficiary-specific risk

scores. Therefore, the formula applied for payment will be: (base county payment rate +

county rebate) * beneficiary level risk score

For RPPO EGWPs, the weighted average bid-to-benchmark ratios will be calculated as described

in the first bullet above, then, as described in the Advance Notice, to establish the Part C base

RPPO EGWP payment amount, we would also apply the same methodology as described above

in the second bullet. In order to calculate the regional rebate amounts, these percentages will be

applied for each county within a region to the published payment year regional benchmarks to

establish the savings amount and rebate amounts by star rating and quartile. So the formula

applied for payment for RPPO EGWPs would be: (base county payment rate + regional rebate) ×

beneficiary level risk score. As stated in the Advance Notice, the final MA regional standardized

A/B benchmarks released in late summer will reflect the average bid component of the regional

benchmark based on non-EGWP bid submissions.

The 2017 county payment rates for non-RPPO EGWPs can be found at:

https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Ratebooks-and-

Supporting-Data.html. The 2017 EGWP RPPO payment rates will be released concurrently with the

2017 Regional MA benchmark release.

Comment: A few commenters support our proposal due to the government savings and greater

payment equity between MA EGWP and MA non-EGWP plans.

Response: We appreciate the support.

Comment: One Medicare Advantage Organization in support of the proposal explained that the

current approach to filing EGWP bids is cumbersome for both health plans and CMS. Plans often

submit many bids accounting for different structural characteristics but without specified benefit

level differences. Since benefits are not being decided during the bid process, beyond the

technical requirements under the current compensation system, the purpose of this additional bid

development work is not clear.

Response: We appreciate the support.

Comment: Many commenters requested that CMS delay implementation, or to consider a phase-

in approach by setting the bid-to-benchmark ratios at a higher level than calculated then stepping

them down over time at incremental target ratios. One commenter also suggested that CMS use

distributions or ratios from the 2016 bid year to publish rates in the 2017 Final Rate

Announcement.

Response: We appreciate the flexibilities these commenters suggested be incorporated into the

methodology. In order to address these requests, under the methodology we are finalizing as

described above, we are releasing 2017 final non-RPPO EGWP county payment rates with this

Rate Announcement and we will provide for a two-year transition to the new payment approach

for EGWPs.

Comment: A large number of commenters maintained that CMS does not have the legal

authority to make this payment change given that the purpose of employer group waivers, under

the statute, is to enhance and promote the offering of these types of retiree plans. These

commenters indicated in large part that Section 1857(i) does not give the Secretary the authority

to offer a new payment methodology for EGWPs. Instead the authority given to the Secretary is

to “facilitate” EGWPs by waiving or modifying requirements that “hinder” EGWPs.

Commenters believe that the statutory waiver authority does not provide CMS with the authority

to modify the core statutory payment terms in a manner that hinders EGWPs, by characterizing

the change as a condition for waiving of other program requirements.

Many comments asserted that the CMS proposal does not seem to be waiving or modifying a

methodology that hinders EGWPs. These commenters believe, instead, that it is the methodology

being proposed by CMS that will hinder EGWPs by creating an obstacle to offering EGWPs, by

increasing premiums and reducing benefits, which these commenters believe is contrary to

Congress’s intent in establishing CMS’s waiver authority. Many commenters further stated that

CMS acted in an arbitrary and capricious manner by not presenting data supporting its argument

that the waiver was authorized by statute.

Finally, several other commenters asserted that the proposed changes are inconsistent with the

regulations, asserting that CMS may not implement substantive changes to the MA bidding and

payment process through sub regulatory guidance that contradicts, but leaves intact, existing

regulations. These commenters believe that CMS must engage in rulemaking so that its

regulations accurately reflect the distinct payment methodology CMS is proposing for EGWPs.

Response: Medicare Advantage Organizations (MAOs) are required to submit to CMS a detailed

description of the benefits provided for each individual market plan they offer. MAOs are also

required to submit to CMS a bid for each of these plan benefit packages which includes detailed

pricing experience, assumptions and projections. MAOs negotiate with individual employers to

provide Medicare Advantage plans that exclusively enroll their retirees. To facilitate the offering

of such employer plans, CMS has waived the requirement for MAOs to submit plan benefit

package information and unique bids for each of the plans that they offer to employers. Under

this approach, MAOs may submit a single composite benefit package and bid for EGWPs and

are allowed to customize that benefit package and bid pricing for each of the various

arrangements they negotiate with employers. Associated with the waiver of having a financial

bid for each benefit package, CMS has also waived requirements related to the uniformity of

premiums and provided waivers that permit negotiation and customization of benefit packages

throughout the year rather than being limited by specific benefit packages that have been

submitted with bids; using this flexibility, MAOs offering EGWPs (and employers that directly

offer an EGWP) can - throughout the year – vary benefits from the composite bid that is

currently submitted in order to offer enhanced or customized supplemental benefits.

This approach has reduced the administrative burden for MAO sponsors of EGWPs, but also

means that CMS does not know how many EGWP plans any MAO offers, what specific benefits

are provided in each of those plans, or the associated underlying costs. This lack of transparency

has significantly impaired CMS’ ability to comprehensively review and assess the

reasonableness of the underlying actuarial assumptions and projections included in the bids

submitted for EGWPs and to trace how federal funds, in the form of the capitation payments and

the rebates, are spent for beneficiaries in specific EGWPs. This lack of transparency, combined

with the fact that EGWPs do not compete in the open market, has resulted in EGWP bids that are

systematically higher than bids for individual market MA plans. MedPAC has calculated that in

2012 margins were substantially higher for EGWPs (7.2%) than for other plans (4.4%). See,

e.g., MedPac, March 2015 Report to Congress;

http://www.medpac.gov/documents/reports/chapter-13-the-medicare-advantage-program-status-

report-(march-2015-report).pdf.

Given the lack of competition and transparency associated with EGWP bidding, we do not

believe that the current policy of allowing MAOs to submit composite bids and benefit packages

is sustainable. Instead of maintaining the current policy, we considered whether to revert to the

statutory and regulatory requirement of requiring EGWP sponsors to submit to CMS for review

and approval individual benefit packages and bids for each of their employer plans. However,

we concluded that the administrative burden for MAOs and employers of such an approach, in

addition to the significant challenges for CMS associated with expanding our review process to

accommodate thousands of additional benefit packages and bids, would substantially hinder the

offering of these plans.

As part of developing and submitting a financial bid for each plan

benefit package, the MAO would have to commit to specific plan benefit packages at the time of

the bid; the flexibility to modify benefits and customize plan offerings for employers would be

limited compared to the flexibility provided under the composite bid waiver; changes after bid

submission or mid-year would be more difficult. Using the statutory and regulatory bid

This consideration of how requirements on CMS may contribute to hindering the offering of

EGWPs is consistent with our past approach to exercising the authority under section 1853(i).

71 FR 22082 (“Specifically, because we do not receive and review these benefits we cannot

appropriately oversee their provision and requiring submission of these benefits needs to be

waived because we believe it would hinder the design of, offering, or enrollment in employer

sponsored coverage.”).

requirements would hinder the offering and design of MA plans by employers (either when

offered under a contract with an MAO or offered directly). We, therefore, concluded that our

proposed policy was the best framework for facilitating the offering of EGWPs and ensuring

appropriate payments to such plans.

Section 1853(b) requires that CMS use the Advance Notice and Rate Announcement process for

changes in Part C and D payment methodology; this proposal relates to the Part C payment

methodology for EGWPs. Section 1853(b) requires us to provide advance notice of the proposed

changes and to explain in the final Rate Announcement the assumptions and changes in

methodology for payments to MA plans. We have complied with those requirements in

proposing and finalizing this change in the methodology and assumptions for establishing the

capitation rates (and rebate payments) for EGWPs. Moreover, not all waivers issued under

section 1857(i) are in the MA regulations.

Indeed, when CMS implemented the EGWP waiver

for Part D bidding to reduce administrative burden, CMS notified Part D sponsors of that waiver

via an HPMS memo, stating in relevant part, “CMS believes that waiving the requirement to

submit 2008 Part D bids will facilitate the offering of plans for employers and unions seeking to

retain high quality coverage for their Medicare eligible retirees by avoiding the cost and

administrative burden of submitting these bids.“

The MA bid requirements are extensive and

require significant documentation from actuaries, more so than is required in Part D bids; further,

other flexibilities are associated with and flow from a waiver of the bidding requirements for

EGWPs. CMS therefore believes that waiving the bidding requirements for Part C plans will

have the similar effect of facilitating more offerings of these plan types in light of the significant

amount of time and effort it would take to compile data and project all of the assumptions CMS

requires throughout the bid submission and approval process for each plan benefit package.

Further, CMS has authority under sections 1857(i) and 1860D-22(b) of the Social Security Act to

waive or modify requirements that hinder the design of, the offering of, or the enrollment in

employment-based Medicare plans offered by employers and unions to their members. In this

regard, CMS is confident that we are in full compliance with the statutory authority in both

waiving the bid requirements and modifying the payment methodology to facilitate the offering

of MA plans by employers or under contracts between employers and MAOs.

Comment: Several individual beneficiaries detailed personal experiences with their MA EGWPs,

expressing concern for the potential losses of coverage and higher expenses that may result from

this proposal.

See, e.g., Medicare Managed Care Manual Chapter 9 – Employer/Union Sponsored Group

Health Plans; and https://www.cms.gov/Medicare/Prescription-Drug-

Coverage/PrescriptionDrugCovContra/Downloads/EGWP-Waivers.pdf.

February 28, 2007 HPMS Memo, 2008 Employer Group Waiver Policy – Elimination of the

Requirement for Entities Offering EGWPs to Submit Part D Bids.

Response: We appreciate these commenter’s concerns and while each plan and beneficiary

experience is distinct, we recognize that it is possible that some employers may choose to

provide less supplemental coverage to retirees as a result of this policy change. However, this

policy change will, for the first time, make transparent the amounts paid by CMS to insurers for

beneficiaries enrolled in EGWPs. Employers, as a result, may be able to use this information to

negotiate arrangements with insurers that retain, or perhaps even enhance, the value of the

EGWP for their retirees.

Comment: A large portion of commenters asserted that the proposal presents significant

operational challenges, especially with respect to timing. Under the proposal, payment rates for

EGWPs would not be known until August, which they state is long after most negotiations

between employers and EGWP sponsors must be concluded and too late for retirees to select

plans. Several commenters indicated that contracts are already negotiated and planned for 2017.

Some commenters indicated that they must determine final rates no later than June in order to

develop and print open enrollment materials that are required to reach beneficiaries which will

hinder or make impractical the ability of group sponsors to meet their obligations for

communicating with their retirees and seriously compromise the ability of retirees to make

informed decisions about their coverage. Moreover, commenters indicated, many EGWP group

sponsors have obligations from different regulatory bodies and oversight boards that require

prospective notice to their retirees before changes can be effective. Commenters expressed that

MAOs may be in the situation of being unable to adjust either the benefits provided or premium

charged to avoid significant financial losses caused by such a swiftly implemented and

significant change. Each of these commenters urged CMS to consider alternative timelines from

the proposed to prevent disruption of EGWP sponsors and beneficiaries with confusion and

concern for members who have counted on and made decisions premised on being able to keep

their health plans, claiming that these timing considerations alone would ultimately deter public

and private employers’ ability from providing EGWP coverage to their workforce.

Response: CMS appreciates the timing concerns raised by commenters and we are finalizing the

proposal with modifications to address these concerns. In the Advance Notice, we proposed to

calculate the bid-to-benchmark ratios for 2017 using non-EGWP bids and benchmarks for 2017.

Under this proposed approach, CMS would have released EGWP rates in the August timeframe

after completion of the 2017 bid review process. To address the timing concerns described

above, however, we have calculated bid-to-benchmarks ratios for 2017 using 2016 bids and

benchmarks and the resulting non-RPPO EGWP rates for each county are included at:

https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Ratebooks-and-

Supporting-Data.html. The final RPPO EGWP rates will continue to be published in late

summer when the final MA regional standardized A/B benchmarks reflecting the average bid

component and the statutory component, i.e., the Regional Benchmarks, are published which is

in keeping with the existing time line for all non-EGWP RPPOs. While the 2016 data are not as

current as the data we proposed to use, we believe this revised approach appropriately prioritizes

the need to provide employers and insurers with information on payment rates in the Rate

Announcement. Moreover, the bid-to-benchmark ratios have not fluctuated significantly over

the past several years.

Comment: Several commenters expressed concern about the impact of the proposed payment

changes on retiree benefits, such as EGWPs no longer being able to pay the Part B premium on

behalf of enrollees and EGWPs potentially not being able to offer the supplemental benefits such

as dental, vision and enhanced (non-Part D) drug benefits. Other commenters believe that the

payment changes outweigh any administrative benefit as complex actuarial models will still need

to be maintained to set group renewals and quotes, limiting any administrative benefit.

Response: While we appreciate the concerns raised by these commenters, we believe that there is

sufficient funding under the methodology being finalized to sustain the offering of these benefits.

Moreover, while some actuarial models may still need to be developed for internal plan

purposes, the burden of meeting the June bid submission deadline will no longer need to be part

of the consideration in the development of these models for these plan types, which we believe

does lift the significant administrative burden. By contrast, the alternate proposal CMS

considered that would have required MAOs to submit to CMS individual benefit packages and

bids for each of their employer plans would have made meeting the June deadline an onerous

prospect for MAOs offering EGWPs as well as created significant challenges for CMS

associated with expanding our review process to accommodate thousands of additional benefit

packages and bids, which would substantially hinder the offering of these plans. Further, as

discussed above, by waiving the requirement to submit a financial bid for each plan benefit

package, CMS is facilitating flexibility in the offering and design of EGWPs. MAOs will not be

tied to specific EGWP plan benefit packages submitted as part of the MA bidding process and

may customize benefit offerings throughout the year. We appreciate the concerns raised,

however, and will continue to explore options for future policy development.

Comment: A few commenters suggested CMS permit EGWPs to separately reimburse members

for their Part B premiums.

Response: The Social Security Administration (SSA) must be able to accurately track beneficiary

payments of the Part B premium. Under current payment rules, if an MAO chooses to buy down

their beneficiaries’ Part B premiums, a fixed, standard amount for each beneficiary in their plan

is determined through the bid process. This standard amount is then deducted for each of their

beneficiaries from the monthly plan payments made from CMS to the MAO, which is then

transmitted from CMS to SSA on a beneficiary level. There is no mechanism to permit the

administration or collection of information directly from MA EGWPs to SSA to capture a

payment of the Part B premium for their beneficiaries. As a result, this is not currently a feasible

solution. We appreciate the concerns raised, however, and will continue to explore options for

future implementation. It should be noted however, that very few (approximately 2%) MA

EGWPs currently use rebate dollars to buy down any portion of the Part B premium for their

enrollees, so this is not expected to have a significant impact on beneficiaries enrolled in these

plans. In addition, while an MAO may not buy down the Part B premium for MA EGWPs, they

are not prohibited from offering other benefits or lower enrollee premiums in place of the Part B

premium buydown. The elimination of the option to buy down the Part B premium for MA

EGWPs does not affect the MA payments made to the MAOs.

Comment: A few commenters asserted that it seems to be unfair to lower reimbursement for

these plans following a significant Medicare Part B premium increase in 2016 that

disproportionately affected public employees who do not receive Social Security benefits, and

further stated that the significant portion of their Part B-only individuals would not be eligible

for individual MA plans unless they enrolled and paid the full Medicare Part A monthly

premiums.

Response: We appreciate the concern raised by these commenters. We recognize that it is

possible that some public employers may choose to provide less supplemental coverage to

retirees as a result of this modification of payment methodology and policy. However, this

policy change will, for the first time, make transparent the amounts paid by CMS to insurers for

beneficiaries enrolled in EGWPs, which is currently not transparent to Employers given that

MAOs submit highly aggregated bids which serve only as the starting point for their offerings to

differing employers’ with whom they contract under these offerings. Employers, as a result, may

be able to use this information to negotiate arrangements with insurers that retain, or perhaps

even enhance, the value of the EGWP for their retirees.

Comment: Many commenters stated their concern that the proposal will cause most insurers to

abandon the employer group MA market, reduce coverage and/or increase premiums, which will

lead to less choice for retirees and their former employers and discourage innovative plan design

in these markets. Because this policy would disincentivize these plans, these commenters said,

employers are likely to drop the EGWP coverage, and the burden shifts back to the government,

with an increase of members on traditional Medicare. Several State and municipal organizations

also noted that they may be forced to discontinue their retiree coverage or absorb price increases

that would cause state and local budget difficulties.

Response: We appreciate the concerns but believe that there is sufficient funding under the

methodology being finalized to sustain the offering of MA basic and supplemental benefits. We

also believe that employers may be in a better position to negotiate under this methodology,

because payment amounts would be standardized and known across competing plans. CMS does,

however, recognize that, to the extent that CMS’ payments to EGWPs are reduced and MAO

margins remain the same, employers may pay higher premiums for current levels of

supplemental coverage or may choose to reduce the supplemental coverage provided to

employees under these plans.

Comment: Several commenters stated that CMS should keep the annual bidding process and not

proceed with the proposed payment methodology in 2017 as the bidding process takes into

account claim experience, geographic location, and product coverage, but the proposal ignores

the differences between employer and non-employer plans. Moreover, several commenters

expressed concerns that this proposal would result in EGWP payments that are actuarially

unsound. Many MAOs that submitted comments also stated that they build their EGWP bids

based on true EGWP experience, so the bid amount requested has always reflected EGWP

claims and therefore revenue requirements. To remove the EGWP bidding process and revert to

a socialized bid would reduce the ability to maintain group MA business; further, the

administrative savings from not bidding on group MA business versus individual business is not

significant, especially for local players that sell EGWP policies primarily to small businesses.

Response: While we appreciate the perspective offered in these comments, CMS continues to

believe that due to the nature of the unique agreements MA EGWPs enter into, EGWPs do not

compete against other plans through the bidding process, and therefore have little incentive to

submit lower MA bids to CMS under the current bidding rules. On the contrary, as noted in the

Advance Notice, MedPAC has noted that the nature of the MA bid process and the ability to

access federal funds creates incentives for these plans to bid as close to the benchmark as

possible, in order to compete for employer business by lowering the costs imposed on employers.

Under this new policy, MAOs offering EGWPs will now need to compete for employers to

contract with them for these offerings on access, quality, customer service, and wrap-around

benefits. Implementing this proposal will also result in savings to the Government. Further, as

noted above, waiving the bidding requirement entirely and modifying the payment methodology

for these plans helps ensure continued flexibility in plan design and the timing under which

EGWP plan designs are finalized. We anticipate that these flexibilities and the increased amount

of information available to employers will facilitate the offering of these plans in the future.

Comment: A few commenters stated that for MA EGWPs to attract employers, plans are

frequently designed in ways that may lead to higher bids relative to the individual MA market.

For example, MA EGWPs frequently cover larger geographic areas in order to accommodate

large employers with retirees living in different parts of the country. Preferred Provider

Organization (PPO) networks are much more commonly found in MA EGWPs than in the

individual MA market as these benefit designs are both popular and valued in the employer

market. Both broad networks and a larger geographic distribution of beneficiaries can lead to

higher costs in coverage. Moreover, these plans offer coverage to beneficiaries in areas that are

underserved by individual MA plans through extended service area options allowed under MA

EGWPs waivers currently in place. The service area waivers allow for EGWPs to offer coverage

in areas where a plan may not have a full network. However, they add to the cost of the product

because, if enrollees use out-of-network providers with no contractual relationship with the plan,

there is less opportunity to effectively engage in care coordination.

Response: We appreciate the concerns but, as noted above, believe that there is sufficient

funding under the methodology being finalized to sustain the offering of these benefits. We also

believe that employers may be in a better position to negotiate under this methodology that

waives the bidding requirements for EGWPs, because payment amounts would be standardized

and known across competing plans. By removing the bidding requirements, MAOs will now

need to compete for contracts with employers on access, quality, customer service, and wrap-

around benefits.

Comment: A few commenters stated that while they recognize that there may be some problems

with the current bid structure, they remain concerned that CMS has not fully analyzed the impact

of this policy proposal or given full consideration of the rationale for higher bids from MA

EGWPs. These commenters requested CMS to provide additional information on any current or

ongoing analysis that has been conducted and encourages CMS to more widely solicit public

comments on this policy proposal and analysis.

Response: We thank these commenters for their considered thoughts on this issue. However, we

and MedPAC have monitored and analyzed this issue over the past several years and continue to

observe consistently higher bids from EGWPs without explanation. In the 2012 Advance

Notice, published on February 18, 2011, CMS raised these concerns publically, and specifically

requested comment on the causes for the data relationships we and MedPAC were observing.

We also stated in the 2012 Rate Announcement that we would be reviewing comments received

for future policy development. We would reiterate, however, that the bidding approach that has

been in effect through 2016 has hindered CMS’s ability to analyze this issue fully in light of the

fact that this bidding structure has not permitted CMS to know how many EGWP plans any

MAO offers, what benefits are provided in each of those plans, or the associated underlying

costs. This lack of transparency has significantly impaired CMS’ ability to comprehensively

review and assess the reasonableness of the underlying actuarial assumptions and projections

included in the bids submitted for EGWPs and to trace how federal funds, in the form of the

capitation payments and the rebates, are spent for beneficiaries in specific EGWPs.

Moreover, since the publication of the Advance Notice, CMS has provided the public with the

estimated financial impact of the proposal via an HPMS memo released on March 7, 2016,

which we are mitigating by implementing the policy with a transition. We appreciate the

concerns raised, however, and will continue to analyze options for future policy development.

Comment: One commenter stated their belief that Medicare Supplement plans (Medigap) will

benefit the most from this change, and well-managed Medicare Advantage plans will lose most

of their EGWP membership.

Response: We appreciate the concerns but believe that there is sufficient funding under the

methodology being finalized to sustain the offering of these MA plans.

Comment: A few commenters indicated that their particular areas of the country will be

significantly more impacted than others given the benchmarks and bid-to-benchmark ratios that

are anticipated to be applied to their payment rates, as well as the concentration of large group

employers and labor unions that offer retiree coverage in particular areas.

Response: The current bidding and payment methodology has disparate impacts on varying

geographic areas today. By calculating the bid-to-benchmarks at a quartile level, then applying

them to each county’s rate, and taking into account double bonus counties and star ratings, we

are accounting for a significant level of geographic variation in the payments in the methodology

being finalized. In addition, under the approach being implemented for 2017, we have

moderated the impact of the new policy by blending individual market plan and EGWP bids to

calculate the bid-to-benchmark ratios.

Comment: Several commenters stated their belief that CMS’s logic behind the proposal is flawed

as the MA EGWP population's risk scores are less relevant to their costs than this proposal

presumes, and instead it is more important to understand that in most cases, the benefits offered

under these plans have been carefully negotiated as an integral part of the accrued retirement

package for labor union and other large group employer workers. In some cases negotiated

collective bargaining agreements require single employers to continue providing health care

coverage to retirees. In addition, many are associated with Voluntary Employees’ Beneficiary

Associations (VEBAs) that provide health care benefits to retirees. In most cases these VEBAs

were established and are maintained in accordance with the terms of class action or bankruptcy

settlement agreements that were approved by federal district and/or bankruptcy courts.

Response: While we recognize that in certain circumstances the overall benefit package provided

to retirees under an EGWP is the result of a collective bargaining or class action/bankruptcy

agreement, the supplemental benefits provided under such an arrangement do not explain the

higher bids that we have consistently observed from EGWPs. Buying down cost-sharing under

Original Medicare is a supplemental benefit. Under the Medicare Advantage bidding process, all

plans (both EGWPs and non EGWPs) submit a bid for providing the benefits covered under

original Medicare. Despite bidding on the same package of basic benefits, on average, EGWP

bids for A/B benefits have consistently been significantly higher than those submitted by non-

EGWPs.

Comment: A few commenters also asserted that in the commercial market it is often true that

administrative costs for employer-based products are less than individual products due to

economies of scale. However, this is not the case for EGWP plans, especially in particular states,

since CMS announced two years ago that they consider enhanced Part D EGWP benefits to be

commercial coverage. As a result, certain state regulators consider EGWPs to be state-regulated

products and have added a layer of regulation that has made them significantly more complex to

administer than their individual counterparts.

Response: We appreciate these comments. We believe that they are in keeping with CMS’s

belief that waiving the requirement to submit 2017 Part C bids will facilitate the offering of Part

C plans for employers and unions seeking to establish high quality coverage for their Medicare

eligible retirees by avoiding the cost and administrative burden of submitting complex bids to the

federal government, particularly in light of these commenters’ concerns about increased state

oversight for those plans that offer both Medicare Advantage and Part D coverage.

Comment: Several commenters noted that EGWP bids tend to be higher than non-EGWP bids

because EGWPs are predominately PPOs, rather than HMOs. They argue that when making an

apples-to-apples comparison of EGWPs and non-EGWPs by plan type, the disparity in the bid-

to-benchmark ratio shrinks significantly. These commenters argue that CMS’s proposal will

arbitrarily lower benchmarks for PPO products and will drive out PPO EGWPs from the

marketplace. These commenters argue that the need to offer a broad network may be accounting

for the rate difference, rather than the CMS assertion that the payments are subsidizing wrap-

around coverage. According to the commenters, the current EGWP payment structure enables

plans to recognize the impact of these various product characteristics and the impact of different

cost structures between MA EGWP plans and individual market MA plans in their bids. The

proposed change does not allow plans to reflect these differences in cost structures in MA

EGWP specific bids and it shifts the MA EGWP funding to be based on individual plan costs

(largely HMOs) despite the fact that MA EGWPs are largely PPO plans. Several of these

commenters stated that if CMS should decide to proceed with the proposal that the bid to

benchmark calculations be modified to account for the different ratio of HMO to PPO plans in

EGWPs vs Non-EGWPs and to exclude D-SNPs from the calculations as they are not

representative of the type of coverage an employer purchases, and are therefore irrelevant to the

calculation.

Response: CMS recognizes that there are a larger number of MA EGWPs that are offered as

PPO plans instead of HMO plans than in the individual MA market, where the inverse is true. In

finalizing this policy, CMS considered whether such an adjustment would be appropriate to

account for this differential in plan offerings between the two markets. However, in the course

of reviewing the data, we determined that basing the MA EGWP payment rates on the small

number of PPO plans in the individual MA market could introduce significant year-over-year

instability in future EGWP payment rates.

Comment: One commenter indicated that retirees enrolled in MA EGWPs have a higher average

age as compared to individual MA plans. This age difference may be a result of a greater

propensity for EGWP plan retirees to stay in their same EGWP MA plan until death, since group

retiree health insurance is generally supported by employer/union contributions toward the

premium, which provides an incentive for retirees to maintain continuous coverage under the

group plan, and “end of life” medical expenses in EGWP plans are higher than in individual

plans.

Response: We appreciate that this commenter’s concerns, however, the CMS-HCC risk

adjustment model takes the age and health status of beneficiaries into account. Therefore, we

would expect that if this were the case, risk scores for MA EGWPs would be higher on average

than those in the individual MA market. However, as we noted in the Advance Notice, CMS and

MedPAC have analyzed the data and concluded that the inverse is true.

Comment: Many commenters noted that the proposal is complicated, the two week comment

period did not provide plans sufficient time to fully understand its application and

implementation, and CMS has not released enough information for stakeholders to fully evaluate

the methodology and its financial impact. Moreover, several commenters suggested that while

the Advance Notice is well-anticipated by companies in the health insurance industry, employers

(including many state governments) and unions may not be aware of the publication or anticipate

that it will have a significant impact on their finances or employee and retiree benefits.

Response: We appreciate that the comment period may be limited, however, section 1853(b)

requires CMS to release and post the Rate Announcement on the first Monday in April and

release the Advance Notice describing the proposals at least 45 days in advance. Similar

proposals have been proposed for the past several years in the President’s Budget, and MedPAC

has made similar recommendations. So while we recognize that this policy was proposed for

Part C implementation for the first time in the 2017 Advance Notice, the concepts behind the

methodology being finalized have been proposed previously by the Administration. Moreover,

in the 2012 Advance Notice, published on February 18, 2011, CMS raised these concerns

publically, and specifically requested comment on the causes for the data relationships we and

MedPAC were observing. We also stated in the 2012 Rate Announcement that we would be

reviewing comments received for future policy development.

Comment: Commenters suggested that CMS needs to study the root cause of the differences in

MA versus EGWP payment to identify the actual adjustments to policy that are required to

increase payment equity.

Response: In the course of developing this policy, CMS considered requiring MA EGWPs to

provide CMS with detailed information on the PBP provided to each employer group and class

of retirees within that plan benefit package in order to delve deeper into the root causes of the

differential bidding patterns. However, CMS concluded that it would impractical to require the

submission and collection of data necessary to expand our review process to accommodate the

large number of PBPs which could exceed 25,000 to 50,000 benefit packages depending on the

number of unique plan variations MAOs offer to employers. It should be noted, that these figures

are only a rough estimate, as under the bidding waivers in place through 2016 for MA EGWPs,

CMS does not have sufficient data from submitted bids to know how many various benefit

packages are currently being offered to employers by MAOs. Moreover, since retiree health

benefits would be expected to vary among individual beneficiaries within a single Medicare plan

on the basis of differing underlying union agreements or employment contracts, such data would

likely need to be collected at the beneficiary level, rather than at the plan level. The burden of

such expanded data collection and submission and review was determined to be unduly

excessive for both plan sponsors and CMS.

Comment: A few commenters detailed several distinctions between MA EGWPs and MA non-

EGWPs such as improved patient outcomes due to better coordination of care programs, the

ability to better coordinate between vendors providing more comprehensive case management

for their beneficiaries, flexible pricing and plan design, consistency in coverage during the

transition from employment coverage to retirement coverage and improved customer service.

Other commenters indicated that MA EGWPs and MA non-EGWPs are distinct as EGWPs serve

a separate purpose, i.e., providing a vehicle to provide comprehensive medical coverage,

integrating fee-for-service Medicare benefits with employer or union-funded supplemental

employee/retiree benefits. Unlike individual-market MA plans, employer-plan sponsors select a

limited number of EGWP options from which retirees can choose to enroll.

Response: We thank commenters for these observations and acknowledge that there are

distinctions between EGWP and non-EGWP plans. However, we do not believe our proposal

will inhibit the ability of employers and insurers to take advantage of these distinctions. Nor do

we believe that these distinctions explain the higher bids that we have observed from EGWPs.

Comment: Many commenters argued that this proposal is too blunt to administer fairly and that

the bidding process takes into account claim experience, geographic location, and product

coverage fluctuations that cannot be accounted for with an administratively-set payment amount.

A few other commenters noted that that MA EGWP bids serve an important administrative

function as they enable CMS to correctly administer Part D and the retiree drug subsidy. The

MA EGWP bids allow CMS to verify that groups receive at least actuarially equivalent benefits

to what the MA plan offers its individual members. Commenters stated that the process helps

ensure that any rebates from the bid savings are used to reduce premiums or enrich benefits.

These commenters also encourage CMS to further discuss how CMS will oversee group

premiums and benefit offerings if group bids are eliminated and there are no longer the group bid

margin proximity rules. Without group bids, there may be uncertainty as to how MA plans will

be regulated by CMS for their group business.

Response: We thank these commenters for their considered thoughts on this issue. We appreciate

the concerns raised, and will continue to explore options for future policy development. We

would also note that this policy is only waiving the MA EGWP bidding (BPT) requirements and

detailing their alternative payment methodology. MA EGWPs will continue to submit the plan

benefit package (PBP) and formulary in accordance with the rules for 2017.

Comment: A few commenters requested that we clarify whether the bid-to-benchmark ratios will

be calculated on an individual bid basis for a particular county or will be tied to the weighted

average bid-to-benchmark results for individual bids submitted nationally, whether the

benchmarks that will be used will have the qualifying county adjustments included, and whether

SNPs are part of the individual bid-to-benchmark ratio calculation. Others inquired as to why

CMS doesn’t collect employer group membership in the individual bids to better calculate an

organization’s employer group ISAR and employer group risk scores to make the calculation of

employer group payments based on individual bids more accurate and actuarially sound.

Response: As described in the Advance Notice and finalized as described herein, the bid-to-

benchmark ratios are a weighted average at the quartile level which will result in four

percentages – one for each quartile. The percentages are then applied to the county ratebook to

each of the published 5%, 3.5%, and 0% county ratebook rates, which include adjustments for

bonus counties. SNPs are included in the calculations to determine the bid-to-benchmark ratios.

In developing the policy, CMS considered collecting a limited dataset from MA EGWPs such as

projected risk scores based on the plan’s service area; however, collecting even this limited data

was determined to be contrary to the goal of reducing administrative burden on offering these

plans, as some level of detail in support of the projections would need to be submitted to and

evaluated by CMS to verify it’s actuarial accuracy.

Comment: One commenter stated that they do not feel it is appropriate to apply the risk score to

the county rebate amount as that is different than how the payment is made for individual plans.

Response: Under current bidding rules, rebate dollars resulting from an A/B bid below the

benchmark are risk adjusted within the bid to determine the per-member-per month rebate

amount CMS will pay to the MAO. CMS believes that both the A/B portion of the payment and

the rebate portion of the payment should continue to be risk adjusted and, given the lack of bid

submissions, we are therefore incorporating that step into the payment process in the

methodology being finalized.

Comment: A few commenters indicated confusion regarding how this new methodology would

interact with prior bid instructions related to margin requirements and consistency between

underwriting assumptions and the bid. They requested clarification as to whether these

requirements and others requirements previously included in the bid instructions would still be in

place under this new methodology.

Response: Given that EGWPs will no longer submit bids to CMS, the bid review requirements

related to margins will no longer be applicable to EGWPs. The instructions for the MA Bid

Pricing Tools will be updated accordingly.

Comment: One commenter requested clarification regarding how the methodology will adjust

individual bid-to-benchmark ratios for the Extended Service Area Waiver approved for EGWP

plans, will the ISARs used to develop the individual bid-to-benchmark ratios be normalized to a

1.0 risk score, and how members in ESRD, Hospice, and MSP status would be treated under the

proposed methodology.

Response: Under the finalized payment methodology, the MA EGWP payment will be based on

the beneficiary’s county code. CMS will calculate a bid-to-benchmark ratio for counties in each

FFS quartile and the applicable bid-to-benchmark ratio for each county will be used to calculate

a standard EGWP payment for that county. The ISAR-adjusted bid and benchmarks are both

standardized numbers in the bid pricing tool, so they are already at a 1.0 risk score. We are not

applying a normalization adjustment in the bid-to-benchmark calculation. As a result, the

payment for all EGWPs with the same quality Star Rating in a county will be the same,

regardless of other counties the EGWP might include in its total service area. Plans will

continue to be paid using the ESRD ratebook for their ESRD beneficiaries. MSP status is a

payment adjustment to the risk score so the risk score applied to the county payment rate will

reflect the MSP adjustment factor if applicable. Under current payment rules, beneficiaries in

MA plans that elect Hospice currently only receive a rebate payment from CMS. If the rebate is

$0.00 then these plans do not receive a payment. As discussed in the Advance Notice, specific

rebate amounts will no longer be identifiable under the payment methodology being

implemented, therefore, beginning in 2017, all MA EGWPs will receive $0.00 payment for each

of their members that elect Hospice. We appreciate the concerns raised, however, and will

continue to explore options for future policy development.

Comment: One commenter requested clarification surrounding the plan benefit package

submission requirements for MA EGWPs, and further asked if these plans will need to upload a

formulary that represents the “leanest” option that they would make available to EGWP plans.

Response: This methodology is only waiving the MA EGWP bidding (BPT) requirements and

detailing their alternative payment methodology. Therefore, MA EGWPs will continue to submit

the plan benefit package and formulary in accordance with the rules for 2017.

Comment: A few commenters suggested that the MA EGWP proposal represents a step

backwards from the movement towards value based payment and improved models of care. They

indicated that employers would drop EGWP coverage in favor of Medicare “wraparound”

products, thereby increasing costs to the government, and retirees would lose access to care

coordination programs that would possibly reverse gains in health status and outcomes.

Commenters stated that this proposal could cause regression of the quality improvements made

through the Star ratings program.

Response: We thank commenters for these observations, however, we do not believe our

proposal will inhibit the ability of employers and insurers to take advantage of alternative

payment models. In fact, we believe that employers may be in a better position to negotiate

payment arrangements under this methodology to waive the bidding requirements for EGWPs,

because payment amounts would be standardized and known across competing plans. By

removing the bidding requirements, MAOs will now need to compete for employer contracts

primarily on access, quality, customer service, and wrap-around benefits.

Comment: A few commenters expressed concerns about the impact on beneficiaries in Puerto

Rico should this policy be finalized, stating that the economic situation in Puerto Rico and the

government debt crisis preclude any further investment in these types of retirement plans, which

have significant actuarial deficits. For example, teachers in Puerto Rico decided a long time ago

not to participate in the Social Security Program and their retirement fund is in a major crisis.

Having their EGWP MA Plan provides beneficiaries with some relief. However, additional

contributions to these MA EGWP retirement plans is not possible in the current economic times.

Response: We appreciate the concerns expressed by these commenters, but believe that the

impact on Puerto Rico is minimal and that there is sufficient funding under the methodology

being finalized to maintain the offering of sustainable benefits in Puerto Rico.

Comment: A significant majority of commenters requested that CMS reconsider and withdraw

the proposal entirely.

Response: While we understand the concerns raised, we have explained throughout this section

why we are finalizing the proposal with modifications. The waivers of bidding requirements and

the modified payment methodology being finalized will eliminate potential burdens and

hindrances on offering EGWPs associated with the MA requirement that each plan benefit

package be associated with a financial bid while simultaneously resulting in savings to the

Government by providing a more equitable payment methodology for MA EGWPs. Further, we

note that CMS has previously waived bidding requirements for Part D for EGWPs and set

payment amounts for Part D plans based on the competitive bids submitted for non-EGWP Part

D plans; here CMS is finalizing a similar waiver and payment policy for EGWP Part C plans

beginning with 2017.

Section G. CMS-HCC Risk Adjustment Model for CY 2017

Comment: Many commenters strongly support CMS’ proposal to update the CMS-HCC model

by separating the community model segment into six subgroups based on dual eligibility status.

Many commenters support implementation of the new model without delay to improve and

stabilize the payment structure for full-benefit dual eligible beneficiaries. A few commenters

noted that the proposed changes would improve the sustainability of D-SNPs and MMPs and

create a more equitable risk-adjustment system. One commenter thanked CMS for not including

a clinical revision of the hierarchical condition categories (HCCs) as part of the model revision

and supports CMS’ proposal to use the same disease interactions across the 6-segment

community model with the addition of the disease interaction for the disabled segment, as this

promotes consistency across the segments.

Response: CMS appreciates the support.

Comment: Many commenters urged CMS not to implement the proposed model in 2017, or

requested a phase in of the new model. These commenters are concerned that the proposed

model changes will reduce overall revenue to the MA program through a net MA funding

reduction of 0.6% and introduce disruptions to benefit designs. One commenter noted that

coefficients for certain HCCs decrease under the proposed 2017 model compared to the 2014

model. Another commenter raised concerns that the changes CMS proposes to the partial-benefit

dual eligible model could have the unintended consequences of reducing enrollment in Medicare

Savings Programs (MSPs). A few commenters suggested implementing the new model in Puerto

Rico alone as a pilot.

Response: CMS is proceeding with the implementation of the new model, which will pay more

accurately for beneficiaries, regardless of their dual status, and reduce incentives for plans to

avoid enrolling full benefit dual beneficiaries. Overall, the net impact on plan payments will

vary based on the composition of plans’ enrolled populations and disease profiles of

beneficiaries within those populations.

Comment: A number of commenters expressed concern that the impact on MA payment of the

revised model was greater than the -0.6% that CMS estimated and will lead to instability in the

MA program. Several commenters requested more information regarding how CMS calculated

the model impact. These commenters stated that the effects of the proposed model, combined

with the Part C normalization factor, will result in additional and possibly unintended material

differences on payment risk scores for CY 2017.

Response: We acknowledge the commenters’ concerns and note that there was a technical error

in the calculation of the model denominator used to create the model relative factors. This error

resulted in model relative factors (and, therefore, the raw risk scores) that are 1.8% too low. This

error directly affected the historical risk scores used in determining the normalization factor,

which, as a result, was also too low.

Although the corrected model factors are 1.8% higher, our calculation of the industry level

model impact is the same. To determine the industry level model impact, we compared the

current model (2014 CMS-HCC model) to the revised CMS-HCC model. In order to isolate the

model revision impact, we developed updated denominators for the two models based on the

same year. The model denominators that were developed for the purpose of model impacts both

had the same error, resulting in the same comparison once the error was fixed on both sides. We

do note that the risk scores produced under the new model posted on HPMS should have been

1.8% higher.

Comment: A few commenters appreciated the transparency and early information regarding the

proposed model in the Request for Comment in October 2015, but requested additional

information, including details of how the changed model will operate, raw risk scores under the

2014 and proposed 2017 models, and analyses on impacts that outline how the negative 0.6%

national impact was calculated. Some commenters also suggested that CMS allow plans the

opportunity to study the proposal and the revised risk scores under the new model beyond the

time period allowed for comment following release of the Advance Notice. A few commenters

recommended additional analyses of the model before implementation while a few commenters

urged CMS to monitor the results of the model changes. One commenter recommended that an

independent analysis be conducted by an external research organization to analyze the accuracy

of the implemented risk adjustment model and to provide recommendations on areas for

improvement, followed by a stakeholder process and at least a 60-day comment period.

Response: CMS has made efforts to release more information and at earlier times, than the

statutory deadlines require, by, for example, releasing research findings four months prior to the

publication of the Advance Notice through a Request for Comments, sharing plan-level risk

scores (calculated under both the current and the proposed model) a month before the publication

of the Notice; and CMS’ plan to share operational details earlier than usual. We will continue to

engage with stakeholders as we implement the model.

Comment: CMS received comments in support of maintaining the PACE CMS-HCC Risk

Adjustment Model. One commenter recommended that CMS evaluate the impact of updating the

PACE model by applying distinct risk factors for full, partial, and non-dual eligible enrollees;

and also consider recalibrating the PACE model, which is currently calibrated with 2006/2007

data.

Response: CMS appreciates the support. We did not propose to make changes to the risk

adjustment model that we use for PACE organizations and will continue to use the existing

model for 2017. This model is described in the 2011 Advance Notice and Rate Announcement.

We will consider these comments for future years.

Comment: A few commenters recommended providing transitional relief to plans receiving

negative payment adjustments. For example, one plan recommended that CMS implement a

one-time retroactive adjustment to plans serving high proportions of dual beneficiaries to

compensate for prior underpayments based on duals served.

Response: CMS is continually working to improve our method for risk adjusting payments and

can legally only make changes to future years.

Comment: Many commenters expressed concern that CMS is only focusing on dual eligible

beneficiaries and that the new model will hurt plans with low enrollment of full-dual eligible

beneficiaries. These commenters made suggestions about how CMS could make revisions to the

risk adjustment model to improve the prediction of costs for full duals, while maintaining the

current risk score level for non-duals. They stated that a “one-size fits all” approach does not

work and that CMS should instead create proposals to address the needs of specific populations

and geographic regions rather than broadly applying a policy to the entire Medicare program. A

few commenters recommended that CMS implement the model only for dual-SNPs while

retaining the current model for non-SNPs and institutional plans. One commenter stated that

CMS should make an upward adjustment to the non-dual eligible categories to ensure that the

revised model does not unfairly penalize non-dual plans. Several commenters that commended

CMS for focusing on vulnerable populations believe this focus should not result in overall

funding reductions across the MA population. One commenter recommended that CMS revise

the model only to reflect the costs between full and partial dual eligible beneficiaries. The

commenter stated that CMS should refrain from adjusting the currently successful model for

non-dual eligible beneficiaries. One commenter noted that the model change is not revenue

neutral and that it is not clear if CMS has the authority to make model changes that are not

revenue neutral to the MA population. A few commenters recommended that CMS institute a

"hold harmless" that allows plans to receive the largest of their risk score calculated under the

2014 and 2017 models or alternatively institute a budget neutrality adjustment to assure that the

overall payment for the MA population is not decreased.

Response: CMS believes that the 2017 model improves payment accuracy and results in more

payment equity across plans. After extensive research, CMS has demonstrated that the current

model underpredicts for full benefit duals, while overpredicting for both partial benefit duals and

for non-duals. Further, it is evident that diagnoses are inadequate to fully predict the costs; in

other words, beneficiaries with similar clinical profiles have different costs, and these costs

differences are related to beneficiaries’ dual status. Whether dual status is predictive of costs

because it is a proxy for income level or because the status is indicative of price sensitivity, or a

combination of both, is an open question. It is clear that dual status, as a supplemental predictor

to diagnoses, is predictive of cost.

Regardless of how we better predict costs for any population of beneficiaries, CMS would need

to redenominate the model to retain an average 1.0 risk score. When we redenominate the

model, all the relative factors will change in relationship to the 1.0 average risk score. For

example, simply increasing the Medicaid factors in the model, in order to better predict

aggregate costs for full benefit duals, would have the effect of decreasing the risk scores for non-

duals, relative to average. CMS sets this 1.0 risk score for the FFS population since Medicare

Advantage payment rates are statutorily tied to FFS. In setting the 1.0 for the risk scores we use

for payment, we mirror our approach of setting the average FFS risk score to 1.0 in the ratebook

in order to be consistent with the rates. Therefore, we did not propose and are not making any

changes to the model in order to retain the average MA risk score at the same level that it was

under the current model. The change in the aggregate MA risk score is almost entirely due to the

different distribution of duals compared to that in FFS (a small portion of the impact is due to

updating the underlying data in the model by three years). Given that we believe that this

revision improves the predictive ability of the model, we believe that it is appropriate to allow

MA risk scores to change in response to the revised model. Finally, section 1853 does not

require that risk adjustment be revenue neutral for MA plans.

Comment: Some commenters stated that revising the model will increase instability in the MA

program. A few commenters highlighted their concern that the 2017 revision to the CMS-HCC

model follows a series of recent major changes, including the clinical revision of the CMS-HCC

model in 2014, introduction of encounter data as a source of risk scores, and conversion from

ICD-9 to ICD-10, to the model and risk adjustment methodology in the previous few years. One

commenter recommended that CMS implement annual bounds to changes in the factors to

prohibit overly significant changes in any one year and possible errors in predictive rates.

Another commenter suggested that CMS refrain from making changes to the risk adjustment

model more often than every two years.

Response: We appreciate commenters’ concerns about stability and the impact of multiple

changes happening in plan payment in the last few years. We note that the model that we

implemented in 2014 was phased in over three years, and that we haven’t changed the HCCs

with the revisions to the model for 2017. Similarly, the implementation of ICD-10 has been

planned for many years. There has been strong interest expressed, and CMS agrees, to

continually look for ways to improve the predictive accuracy of the risk adjustment model. We

believe, that if we identify a way to make an improvement to the model, we should do so.

Comment: Several commenters questioned CMS’ decision to use FFS data to estimate the risk

model changes in MA. One commenter stated that the proposed changes in the 2017 Advance

Notice ignore the lack of any measure of quality or care management in the FFS spending data

used as the basis for the risk adjustment model. Several commenters also recommended that

CMS use MA data instead of FFS data for model calibration.

Response: CMS recognizes that FFS utilization and costs may not represent the experience in

Medicare Advantage plans and our goal is to eventually calibrate the CMS-HCC risk adjustment

model on MA data. We note that the aggregate dollars that a plan sponsor needs, in order to

provide Parts A and B benefits to their enrolled beneficiaries, is determined in the plan bid. The

purpose of the model is not to establish the total amount paid to the plan, but the relative

expected costs of the beneficiaries enrolled in the plan. To the extent that the relative costs of

diseases in the model differ for an MA plan from FFS, then the model may not perfectly predict

that plan’s costs. This will always be the case for any specific plan, since the model predicts

expected relative costs, on average, across a population. Because we have used FFS data to

calibrate our risk adjustment models since we first instituted risk adjusted payments to plans, we

believe that it is a suitable alternative for determining the relative costs until we have sufficient

experience using complete encounter data to develop the risk adjustment model.

Comment: Numerous commenters supported the inclusion of the Psychiatric HCC x Substance

Abuse HCC disease interaction for the disabled segments of the community model.

Response: CMS appreciates the support.

Comment: A few commenters who support the proposed changes to the model expressed

concerns about the omission of chronic conditions, such as CKD stages 1, 2, and 3 and diabetic

neuropathy, as well as mental health conditions, including dementia, and mental health and

substance abuse interaction terms from the model. Some commenters believe that CMS should

focus more on chronic conditions. One commenter noted that if CMS is concerned about MAOs

coding dementia at greater levels in an effort to serve enrollees, the agency should review the

data to determine whether or not such coding is appropriate. Another commenter noted that the

revised model inappropriately cuts payments for chronic conditions regardless of dual status.

Response: CMS decides whether to include a condition category in the model after balancing

several considerations, including each category’s ability to predict costs for Medicare Parts A

and B benefits, whether the diagnostic classifications measure disease burden, and whether

diagnosis codes that are subject to discretionary or inappropriate coding should be excluded.

CMS understands the clinical significance of the conditions recommended for inclusion in the

model by commenters, including the importance of appropriately managing patients to slow the

progression of kidney disease and that the treatment of dementia can be costly. Further, we

understand that including these conditions in the model would potentially increase the risk scores

of beneficiaries who have been diagnosed with them. Our concern regarding dementia and

chronic kidney diseases focuses on the diagnosis and coding of these conditions relative to FFS

and, in the case of dementia, the broad clinical definitions that have been developed in order to

identify the disease. While we fully support these efforts to identify and treat dementia, we are

concerned that the broad clinical definition may result in dementia being coded at greater levels

in MA relative to FFS, resulting in overstatement of the risk of such beneficiaries and leading to

inaccurate payment. Such concerns do not revolve around whether the coding is accurate, but

rather whether it is different than in FFS. Although not all conditions are included in the CMS-

HCC model, the model still predicts beneficiaries’ expected costs for all A and B benefits,

including costs associated with chronic and mental health conditions. Given the goal of managed

care organizations, we expect plans will appropriately manage chronic conditions and mental

health conditions for their beneficiaries, irrespective of model refinements.

Comment: A commenter requested clarification on whether or not the initial reason for

Medicare entitlement will carry with a beneficiary for the duration of his/her time in the

program, or whether every beneficiary over the age of 65 – regardless of disability status – will

be classified as aged for purposes of the model segment.

Response: CMS is not changing how we handle the determination of aged versus disabled or the

use of original reason for entitlement in the calculation of risk scores. For risk adjustment, all

beneficiaries aged 65 and over are considered aged; if an aged beneficiary was originally entitled

due to disability, they are treated as aged and originally disabled. We continue to use originally

disabled factors for beneficiaries who are aged and were originally eligible for Medicare due to

disability. These factors, like the other factors in the model, are additive. Non-aged beneficiaries

will be classified as disabled for the purposes of determining interaction terms (if applicable)

and, for beneficiaries in the community, which model segment to use for risk score calculation.

Comment: Some commenters recommended that CMS examine factors, other than dual status,

which may further improve the model to help predict costs more accurately. These factors

include social determinants of health, functional status, lower risk deciles, and beneficiaries with

high health costs.

Response: Medicaid data is a readily available and comprehensive data source that provides

information about a status that serves well as a predictor of Medicare costs. While CMS has

found that Medicaid status improves the ability of the model to predict costs, we welcome

suggestions from stakeholders regarding other potential predictors of Medicare expenditures that

are easily accessible and available to be used in both calibrating the risk adjustment model and

calculating risk scores for all Medicare beneficiaries.

Comment: One commenter stated CMS ignores the fact that cost differences between full-

benefit and partial-benefit duals reflect different utilization incentives for the two populations

rather than true differences in clinical health care needs and costs. A few commenters encourage

CMS to study QMBs independently to understand if adding them as an additional category of

enrollees would further improve the accuracy of the model.

A few commenters questioned whether there exists sufficient consistency across states to ensure

parity in the risk score model calculation. One commenter asked CMS to consider whether the

definitions of the dual status categories, which are often decided at the state level, are consistent

with how CMS proposed to stratify beneficiaries in developing the model. Another commenter

stated that if the model is going to be implemented, CMS should either include dual code 01 as

full dual or incorporate an adjustment factor by state (or groups of similarly situated states) to

reflect the variation in the predictive ratios from state to state caused by the varying state

eligibility requirements for QMB Plus and SLMB Plus status. A few commenters suggested the

need for strong oversight and quality assurance work with state based Medicaid data. One

commenter proposed enhancements to the current reporting systems requiring all states to report

a minimum set of data upon which a status determination can be made or alternatively, CMS

should consider a system similar to that already in use in the Extra Help program in Medicare

Part D. Another commenter urged CMS to consider adjusting the proposed individual condition

and demographic coefficients so that all dual coefficients (full/partial & aged/disabled) are equal

to, or higher than their non-dual counterparts.

Response: We recognize that there are state-by-state differences in eligibility criteria that will

result in different classifications for some beneficiaries who might be determined to be a partial

benefit dual in some states and a full benefit dual in other states. However, as noted elsewhere in

this Announcement, CMS believes that using Medicaid data, in general and to differentiate dual

eligible subgroups (i.e., full benefit or partial benefit dual status) improves the accuracy of the

model and better predicts costs for key subgroups of beneficiaries. Further, CMS does not have

other data that would inform CMS about different income levels of Medicaid eligible

beneficiaries, so we are unable to explore whether subsetting the Medicare population in other

ways based on income would improve payment accuracy. Without the ability to test whether

other subsetting arrangements would improve the model, we also have insufficient information

for assessing whether differing State Medicaid eligibility criteria are a reasonable basis for state-

specific adjustments. As we reported in the October 2015 HPMS memo and in the 2017

Advance Notice, our analyses showed that the current CMS-HCC model overpredicts for partial

benefit dual beneficiaries by 7.2% (disabled) and 12.3% (aged). Further, MedPAC has reported a

similar finding, which indicates that CMS has been overpaying for partial dual beneficiaries. We

also note that the model underpredicts for full benefit duals by approximately 5% (disabled) and

11% (aged). The differences between how well the current model predicts for full and partial

benefit duals are sizable, and CMS believes that improving the prediction of the model is

imperative.

We note that partial benefit dual risk scores are notably higher than non-dual risk scores. As we

shared in the 2017 Advance Notice, our analyses show that the cost and disease patterns of the

non-dual, full benefit dual, and partial benefit dual, and the aged versus disabled segments were

distinct, both within the dual types (e.g., full benefit dual aged versus full benefit dual disabled)

and between the dual types (e.g., full benefit dual disabled versus partial benefit dual

disabled). Furthermore, the differences in cost patterns among these subgroups varied

significantly both overall and by HCC disease category. In other words, predicting costs

separately for each of these dual subgroups, even when using the same diagnoses, produced

unique sets of coefficients. For example, the partial benefit duals are not just less expensive than

full benefit duals (and more expensive that non-duals), but they have different clinical profiles

and cost patterns. In the case of some conditions, the coefficients for partial benefit duals are

higher than those for full benefit duals, reflecting the different clinical profiles.

Comment: One commenter requested that CMS establish a demonstration for C-SNPs, where

they would be provided waivers to existing payment methods and regulatory policy.

Response: Thank you for your comment.

Comment: Many commenters stated that the new model is complicated and introduces

significant operational and administrative challenges for both CMS and plans. One commenter

stated that plans will have much more difficultly using six models to predict future risk scores

and prepare accurate bids, which may create unnecessary volatility in benefit designs, member

premiums, and cost sharing as forecasting CMS payments becomes far more complex. A few

commenters were specifically concerned about dual eligibility determination and asked CMS to

take into account the challenges involved with obtaining accurate and timely monthly data from

states on dual status. These commenters asked CMS to consider developing a process for

applying retroactive changes, if necessary. One commenter recommends that CMS clearly track

payment adjustments and allow for the possibility that payment adjustments resulting from

Medicaid retroactive status and delays in state reporting could occur after the final risk scores are

run.

Response: We appreciate the challenges facing plans in order to implement this new model.

CMS is in the process of developing technical specifications for how we would implement the

proposed model and plan to release information regarding the operational implementation after

the CY 2017 Rate Announcement has been published.

Comment: A few commenters indicated the need for a special adjustment to account for non-dual

beneficiaries in Puerto Rico who would otherwise be considered partial benefit duals in a non-

Territory state. Commenters suggested that the two components of this adjustment would be: 1)

an estimate of the proportion of partial duals within the non-dual group in PR, which can be

based off of the Puerto Rico Community Survey data or the proportion of partial duals estimated

using the 10 states with the highest poverty levels, and 2) applying a factor to the non-dual

population in Puerto Rico to account for the partial dual risk.

Response: CMS is not making this adjustment. If CMS were to make an adjustment to the risk

scores of non-duals in Puerto Rico, to account for what the risk scores of some beneficiaries

would be if Puerto Rico had implemented the QMB and SLMB eligibility categories, we would

need to make an adjustment to both the risk scores used in payment and the risk scores used to

standardize the ratebook. Since adjusting the risk scores in the ratebook would make the rates

lower, CMS has determined that an adjustment for non-dual beneficiaries in Puerto Rico would

not improve payments for Puerto Rico.

Comment: A number of commenters are concerned by the large drop in revenue for the

Institutional segment of the model. Plans are requesting more information to explain why the

recalibration of data (updates to the risk adjustment relative factors and coefficients) are having

such a significant negative effect on plan payments. A few commenters recommended that CMS

postpone or not implement the implementation of the revised model for the LTI segment until

further analyses are conducted.

Response: As noted in the Advance Notice, in addition to the model revision to improve the

predictive power of the model for dual eligibles, the entire CMS-HCC model, including the long

term institution (LTI) segment, was recalibrated with more recent data years. We acknowledge

commenters’ concerns and have investigated the drivers of the decrease in the risk scores for the

Institutional segment of the model. We observed that the actual average cost for beneficiaries in

LTI status decreased by 8.6% when we compared 2010-2011 data against 2013-2014 data.

Because the overall costs of beneficiaries in the community has increased slightly, the relative

costs of LTI beneficiaries, relative to the average Medicare beneficiary, have also

decreased. Specifically, the data year update accounts for the change in LTI risk scores, not the

model revision, and given the changes in the actual LTI costs, the decrease in LTI risk scores

would have occurred even if we only had recalibrated the existing model. Our research indicates

that the decrease in LTI risk scores is mostly driven by decreased expenditures for SNFs, home

health organizations, and DMEs in 2014 compared to 2011. Furthermore, we found that

utilization rates for ER visits, hospital stays, and SNF stays for this population were lower in

2014 than in 2011.

Comment: A few commenters encouraged CMS to review new enrollee scores utilizing the six

community segments and develop separate rates for members in these membership groups. One

commenter was concerned about the accuracy of the current “default” risk scores and the effect

that imposing the new risk adjustment model will have on already inaccurate default risk scores.

This commenter recommended that CMS should use current year data, supplemented with prior

year data, to establish risk scores for members that age into Medicare to more accurately reflect

member risk in the first year of Medicare eligibility or alternatively, increase the assumed

morbidity in the age/gender risk score weights to more accurately reflect plan liability for these

members.

Response: New enrollee risk scores are scores that CMS uses when a beneficiary does not have

adequate diagnoses to calculate a full risk score (operationalized as having fewer than 12 months

of Part B in the data collection year). Because prior year data is insufficient to predict risk in the

payment year for these beneficiaries, CMS uses a combination of age-sex, Medicaid, and

originally disabled factors to determine the risk score of a new enrollee. The new enrollee model

is calibrated to individually predict for each age-sex/Medicaid/originally disabled combination,

and the beneficiaries in the model sample are limited to those with less than 12 months of Part B

in the data collection year so that predicted costs are reflective of the new enrollee population.

Medicaid status has always been assessed in the payment year for new enrollees. CMS did

analyze the effect of using separate factors for full benefit duals and partial benefit duals and has

determined that predictive ability of the new enrollee risk scores does not improve with separate

factors for partial and full dual benefit beneficiaries. Therefore, CMS is not making any changes

to the new enrollee segment of the model.

Section H. Medicare Advantage Coding Pattern Adjustment

Comment: Many commenters were pleased that CMS is not going above the statutory minimum.

Response: CMS appreciates the support of the commenters.

Comment: We received several comments regarding the coding intensity adjustment level.

Several commenters felt that the coding intensity adjustment should be lower. A few of these

commenters expressed concerns that the cumulative impact of coding adjustment and other

changes in 2017 may present a risk to the ongoing viability of some MA plans. In contrast, a few

commenters requested that the adjustment be higher than the statutory minimum, expressing

concern that CMS may not be fully adjusting for the differing coding trends.

Additionally, a few commenters indicated that coding patterns in MA are heterogeneous and that

applying an across the board adjustment is inequitable. One commenter suggested that CMS

should apply a coding adjuster to plans that code poorly instead of those that code well. Another

commenter proposed a segmented approach such that a low coding factor is applied to lower

coding plans while a larger factor is applied to high coding plans.

Response: CMS determines the MA coding pattern adjustment using the model to be used in the

payment year so that the impact on trends in coding differences of any model change are taken

into account. While CMS understands the commenters’ concerns, we have extensively analyzed

the MA data and determined that the optimal way to apply the adjustment is to do so uniformly

and industry wide using the statutory minimum adjustment level.

Comment: One commenter suggested that the coding adjustment factor be reduced or eliminated

for C-SNPs. The commenter stated that SNPs serve beneficiaries who have specified chronic

conditions and are high risk, and they provide more high-touch care to their members so it is

impossible to compare C-SNP coding intensity to FFS, given the concentration of chronically ill

patients in these [MA] products. The commenter also believes that the flexibility afforded to

CMS under the CMMI demonstration authority gives CMS the ability to test the reduction or

elimination of the coding pattern adjustment for C-SNPs without modifying the adjustment

factor for any other plans (i.e., in a non-budget neutral way).

Response: MA coding adjustment is a methodological adjustment to risk scores to improve

payment accuracy given differential coding patterns in MA and FFS. CMS measures the

differences in coding patterns between MA and FFS by observing the year-over-year growth in

disease scores for beneficiaries who remain in MA or in FFS over time. Therefore, our MA

coding adjustment factor reflects differences in coding patterns over time, not levels of risk

scores.

Comment: A few commenters noted that CMS incorrectly implied that any observed coding

differentials between the FFS and MA populations are driven by inappropriate coding on the part

of MA plans and urged CMS to recognize that higher coding does not necessarily equate to

wrong coding. One commenter urged CMS to consider the interaction between the adjustment

for coding intensity and those that may result from RADV audits and ensure that MA plans and

providers are not over-penalized.

Response: As we have noted in previous Advance Notices and Rate Announcements, we are not

assuming that MA coding is inaccurate in calculating the MA coding pattern adjustment factor.

Rather, we are adjusting for the impact on risk scores of coding patterns that differ from FFS

coding, the basis of the CMS-HCC model and the Part C normalization factor. RADV audits, on

the other hand, have the purpose of validating that diagnosis codes submitted for risk adjustment

are documented in the medical record and, therefore, are correctly reported for the beneficiary in

question.

Comment: A few commenters thought that it was inappropriate to apply the coding pattern

adjustment to encounter data-based risk scores and that coding adjustment should apply only to

the RAPS-based portion of payment.

Response: CMS will continue to apply the MA coding difference factor to risk scores as long as

we calibrate our CMS-HCC model solely on FFS data. Per the statute, we will apply this

adjustment until we implement “risk adjustment using Medicare Advantage diagnostic, cost, and

use data,” meaning until we have recalibrated the model using MA encounter data. We also note

that because the encounter data system accepts diagnoses obtained through chart review, MAOs

will be able to submit the same diagnoses that they have been submitting into the RAPS. Given

that the encounter data system does not change the definition of acceptable diagnoses or limit

their submission, CMS anticipates that the risk scores calculated using encounter data will reflect

the same coding trend as those calculated with RAPS-based diagnoses. CMS will monitor the

impact of using encounter data-based diagnoses on risk scores and risk score trends.

Comment: A few commenters requested that CMS take the effect of ICD-10 on coding and

reduce the MA coding adjustment factor.

Response: We understand that the healthcare industry has been working with providers to

prepare for the transition to ICD-10 since the final rule was published on January 16, 2009 (45

CFR 162). In addition, we remind commenters that plans have until at least January 31st after the

payment year to submit accurate risk adjustment data (which includes both submissions to the

RAPS and the Encounter Data Processing System). Given the extended period providers and

plans have had to transition to ICD-10 and the extended period of time plans have to submit and

correct diagnosis codes, we do not believe an adjustment to the MA coding pattern adjustment

factor is warranted.

Comment: One commenter noted that any policy changes that would have a significant impact

on MA plan payment should be implemented only after being published in the Federal Register

and considered under notice and comment conducted under the APA and the PRA.

Response: Per statute, the MA coding adjustment is to be made as part of the risk adjustment

methodology established under section 1853(a)(3) of the Social Security Act. Section

1853(b)(2) provides that CMS “shall provide for notice to [MA] organizations of proposed

changes to be made in the methodology. . .used in previous [year] and shall provide [MA]

organizations an opportunity to comment on such proposed changes.” (Emphasis added.)

Section 1853(b)(1) in turn provides for a final notice in which the “risk and other factors to be

used in adjusting” payment will be published. When section 1853(a)(3) was first implemented in

2000 with the initial risk adjustment methodology developed by CMS, the initial methodology

was implemented through this section 1853(b) notice and comment process. All subsequent

changes to the risk adjustment methodology, have all been implemented through the section

1853(b) notice process. We believe that in specifying in section 1853(b) a detailed process for

providing MA organizations with “notice” and an “opportunity to comment” on “changes” in the

MA payment “methodology,” Congress was specifying that this process was to be used to

implement such changes, and that in its judgment this process gives MA organization a sufficient

opportunity for input on changes affecting their payments. This belief is buttressed by the fact

that Congress has on several occasions ratified in statute methodologies that CMS established

through this 1853(b) process (e.g., the initial phase in of risk adjustment and the plan to phase

out budget neutrality). Thus, we believe that the Advance Notice and Announcement process is

the appropriate vehicle for implementing and updating the MA coding adjustment factor.

Section I. Normalization Factors

Comment: Many commenters questioned the accuracy of the normalization factors and

subsequent impact provided by CMS in the 2017 Advance Notice.

Response: As mentioned in Section I, “CMS-HCC Risk Adjustment Model for CY 2017,” CMS

has discovered a technical error in the calculation of the denominator used to create relative

factors for the revised CMS-HCC model. While the proposed normalization calculation

methodology was applied correctly, the historical risk scores used to calculate the normalization

factor were incorrect; specifically, due to the technical error in the model relative values

discussed in Section G above, the risk scores were too low and resulted in a predicted payment

year risk score that was too low. Please see the table below for updated historical FFS risk

scores using the revised CMS-HCC model as well as the original scores from the 2014 CMS-

HCC model for comparison.

Table III-1. Historical Risk Scores under the 2014 and the 2017 CMS-HCC Models

Year

FFS Risk Scores

2014 CMS-HCC Model

FFS Risk Scores

2017 CMS-HCC Model

2011

0.988

0.990

2012

0.997

0.998

2013

0.996

2014

0.999

1.000

2015

1.002

1.001

Comment: Some commenters asked that CMS change the methodology used to calculate the

normalization factors. Commenters expressed concern that the quadratic functional form was

not the best method for predicting future risk scores either because the influence of the aging

baby boomer population on the trend has failed to materialize as expected or because there is not

enough data to accurately predict future risk scores. Commenters suggested several alternatives

for projecting normalization, including changes in methodology, such as a return to a linear

function or a logistic growth function, or including additional years when applying a quadratic

function.

Response: In response to comments, CMS has decided to increase the number of years included

in the historical data used to calculate the normalization factor from four to five. CMS

understands that baby boomers aging into Medicare is resulting in FFS risk scores increasing at a

slower, less predictable, rate. The addition of an extra data point will better capture the variation

in FFS risk scores over time and further CMS’ objective of better predicting the average FFS risk

score for Payment Year 2017. We are not changing our methodology and will continue to use a

quadratic equation to estimate a trend in risk scores and calculate the normalization factor for the

payment year.

As some commenters observed, the normalization factors have been increasing over the past two

years at a greater rate than might otherwise be expected. The increases in the normalization

factors are the result of adding more recent years’ risk scores to the historical data used to

calculate each year’s normalization factor. In 2013, FFS risk scores decreased. Since 2013, FFS

risk scores have been increasing (although at a slower rate than before 2013). In other words,

when we projected the Payment Year 2015 risk score using historical data ending in 2013, the

projection reflected a downward trend that later turned out to be incorrect (i.e., the PY2015

normalization factor was too low). Similarly, the PY2016 normalization factor, although

reflecting an upward movement in the historical data when we added the 2014 risk score, was

also too low, although by less than the PY2015 normalization factor. The normalization factor

for PY 2017 would have increased further if we had not increased the number of years included

in the regression model in response to comment. These trends in risk scores and normalization

factors can be seen in the graph of 2014 CMS-HCC model FFS risk scores below. The PY2017

normalization factor shown is the factor we would have used had we not implemented a revised

CMS-HCC model or increased the number of historical years used when calculating

normalization factor for PY2017.

0.990

0.978

0.997

0.992

1.007

1.014

1.026

0.920

0.940

0.960

0.980

1.000

1.020

1.040

1.060

1.080

1.100

2010 2011 2012 2013 2014 2015 2016 2017

2014 CMS-HCC Model FFS Projections by Payment Year

PY2015 v22 Quadratic Trend

PY2016 v22 Quadratic Trend

PY2017 v22 Quadratic Trend

Normalization Factors

*Black markers indicate actual risk score values

Comment: Many commenters requested that CMS provide a detailed explanation of the FFS

normalization factor calculation for 2017.

Response: When CMS updates a risk adjustment model, dollar coefficients from the

model are divided by average per capita FFS expenditure in the denominator year to

create relative factors. Once a model is implemented, the average risk score in FFS is 1.0

in the denominator year. The revised CMS-HCC model has a 2015 denominator. If risk

scores are calculated for any year other than the denominator year, those risk scores will

not be 1.0. In order to keep the average FFS risk score 1.0 in the payment year, CMS

calculates what we call a normalization factor that projects a FFS risk score trend to the

payment year using historical FFS risk score data (see table above). Each payment

model has a normalization factor that is updated in each payment year. A normalization

factor for one year cannot be used with risk scores from another year or another model.

For the last several years, CMS has been using a quadratic function to predict future FFS

normalization values. This function has the form:









  











 













   

The intercept and parameter estimates  are derived from an ordinary least squares (OLS)

regression where FFS risk scores are regressed against year and year squared for five years of

data.

Comment: Some commenters stated that the current methodology is not appropriate for the

ESRD model. Several commenters also expressed concern about the significant impact of the

Part D normalization factor. Both factors increase from 2016 to 2017. For Part D, commenters

were concerned that the change in normalization factors would increase beneficiary premiums.

Response: For the Part D and ESRD models, CMS observes a similar pattern of under

normalization in PY2015 as with the CMS-HCC model and, therefore, a larger than expected

increase in normalization factors for PY2016 and PY2017, as more recent data leads to more

accurate predictions in these years. As with the Part C normalization factor, and also in response

to comments that we add an additional data year to more accurately explain variation in observed

risk scores, CMS has decided to add an additional year of data to the calculation of the

normalization factors in PY2017 for the ESRD Dialysis, Part D, and PACE/ESRD Functioning

Graft payment models. Below are the updated normalization factors, along with the historical

data used to calculate them.

Table III-2. PY2017 Normalization factors

Year

Revised

CMS-HCC

model

PACE/ESRD

Functioning Graft

CMS-HCC model

ESRD CMS-

HCC Model

RxHCC

model

2010

0.987

2011

0.990

1.031

0.956

0.996

2012

0.998

1.042

0.972

1.002

2013

0.996

1.043

0.974

0.995

2014

1.000

1.048

0.981

1.000

2015

1.001

1.052

0.989

PY 2017

Normalization factor

0.998

1.051

0.994

0.976

*Please note that the Part C normalization factors use 2011-2015 data, while the RxHCC

normalization factor uses 2010 – 2014 data.

Section J. Frailty Adjustment for PACE organizations and FIDE SNPs

Comment: Most commenters supported maintaining the current PACE frailty factors as well as

the use of updated frailty factors to determine frailty scores for FIDE-SNPs.

Response: CMS appreciates the support.

Comment: A few commenters requested that the requirements for eligibility to receive frailty

adjustments be expanded to include other plan types, such as I-SNPs and C-SNPs. Several

commenters suggested that frailty factors should be applied to all frail beneficiaries, not just

those beneficiaries enrolled in PACE plans or qualifying FIDE SNPs.

Response: Under the statute, CMS must use the same payment methodology for all MA plans,

including Special Needs Plans (SNPs), except in specific cases. Section 1853(a)(1)(B)(iv)

permits CMS to make frailty-adjusted payments only to certain dual SNPs – those with fully

integrated, capitated contracts with States for Medicaid benefits, including long term care, and

which have similar average levels of frailty as the PACE program. Thus, CMS cannot make

frailty payments to any SNP that does not meet the statutory criteria without implementing frailty

payments program-wide. If CMS were to apply a frailty adjustment to all MA plans, we would

do so in a manner that does not increase aggregate MA payment. Specifically, the frailty model

is calibrated to result in an average frailty score of 0.0. Thus, some enrollees would have a

negative adjustment. Please reference the 2008 Advance Notice, published February 16, 2007,

for more discussion on this topic. We also note that CMS has previously explored ways of

capturing frailty by all MA plans and found challenges with a number of approaches (see the

“Evaluation of the CMS-HCC Risk Adjustment Model,” 18 published March 2011, at

https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Downloads/

Evaluation_Risk_Adj_Model_2011.pdf for more information).

Comment: One commenter recommended that CMS base its frailty scores for comparison to

PACE on the proportion of FIDE SNP members meeting PACE level of care requirements as

assessed through State-approved assessment mechanisms used for nursing home and community

based waiver level of care determinations.

Response: CMS calculates frailty scores using data obtained in a similar manner to the data used

to calibrate the frailty model. CMS’ frailty model is calibrated and frailty scores are calculated

using data obtained from commonly-fielded surveys (the Consumer Assessment of Healthcare

Providers and Systems (CAHPS) survey of FFS beneficiaries and the Health Outcome Survey of

plan enrollees) to assess the average frailty of a plan or contract. Specifically, CMS uses

limitations on activities of daily living (ADLs) obtained from written surveys that are completed

by the beneficiary (please reference page 6 of the 2008 Advance Notice for a discussion of this

source of the ADL data used to calibrate the frailty model). If CMS were to use ADL data from

provider or plan sources, the frailty scores would be overstated. Further, because ADL data are

collected via survey, we only collect the data for a subset of a plan’s membership and it is,

therefore, not possible to pay frailty calculated at an individual level for all enrollees in a plan.

CMS believes the HOS and HOS-M survey currently provide the best estimate of a plan’s frailty

score because those surveys can be sampled at the PBP level and are standardized, unlike the

state level assessments, which can vary from one state to the next.

See Table III-3 for the 2017 payment factors for all qualifying FIDE SNPs.

Table III-3. FIDE SNP Frailty Factors for CY 2017

ADL

Non-Medicaid

Medicaid

−0.083

−0.093

1-2

0.124

0.105

3-4

0.248

0.243

5-6

0.248

0.420

Section K. Encounter Data as a Diagnosis Source for 2017

Comment: While a number of commenters support the continued incorporation of diagnoses

from encounter data into risk score calculations, many expressed concern that moving to a 50/50

blend of the RAPS/FFS and EDS/FFS risk scores is too aggressive at this time. There was a

variety of recommendations for the blend of risk scores that ranged from maintaining the

Payment Year 2016 blend of 90% of RAPS/FFS-based risk scores and 10% of encounter

data/FFS-based risks scores to a more gradual increase in the transition blend. Several

commenters suggested using a blend of 70% of the RAPS/FFS-based risk scores and 30% of the

encounter data/FFS-based risk scores. Some commenters felt that, since the final encounter data

filtering logic and the related MAO-004 reports were only recently released, they have not had

sufficient time to understand the impacts and how to operationalize the reports. In addition,

there was concern expressed regarding the ability to accurately reflect the filtering impacts in the

bid for Payment Year 2017, given that the impact of the blend for Payment Year 2016 will not be

known for a while. A few commenters were concerned with complications in submitting

encounters from capitated provider groups and the burden encounter data collection places on

capitated provider groups. Some commenters raised concerns about the completeness, stability,

and reliability of encounter data given problems with system edits. Some commenters thought

the timing of an increased blend would be problematic given the unknown impact of ICD-10 on

diagnosis reporting and risk scores. Finally, many commenters noted that CMS has not

evaluated impacts of encounter data on risk scores nor conducted statistical analysis to ensure

data accuracy and reliability.

Response: CMS appreciates the feedback and understands the challenges regarding the use of

encounter data for risk adjustment. As many of the commenters noted, CMS has been and

continues to work in good faith with submitters on technical and operational issues to address

encounter data acceptance, completeness, and quality. CMS is also working closely with health

plans to respond to their questions and make changes, where needed, to address the issues cited

with the MAO-004 reports.

CMS’s goal is to transition entirely from using diagnoses submitted to RAPS to using diagnoses

from encounter data and we intend to continue transitioning away from a reliance on RAPS data

for calculating risk scores. However, for 2017 payment, CMS will proceed with a blend

percentage for the encounter data/FFS-based risk score of 25%, as opposed to the 50% blend that

was proposed. Specifically, for Payment Year 2017, we will calculate a risk score using

diagnoses submitted to RAPS and FFS diagnoses, and another risk score using diagnoses filtered

from encounter data and FFS diagnoses. We will sum 75% of the RAPS/FFS-based risk score

with 25% of the encounter data/FFS-based risk score. The blended scores will have the same

normalization factor and the same MA coding adjustment.

The policies adopted through this Announcement apply to PY2017 (2016 dates of service),

which will have a submission deadline no earlier than January, 2018. We note that encounter

data submission rates have steadily increased while error rates have steadily decreased. CMS

expects this trend to continue to improve as more experience is gained and for the data to

stabilize by the time this blend would be in effect. CMS has also worked continuously with the

plan community to understand other submission and operational issues through industry and

individual plan level discussions, and will continue to do so. Given this, CMS plans to increase

the weighting of encounter data-based risk scores over the next couple of years by moving to a

risk score incorporating 50% of the encounter data/FFS-based risk score in 2018, a risk score

incorporating 75% of the encounter data/FFS-based risk score for 2019, and a risk score of 100%

encounter data/FFS-based risk score in 2020.

Comment: Some commenters supported the proposed 50/50 blend. Two commenters

encouraged a more aggressive approach by going to risk scores based on 100% encounter data,

stating that health plans have had sufficient time to acclimate to the EDS submission

requirements and that, since these data inherently requires a richer level of data submission than

RAPS, transition to this data source should result in greater overall payment accuracy. The

commenter also noted that maintaining two separate data submission processes was burdensome

to both health plans and CMS.

Response: CMS appreciates the support of the commenters.

Comment: A few commenters supported the proposal to continue the same method of

calculating risk scores as used for the 2016 payment year for PACE plans.

Response: CMS appreciates the support of the commenters and is finalizing this as proposed.

Attachment IV. Responses to Public Comments on Part D Payment Policy

Section A. Update of the RxHCC Model

Comment: Most commenters expressed support for CMS’s decision to not adjust the hepatitis C

coefficient downward, and encouraged CMS’s commitment to maintaining payment accuracy by

making adjustments as treatment patterns evolve.

Response: CMS appreciates the support.

Comment: Some commenters suggested CMS consider making the hepatitis C coefficient

"concurrent" in the RxHCC model going forward in order to more accurately capture costs.

Response: CMS’s objective in using a prospective model is to identify chronic, predictable

conditions, not acute events. Thus, the Part D risk adjustment model is not designed to predict

costs based on diseases that are primarily diagnosed, treated and cured in the same year. Making

a single factor concurrent would over-emphasize the cost attributed to that condition, and reduce

the costs attributed to the other, prospective factors.

Comment: Some commenters suggested that CMS should continue to review drug costs and

treatment patterns for other diseases and consider similar adjustments to other coefficients, so

long as changes are based on appropriate actuarial and related data analytics.

Response: CMS appreciates this recommendation and will take it into consideration.

Comment: One commenter requested that CMS consider doing an analysis on the accuracy of

the Medicare Part D RxHCC model for dual eligible and to share that analysis with states.

Response: CMS appreciates the request and will take it into consideration. However, the Part D

risk adjustment model is currently segmented by low income status. The risk scores from these

segments take into account the additional cost of low income beneficiaries.

Comment: Some commenters questioned whether CMS intended to leave blank the rows for

NonAged_RXHCC 164 and NonAged_RXHCC 165 in Table 5 in the institutional segment.

Response: Yes, CMS intended to leave blank rows for NonAged_RXHCC 164 and

NonAged_RXHCC 165 in Table 5 in the institutional segment. These interaction terms are

technically included in the calibration of the Part D model but the predicted amounts are either

negative or statistically no different from zero. To avoid confusion, we are removing these

interaction terms from the final table of RxHCC factors.

Section B. Encounter Data as a Diagnosis Source for 2017

See Section K for comments and responses related to this issue.

Section C. Part D Risk Sharing

Comment: We received two comments in support of the decision not to make any changes to the

Part D Risk sharing parameters and the analytical approach taken to reach this decision. One

commenter added that staying consistent in this manner will allow for more accurate bids.

Response: CMS appreciates the support.

Section D. Medicare Part D Benefit Parameters: Annual Adjustments for Defined

Standard Benefit, Low-Income Subsidy, and Retiree Drug Subsidy in 2017

Comment: A few commenters asked for CMS to change how the out-of-pocket threshold is

updated each year, asking specifically for a change in how the parameter is indexed to better

align with the growth in drug costs.

Response: Pursuant to section 1860D-2(b)(4)(i)(IV) of the Act, for each of years 2016 through

2019, the out-of-pocket threshold increase is the lesser of the annual percentage increase or the

July CPI plus two percentage points. CMS does not have the authority to modify the parameter

indexing methodology.

Comment: Several commenters expressed concern about the underlying drug cost trends driving

the annual Part D benefit parameter updates. One commenter stated that brand name prescription

drug price increases are continuing to accelerate while the effects of the “generic patent cliff” are

beginning to subside. The commenter added that it is noteworthy that the growth rate for the

Medicare Part D out-of-pocket cap is constrained through 2019 due to the Affordable Care Act.

The commenter stated that, although Part D enrollees are protected now, they will soon face the

full impact of benefit parameter changes that could increase their out-of-pocket liability by

hundreds of dollars per year. The commenter strongly urged CMS to monitor Medicare Part D

spending trends and their subsequent impact on enrollees.

Response: CMS appreciates the concerns of commenters and will continue monitoring Part D

spending trends and their impact on enrollees.

Comment: One commenter noted that it is crucial that Part D sponsors have flexibility to use

clinically-based tools and techniques to promote greater affordability in the program in response

to the threat provided by the influx of high-cost drugs into the Part D market.

Response: While we appreciate the concerns of commenters and will continue to work with the

industry to monitor Part D spending trends and manage their impact on enrollees, CMS must

update the parameters for the defined standard Part D prescription drug benefit and promote

affordability in a manner consistent with the statutorily prescribed methodology.

Comment: One commenter stated that, while Hepatitis C treatment costs present significant

costs for plans and should be captured in the risk adjustment model, they should not be permitted

to have a significant and pervasive impact on Part D benefit parameters. The commenter

requested CMS to consider alternative ways to derive benefit parameter increases, since the cost

increases for Hepatitis C patients only impacts the extreme right tail of the claim distribution and

have minimal bearing on the claim distribution pattern for approximately 99 percent of the

Part D population.

Response: CMS again appreciates the concerns of commenters, but is required by statute to

update the parameters for the defined standard Part D benefit by the annual percentage increase

in average expenditures for covered Part D drugs per eligible beneficiary.

Comment: One commenter noted that the maximum copay thresholds for each tier of drug for

individuals that qualify for the low-income subsidy have remained largely unchanged. The

commenter suggests that CMS develop an indexing system where the cost sharing is tied to the

cost of prescription drugs.

Response: While we appreciate the concerns of commenters and will continue monitoring Part D

spending trends and their impact on enrollees, CMS must update the parameters for the low-

income subsidy in a manner consistent with the statutorily prescribed methodology.

Section E. Part D Calendar Year Employer Group Waiver Plans

Comment: The majority of commenters expressed support for the proposal to pay CY EGWPs

prospective reinsurance, with several indicating that through this proposal CMS has provided

calendar year EGWPs with much needed cash flow relief from the effect of the rapid increases in

the cost of specialty drugs experienced by all prescription drug plans over the past few years.

Response: We appreciate the support.

Comment: A few commenters requested that the amount paid be more plan specific instead of

an average. While a few other commenters were uncertain as to whether the prospective payment

amount would be based on a plan specific average or on a national average.

Response: The $26.50 prospective payment is the national average paid to Calendar Year

EGWPs for payment year 2014. CMS considered incorporating a plan or contract specific

methodology in the course of developing the proposal, but ultimately decided against that

approach due to anticipated operational and administrative challenges for both CMS and plans.

Moreover, the intent of the policy is not to pay more or less than actual incurred reinsurance, but

to provide additional cash flow to these plans during the course of the benefit year until the

actual incurred reinsurance costs are ultimately reconciled, which may not take place for as long

as eleven months following the end of a calendar year.

Comment: A few commenters were unsure of the timing of the payments, the administration of

the prospective payments, and the impact of the prospective payments on the regular adjustment

process that occurs in normal plan year reconciliation, and requested clarifying details.

Response: Beginning in Calendar Year 2017, CMS will pay $26.50 per member per month in

prospective reinsurance to each Part D Calendar Year EGWP as part of the monthly prospective

payments currently made to these Contracts. Part D EGWPs will still be subject to

reconciliation. Incurred actual reinsurance reconciliation calculations will remain intact as they

exist today, except that the prospective reinsurance payments will be reconciled to actual

incurred reinsurance costs during the normal annual reconciliation process. In the event that the

prospective reinsurance payment amount for a plan for a year exceeds the actual incurred

reinsurance amount calculated during reconciliation for a plan for a year, the difference between

the prospective reinsurance payment and the actual incurred reinsurance amount calculated

during reconciliation will be recouped by CMS. In the event that the prospective reinsurance

payment amount for a plan for a year is less than the actual incurred reinsurance amount

calculated during reconciliation for a plan for a year, the difference between the prospective

reinsurance payment and the actual incurred reinsurance amount will be paid to the plan in

accordance with current reconciliation processes. The reinsurance reconciliation rules as

summarized above for CY Part D EGWPs will be applied the same way that the reinsurance

reconciliation rules currently apply to non-EGWP plans that submit reinsurance estimates in their

bid submissions, upon which they are paid prospectively, but which are ultimately reconciled to

actual incurred reinsurance costs during the normal reconciliation process.

Comment: Two commenters opposed the policy expressing that paying a prospective reinsurance

amount could cause confusion for the impacted plans and lead to an expectation of reduced

premiums while, in fact, their payments will ultimately be reconciled annually. The commenters

suggested that CMS either develop a prospective reinsurance payment for all CY EGWPs that is

not reconciled, or continue the current practice of reconciling reinsurance payments without

paying a prospective payment.

Response: Although CMS appreciates the commenters’ concerns, we believe that our detailed

responses to the comments we received on the policy sufficiently allay their concerns. Our

responses provide more explicit detail surrounding the payment flow details, giving particular

emphasis to the fact that the EGWP policy does not increase or decrease the amount any given

Part D EGWP will ultimately be paid for their actual incurred reinsurance for any given payment

year. The prospective amount paid in reinsurance will be reconciled to actual incurred

reconciliation costs during the normal annual reconciliation process.

Comment: One commenter requested that CMS reconsider using the 2014 proposed values as

metrics for prospective payments given significant drug pricing and payment differences that

will have occurred between 2014 and 2017. The commenter asserted that basing prospective

payments on 2014 will not accurately compare the current status of providing benefits in the

program and will lead to frequent and potentially costly adjustments for the 2017 plan year.

Response: The reconciliation data for 2014 contains the most recent actual total reinsurance

amount available for publication in the 2017 Advance Notice/Rate Announcement. CMS is

proposing this methodology as it is based on the most currently available actual Part D CY

EGWP experience. The 2015 reinsurance reconciliation amounts will not be known until

approximately November of 2016, which means CMS and plans will not know the amounts until

near the beginning of the benefit year, which we believe would lead to unnecessary confusion in

the payment process. In addition, given that these plans currently receive $0.00 in prospective

reinsurance, we believe that providing the average amount of $26.50 per member per month is a

reasonable and conservative amount to pay in order to accomplish our goal of providing

additional cash flow throughout the year to facilitate the sustainable offering of these plans,

while limiting the probability of needing to take back a large amount of prospective reinsurance

payments in the annual reconciliation process when the prospective payments are reconciled to

actual incurred reinsurance.

Comment: One commenter requested confirmation that the reinsurance amounts for plans

without additional coverage in the coverage gap will not be different than for plans with

additional coverage in the coverage gap.

Response: The reinsurance amounts will not be different for plans with and without additional

coverage in the coverage gap. The reinsurance reconciliation rules as summarized herein for CY

Part D EGWPs will be applied the same way that the reinsurance reconciliation rules currently

apply to non-EGWP plans that submit reinsurance estimates in their bid submissions, upon

which they are paid prospectively, but which are ultimately reconciled to actual incurred

reinsurance costs during the normal reconciliation process.

Attachment V. Final Updated Part D Benefit Parameters for Defined Standard Benefit,

Low-Income Subsidy, and Retiree Drug Subsidy

Table V-1. Updated Part D Benefit Parameters for Defined Standard

Benefit, Low-Income Subsidy, and Retiree Drug Subsidy

Annual Percentage Increases

Annual

percentage

trend for

2016

Prior

year

revisions

Annual

percentage

increase

for 2017

API: Applied to all parameters but (1) and (2)

6.99%

4.45%

11.75%

July CPI (all items, U.S. city average): Applied to (1)

1.13%

−1.26%

−0.15%

September CPI (all items, U.S. city average): Applied to (2)

1.67%

−1.46%

0.18%

Part D Benefit Parameters

2016

2017

Standard Benefit

Deductible

$360

$400

Initial Coverage Limit

$3,310

$3,700

Out-of-Pocket Threshold

$4,850

$4,950

Total Covered Part D Spending at Out-of-Pocket Threshold for Non-

Applicable Beneficiaries (3)

$7,062.50

$7,425.00

Estimated Total Covered Part D Spending for Applicable Beneficiaries (4)

$7,515.22

$8,071.16

Minimum Cost-Sharing in Catastrophic Coverage Portion of the Benefit

Generic/Preferred Multi-Source Drug

$2.95

$3.30

Other

$7.40

$8.25

Full Subsidy-Full Benefit Dual Eligible (FBDE) Individuals (6)

Deductible

$0.00

Copayments for Institutionalized Beneficiaries (category code 3)

$0.00

Copayments for Beneficiaries Receiving Home and Community-Based

Services (5) (category code 3)

$0.00

Maximum Copayments for Non-Institutionalized Beneficiaries

Up to or at 100% FPL (category code 2)

Up to Out-of-Pocket Threshold (1)

Generic/Preferred Multi-Source Drug (6)

$1.20

Other (6)

$3.60

$3.70

Above Out-of-Pocket Threshold

$0.00

Over 100% FPL (category code 1)

Up to Out-of-Pocket Threshold

Generic/Preferred Multi-Source Drug

$2.95

$3.30

Other

$7.40

$8.25

Above Out-of-Pocket Threshold

$0.00

Full Subsidy-Non-FBDE Individuals

2016

2017

Applied or eligible for QMB/SLMB/QI or SSI and income at or below

135% FPL and resources ≤ $8,780 (individuals) or ≤ $13,930 (couples)

(7) (category code 1)

Deductible

$0.00

Maximum Copayments up to Out-of-Pocket Threshold

Generic/Preferred Multi-Source Drug

$2.95

$3.30

Other

$7.40

$8.25

Maximum Copayments above Out-of-Pocket Threshold

$0.00

Partial Subsidy

Applied and income below 150% FPL and resources below $13,640

(individual) or $27,250 (couples) (7) (category code 4)

Deductible (6)

$74.00

$82.00

Coinsurance up to Out-of-Pocket Threshold

15%

Maximum Copayments above Out-of-Pocket Threshold

Generic/Preferred Multi-Source Drug

$2.95

$3.30

Other

$7.40

$8.25

Retiree Drug Subsidy Amounts

Cost Threshold

$360

$400

Cost Limit

$7,400

$8,250

(1) Pursuant to section 1860D-2(b)(4)(B)(i)(IV) of the Act, for each of years 2016 through 2019, the Out-

of-Pocket Threshold increase is the lesser of the annual percentage increase or the July CPI plus two

percentage points.

(2) September CPI adjustment applies to copayments for non-institutionalized beneficiaries up to or at

100% FPL.

(3) For beneficiaries who are not considered an “applicable beneficiary” as defined at section 1860D-

14A(g)(1) and are not eligible for the coverage gap program, this is the amount of total drug spending

required to reach the out-of-pocket threshold in the defined standard benefit. Enhanced alternative plans

must use this value when mapping enhanced alternative plans to the defined standard benefit for the

purpose of calculating covered plan paid amounts (CPP) reported on prescription drug event (PDE)

records.

(4) For beneficiaries who are considered an "applicable beneficiary" as defined at section 1860D-

14A(g)(1) and are eligible for the coverage gap discount program, this is the estimated average amount of

total drug spending required to reach the out-of-pocket threshold in the defined standard benefit.

Enhanced alternative plans must use this value when mapping enhanced alternative plans to the defined

standard benefit for the purpose of calculating covered plan paid amounts (CPP) reported on PDE

records.

(5) Per section 1860D-14(a)(1)(D)(i) of the Act, full-benefit dual eligibles who would be institutionalized

individuals (or couple) if the individual (couple) was not receiving home and community-based services

qualify for zero cost-sharing.

(6) The increases to the LIS deductible, generic/preferred multi-source drugs and other drugs copayments

are applied to the unrounded 2016 values of $73.79, $1.21, and $3.64, respectively.

(7) These resource limit figures will be updated for contract year 2017.

Section A. Annual Percentage Increase in Average Expenditures for Part D Drugs per

Eligible Beneficiary (API)

Section 1860D-2(b)(6) of the Act defines the API as “the annual percentage increase in average

per capita aggregate expenditures for covered Part D drugs in the United States for Part D

eligible individuals, as determined by the Secretary for the 12-month period ending in July of the

previous year using such methods as the Secretary shall specify.” The following parameters are

updated using the “annual percentage increase”:

Deductible: From $360 in 2016 and rounded to the nearest multiple of $5.

Initial Coverage Limit: From $3,310 in 2016 and rounded to the nearest multiple of $10.

Minimum Cost-Sharing in the Catastrophic Coverage Portion of the Benefit: From $2.95

per generic or preferred drug that is a multi-source drug, and $7.40 for all other drugs in 2016,

and rounded to the nearest multiple of $0.05.

Maximum Copayments up to the Out-of-Pocket Threshold for Certain Low Income Full

Subsidy Eligible Enrollees: From $2.95 per generic or preferred drug that is a multi-source

drug, and $7.40 for all other drugs in 2016, and rounded to the nearest multiple of $0.05.

Deductible for Low Income (Partial) Subsidy Eligible Enrollees: From $74

in 2016 and

rounded to the nearest $1.

Maximum Copayments above the Out-of-Pocket Threshold for Low Income (Partial)

Subsidy Eligible Enrollees: From $2.95 per generic or preferred drug that is a multi-source

drug, and $7.40 for all other drugs in 2016, and rounded to the nearest multiple of $0.05.

Section B. Annual Percentage Increase in Consumer Price Index (CPI)

Section 1860D-14(a)(4) of the Act specifies that the annual percentage increase in the CPI, All

Urban Consumers (all items, U.S. city average) as of September of the previous year is used to

update the maximum copayments up to the out-of-pocket threshold for full benefit dual eligible

enrollees with incomes not exceeding 100 percent of the Federal poverty line. These

copayments are increased from $1.20 per generic or preferred drug that is a multi-source drug,

Consistent with the statutory requirements of section 1860D-14(a)(4)(B) of the Act, the update

for the deductible for low income (partial) subsidy eligible enrollees is applied to the unrounded

2016 value of $73.79.

and $3.60 for all other drugs in 2016

, and rounded to the nearest multiple of $0.05 and $0.10,

respectively.

Additionally, section 1860D-2(b)(4) of the Act requires that the “annual percentage increase”

applied to the out-of-pocket threshold in 2017 is CPI+2%, which is the lesser of API and

CPI+2%. The change in CPI in this case is measured over the 12-month period ending in July of

the previous year, as required by statute. The threshold is increased from $4,850 in 2016 and

rounded to the nearest multiple of $50.

Section C. Calculation Methodology

Annual Percentage Increase in Average Expenditures for Part D Drugs per Eligible

Beneficiary (API)

For contract years 2007 and 2008, the APIs, as defined in section 1860D-2(b)(6) of the Act, were

based on the National Health Expenditure (NHE) prescription drug per capita estimates because

sufficient Part D program data was not available. Beginning with contract year 2009, the APIs

are based on Part D program data. For the 2017 contract year benefit parameters, Part D

program data is used to calculate the annual percentage trend as follows:

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 

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In the formula, the average per capita cost for August 2014 – July 2015 ($3,379.72) is calculated

from actual Part D prescription drug event (PDE) data and the average per capita cost for August

2015 – July 2016 ($3,615.90) is calculated based on actual Part D PDE data incurred from

August 2015 – December 2015 and projected through July 2016.

The 2017 benefit parameters reflect the 2016 annual percentage trend as well as an update for

revision to prior year estimates for API. Based on updated NHE prescription drug per capita

costs and PDE data, the annual percentage increases are now estimated as summarized by Table

V-2.

Consistent with the statutory requirements of section 1860D-14(a)(4)(A) of the Act, the

copayments are increased from the unrounded 2016 values of $1.21per generic or preferred drug

that is a multi-source drug, and $3.64 for all other drugs.

Table V-2. Revised Prior Years’ Annual Percentage Increases

Year

Prior Estimates

of Annual

Percentage

Increases

Revised

Annual

Percentage

Increases

2007

7.30%

2008

5.92%

2009

4.17%

4.69%

2010

3.07%

3.14%

2011

2.48%

2.36%

2012

2.45%

2.16%

2013

1.95%

2.53%

2014

−2.72%

−3.13%

2015

9.18%

10.03%

2016

6.37%

9.91%

Accordingly, the 2017 benefit parameters reflect a multiplicative update of 4.45 percent for prior

year revisions. In summary, the 2016 parameters outlined in Section A are updated by 11.75

percent for 2017, as summarized by Table V-3.

Table V-3. Annual Percentage Increase

Annual percentage trend for July 2016

6.99%

Prior year revisions

4.45%

Annual percentage increase for 2017

11.75%

Note: Percentages are multiplicative, not additive.

Values are carried to additional decimal places and may

not agree to the rounded values presented above.

Annual Percentage Increase in Consumer Price Index, September (September CPI)

To ensure that plan sponsors and CMS have sufficient time to incorporate the cost-sharing

requirements into the development of the benefit, any marketing materials, and necessary

systems, the methodology to calculate the annual percentage increase in the CPI for the 12 month

period ending in September 2016 includes an estimate of the September 2016 CPI based on

projections from the President’s FY2017 Budget.

The September 2015 value is from the Bureau of Labor Statistics. The annual percentage trend

in the September CPI for contract year 2017 is calculated as follows:

Projected September 2016 CPI

Actual September 2015 CPI



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(Source: President’s FY2017 Budget and Bureau of Labor Statistics, Department of

Labor)

The 2017 benefit parameters reflect the 2016 annual percentage trend in the September CPI of

1.67 percent, as well as a revision to the prior estimate for the 2015 CPI increase over the 12

month period ending in September 2015. Based on the actual reported CPI for September 2015,

the September 2015 CPI increase is now estimated to be −0.04 percent. Accordingly, the 2017

update reflects a −1.46 percent multiplicative correction for the revision to last year’s estimate.

In summary, the maximum copayments below the out-of-pocket threshold for full benefit dual

eligible enrollees with incomes not exceeding 100 percent of the Federal poverty line are updated

by 0.18 percent for 2017, as summarized by Table V-4.

Table V-4. Cumulative Annual Percentage Increase in September CPI

Annual percentage trend for September 2016

1.67%

Prior year revisions

−1.46%

Annual percentage increase for 2017

0.18%

Note: Percentages are multiplicative, not additive.

Values are carried to additional decimal places and may

not agree to the rounded values presented above.

Annual Percentage Increase in Consumer Price Index, July (July CPI)

As is the case when calculating the annual CPI trend as of September 2016, the methodology to

calculate the annual percentage increase in the CPI for the 12 month period ending in July 2016

includes an estimate of the July 2016 CPI based on projections from the President’s FY2017

Budget.

The July 2015 value is from the Bureau of Labor Statistics. The annual percentage trend in CPI

for contract year 2017 is calculated as follows:

Projected July 2016 CPI

Actual July 2015 CPI



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(Source: President’s FY2017 Budget and Bureau of Labor Statistics, Department of

Labor)

The 2017 benefit parameters reflect the 2016 annual percentage trend in the July CPI of 1.13

percent as well as a revision to the prior estimate for the 2015 CPI increase. Based on the actual

reported CPI for July 2015, the CPI increase over the 12 month period ending in July 2015 is

estimated to be 0.17 percent. The prior year revision here reflects the difference between this

actual 0.17 percent increase in CPI observed in July 2015 and the 2015 CPI increase estimate

from the CY 2016 Rate Announcement, which erroneously used September instead of July CPI

values. Accordingly, the 2017 update reflects a -1.26 percent multiplicative correction for the

revision to last year’s estimate.

In summary, the cumulative annual percentage increase in July CPI for 2017 is -0.15 percent, as

summarized by Table V-5. This value plus two percentage points is less than the 11.75 percent

cumulative API for 2017 described above. Thus, the out-of-pocket threshold will be increased

by 1.85 percent for 2017.

Table V-5. Cumulative Annual Percentage Increase in July CPI

Annual percentage trend for July 2016

1.13%

Prior year revisions

−1.26%

Annual percentage increase for 2017

−0.15%

Note: Percentages are multiplicative, not additive.

Values are carried to additional decimal places and may

not agree to the rounded values presented above.

Section D. Retiree Drug Subsidy Amounts

Per 42 CFR 423.886(b)(3), the cost threshold and cost limit for qualified retiree prescription drug

plans are also updated using the API, as defined previously in this document. The updated cost

threshold is rounded the nearest multiple of $5 and the updated cost limit is rounded to the

nearest multiple of $50. The cost threshold and cost limit are defined as $320 and $6,600,

respectively, for plans that end in 2015, and, as $360 and $7,400, respectively, for plans that end

in 2016. For 2017, the cost threshold is $400 and the cost limit is $8,250.

Section E. Estimated Total Covered Part D Spending at Out-of-Pocket Threshold for

Applicable Beneficiaries

For 2017, the total covered Part D spending at out-of-pocket threshold for applicable

beneficiaries is $8,071.16. The figure is calculated given the following basic assumptions:

 100 percent beneficiary cost sharing in the deductible phase.

 25 percent beneficiary cost sharing in the initial coverage phase and in the coverage gap.

 51 percent beneficiary cost sharing for non-applicable (generic) drugs purchased in the

coverage gap phase of the benefit.

 90 percent cost sharing for the ingredient cost and sales tax for applicable (brand) drugs

purchased in the coverage gap phase of the benefit – 40 percent beneficiary coinsurance

and 50 percent coverage gap discount program discount.

 40 percent cost sharing for the dispensing and vaccine administration fees for applicable

(brand) drugs purchased in the coverage gap phase of the benefit.

In this estimate, it is also assumed that the dispensing and vaccine administration fees account

for 0.11 percent of the gross covered brand drug costs used by non-LIS beneficiaries in the

coverage gap. Therefore, a 60 percent reduction in cost sharing for dispensing and vaccine

administration fees results in an overall reduction of 0.05 percent to 89.95 percent in cost sharing

for applicable (brand) drugs in the coverage gap.

The estimated total covered Part D spending at out-of-pocket threshold for applicable

beneficiaries is calculated as follows:

ICL+

100% beneficiary cost sharing in the gap

weighted gap coinsurance factor

 

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 ICL is the Initial Coverage Limit equal to $3,700

 One hundred percent beneficiary cost sharing in the gap is the estimated total drug

spending in the gap assuming 100 percent coinsurance.

 One hundred percent cost sharing in the gap is calculated as follows:

OOP threshold − OOP costs up to the ICL or $4,950 − $1,225.00 = $3,725.00

 Weighted gap coinsurance factor is calculated as follows:

(Brand GDCB % for non-LIS × 89.95% gap cost sharing for applicable drugs) + (Generic

GDCB % for non-LIS × 51% gap cost sharing for non-applicable drugs)

(87.9% × 89.95%) + (12.1% × 51%) = 85.218%

 Brand GDCB % for non-LIS is the percentage of gross covered drug costs below the out-

of-pocket threshold for applicable beneficiaries (i.e., non-LIS) attributable to applicable

(brand) drugs, as reported on the 2015 PDEs.

 Gap cost sharing for applicable drugs is the coinsurance incurred by applicable

beneficiaries (i.e., non-LIS) for applicable (brand) drugs in the coverage gap, where:

Coinsurance for applicable drugs = [(percentage of gross covered brand drug costs

attributable to ingredient cost and sales tax) × (cost sharing percentage)] +

[(percentage of gross covered brand drug costs attributable to dispensing and vaccine

administration fees) × (cost sharing coinsurance percentage)]

89.95% = [(99.89% × 90%) + (0.11% × 40%)]

 Generic GDCB % for non-LIS is the percentage of gross covered drug costs below the

out-of-pocket threshold for applicable beneficiaries (i.e., non-LIS) attributable to non-

applicable (generic) drugs as reported on the 2015 PDEs.

 Gap cost sharing for non-applicable drugs is the coinsurance incurred by applicable

beneficiaries (i.e., non-LIS) for non-applicable (generic) drugs in the coverage gap.

Attachment VI. CMS-HCC and RxHCC Risk Adjustment Factors

Table VI-1. 2017 CMS-HCC Model Relative Factors for Community and Institutional

Beneficiaries ...................................................... 78

Table VI-2. 2017 CMS-HCC Model Relative Factors for Aged and Disabled New Enrollees . 85

Table VI-3. 2017 CMS-HCC Model Relative Factors for New Enrollees in Chronic

Condition Special Needs Plans (C-SNPs) ................................. 86

Table VI-4. Disease Hierarchies for the 2017 CMS-HCC Model ...................... 87

Table VI-5. RxHCC Model Relative Factors for Continuing Enrollees .................. 88

Table VI-6. RxHCC Model Relative Factors for New Enrollees, Non‑Low Income ........ 93

Table VI-7. RxHCC Model Relative Factors for New Enrollees, Low Income ............ 94

Table VI-8. RxHCC Model Relative Factors for New Enrollees, Institutional ............. 95

Table VI-9. List of Disease Hierarchies for RxHCC Model ......................... 96

Table VI-1. 2017 CMS-HCC Model Relative Factors for Community and Institutional Beneficiaries

Variable

Description Label

Community,

NonDual,

Aged

Community,

NonDual,

Disabled

Community,

FBDual,

Aged

Community,

FBDual,

Disabled

Community,

PBDual,

Aged

Community,

PBDual,

Disabled

Institutional

Female

0-34 Years

0.244

0.318

0.344

1.031

35-44 Years

0.303

0.306

0.383

0.999

45-54 Years

0.322

0.338

0.374

1.007

55-59 Years

0.350

0.388

0.371

0.986

60-64 Years

0.411

0.449

0.395

1.028

65-69 Years

0.312

0.425

0.341

1.200

70-74 Years

0.374

0.511

0.406

1.092

75-79 Years

0.448

0.611

0.484

0.995

80-84 Years

0.537

0.739

0.552

0.860

85-89 Years

0.664

0.917

0.678

0.749

90-94 Years

0.797

1.037

0.817

0.626

95 Years or Over

0.816

1.094

0.913

0.456

Male

0-34 Years

0.155

0.225

0.330

1.049

35-44 Years

0.190

0.204

0.267

1.074

45-54 Years

0.221

0.281

0.300

1.008

55-59 Years

0.271

0.372

0.307

1.055

60-64 Years

0.303

0.486

0.343

1.039

65-69 Years

0.300

0.492

0.334

1.269

70-74 Years

0.379

0.582

0.409

1.323

75-79 Years

0.466

0.692

0.491

1.331

80-84 Years

0.561

0.816

0.546

1.189

85-89 Years

0.694

1.009

0.679

1.129

Variable

Description Label

Community,

NonDual,

Aged

Community,

NonDual,

Disabled

Community,

FBDual,

Aged

Community,

FBDual,

Disabled

Community,

PBDual,

Aged

Community,

PBDual,

Disabled

Institutional

90-94 Years

0.857

1.186

0.822

0.964

95 Years or Over

0.976

1.268

1.038

0.781

Medicaid and Originally Disabled

Medicaid

0.062

Originally Disabled, Female

0.244

0.172

0.126

Originally Disabled, Male

0.152

0.192

0.105

Disease Coefficients

Description Label

HCC1

HIV/AIDS

0.312

0.288

0.585

0.500

0.550

0.232

1.747

HCC2

Septicemia, Sepsis, Systemic

Inflammatory Response

Syndrome/Shock

0.455

0.532

0.596

0.811

0.409

0.417

0.346

HCC6

Opportunistic Infections

0.435

0.704

0.548

0.919

0.482

0.765

0.580

HCC8

Metastatic Cancer and Acute

Leukemia

2.625

2.644

2.542

2.767

2.442

2.582

1.143

HCC9

Lung and Other Severe Cancers

0.970

0.927

0.973

1.025

0.955

0.879

0.727

HCC10

Lymphoma and Other Cancers

0.677

0.656

0.713

0.761

0.667

0.577

0.401

HCC11

Colorectal, Bladder, and Other

Cancers

0.301

0.352

0.332

0.361

0.325

0.400

0.293

HCC12

Breast, Prostate, and Other

Cancers and Tumors

0.146

0.202

0.159

0.190

0.152

0.182

0.199

HCC17

Diabetes with Acute

Complications

0.318

0.371

0.346

0.431

0.354

0.423

0.441

HCC18

Diabetes with Chronic

Complications

0.318

0.371

0.346

0.431

0.354

0.423

0.441

HCC19

Diabetes without Complication

0.104

0.128

0.097

0.160

0.098

0.136

0.160

HCC21

Protein-Calorie Malnutrition

0.545

0.753

0.752

0.845

0.562

0.709

0.260

HCC22

Morbid Obesity

0.273

0.227

0.410

0.373

0.244

0.242

0.511

HCC23

Other Significant Endocrine and

Metabolic Disorders

0.228

0.444

0.228

0.353

0.193

0.351

0.337

HCC27

End-Stage Liver Disease

0.962

1.110

1.242

1.349

0.889

0.963

0.962

HCC28

Cirrhosis of Liver

0.390

0.394

0.342

0.491

0.460

0.324

0.390

HCC29

Chronic Hepatitis

0.165

0.267

0.038

0.400

0.263

0.324

0.390

HCC33

Intestinal Obstruction/Perforation

0.246

0.524

0.369

0.503

0.324

0.510

0.335

Variable

Description Label

Community,

NonDual,

Aged

Community,

NonDual,

Disabled

Community,

FBDual,

Aged

Community,

FBDual,

Disabled

Community,

PBDual,

Aged

Community,

PBDual,

Disabled

Institutional

HCC34

Chronic Pancreatitis

0.276

0.678

0.333

0.875

0.412

0.849

0.241

HCC35

Inflammatory Bowel Disease

0.294

0.483

0.334

0.613

0.209

0.496

0.244

HCC39

Bone/Joint/Muscle

Infections/Necrosis

0.425

0.474

0.552

0.713

0.418

0.491

0.345

HCC40

Rheumatoid Arthritis and

Inflammatory Connective Tissue

Disease

0.423

0.377

0.370

0.345

0.390

0.290

0.329

HCC46

Severe Hematological Disorders

1.388

3.188

1.219

4.256

1.226

3.529

0.680

HCC47

Disorders of Immunity

0.625

0.848

0.529

0.589

0.449

0.690

0.529

HCC48

Coagulation Defects and Other

Specified Hematological

Disorders

0.221

0.339

0.268

0.378

0.225

0.382

0.151

HCC54

Drug/Alcohol Psychosis

0.383

0.569

0.706

0.919

0.388

0.613

0.102

HCC55

Drug/Alcohol Dependence

0.383

0.285

0.522

0.366

0.377

0.286

0.102

HCC57

Schizophrenia

0.608

0.395

0.612

0.432

0.547

0.366

0.271

HCC58

Major Depressive, Bipolar, and

Paranoid Disorders

0.395

0.209

0.444

0.178

0.413

0.163

0.271

HCC70

Quadriplegia

1.314

1.053

1.098

1.056

1.274

1.328

0.497

HCC71

Paraplegia

1.007

0.704

0.920

1.019

0.958

0.908

0.467

HCC72

Spinal Cord Disorders/Injuries

0.528

0.456

0.552

0.407

0.556

0.384

0.229

HCC73

Amyotrophic Lateral Sclerosis and

Other Motor Neuron Disease

0.970

1.082

1.230

1.219

0.570

0.814

0.224

HCC74

Cerebral Palsy

0.280

0.132

0.158

0.052

HCC75

Myasthenia Gravis/Myoneural

Disorders and Guillain-Barre

Syndrome/Inflammatory and

Toxic Neuropathy

0.457

0.528

0.436

0.465

0.364

0.331

0.369

HCC76

Muscular Dystrophy

0.505

0.457

0.553

0.512

0.429

0.168

0.104

HCC77

Multiple Sclerosis

0.441

0.540

0.687

0.794

0.407

0.459

HCC78

Parkinson's and Huntington's

Diseases

0.674

0.585

0.751

0.516

0.629

0.394

0.145

HCC79

Seizure Disorders and

Convulsions

0.309

0.227

0.357

0.195

0.349

0.245

0.088

HCC80

Coma, Brain Compression/Anoxic

Damage

0.584

0.302

0.946

0.324

0.508

0.155

0.042

Variable

Description Label

Community,

NonDual,

Aged

Community,

NonDual,

Disabled

Community,

FBDual,

Aged

Community,

FBDual,

Disabled

Community,

PBDual,

Aged

Community,

PBDual,

Disabled

Institutional

HCC82

Respirator

Dependence/Tracheostomy Status

1.055

1.024

2.304

1.575

0.914

0.676

1.631

HCC83

Respiratory Arrest

0.658

0.781

1.033

0.484

0.704

0.429

0.727

HCC84

Cardio-Respiratory Failure and

Shock

0.302

0.578

0.471

0.484

0.301

0.429

0.297

HCC85

Congestive Heart Failure

0.323

0.412

0.355

0.415

0.320

0.367

0.191

HCC86

Acute Myocardial Infarction

0.233

0.306

0.473

0.618

0.280

0.438

0.497

HCC87

Unstable Angina and Other Acute

Ischemic Heart Disease

0.218

0.306

0.336

0.618

0.280

0.438

0.497

HCC88

Angina Pectoris

0.140

0.121

0.068

0.205

0.175

0.220

0.497

HCC96

Specified Heart Arrhythmias

0.268

0.284

0.369

0.377

0.283

0.258

0.224

HCC99

Cerebral Hemorrhage

0.263

0.282

0.474

0.690

0.278

0.280

0.114

HCC100

Ischemic or Unspecified Stroke

0.263

0.195

0.474

0.357

0.270

0.232

0.114

HCC103

Hemiplegia/Hemiparesis

0.538

0.324

0.548

0.435

0.603

0.401

0.031

HCC104

Monoplegia, Other Paralytic

Syndromes

0.395

0.258

0.374

0.381

0.559

0.401

0.031

HCC106

Atherosclerosis of the Extremities

with Ulceration or Gangrene

1.461

1.506

1.744

1.740

1.452

1.601

0.884

HCC107

Vascular Disease with

Complications

0.400

0.486

0.540

0.756

0.443

0.549

0.321

HCC108

Vascular Disease

0.298

0.333

0.324

0.319

0.316

0.326

0.094

HCC110

Cystic Fibrosis

0.620

2.538

0.985

3.365

0.358

2.861

0.305

HCC111

Chronic Obstructive Pulmonary

Disease

0.328

0.262

0.422

0.354

0.358

0.293

0.305

HCC112

Fibrosis of Lung and Other

Chronic Lung Disorders

0.209

0.262

0.134

0.322

0.172

0.174

0.057

HCC114

Aspiration and Specified Bacterial

Pneumonias

0.599

0.530

0.707

0.490

0.666

0.373

0.067

HCC115

Pneumococcal Pneumonia,

Empyema, Lung Abscess

0.221

0.128

0.162

0.049

0.302

0.220

0.067

HCC122

Proliferative Diabetic Retinopathy

and Vitreous Hemorrhage

0.217

0.171

0.223

0.284

0.276

0.195

0.460

HCC124

Exudative Macular Degeneration

0.499

0.385

0.278

0.090

0.336

0.115

0.228

HCC134

Dialysis Status

0.422

0.500

0.672

0.637

0.435

0.512

0.462

HCC135

Acute Renal Failure

0.422

0.500

0.672

0.637

0.435

0.512

0.462

Variable

Description Label

Community,

NonDual,

Aged

Community,

NonDual,

Disabled

Community,

FBDual,

Aged

Community,

FBDual,

Disabled

Community,

PBDual,

Aged

Community,

PBDual,

Disabled

Institutional

HCC136

Chronic Kidney Disease, Stage 5

0.237

0.141

0.244

0.167

0.184

0.147

0.436

HCC137

Chronic Kidney Disease, Severe

(Stage 4)

0.237

0.141

0.244

0.079

0.184

0.035

0.202

HCC157

Pressure Ulcer of Skin with

Necrosis Through to Muscle,

Tendon, or Bone

2.163

2.203

2.879

2.626

2.274

2.655

0.924

HCC158

Pressure Ulcer of Skin with Full

Thickness Skin Loss

1.204

1.393

1.576

1.559

1.074

1.237

0.295

HCC161

Chronic Ulcer of Skin, Except

Pressure

0.535

0.636

0.757

0.631

0.586

0.620

0.294

HCC162

Severe Skin Burn or Condition

0.321

0.348

0.003

0.537

0.525

0.119

0.076

HCC166

Severe Head Injury

0.584

0.302

0.946

0.324

1.065

0.155

0.042

HCC167

Major Head Injury

0.191

0.044

0.274

0.171

0.133

0.049

HCC169

Vertebral Fractures without Spinal

Cord Injury

0.495

0.456

0.552

0.407

0.516

0.384

0.209

HCC170

Hip Fracture/Dislocation

0.418

0.513

0.520

0.668

0.383

0.484

HCC173

Traumatic Amputations and

Complications

0.266

0.340

0.412

0.383

0.233

0.232

0.267

HCC176

Complications of Specified

Implanted Device or Graft

0.597

0.871

0.721

1.156

0.584

0.876

0.502

HCC186

Major Organ Transplant or

Replacement Status

1.000

0.618

0.816

1.075

0.795

0.655

0.962

HCC188

Artificial Openings for Feeding or

Elimination

0.571

0.785

0.775

0.870

0.579

0.867

0.500

HCC189

Amputation Status, Lower

Limb/Amputation Complications

0.588

0.455

0.787

1.065

0.737

0.696

0.407

Disease Interactions

HCC47_gCancer

Immune Disorders*Cancer Group

0.893

0.675

0.815

0.652

0.776

0.808

HCC85_gDiabetesMellit

Congestive Heart

Failure*Diabetes Group

0.154

0.096

0.205

0.160

0.178

0.139

0.154

HCC85_gCopdCF

Congestive Heart Failure*Chronic

Obstructive Pulmonary Disease

Group

0.190

0.174

0.240

0.217

0.186

0.181

0.164

HCC85_gRenal

Congestive Heart Failure*Renal

Group

0.270

0.493

0.271

0.711

0.299

0.609

Variable

Description Label

Community,

NonDual,

Aged

Community,

NonDual,

Disabled

Community,

FBDual,

Aged

Community,

FBDual,

Disabled

Community,

PBDual,

Aged

Community,

PBDual,

Disabled

Institutional

gRespDepandArre_gCopdCF

Cardiorespiratory Failure

Group*Chronic Obstructive

Pulmonary Disease Group

0.336

0.256

0.564

0.524

0.460

0.449

0.423

HCC85_HCC96

Congestive Heart

Failure*Specified Heart

Arrhythmias

0.105

0.285

0.200

0.405

0.116

0.318

gSubstanceAbuse_gPsychiatric

Substance Abuse

Group*Psychiatric Group

0.191

0.233

0.230

SEPSIS_PRESSURE_ULCER

Sepsis*Pressure Ulcer

0.252

SEPSIS_ARTIF_OPENINGS

Sepsis*Artificial Openings for

Feeding or Elimination

0.568

ART_OPENINGS_PRESSURE_ULCER

Artificial Openings for Feeding or

Elimination*Pressure Ulcer

0.331

gCopdCF_ASP_SPEC_BACT_PNEUM

Chronic Obstructive Pulmonary

Disease*Aspiration and Specified

Bacterial Pneumonias

0.254

ASP_SPEC_BACT_PNEUM_PRES_ULC

Aspiration and Specified Bacterial

Pneumonias*Pressure Ulcer

0.366

SEPSIS_ASP_SPEC_BACT_PNEUM

Sepsis*Aspiration and Specified

Bacterial Pneumonias

0.321

SCHIZOPHRENIA_gCopdCF

Schizophrenia*Chronic

Obstructive Pulmonary Disease

0.363

SCHIZOPHRENIA_CHF

Schizophrenia*Congestive Heart

Failure

0.173

SCHIZOPHRENIA_SEIZURES

Schizophrenia*Seizure Disorders

and Convulsions

0.483

Disabled/Disease Interactions

DISABLED_HCC85

Disabled, Congestive Heart

Failure

0.321

DISABLED_PRESSURE_ULCER

Disabled, Pressure Ulcer

0.608

DISABLED_HCC161

Disabled, Chronic Ulcer of the

Skin, Except Pressure Ulcer

0.369

DISABLED_HCC39

Disabled, Bone/Joint Muscle

Infections/Necrosis

0.567

DISABLED_HCC77

Disabled, Multiple Sclerosis

0.425

Variable

Description Label

Community,

NonDual,

Aged

Community,

NonDual,

Disabled

Community,

FBDual,

Aged

Community,

FBDual,

Disabled

Community,

PBDual,

Aged

Community,

PBDual,

Disabled

Institutional

DISABLED_HCC6

Disabled, Opportunistic Infections

0.277

NOTES:

1. The denominator is $9,185.29

2. In the “disease interactions” and “disabled interactions,” the variables are defined as follows:

Immune Disorders = HCC 47

Cancer = HCCs 8-12

Congestive Heart Failure = HCC 85

Diabetes = HCCs 17-19

Chronic Obstructive Pulmonary Disease = HCCs 110-112

Renal = HCCs 134 – 137

Cardiorespiratory Failure = HCCs 82-84

Specified Heart Arrhythmias = HCC 96

Substance Abuse = HCCs 54-55

Psychiatric = HCCs 57-58

Sepsis = HCC 2

Pressure Ulcer = HCCs 157-158

Artificial Openings for Feeding or Elimination = HCC 188

Aspiration and Specified Bacterial Pneumonias = HCC 114

Schizophrenia = HCC 57

Seizure Disorders and Convulsions = HCC 79

Chronic Ulcer of Skin, except Pressure = HCC 161

Bone/Joint/Muscle Infections/Necrosis = HCC 39

Multiple Sclerosis = HCC 77

Opportunistic Infections = HCC 6

SOURCE: RTI International analysis of 2013-2014 Medicare 100% data and RTI International analysis of 2013-2014 Medicare 100% institutional

sample.

Table VI-2. 2017 CMS-HCC Model Relative Factors for Aged and Disabled New Enrollees

Non-Medicaid &

Non-Originally

Disabled

Medicaid &

Non-Originally

Disabled

Non-Medicaid &

Originally

Disabled

Medicaid &

Originally

Disabled

Female

0-34 Years

0.664

0.985

35-44 Years

0.936

1.221

45-54 Years

1.035

1.337

55-59 Years

1.004

1.342

60-64 Years

1.122

1.438

65 Years

0.522

1.059

1.130

1.566

66 Years

0.516

0.946

1.167

1.619

67 Years

0.544

0.946

1.167

1.619

68 Years

0.581

0.946

1.167

1.619

69 Years

0.605

0.946

1.167

1.619

70-74 Years

0.674

0.975

1.167

1.619

75-79 Years

0.892

1.092

1.167

1.619

80-84 Years

1.066

1.395

1.167

1.619

85-89 Years

1.324

1.458

1.167

1.619

90-94 Years

1.324

1.678

1.167

1.619

95 Years or Over

1.324

1.678

1.167

1.619

Male

0-34 Years

0.456

0.766

35-44 Years

0.665

1.095

45-54 Years

0.834

1.357

55-59 Years

0.889

1.422

60-64 Years

0.923

1.582

65 Years

0.514

1.201

0.790

1.613

66 Years

0.533

1.208

0.957

1.613

67 Years

0.575

1.208

1.005

2.202

68 Years

0.641

1.208

1.074

2.202

69 Years

0.671

1.311

1.398

2.202

70-74 Years

0.776

1.311

1.398

2.202

75-79 Years

1.040

1.361

1.398

2.202

80-84 Years

1.270

1.603

1.398

2.202

85-89 Years

1.511

1.850

1.398

2.202

90-94 Years

1.511

1.850

1.398

2.202

95 Years or Over

1.511

1.850

1.398

2.202

NOTES:

1. The denominator is $9,185.29

2. For payment purposes, a new enrollee is a beneficiary who did not have 12 months of Part B eligibility in

the data collection year. CMS-HCC new enrollee models are not based on diagnoses, but include factors for

different age and gender combinations by Medicaid and the original reason for Medicare entitlement.

SOURCE: RTI International analysis of 2013-2014 100% Medicare data.

Table VI-3. 2017 CMS-HCC Model Relative Factors for New Enrollees in Chronic

Condition Special Needs Plans (C-SNPs)

Non-Medicaid &

Non-Originally

Disabled

Medicaid &

Non-Originally

Disabled

Non-Medicaid &

Originally

Disabled

Medicaid &

Originally

Disabled

Female

0-34 Years

1.136

1.633

35-44 Years

1.409

1.868

45-54 Years

1.507

2.068

55-59 Years

1.618

2.123

60-64 Years

1.689

2.177

65 Years

1.003

1.546

1.747

2.161

66 Years

0.997

1.546

1.785

2.214

67 Years

1.063

1.569

1.805

2.272

68 Years

1.100

1.569

1.805

2.272

69 Years

1.123

1.569

1.805

2.272

70-74 Years

1.269

1.776

1.932

2.415

75-79 Years

1.480

1.973

2.096

2.576

80-84 Years

1.687

2.162

2.252

2.844

85-89 Years

1.920

2.381

2.252

2.844

90-94 Years

1.920

2.602

2.252

2.844

95 Years or Over

1.920

2.602

2.252

2.844

Male

0-34 Years

1.045

1.329

35-44 Years

1.254

1.658

45-54 Years

1.503

1.954

55-59 Years

1.630

2.091

60-64 Years

1.670

2.187

65 Years

0.971

1.478

1.655

2.224

66 Years

0.989

1.485

1.691

2.224

67 Years

1.015

1.600

1.705

2.360

68 Years

1.082

1.600

1.734

2.360

69 Years

1.111

1.703

1.780

2.360

70-74 Years

1.302

1.898

1.874

2.356

75-79 Years

1.522

2.080

2.000

2.582

80-84 Years

1.758

2.229

2.254

2.582

85-89 Years

2.047

2.544

2.254

2.582

90-94 Years

2.047

2.544

2.254

2.582

95 Years or Over

2.047

2.544

2.254

2.582

NOTES:

1. The denominator is $9,185.29

2. For payment purposes, a new enrollee is a beneficiary who did not have 12 months of Part B eligibility in the data

collection year. CMS-HCC new enrollee models are not based on diagnoses, but include factors for different age and

gender combinations by Medicaid and the original reason for Medicare entitlement.

3. The relative factors in this table were calculated by estimating the incremental amount to the standard new enrollee risk

model needed to predict the risk scores of continuing enrollees in C-SNPs.

SOURCE: RTI International analysis of 2013-2014 100% Medicare data.

Table VI-4. Disease Hierarchies for the 2017 CMS-HCC Model

Hierarchical

Condition

Category

(HCC)

If the Disease Group is Listed in this column…

…Then drop the Disease

Group(s) listed in this

column

Hierarchical Condition Category (HCC) LABEL

Metastatic Cancer and Acute Leukemia

9,10,11,12

Lung and Other Severe Cancers

10,11,12

Lymphoma and Other Cancers

11,12

Colorectal, Bladder, and Other Cancers

Diabetes with Acute Complications

18,19

Diabetes with Chronic Complications

End-Stage Liver Disease

28,29,80

Cirrhosis of Liver

Severe Hematological Disorders

Drug/Alcohol Psychosis

Schizophrenia

Quadriplegia

71,72,103,104,169

Paraplegia

72,104,169

Spinal Cord Disorders/Injuries

169

Respirator Dependence/Tracheostomy Status

83,84

Respiratory Arrest

Acute Myocardial Infarction

87,88

Unstable Angina and Other Acute Ischemic Heart

Disease

Cerebral Hemorrhage

100

103

Hemiplegia/Hemiparesis

104

106

Atherosclerosis of the Extremities with Ulceration or

Gangrene

107,108,161,189

107

Vascular Disease with Complications

108

110

Cystic Fibrosis

111,112

111

Chronic Obstructive Pulmonary Disease

112

114

Aspiration and Specified Bacterial Pneumonias

115

134

Dialysis Status

135,136,137

135

Acute Renal Failure

136,137

136

Chronic Kidney Disease, Stage 5

137

157

Pressure Ulcer of Skin with Necrosis Through to

Muscle, Tendon, or Bone

158,161

158

Pressure Ulcer of Skin with Full Thickness Skin Loss

161

166

Severe Head Injury

80,167

How Payments are Made with a Disease Hierarchy: If a beneficiary triggers Disease Groups 135 (Acute Renal

Failure) and 136 (Chronic Kidney Disease, Stage 5), then DG 136 will be dropped. In other words, payment will

always be associated with the DG in column 1, if a DG in column 3 also occurs during the same collection period.

Therefore, the organization’s payment will be based on DG 135 rather than DG 136.

Table VI-5. RxHCC Model Relative Factors for Continuing Enrollees

Continuing Enrollees (CE) RxHCC Model Segments

Variable

Disease Group

Community,

Non-Low

Income,

Age≥65

Community,

Non-Low

Income,

Age<65

Community,

Low

Income,

Age≥65

Community,

Low

Income,

Age<65

Institutional

Female

0-34 Years

0.290

0.423

1.918

35-44 Years

0.477

0.637

1.886

45-54 Years

0.563

0.735

1.682

55-59 Years

0.543

0.710

1.556

60-64 Years

0.504

0.645

1.414

65-69 Years

0.264

0.407

1.491

70-74 Years

0.264

0.396

1.382

75-79 Years

0.251

0.385

1.285

80-84 Years

0.237

0.357

1.197

85-89 Years

0.221

0.328

1.113

90-94 Years

0.183

0.268

1.002

95 Years or Over

0.126

0.178

0.813

Male

0-34 Years

0.227

0.470

1.660

35-44 Years

0.382

0.606

1.791

45-54 Years

0.498

0.660

1.618

55-59 Years

0.519

0.649

1.450

60-64 Years

0.478

0.595

1.334

65-69 Years

0.274

0.351

1.332

70-74 Years

0.279

0.353

1.275

75-79 Years

0.246

0.347

1.218

80-84 Years

0.188

0.317

1.167

85-89 Years

0.149

0.289

1.098

90-94 Years

0.093

0.260

1.021

95 Years or Over

0.071

0.216

0.864

Originally Disabled Interactions with Sex

Originally Disabled_Female

0.101

0.180

0.066

Originally Disabled_Male

0.127

0.066

Disease Coefficients

Description Label

RXHCC1

HIV/AIDS

2.913

3.350

3.437

3.881

2.206

RXHCC5

Opportunistic Infections

0.221

0.011

0.145

0.148

0.160

RXHCC15

Chronic Myeloid Leukemia

6.271

6.682

7.000

8.912

4.011

RXHCC16

Multiple Myeloma and Other

Neoplastic Disorders

3.405

3.628

2.791

3.246

1.044

Continuing Enrollees (CE) RxHCC Model Segments

Variable

Disease Group

Community,

Non-Low

Income,

Age≥65

Community,

Non-Low

Income,

Age<65

Community,

Low

Income,

Age≥65

Community,

Low

Income,

Age<65

Institutional

RXHCC17

Secondary Cancers of Bone,

Lung, Brain, and Other Specified

Sites; Liver Cancer

1.435

1.390

1.346

1.385

0.421

RXHCC18

Lung, Kidney, and Other

Cancers

0.255

0.281

0.280

0.287

0.050

RXHCC19

Breast and Other Cancers and

Tumors

0.087

0.029

0.078

0.085

0.050

RXHCC30

Diabetes with Complications

0.396

0.437

0.461

0.608

0.431

RXHCC31

Diabetes without Complication

0.263

0.259

0.300

0.354

0.299

RXHCC40

Specified Hereditary

Metabolic/Immune Disorders

2.785

11.019

2.945

9.727

0.138

RXHCC41

Pituitary, Adrenal Gland, and

Other Endocrine and Metabolic

Disorders

0.111

0.179

0.052

0.183

0.064

RXHCC42

Thyroid Disorders

0.095

0.160

0.092

0.155

0.065

RXHCC43

Morbid Obesity

0.067

0.066

0.068

0.169

RXHCC45

Disorders of Lipoid Metabolism

0.054

0.038

0.094

0.126

0.063

RXHCC54

Chronic Viral Hepatitis C

1.921

2.461

1.713

1.989

0.508

RXHCC55

Chronic Viral Hepatitis, Except

Hepatitis C

0.322

0.396

0.860

0.586

0.251

RXHCC65

Chronic Pancreatitis

0.239

0.238

0.148

0.163

0.143

RXHCC66

Pancreatic Disorders and

Intestinal Malabsorption, Except

Pancreatitis

0.094

0.238

0.084

0.163

0.106

RXHCC67

Inflammatory Bowel Disease

0.470

0.403

0.388

0.718

0.205

RXHCC68

Esophageal Reflux and Other

Disorders of Esophagus

0.098

0.074

0.151

0.170

0.076

RXHCC80

Aseptic Necrosis of Bone

0.162

0.201

0.149

0.135

0.108

RXHCC82

Psoriatic Arthropathy and

Systemic Sclerosis

0.720

0.792

1.116

1.802

0.538

RXHCC83

Rheumatoid Arthritis and Other

Inflammatory Polyarthropathy

0.318

0.383

0.406

0.710

0.172

RXHCC84

Systemic Lupus Erythematosus,

Other Connective Tissue

Disorders, and Inflammatory

Spondylopathies

0.202

0.331

0.233

0.341

0.107

RXHCC87

Osteoporosis, Vertebral and

Pathological Fractures

0.054

0.152

0.121

0.195

RXHCC95

Sickle Cell Anemia

0.085

0.185

0.070

0.777

0.482

RXHCC96

Myelodysplastic Syndromes and

Myelofibrosis

0.738

0.883

0.653

0.682

0.518

RXHCC97

Immune Disorders

0.428

0.448

0.484

0.403

0.377

RXHCC98

Aplastic Anemia and Other

Significant Blood Disorders

0.085

0.180

0.070

0.228

0.039

RXHCC111

Alzheimer`s Disease

0.475

0.206

0.180

0.093

Continuing Enrollees (CE) RxHCC Model Segments

Variable

Disease Group

Community,

Non-Low

Income,

Age≥65

Community,

Non-Low

Income,

Age<65

Community,

Low

Income,

Age≥65

Community,

Low

Income,

Age<65

Institutional

RXHCC112

Dementia, Except Alzheimer`s

Disease

0.198

0.094

0.040

RXHCC130

Schizophrenia

0.291

0.336

0.457

0.756

0.203

RXHCC131

Bipolar Disorders

0.291

0.319

0.317

0.509

0.203

RXHCC132

Major Depression

0.154

0.269

0.185

0.364

0.189

RXHCC133

Specified Anxiety, Personality,

and Behavior Disorders

0.154

0.239

0.179

0.362

0.106

RXHCC134

Depression

0.150

0.191

0.140

0.227

0.106

RXHCC135

Anxiety Disorders

0.060

0.112

0.092

0.197

0.101

RXHCC145

Autism

0.154

0.239

0.374

0.410

0.106

RXHCC146

Profound or Severe Intellectual

Disability/Developmental

Disorder

0.026

0.114

0.374

0.309

RXHCC147

Moderate Intellectual

Disability/Developmental

Disorder

0.026

0.224

0.172

RXHCC148

Mild or Unspecified Intellectual

Disability/Developmental

Disorder

0.098

0.030

RXHCC156

Myasthenia Gravis,

Amyotrophic Lateral Sclerosis

and Other Motor Neuron Disease

0.316

0.632

0.323

0.542

0.142

RXHCC157

Spinal Cord Disorders

0.138

0.161

0.082

0.059

0.074

RXHCC159

Inflammatory and Toxic

Neuropathy

0.212

0.421

0.219

0.388

0.088

RXHCC160

Multiple Sclerosis

1.904

3.250

1.807

3.809

0.856

RXHCC161

Parkinson`s and Huntington`s

Diseases

0.496

0.716

0.313

0.430

0.208

RXHCC163

Intractable Epilepsy

0.293

0.494

0.260

0.899

0.078

RXHCC164

Epilepsy and Other Seizure

Disorders, Except Intractable

Epilepsy

0.112

0.046

0.034

0.139

RXHCC165

Convulsions

0.062

0.034

0.087

RXHCC166

Migraine Headaches

0.142

0.257

0.126

0.150

0.126

RXHCC168

Trigeminal and Postherpetic

Neuralgia

0.133

0.260

0.149

0.181

0.185

RXHCC185

Primary Pulmonary

Hypertension

0.621

1.784

0.570

1.468

0.229

RXHCC186

Congestive Heart Failure

0.176

0.120

0.230

0.136

0.135

RXHCC187

Hypertension

0.141

0.078

0.204

0.109

0.065

RXHCC188

Coronary Artery Disease

0.130

0.035

0.142

0.012

RXHCC193

Atrial Arrhythmias

0.230

0.097

0.098

0.014

0.068

Continuing Enrollees (CE) RxHCC Model Segments

Variable

Disease Group

Community,

Non-Low

Income,

Age≥65

Community,

Non-Low

Income,

Age<65

Community,

Low

Income,

Age≥65

Community,

Low

Income,

Age<65

Institutional

RXHCC206

Cerebrovascular Disease, Except

Hemorrhage or Aneurysm

0.052

0.039

RXHCC207

Spastic Hemiplegia

0.174

0.167

0.067

0.193

RXHCC215

Venous Thromboembolism

0.111

0.151

0.069

0.115

0.039

RXHCC216

Peripheral Vascular Disease

0.037

RXHCC225

Cystic Fibrosis

0.365

3.541

0.352

3.683

0.775

RXHCC226

Chronic Obstructive Pulmonary

Disease and Asthma

0.311

0.144

0.352

0.249

0.200

RXHCC227

Pulmonary Fibrosis and Other

Chronic Lung Disorders

0.159

0.144

0.128

0.249

0.029

RXHCC241

Diabetic Retinopathy

0.260

0.202

0.191

0.119

0.151

RXHCC243

Open-Angle Glaucoma

0.266

0.199

0.306

0.260

0.222

RXHCC260

Kidney Transplant Status

0.328

0.070

0.407

0.393

0.201

RXHCC261

Dialysis Status

0.183

0.274

0.389

0.757

0.301

RXHCC262

Chronic Kidney Disease Stage 5

0.086

0.030

0.091

0.033

0.065

RXHCC263

Chronic Kidney Disease Stage 4

0.086

0.030

0.086

0.033

0.065

RXHCC311

Chronic Ulcer of Skin, Except

Pressure

0.143

0.131

0.071

0.090

0.048

RXHCC314

Pemphigus

0.271

1.212

0.203

0.193

0.048

RXHCC316

Psoriasis, Except with

Arthropathy

0.188

0.219

0.345

0.630

0.228

RXHCC355

Narcolepsy and Cataplexy

0.780

1.325

0.641

1.302

0.350

RXHCC395

Lung Transplant Status

1.126

0.954

1.169

1.160

0.639

RXHCC396

Major Organ Transplant Status,

Except Lung, Kidney, and

Pancreas

1.098

0.954

1.169

1.160

0.457

RXHCC397

Pancreas Transplant Status

0.251

0.070

0.407

0.393

0.201

Non-Aged Disease Interactions

NonAged_RXHCC1

NonAged * HIV/AIDS

1.009

NonAged_RXHCC130

NonAged * Schizophrenia

0.268

NonAged_RXHCC131

NonAged * Bipolar Disorders

0.268

NonAged_RXHCC132

NonAged * Major Depression

0.206

NonAged_RXHCC133

NonAged * Specified Anxiety,

Personality, and Behavior

Disorders

0.130

NonAged_RXHCC134

NonAged * Depression

0.122

NonAged_RXHCC135

NonAged * Anxiety Disorders

0.049

NonAged_RXHCC145

NonAged * Autism

0.130

NonAged_RXHCC160

NonAged * Multiple Sclerosis

1.227

NonAged_RXHCC163

NonAged * Intractable Epilepsy

0.111

Note: The Part D Denominator used to calculate relative factors is $1,014.31. This Part D Denominator is based on

the combined PDP and MA-PD populations.

Source: RTI Analysis of 100% 2014 PDE, 2013 Carrier NCH, 2013 Inpatient SAF, 2013 Outpatient SAF, 2014

HPMS, 2014 CME, 2013-2014 Denominator, Part D Intermediate File, and 2013 Medicare Advantage Diagnoses

File.

Table VI-6. RxHCC Model Relative Factors for New Enrollees, Non‑Low Income

Variable

Not

Concurrently

ESRD, Not

Originally

Disabled

Concurrently

ESRD, Not

Originally

Disabled

Originally

Disabled, Not

Concurrently

ESRD

Originally

Disabled,

Concurrently

ESRD

Female

0-34 Years

0.653

35-44 Years

1.074

1.100

45-54 Years

1.290

1.536

55-59 Years

1.228

1.732

60-64 Years

1.227

1.898

65 Years

0.562

1.756

1.163

1.756

66 Years

0.616

1.756

1.111

1.756

67 Years

0.623

1.756

1.111

1.756

68 Years

0.645

1.756

1.111

1.756

69 Years

0.669

1.756

1.111

1.756

70-74 Years

0.688

1.756

1.100

1.756

75-79 Years

0.687

1.756

0.687

1.756

80-84 Years

0.643

1.756

0.643

1.756

85-89 Years

0.537

1.756

0.537

1.756

90-94 Years

0.317

1.756

0.317

1.756

95 Years or Over

0.317

1.756

0.317

1.756

Male

0-34 Years

0.427

0.714

35-44 Years

0.803

0.885

45-54 Years

1.091

1.493

55-59 Years

1.152

1.493

60-64 Years

1.110

1.836

65 Years

0.595

1.773

0.961

1.773

66 Years

0.657

1.773

0.925

1.773

67 Years

0.668

1.773

0.925

1.773

68 Years

0.686

1.773

0.925

1.773

69 Years

0.714

1.773

0.925

1.773

70-74 Years

0.745

1.773

0.762

1.773

75-79 Years

0.737

1.773

0.737

1.773

80-84 Years

0.657

1.773

0.657

1.773

85-89 Years

0.545

1.773

0.545

1.773

90-94 Years

0.332

1.773

0.332

1.773

95 Years or Over

0.332

1.773

0.332

1.773

Notes:

1. The Part D Denominator used to calculate relative factors is $1,014.31. This Part D Denominator is based on

the combined PDP and MA-PD populations.

2. Originally Disabled is defined as originally entitled to Medicare by disability only (OREC = 1).

3. For new enrollees, the concurrent ESRD marker is defined as at least one month in the payment year of ESRD

status—dialysis, transplant, or post-graft.

Source: RTI Analysis of 100% 2014 PDE, 2013 Carrier NCH, 2013 Inpatient SAF, 2013 Outpatient SAF, 2014

HPMS, 2014 CME, 2013-2014 Denominator, Part D Intermediate File, and 2013 Medicare Advantage Diagnoses

File.

Table VI-7. RxHCC Model Relative Factors for New Enrollees, Low Income

Variable

Not

Concurrently

ESRD, Not

Originally

Disabled

Concurrently

ESRD, Not

Originally

Disabled

Originally

Disabled, Not

Concurrently

ESRD

Originally

Disabled,

Concurrently

ESRD

Female

0-34 Years

1.003

2.079

35-44 Years

1.494

2.079

45-54 Years

1.538

2.170

55-59 Years

1.428

2.224

60-64 Years

1.325

2.081

65 Years

0.924

2.084

1.186

2.084

66 Years

0.600

2.084

0.906

2.084

67 Years

0.600

2.084

0.906

2.084

68 Years

0.600

2.084

0.906

2.084

69 Years

0.600

2.084

0.906

2.084

70-74 Years

0.616

2.084

0.749

2.084

75-79 Years

0.683

2.084

0.683

2.084

80-84 Years

0.683

2.084

0.683

2.084

85-89 Years

0.683

2.084

0.683

2.084

90-94 Years

0.534

2.084

0.534

2.084

95 Years or Over

0.534

2.084

0.534

2.084

Male

0-34 Years

0.869

2.154

35-44 Years

1.265

2.125

45-54 Years

1.390

2.131

55-59 Years

1.251

1.968

60-64 Years

1.161

1.847

65 Years

0.831

1.921

0.978

1.921

66 Years

0.507

1.921

0.569

1.921

67 Years

0.507

1.921

0.569

1.921

68 Years

0.507

1.921

0.569

1.921

69 Years

0.507

1.921

0.569

1.921

70-74 Years

0.523

1.921

0.612

1.921

75-79 Years

0.536

1.921

0.536

1.921

80-84 Years

0.559

1.921

0.559

1.921

85-89 Years

0.487

1.921

0.487

1.921

90-94 Years

0.362

1.921

0.362

1.921

95 Years or Over

0.362

1.921

0.362

1.921

Notes:

1. The Part D Denominator used to calculate relative factors is $1,014.31. This Part D Denominator is based on

the combined PDP and MA-PD populations.

2. Originally Disabled is defined as originally entitled to Medicare by disability only (OREC = 1).

3. For new enrollees, the concurrent ESRD marker is defined as at least one month in the payment year of ESRD

status—dialysis, transplant, or post-graft.

Source: RTI Analysis of 100% 2014 PDE, 2013 Carrier NCH, 2013 Inpatient SAF, 2013 Outpatient SAF, 2014

HPMS, 2014 CME, 2013-2014 Denominator, Part D Intermediate File, and 2013 Medicare Advantage Diagnoses

File.

Table VI-8. RxHCC Model Relative Factors for New Enrollees, Institutional

Variable

Not

Concurrently

ESRD

Concurrently

ESRD

Female

0-34 Years

2.353

2.767

35-44 Years

2.353

2.767

45-54 Years

2.405

2.767

55-59 Years

2.400

2.767

60-64 Years

2.137

2.767

65 Years

2.280

2.767

66 Years

1.970

2.767

67 Years

1.970

2.767

68 Years

1.970

2.767

69 Years

1.970

2.767

70-74 Years

1.820

2.767

75-79 Years

1.545

2.767

80-84 Years

1.514

2.767

85-89 Years

1.321

2.767

90-94 Years

1.082

2.767

95 Years or Over

1.082

2.767

Male

0-34 Years

2.290

2.614

35-44 Years

2.692

2.614

45-54 Years

2.340

2.614

55-59 Years

2.124

2.614

60-64 Years

2.011

2.614

65 Years

2.002

2.614

66 Years

1.889

2.614

67 Years

1.889

2.614

68 Years

1.889

2.614

69 Years

1.889

2.614

70-74 Years

1.791

2.614

75-79 Years

1.676

2.614

80-84 Years

1.467

2.614

85-89 Years

1.343

2.614

90-94 Years

1.343

2.614

95 Years or Over

1.343

2.614

Notes:

1. The Part D Denominator used to calculate relative factors is $1,014.31. This Part D Denominator is based on

the combined PDP and MA-PD populations.

2. For new enrollees, the concurrent ESRD marker is defined as at least one month in the payment year of ESRD

status—dialysis, transplant, or post-graft.

Source: RTI Analysis of 100% 2014 PDE, 2013 Carrier NCH, 2013 Inpatient SAF, 2013 Outpatient SAF, 2014

HPMS, 2014 CME, 2013-2014 Denominator, Part D Intermediate File, and 2013 Medicare Advantage Diagnoses

File.

Table VI-9. List of Disease Hierarchies for RxHCC Model

Rx Hierarchical Condition

Category (RxHCC)

If the Disease Group is listed in this column…

…Then drop the Disease Group(s) listed in

this column

Rx Hierarchical Condition Category (RxHCC) LABEL

Chronic Myeloid Leukemia

16 ,17 ,18 ,19 ,96 ,98

Multiple Myeloma and Other Neoplastic Disorders

17 ,18 ,19 ,96 ,98

Secondary Cancers of Bone, Lung, Brain, and Other Specified Sites; Liver

Cancer

18 ,19

Lung, Kidney, and Other Cancers

Diabetes with Complications

Chronic Viral Hepatitis C

Chronic Pancreatitis

Psoriatic Arthropathy and Systemic Sclerosis

83 ,84 ,316

Rheumatoid Arthritis and Other Inflammatory Polyarthropathy

Sickle Cell Anemia

Myelodysplastic Syndromes and Myelofibrosis

111

Alzheimer's Disease

112

130

Schizophrenia

131 ,132 ,133 ,134 ,135 ,145 ,146 ,147 ,148

131

Bipolar Disorders

132 ,133 ,134 ,135

132

Major Depression

133 ,134 ,135

133

Specified Anxiety, Personality, and Behavior Disorders

134 ,135

134

Depression

135

145

Autism

133 ,134 ,135 ,146 ,147 ,148

146

Profound or Severe Intellectual Disability/Developmental Disorder

147 ,148

147

Moderate Intellectual Disability/Developmental Disorder

148

163

Intractable Epilepsy

164 ,165

164

Epilepsy and Other Seizure Disorders, Except Intractable Epilepsy

165

185

Primary Pulmonary Hypertension

186 ,187

186

Congestive Heart Failure

187

225

Cystic Fibrosis

226 ,227

226

Chronic Obstructive Pulmonary Disease and Asthma

227

260

Kidney Transplant Status

261 ,262 ,263 ,397

261

Dialysis Status

262 ,263

262

Chronic Kidney Disease Stage 5

263

395

Lung Transplant Status

396 ,397

396

Major Organ Transplant Status, Except Lung, Kidney, and Pancreas

397

How Payments are made with a Disease Hierarchy: EXAMPLE: If a beneficiary triggers Disease Groups 163

(Intractable Epilepsy) and 164 (Epilepsy and Other Seizure Disorders, Except Intractable Epilepsy), then DG 164

will be dropped. In other words, payment will always be associated with the DG in column 1, if a DG in column 3

also occurs during the same collection period. Therefore, the organization’s payment will be based on DG 163 rather

than DG 164.

Source: RTI International.

Attachment VII: CY 2017 Final Call Letter

CY 2017 Call Letter

Table of Contents

Attachment VII: CY 2017 Final Call Letter ..................................... 97

How to Use This Call Letter ............................................... 101

Section I – Parts C and D .................................................. 102

Annual Calendar ..................................................... 102

Incomplete and Inaccurate Bid Submissions ................................. 109

Incomplete Submissions ............................................. 109

Inaccurate Submissions ............................................. 110

Plan Corrections ..................................................... 110

Contracting Organizations with Ratings of Fewer Than Three Stars in Three Consecutive

Years – Timeline for Application of Termination Authority ................. 111

Enhancements to the 2017 Star Ratings and Beyond ........................... 112

Changes to Measures for 2017 ........................................ 113

Removal of Measures from Star Ratings ................................. 115

Data Integrity..................................................... 117

Impact of Socio-economic and Disability Status on Star Ratings ............... 118

CMS Research .................................................... 119

Interim Analytical Adjustments ....................................... 121

Categorical Adjustment Index Methodology .............................. 125

2017 Categorical Adjustment Index Values ............................... 128

2017 CMS Display Measures ......................................... 138

Forecasting to 2018 and Beyond ....................................... 140

New Measures ................................................. 140

Changes to Existing Star Ratings and Display Measures and Potential Future

Changes ................................................... 144

Measurement and Methodological Enhancements .......................... 150

Medicare Parts C & D Program Audits ..................................... 151

Proposed Release Date for the 2017 Part C and Part D Program Audit Protocols .... 151

Medicare Parts C & D Enforcement Actions ................................. 152

Civil Money Penalty (CMP) Calculation Methodology ...................... 152

Compliance and Enforcement Actions Related to Part D Auto-Forwards ......... 153

Enforcement Actions Related to One Third Financial Audit Findings ............ 154

Innovations in Health Plan Design ........................................ 154

Medicare Advantage Value-Based Insurance Design Model Test ............... 154

Part D Enhanced MTM Model ........................................ 155

Section II – Part C ....................................................... 156

Guidance on the Future of Provider Directory Requirements and Best Practices ....... 156

Overview of CY 2017 Benefits and Bid Review .............................. 158

Plans with Low Enrollment ............................................. 160

Meaningful Difference (Substantially Duplicative Plan Offerings) ................. 161

Total Beneficiary Cost (TBC) ........................................... 163

Maximum Out-of-Pocket (MOOP) Limits .................................. 167

Per Member Per Month (PMPM) Actuarial Equivalent (AE) Cost Sharing Limits ...... 168

Part C Cost Sharing Standards ........................................... 170

Part C Optional Supplemental Benefits ..................................... 174

Plan Benefit Package (PBP) Updates and Guidance ............................ 174

Projected Member Months ........................................... 174

Medical Services Performed in Multiple Health Care Settings ................. 174

Medicare-Covered Preventive Services .................................. 177

Policy Updates ...................................................... 178

Tiered Cost Sharing of Medical Benefits ................................. 178

Cost Sharing /Bundling and Facility .................................... 178

Interoperability-MA Plans and Contracted Providers ........................ 179

Alternative Payment Models (APMs) ................................... 180

Connecting Beneficiaries to Care ...................................... 181

Counseling and Related Support Services ................................ 181

Prohibition on Billing Medicare-Medicaid Enrollees for Medicare Cost-Sharing .... 181

Medicare Advantage Organization Responsibilities for Clinical Trials ........... 183

Dual-Eligible Special Needs Plans ........................................ 184

D-SNP Non-Renewals .............................................. 185

D-SNP Model of Care .............................................. 185

Section III – Part D ...................................................... 186

Formulary Submissions ................................................ 186

CY 2017 Formulary Submission Window ................................ 186

CY 2017 Formulary Reference File..................................... 186

Appropriate Utilization of Prior Authorization Requirements to Determine Part D

Drug Status ................................................ 188

Medication Therapy Management (MTM) .................................. 189

Annual MTM Eligibility Cost Threshold ................................. 189

Annual MTM Submission and Approval Process ........................... 189

Submission Requirements for Enhanced MTM Model Participants .............. 190

Part D Reporting Requirements for MTM ................................ 191

Improving Clinical Decision-Making for Certain Part D Coverage Determinations ..... 191

Access to Preferred Cost-Sharing Pharmacies ................................ 194

Part D Benefit Parameters for Non-Defined Standard Plans ...................... 195

Tier Labeling and Composition ........................................ 196

Benefit Review ................................................... 198

Specialty Tiers .................................................... 202

Generic Tier $0 Copay Plans ......................................... 203

Part D Employer Group Waiver Plans (EGWPs) .............................. 204

Improving Drug Utilization Review Controls in Medicare Part D .................. 206

New Expectation for Entering Opioid Point of Sale Claims Edit Information in the

Medicare Advantage and Prescription Drug System (MARx) ............ 207

Results of Overutilization Policy....................................... 208

Updates to Overutilization Policy for Contract Year (CY) 2017 ................... 209

Discontinuation of APAP Reporting through the OMS....................... 209

Opioids ......................................................... 209

Compliance Activities and Changes to the OMS Opioid Overutilization

Methodology ............................................... 209

CMS’ Expectation for Formulary-Level Cumulative Opioid POS Edits in CY

2017 ...................................................... 212

Concurrent Use of Opioids and Buprenorphine ......................... 214

Concurrent Use of Opioids and Benzodiazepines ........................ 214

Access to Medication-Assisted Treatment ............................. 215

A Note about the Centers for Disease Control and Prevention (CDC) Guideline

for Prescribing Opioids for Chronic Pain ........................... 216

Point of Sale Pilot .................................................... 217

Extended Days’ Supply and First Fill Quantity Limits .......................... 220

Establishing Mail Order Protocols for Urgent Need Fills to Prevent Gaps in Therapy ... 221

Coordination of Benefits (COB) User Fee ................................... 222

Part D Low Enrollment ................................................ 222

Section IV – Medicare-Medicaid Plans........................................ 223

Medicare-Medicaid Plan Annual Requirements and Timeline for CY 2017 .......... 223

Network Adequacy Determinations..................................... 224

Model of Care (MOC) .............................................. 224

Formulary and Supplemental Drug Files ................................. 225

Plan Benefit Package (PBP) .......................................... 226

Past Performance Information and Eligibility for Passive and Opt-in Enrollment .... 227

Appendix 1 – Contract Year 2017 Guidance for Prescription Drug Plan (PDP) Renewals and

Non-Renewals (Updated) ............................................ 228

1. New Plan Added ................................................... 229

2. Renewal Plan ...................................................... 229

3. Consolidated Renewal Plan ........................................... 229

4. Renewal Plan with a Service Area Expansion (“800 Series” EGWPs only) ........ 230

5. Terminated Plan (Non-Renewal)........................................ 230

100

6. Consolidated Plans under a Parent Organization ............................ 230

Appendix 2 – Contract Year 2017 Guidance for Prescription Drug Plan (PDP) Renewals and

Non-Renewals Table ............................................... 232

Appendix 3 – Improvement Measures (Part C & D) .............................. 237

Appendix 4 - 2017 Draft Call Letter Star Ratings Summary of Comments and Responses .. 240

Appendix 5 – Adjusted Measure Selection Criteria ............................... 250

101

How to Use This Call Letter

The 2017 Call Letter contains information on the Part C and Part D programs that Medicare

Advantage Organizations (MAOs), Part D sponsors, and Medicare-Medicaid Plans (MMPs) need

to take into consideration in preparing their 2017 bids.

CMS has designed the policies contained in this Call Letter to improve the overall management

of the Medicare Advantage and Prescription Drug programs with four major outcomes in mind.

These outcomes are: 1) improvement in quality of care for individuals, 2) promotion of

alternative payment models, 3) program integrity and beneficiary/tax-payer value, and 4)

improvement in beneficiary experience. This year, to achieve these outcomes, CMS’s Call Letter

activities follow four major themes: improving bid review, decreasing costs, promoting creative

benefit designs, and improving beneficiary protections.

If you have questions concerning this Call Letter, please contact: Wanda Pigatt-Canty at

[email protected] (Part C issues), Lucia Patrone at [email protected]

(Part D issues) and [email protected] (MMP issues).

102

Section I – Parts C and D

Annual Calendar

Below is a combined calendar listing of side-by-side key dates and timelines for

operational activities that pertain to Medicare Advantage (MA), Medicare Advantage-

Prescription Drug) (MA-PD), Prescription Drug Plan (PDP), Medicare-Medicaid Plan

(MMP), and cost-based plans. The calendar provides important operational dates for

all organizations such as the date bids are due to CMS, the date that organizations

must inform CMS of their contract non-renewal, and dates for beneficiary mailings.

2017*Note: The dates listed under Part C include MA and MA-PD plans.

The

dates listed under Part D also apply to MA and cost-based plans

offering a Part D benefit.

*Part

Cost

MMP

January 12, 2016

Release of Contract Year CY 2017 Initial and Service Area

Applications for MA/MA-PD/PDP, SNP, EGWP, 1876

Cost Plan Expansions













January 12, 2016

MOC Renewal Submission period begins for SNP and

MMP MOCs with approvals ending at the end of CY 2016







January 12 & 14,

2016

Industry Training and Technical Assistance for CY 2017

Model

of Care (MOC) Submissions







January 13 & 20,

2016

Industry training on 2017 Applications













January 15, 2016

Deadline for D-SNPs meeting a high level of integration, as

determined by CMS, to submit a request to CMS to offer

additional supplemental benefits





February 17, 2016

CY 2017 Initial and Service Area Expansion Application

for MA/MA-PD/PDP, SNP, EGWP, 1876 Cost Plan

Expansion are due in HPMS by 8pm EST













February 17, 2016

MOC Renewals Submissions for SNP and MMP MOCs

with approvals ending at the end of CY 2016 are due in

HPMS by 8pm EST.







Late February,

2016

Submission of meaningful use HITECH attestation for

qualifying MA Employer Plans and MA-affiliated hospitals





Early-Mid

February,

2016

D-SNPs that requested to offer additional supplemental

benefits

are notified by CMS as to whether they meet

required

qualifications



February 2016

CMS notifies MA, MA-PDs and PDPs regarding non-

renewal of their contract(s) for CY 2017 due to consistently

low star ratings





February 2016

CMS releases guidance concerning updates to Parent

Organization designations in HPMS

















March 17, 2016

Parent Organization Update requests from sponsors due to

CMS

(instructional memo released in February 2016)













Mid-Late March,

2016

Release of CY 2017 Formulary Training Video and 2017

Formulary Reference File (FRF)

















March 25, 2016

Release of the Fiscal Soundness Module in HPMS













March/April, 2016

CMS coordinates with MAOs and PDP Sponsors to resolve

low

enrollment issues for CY 2017













103

2017*Note: The dates listed under Part C include MA and MA-PD plans.

The

dates listed under Part D also apply to MA and cost-based plans

offering a Part D benefit.

*Part

Cost

MMP

Early April, 2016

CY 2017 Out Of Pocket Cost (OOPC) model and OOPC

estimates for each plan made available to MAOs, 1876 Cost

Plans submitting MA conversion bids, and Part D

Category

%LIS/DE

Decile

%Disability

Quintile

CAI Value

−0.015566

2-9

−0.006181

1-6

1-5

3-5

0.002408

7-8

2-3

0.013514

1-4

0.024680

2-4

6-8

0.028531

0.054610

0.081245

Tables 4 and 5 provide the range of the percentages that correspond to the LIS/DE deciles and

disability quintiles for the initial categories for the determination of the CAI values for the Part C

Summary.

131

Table 4: Categorization of MA Contracts into LIS/DE Deciles for the Part C Summary

Rating

LIS/DE Decile

Percentage of Contract’s LIS/DE Beneficiaries

0.00% to less than 8.72%

8.72% to less than 12.38%

12.38% to less than 15.56%

15.56% to less than 18.81%

18.81% to less than 23.56%

23.56% to less than 29.84%

29.84% to less than 45.43%

45.43% to less than 71.92%

71.92% to less than 99.01%

99.01% to 100.00%

Table 5: Categorization of MA Contracts into Disability Quintiles for the Part C Summary

Rating

Disability Quintile

Percentage of Contract’s Disabled Beneficiaries

0.00% to less than 8.81%

8.81% to less than 12.69%

12.69% to less than 18.69%

18.69% to less than 26.30%

26.30% to 100.00%

Table 6 provides the description of each of the final adjustment categories for the Part C

summary rating and the associated value of the CAI for each final adjustment category.

132

Table 6: Final Adjustment Categories and CAI Values for the Part C Summary Rating

Final Adjustment

Category

%LIS/DE

Decile

%Disability

Quintile

CAI Value

−0.017914

2-8

−0.002435

1-6

1-5

3-5

0.005340

7-8

2-3

0.010543

9-10

1-3

0.014127

6-10

6-8

0.020904

0.032875

0.046083

Tables 7 and 8 below provide the range of the percentages that correspond to the LIS/DE deciles

and the disability quintiles for the initial categories for the determination of the CAI values for

the Part D summary rating for MA-PDs.

Table 7: Categorization of MA-PD Contracts into LIS/DE Deciles for the Part D Summary

Rating

LIS/DE Decile

Percentage of Contract’s LIS/DE Beneficiaries

0.00% to less than 8.94%

8.94% to less than 13.01%

13.01% to less than 16.11%

16.11% to less than 20.43%

20.43% to less than 26.25%

26.25% to less than 32.62%

32.62% to less than 47.87%

47.87% to less than 78.88%

78.88% to less than 99.60%

99.60% to 100.00%

133

Table 8: Categorization of MA-PD Contracts into Disability Quintiles for the Part D

Summary Rating

Disability Quintile

Percentage of Contract’s Disabled Beneficiaries

0.00% to less than 9.39%

9.39% to less than 13.58%

13.58% to less than 19.95%

19.95% to less than 29.71%

29.71% to 100.00%

Table 9 provides the description of each of the final adjustment categories for the Part D

summary rating for MA-PDs and the associated values of the CAI for each final adjustment

category.

Table 9: Final Adjustment Categories and CAI Values for the Part D Summary Rating for

MA-PDs

Final Adjustment Category

%LIS/DE Deciles

%Disability Quintiles

CAI Value

1-5

1-2

−0.007435

1-5

3-5

−0.002020

6-10

1-3

0.000944

6-10

0.027383

6-8

0.052087

0.088059

0.091937

Tables 10 and 11 provide the range of the percentages that correspond to the LIS/DE and

disability quartiles for the initial categories for the determination of the CAI values for the Part D

summary rating for PDPs. Quartiles are used for both dimensions (LIS/DE and disability) due to

the limited number of PDPs as compared to MA contracts.

134

Table 10: Categorization of PDP Contracts into LIS/DE Quartiles for the Part D Summary

Rating

LIS/DE Quartile

Percentage of Contract’s LIS/DE Beneficiaries

0.00% to less than 3.79%

3.79% to less than 11.41%

11.41% to less than 49.43%

49.43% to 100.00%

Table 11: Categorization of PDP Contracts into Disability Quartiles for the Part D

Summary Rating

Disability Quartile

Percentage of Contract’s Disabled Beneficiaries

0.00% to less than 5.37%

5.37% to less than 9.98%

9.98% to less than 28.32%

28.32% to 100.00%

135

Table 12 provides the description of each of the final adjustment categories for the Part D

summary rating for PDPs and the associated value of the CAI per final adjustment category.

Please note that the CAI values for the Part D summary rating for PDPs are different from the

CAI values for the Part D summary rating for MA contracts.

Categories were chosen to enforce monotonicity and to yield a minimum of 10 contracts per final

adjustment category. There are three final adjustment categories for PDPs for the Part D

summary rating.

Table 12: Final Adjustment Categories and CAI Values for the Part D Summary Rating

for PDPs

Final Adjustment Category

%LIS/DE Quartiles

%Disability Quartiles

CAI Value

1-2

1-4

−0.108739

3-4

1-2

3-4

−0.022527

0.127092

Additional response to address lack of an LIS indicator for enrollees in Puerto Rico

Under statute, aspects of the Medicare and Medicaid programs are implemented differently in

Puerto Rico. We are cognizant of the particular challenges in not only Puerto Rico, but in all

territories without LIS and propose an additional analytical adjustment for contracts serving

these areas exclusively to address the fact that the Part D LIS is not available there.

Notably, Puerto Rican beneficiaries are not eligible for LIS, which is an important element of the

methodology for the analytical adjustment. (Beneficiaries in the 50 states and DC are eligible for

LIS if their income is less than 150% of the Federal Poverty Level (FPL) and they meet the

applicable resource requirement.) In the draft Call Letter, CMS proposed implementing an

additional adjustment to make the proposed CAI analytical adjustment equitable for contracts in

Puerto Rico. The additional adjustment would be used to identify beneficiaries in Puerto Rico’s

contracts whose incomes would result in an LIS designation in the 50 states and DC. Although

LIS in the states depends on both income and resources, a data source for resource information

for PR enrollees is not available.

Representatives of and advocates for Puerto Rico and MA organizations have expressed

additional concerns about the sensitivity of the Star Ratings in responses to the 2016 draft Call

Letter and the Request for Comments released in 2015. CMS responded in the 2017 draft Call

Letter by proposing two additional provisions in the 2017 Star Ratings to specifically address

136

these concerns. CMS proposed for contracts that are solely serving beneficiaries in Puerto Rico:

(1) the use of an LIS indicator that would be used in conjunction with the CAI analytical

adjustment, and (2) a differentiated weighting scheme for the Part D medication adherence

measures in the calculation of the overall and summary Star Ratings.

In order to determine the LIS indicator for contracts in Puerto Rico, CMS must use a data source

that is readily available at this time. For the 2017 Star Ratings, CMS proposed employing the

contract-specific proportion of DE beneficiaries in Puerto Rico calculated using the rating year

enrollment data and the overall mean proportion of beneficiaries at or below 150% of the FPL in

Puerto Rico based on the American Community Survey (ACS). The data source for the LIS

indicator must provide valid, reliable estimates for use in the Star Ratings. We are cognizant of

the statutory differences in the implementation of the Medicaid Program in Puerto Rico

including the eligibility for DE status that is limited to a lower percentage of the FPL than in the

states due to the cap on the Federal Medical Assistance Percentage (FMAP) in the territories.

The contract-level modified LIS/DE proportion for Puerto Rico was proposed to be developed

from two sources of information: (1) the overall proportion of beneficiaries in Puerto Rico with

incomes less than 150% of the FPL and (2) each contract’s proportion of DE beneficiaries using

the most current data available. A linear regression model using the most recent data would be

developed to predict the percentage of LIS/DE in a contract using the percentage of DE using

MA contracts in the 10 states with the highest poverty.

The parameters from the model would

then be used to estimate the percentage LIS/DE for each Puerto Rican contract (i.e., contracts

with a service area only in Puerto Rico) from the contract-specific proportion DE. These

estimates then would be adjusted to reflect the higher overall level of poverty in Puerto Rico by

using data from the ACS. Using the model developed, each contract’s proportion of DE

beneficiaries in Puerto Rico would have a corresponding proportion of LIS to create a contract-

level measure of LIS/DE percentage to be used in the CAI.

CMS also recognizes the additional challenge unique to Puerto Rico related to the medication

adherence measures in the Star Ratings Program. It has been shown that beneficiaries’ out-of-

pocket costs may adversely affect medication adherence, which presents an additional barrier for

Puerto Rican contracts serving beneficiaries whose incomes would result in an LIS designation

in the states. In the past, CMS has considered reducing the weights for the Medication

Adherence measures, but in general such changes were not supported, and ultimately CMS

decided not to move forward with these proposals.

The preliminary modelling suggested employing the 50 states and the District of Columbia results in very high accuracy in

predicting contract-level LIS from contract-level DE. There is an insignificant impact on the model coefficients when restricting

the data source to the lower-income subsets of states. CMS is moving forward using the percentage of DE using MA contracts in

the 10 states with the highest poverty to create a contract-level measure of LIS/DE percentage to be used in the CAI. The states

used for the development of the model are: Mississippi, New Mexico, Louisiana, Arkansas, Georgia, DC, Kentucky, Alabama,

Arizona, and South Carolina. The list of states would be updated each year in the Technical Notes.

137

We commend the Puerto Rican contracts on their improved performance overall across the 2016

Star Ratings and in particular the Part D Medication Adherence measures. This year, CMS

proposed an additional option to the LIS/DE adjustment noted above, one that is similar to a

previous proposal, but limited to MAO and PDP contracts that operate solely in Puerto Rico or

other non-continental territories in order to address the unique challenges of improving

medication adherence in those areas. For the 2017 Star Ratings, CMS proposed to reduce the

weights of the three Part D Medication Adherence measures to zero for the calculation of the

overall and summary ratings, and retain the values and the associated weight of the three

adherence measures for the calculation of the improvement factor.

The summary of the simulations provided in February 2016 in the CY 2017 draft Call Letter and

the individual contract simulations provided through HPMS used only income, not resource,

information to simulate the LIS indicator as described above. The value for the LIS indicator in

Puerto Rico (determined through modeling) was used in the application of the CAI analytical

adjustment for the overall and summary Star Ratings.

Using both the LIS indicator and CAI

for contracts in Puerto Rico resulted in one contract realizing an increase in its overall Star

Rating by half a star. (With IS, one contract would have experienced a decline in its overall

Rating by half a star). There were no changes in the Part C or Part D summary ratings for Puerto

Rican contracts for the CAI simulation. (For the IS simulation, one MA Puerto Rican contract

would experience a decline by half a star in its Part C summary rating and another MA contract

would experience a decline by half a star in its Part D summary rating. )

The simulations of the down weighting of the adherence measures for Puerto Rico resulted in

four MA-PDs increasing by a half-star in its overall rating, independent of making an SES

adjustment. With the down weighting of the adherence measures, one PDP increased one star in

its Part D summary rating.

Overall, the draft Call Letter commenters expressed appreciation for acknowledging the unique

challenges of Puerto Rico contacts and widespread support for the estimated LIS indicator and,

the reduction in the weights for the three Part D adherence measures. Based on these comments,

CMS will implement the interim estimates for the LIS indicator using modelling based on the 10

states with the highest level of poverty for the 2017 Star Ratings. In addition, for the 2017

ratings year, CMS will employ the data source as outlined in the draft Call Letter (i.e., the ACS)

instead of waiting for the availability of a different data source. CMS has explored other sources

of data for use in determining the LIS indicator for the upcoming rating year, but at this time no

other source has been identified. We continue to encourage stakeholders in Puerto Rico to

provide data appropriate for determining the LIS indicator.

Currently, none of the territories, except Puerto Rico, have contracts that serve exclusively beneficiaries within the territory.

The proposed changes discussed in this section will also apply to other territories without the LIS if those contracts serve

exclusively beneficiaries in the territory.

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CMS will also move forward to reduce the weights of the three Part D Medication Adherence

measures to zero for the calculation of the overall and summary ratings for contacts operating

solely in Puerto Rico. Further, to continue to create incentives to improve medication

adherences in Puerto Rico, CMS will retain the adherence measures in the determination of the

improvement measure.

2017 CMS Display Measures

Display measures on CMS.gov are not part of the Star Ratings. These may include measures that

have been transitioned from the Star Ratings, new measures that are being tested before inclusion

into the Star Ratings, or measures displayed for informational purposes. Similar to the process

used in 2016, organizations and sponsors will have the opportunity to preview their data for the

display measures prior to release on CMS’ website. Data for measures moved to the display

page will continue to be collected and monitored; poor scores on display measures may reveal

underlying compliance and performance issues that are subject to enforcement actions by CMS.

It is expected that all 2016 display measures will continue to be shown on CMS.gov in 2017.

CMS will continue to provide advance notice regarding measures considered for implementation

as future Star Ratings measures. Other display measures may be provided as information only.

Below are a number of revised or new measures for the 2017 display page.

1. Timely Receipt of Case Files for Appeals (Part D) & Timely Effectuation of Appeals

(Part D). For the 2016 display measures, the data time frame for both measures was January

1, 2015 – June 30, 2015. CMS will change the data time frame from the first six months of

the current year to January 1 – December 31 of the previous year. For example, the 2017

display measures will be based on IRE data from January 1, 2015-December 31, 2015. This

change will allow the appeal display measures to match the same timeframe used for the Part

D Appeal Star Ratings measures.

2. Medication Reconciliation Post Discharge (Part C). The Medication Reconciliation Post-

Discharge (MRP) measure assesses the percentage of discharges from acute or non-acute

inpatient facilities for members 66 years of age and older for whom medications were

reconciled within 30 days of discharge. This measure has been collected in SNP HEDIS

since 2008. NCQA made two changes: 1) expanded the coverage on this measure from

Medicare SNPs only to all MA plans; and 2) expanded the age range to members 18 years

and older. Both of these changes for HEDIS 2016 are seen as important steps to measure the

quality of care coordination post-discharge for MA beneficiaries as well as ensuring patient

safety. CMS will include this measure on the 2017 display page and in the 2018 Star

Ratings. Please refer to the NCQA HEDIS 2016 Technical Specifications for Health Plans

Volume 2 for measure construction and technical specifications.

3. Hospitalizations for Potentially Preventable Complications (Part C). NCQA added to

HEDIS 2016 a risk-adjusted measure of hospitalization for ambulatory care sensitive

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conditions based on the NQF-endorsed Prevention Quality Indicators (PQI), developed by

AHRQ. This measure assesses the rate of hospitalization for complications of chronic and

acute ambulatory care-sensitive conditions. The measure is therefore an important indicator

of care coordination. CMS will include this measure on the 2017 display page and in the

2018 Star Ratings unless there are data issues with the initial data collection. Please refer to

the NCQA HEDIS 2016 Technical Specifications for Health Plans Volume 2 for measure

construction and technical specifications.

4. Statin Therapy for Patients with Cardiovascular Disease (Part C). NCQA has added two

sets of statin therapy measures to HEDIS aligned with the 2013 ACC/AHA blood cholesterol

guidelines. These measures are focused on two of the major statin benefit groups described

in the guidelines: patients with clinical atherosclerotic cardiovascular disease and patients

with diabetes. Since some of these HEDIS measures overlap with the measures developed

by the PQA, CMS will include only one of the HEDIS measures on the 2017 display page

where it will remain for two years. After gaining experience with the new treatment

guidelines and metric, we plan to include this measure in the 2019 Star Ratings. This

measure focuses on statin therapy for patients with cardiovascular disease. It is the

percentage of males 21 to 75 years of age and females 40 to 75 years of age who were

identified as having clinical atherosclerotic cardiovascular disease and were dispensed at

least one high or moderate-intensity statin medication during the measurement year.

5. Asthma Measures (Part C). NCQA has expanded its asthma measures to include older

adults. HEDIS 2016 includes two measures for older adults. Medication Management for

People with Asthma is the percentage of members 5 to 85 years of age who were identified

as having persistent asthma and were dispensed appropriate medications that they remained

on during the treatment period (i.e., first prescription date through end of measurement year).

The Asthma Medication Ratio is the percentage of members who were identified as having

persistent asthma and had a ratio of controller medications to total asthma medications of

0.50 or greater during the measurement year. CMS has shared all comments received with

NCQA and will continue to monitor the development of these measures. CMS will include

these on the 2017 and 2018 display page and will consider these for inclusion in Star Ratings

for future years.

6. Statin Use in Persons with Diabetes (SUPD) (Part D). This new PQA-endorsed measure,

Statin Use in Persons with Diabetes (SUPD), calculates the percentage of patients between

40 and 75 years old who received at least two diabetes medication fills and also received a

statin medication during the measurement period. Beneficiaries in hospice according to the

Enrollment Database (EDB) will be excluded from the denominator of the SUPD measure

for the entire year. Part D sponsors have received year of service 2015 SUPD measure

reports on a monthly basis through the Patient Safety Analysis website, and we will add the

SUPD measure to the 2017 display page (using 2015 data) where it will remain for two

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years. After gaining experience with the new treatment guidelines and metric, we plan to add

the SUPD measure to the 2019 Star Ratings (using 2017 data).

Lastly, in January 2015, the PQA’s Quality Metrics Expert Panel (QMEP) considered

whether beneficiaries taking proprotein convertase subtilisin/kexin type 9 (PCSK-9)

inhibitors should be excluded from the measure denominator. At this time, the QMEP

decided not to exclude beneficiaries taking PCSK-9 inhibitors from SUPD measure

denominator. It is our understanding that the PQA will review the measure specifications

again when more information is available about this new therapeutic class.

Forecasting to 2018 and Beyond

The following describes changes to existing measures and potential new measures. CMS will

also monitor any additional measures developed by NCQA or PQA for potential incorporation

into the Star Ratings for 2018 or later.

New Measures

The section above describes a number of new measures under consideration for the 2018 Star

Ratings that will be reported as 2017 display measures. The following are additional measures

under consideration for the Star Ratings or display measures for 2018 and beyond.

1. Care Coordination Measures (Part C). Effective care coordination contributes to improved

health outcomes. CMS believes that 5-star contracts perform well on our Star Ratings

measures because they understand how to effectively coordinate care for their enrollees. Our

assumption about plan care coordination activities, however, is based largely on anecdote and

discussions with high performing plans, as well as on data we collect from CAHPS surveys,

which reflect enrollees’ experiences with the care they receive.

CMS is working to expand efforts in this area. To identify potential new care coordination

measures, CMS has awarded two contracts to conduct targeted research, extensive literature

reviews, and data analysis, and to engage in discussions with expert panels and high

performing plans. As part of this effort, the contractors are using various data sources such

as administrative data, encounter data, Part D data and medical record reviews. We are

considering whether the measures should be focused on subgroups of MA enrollees or all

MA enrollees. We are also considering the activities that best represent care coordination,

such as ensuring seamless transitions across settings, appropriate follow up after inpatient

and emergency department visits, communication across providers, and comprehensive

assessments, as well as the relationship between the plan and provider in care coordination

activities. CMS continues to welcome comments on measures that could be developed using

MA encounter data. We will provide updates to the industry as this work progresses.

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2. Depression Measures (Part C). NCQA has adapted a provider-level depression outcome

measure developed by Minnesota Community Measurement for use in HEDIS. Depression

Remission or Response in Adolescents and Adults (DRR) uses a patient-reported outcome

measure, the PHQ-9 tool, to assess whether patients with depression have achieved remission

or have an improvement in their symptoms. The measure assesses the percentage of

individuals age 12 and older with depression and an elevated PHQ-9 score (greater than 9)

who achieve a PHQ-9 score of less than 5 at six months or have a 50% reduction in their

PHQ-9 score. This measure also uses a new data collection methodology for HEDIS, relying

on data coming from electronic clinical data systems (e.g., EHRs, clinical registries, case

management records). If approved, the new measure would be published in HEDIS 2017.

CMS shared with NCQA comments received as part of our Request for Comments and draft

Call Letter on this topic and will continue to monitor the development of this measure.

3. Appropriate Pain Management (Part C). NCQA is exploring opportunities to develop a

new measure(s) focusing on appropriate pain management. The intent is to assess the quality

of pain management and treatment. There is no definite timeline established for the

development of this measure.

4. Use of Opioids from Multiple Providers or at High Dosage in Persons without Cancer

(Part D). In the 2016 Call Letter, we noted that three opioid overutilization measures were

in development by the PQA. We further stated that if these measures were endorsed by the

PQA prior to the 2017 bid deadline in June 2016 that we may adopt them as future display

measures or alternatively use them in the Overutilization Monitoring System (OMS). The

measures were endorsed by the PQA in May 2015.

PQA’s three opioid measures examine multi-provider, high dosage opioid use among

individuals 18 years and older without cancer and not in hospice care.

Measure 1 (Opioid High Dosage): The proportion (XX out of 1,000) of individuals without

cancer or hospice receiving prescriptions for opioids with a daily dosage greater than 120 mg

morphine equivalent dose (MED) for 90 consecutive days or longer.

Measure 2 (Multiple Prescribers and Multiple Pharmacies): The proportion (XX out of

1,000) of individuals without cancer or hospice receiving prescriptions for opioids from four

(4) or more prescribers AND four (4) or more pharmacies.

Measure 3 (Multi-Provider, High Dosage): The proportion (XX out of 1,000) of individuals

without cancer or hospice receiving prescriptions for opioids with a daily dosage greater than

120 mg morphine equivalent dose (MED) for 90 consecutive days or longer, AND who

received opioid prescriptions from four (4) or more prescribers AND four (4) or more

pharmacies.

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We tested the measures using the PQA specifications. We will develop new patient safety

reports for the three opioid overutilization measures to provide to Part D sponsors on a

monthly basis through the Patient Safety Analysis website, similar to the other patient safety

measures. The website also includes the OMS. The reports will allow sponsors to track their

performance over time and allow for contract level trending and outlier analyses. Reports

will be distributed beginning with 2016 dates of service. After at least one year to gain

experience with the measures we will add these three measures to the 2019 Part D display

page (using 2017 data). We are not adding these measures to the Star Ratings at this time

due to concerns (1) about the current lack of consensus clinical guidelines for the use of

opioids to treat chronic, non-cancer pain and potential exceptions due to medical necessity

and (2) pending additional analysis on diagnosis data sources, such as newly available

encounter data for Medicare Part C and resolving timing issues of RAPS file updates, which

are used to identify exclusions for certain cancer conditions.

These measures were developed and endorsed by the PQA prior to publication of the CDC

Guideline for Prescribing Opioids for Chronic Pain. We encourage the PQA to review the

CDC Guideline and consider potential updates to the measure specifications as applicable.

Additionally, NCQA is adapting the three opioid overuse measures developed by the PQA

for potential use in HEDIS.

5. Antipsychotic Use in Persons with Dementia (APD) (Part D). CMS has been particularly

concerned with the unnecessary use of antipsychotic drugs in nursing homes and, as a result,

has pursued strategies to increase awareness of antipsychotic use in long term care settings.

In 2013, we began to calculate a general atypical antipsychotic utilization rate, called Rate of

Chronic Use of Atypical Antipsychotics by Elderly Beneficiaries in Nursing Homes, for

inclusion in the Part D display measures. The average rates decreased from approximately

24.0% in 2011 to 21.4% in 2013.

There continues to be increased attention on this important issue. The United States

Government Accountability Office (GAO) released a report

in January 2015 describing the

inappropriate use of antipsychotics in Part D beneficiaries with dementia, in both community

(i.e., outside of nursing homes) and long-stay nursing home residents during 2012, with

recommendations for CMS to address this problem. The GAO conducted this study due to

concerns raised regarding the use of antipsychotic drugs to address the behavioral symptoms

associated with dementia, the FDA’s boxed warning that these drugs may cause an increased

risk of death when used by older adults with dementia, and because the drugs are not

approved for this use.

Antipsychotic Drug Use: HHS Has Initiatives to Reduce Use among Older Adults in Nursing Homes, but Should Expand

Efforts to Other Settings. http://www.gao.gov/products/GAO-15-211. GAO-15-211: Published: Jan 30, 2015. Publicly Released:

March 2, 2015.

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In addition, the PQA endorsed the measure, Antipsychotic Use in Persons with Dementia

(APD). This provides CMS with a new measure developed through a consensus process to

monitor the inappropriate use of antipsychotics in both the nursing home and community

settings across Medicare Part D plans.

We tested this measure based on the PQA specifications. We calculated the APD measure

rate in aggregate for all contracts, MA-PDs, and PDPs, and at the individual contract level,

for all beneficiaries, community-only residents (never a nursing home resident), and both

short-term and long-term nursing home residents that met the inclusion and exclusion

criteria. Beneficiaries were identified as long-stay nursing home residents if they had stays

greater than 100 cumulative days in a nursing home during the year based data in the Long

Term Care Minimum Data Set (MDS). Each beneficiary was counted in only one category

for the entire measurement period within a contract and not considered separately for time

spent in different settings (e.g., a beneficiary who experienced both short-term and long-term

nursing home stays was included only in the long-term category).

To identify the numerator and denominator populations, we used diagnosis data obtained

from inpatient (IP), outpatient (OP), and carrier claims from the Common Working File

(CWF) and RxHCCs from the RAPS. OP and Carrier claims are available for PDP contracts

only. We also adjusted rates based on the number of months beneficiaries are enrolled in

each Part D contract (i.e., member-years adjustment).

We conducted reliability testing using mixed effect logistic regression with varying intercept.

The testing results indicate that the rate variations at the contract level are statistically

significant, providing evidence that the measure is reliable.

A report, Antipsychotic Use in Part D Enrollees with Dementia, which summarizes the

testing results, is posted on CMS.gov at: https://www.cms.gov/Medicare/Prescription-Drug-

Coverage/PrescriptionDrugCovGenIn/Downloads/Antipsychotic-Use-in-Part-D-Enrollees-

with-Dementia-v12092015.pdf.

We will develop new patient safety APD measure reports to provide to Part D sponsors on a

monthly basis through the Patient Safety Analysis website beginning with year of service

2016. We will add the overall APD measure plus breakout rates for community-only

residents, short-term nursing home residents, and long-term nursing home residents to the

2018 Part D display measure set (using 2016 data) to continue to draw attention to the

inappropriate use of antipsychotics in persons with dementia without an appropriate mental

health diagnosis in both the community and nursing home settings. The APD measure will

replace the Rate of Chronic Use of Atypical Antipsychotics by Elderly Beneficiaries in

Nursing Homes display measure. However, we do not propose adding this measure to the

Star Ratings pending additional research on diagnosis data sources, such as newly available

encounter data for Medicare Part C and resolving timing issues of RAPS file updates.

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Changes to Existing Star Ratings and Display Measures and Potential Future

Changes

Colorectal Cancer Screening (Part C Star Rating)

. The Colorectal Cancer Screening

(COL) measure assesses the percentage of adults 50-75 years of age who had appropriate

screening for colorectal cancer. This measure is based on the U.S. Preventive Services Task

Force (USPSTF) guideline on colorectal cancer screening in adults age 50-75. NCQA is

monitoring updates to the guideline as the USPSTF has recently released a draft

recommendation statement. NCQA will consider revisions to the COL measure once the

USPSTF final recommendation statement is published. It is anticipated that the final release

of recommendations will not occur until late 2016.

Fall Risk Management (Part C Star Rating).

The Fall Risk Management (FRM) measure,

collected through the Health Outcomes Survey, consists of the following two indicators: 1)

Discussing Fall Risk assesses the percentage of Medicare members 75 years of age and older

or 65-74 years of age with a balance or walking problem or fall in the past 12 months who

discussed falls or problems with balance or walking with their current practitioner; and 2)

Managing Fall Risk assesses the percentage of Medicare members 65 years of age and older

who had a fall or had problems with balance or walking in the past 12 months and received

fall risk intervention from their current practitioner (defined as suggesting use of a cane or

walker, a vision or hearing test, physical therapy or exercise, or taking of a postural blood

pressure). NCQA is currently re-evaluating this measure to align with the most current U.S.

Preventive Services Task Force (USPSTF) guidelines. NCQA is proposing to 1) revise the

denominator in the Discussing Fall Risk indicator to include all Medicare members age 65

and older and 2) revise the numerator for the Managing Fall Risk indicator to include plan

members who report having had an intervention. The survey question will list examples of

interventions to prompt survey respondents to recall if they received any fall risk

management intervention from their provider. These proposed changes, if approved, would

be published in HEDIS 2017 or HEDIS 2018.

Pneumococcal Vaccination Status for Older Adults (Part C Display).

The Pneumococcal

Vaccination Status for Older Adults (PNU) measure, collected through the Medicare CAHPS

survey, assesses the percentage of Medicare members 65 years of age and older who have

ever received a pneumococcal vaccination. In 2014, The Advisory Committee on

Immunization Practices (ACIP) released new recommendations that all adults 65 years of age

and older should receive sequential administration of both PCV13 and PPSV23. NCQA is

considering changes to the measure to align with the most current guidelines. Specifically,

they are evaluating the feasibility of developing a new measure of pneumococcal vaccination

based on alternative data sources, such as administrative claims, state immunization registries

and electronic health records. In the meantime they recommend the following wording

changes to the existing CAHPS measure: “Have you ever had one or more pneumonia shots?

Two shots are usually given in a person’s lifetime and these are different from a flu shot. It is

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also called the pneumococcal vaccine.” Pending OMB approval the new wording will be

utilized for 2017 CAHPS implementation. This measure is on the CMS display page.

CAHPS measures (Part C & D).

Patient experience surveys such as CAHPS focus on how

patients experienced or perceived key aspects of their care, not how satisfied they were with

their care. CAHPS surveys follow scientific principles in survey design and development.

The surveys are designed to reliably assess the experiences of a large sample of

patients. They use standardized questions and data collection protocols to ensure that

information can be compared across health care settings. CAHPS surveys are developed

with broad stakeholder input, including a public solicitation of measures and a technical

expert panel, and the opportunity for anyone to comment on the surveys through multiple

public comment periods through the Federal Register.

The current MA & PDP CAHPS Survey includes the core CAHPS 4.0 Health Plan Survey.

CMS conducted an experiment in 2015 to understand how CAHPS measures differ between

4.0 and 5.0, and based on the results we will update the survey for future years to reflect

AHRQ’s CAHPS 5.0 Health Plan Survey. The findings from the experiment suggest that

these changes are associated with a small increase in scores for several evaluative MA

measures. These small increases did not significantly differ across contracts. Since there are

no longer fixed thresholds for Star Ratings and they are based on the actual distribution of

scores, there should be no shifts in Star Ratings due to transition to the version 5.0 instrument

compared to what would have been the case with 4.0. Every contract would have the same

expected Star Rating whether version 4.0 or 5.0 is used, and the correlation between this

year’s Star Ratings and next year’s Star Ratings should be the same regardless of whether 4.0

or 5.0 is used next year.

The 5.0 update applies recent improvements in survey design that resulted from development

and testing of the Clinician & Group Surveys. The 5.0 version of the CAHPS Health Plan

Survey incorporates some minor changes into the wording of core items, and a change in the

placement of one core item that also resulted in the deletion of a screener item.

The following are the changes in the 5.0 version of the Health Plan Survey:



The items about access to urgent and non-urgent appointment items were

modified to ask respondents if they were able to get an appointment as soon as

they needed, as opposed to as soon as they thought they needed. Non-urgent

appointments are described as a check-up or routine care rather than health care.

In addition, the phrase, “…not counting the times you needed care right away”

was deleted from these questions. These revisions simplify the items and make

them consistent with questions in other CAHPS surveys.



The item about how often it was easy to get appointments with specialists was

revised to ask respondents if they got an appointment to see a specialist as soon as

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they needed. This revision makes the item consistent with other CAHPS items

that ask about access to care.



The item about how often it was easy to get care, tests, or treatment was

moved from the Your Health Plan section to the Your Health Care in the Last 6

Months section, because respondents had difficulty attributing this item to the

health plan.



The screener item about getting care, tests, or treatment through the health

plan was deleted because the subsequent question was moved to an earlier section

of the survey and no longer required a screener.

These changes would take effect for the 2017 CAHPS survey administration (used for 2018

Star Ratings) based on OMB approval. We will use the following standard for deciding that

a specification change has occurred for a CAHPS measure in connection with the

modification of the wording to decide whether to exclude the measure from the improvement

measure calculation: (1) at least one item within the measure changed in wording, had a

wording change in its screener, or had a wording change in the immediately preceding item,

and (2) the measure score in version 5.0 was significantly different from the measure score in

version 4.0 in the 5.0 experiment. Three MA measures meet this standard: Getting Care

Quickly, Customer Service, and Care Coordination. Thus, these three measures will be

excluded from the Part C improvement measure for the 2018 Star Ratings.

We are also considering changing the sampling for CAHPS in future years when a contract is

listed in HPMS as a consolidation between July of the prior year and January of the current

year when the CAHPS sample is drawn. The sampling frame for the surviving contract

would include the enrollees for all members of all contracts involved if two or more contracts

consolidate under the same parent organization. We will continue to study this and will give

advance notice before making any changes to the methodology.

CMS provides translations of the MA & PDP CAHPS Survey in Spanish and Chinese. All

translations are the product of translation and review by native speakers of the target

languages and have had multiple rounds of qualitative testing with Medicare beneficiaries

with characteristics similar to the MA & PDP CAHPS population. By providing survey

translations, CMS promotes standardization by assuring that questions are presented

similarly to beneficiaries across and within languages, which also promotes comparability of

the results across vendors and contracts. The survey administration protocol for MA & PDP

CAHPS does not permit “live,” “individual,” or “real-time” translation of the survey by an

interpreter as such an approach does not promote comparability of data, and there is no

mechanism for assuring the accuracy and consistency of the translation. The MA & PDP

CAHPS protocol does allow for the use of proxy respondents in cases where a respondent is

unable to complete the survey.

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We note that CMS applies standards of reliability to CAHPS results, directly and through

significance testing. Contract measures with interunit reliability (IUR) less than 0.60 are

flagged as Very Low Reliability and are excluded from use in public reports or incentive

payments. Those with IUR less than 0.72 are flagged as low reliability (up to 12% of the

entire number of participating contracts) and limited use is made of those data, requiring

stronger supporting evidence to classify a contract as different from average. The number of

contracts falling below this criterion varies by measure from a few percent of contracts to

about half. Tests of significance also play a role in CAHPS analyses, and these automatically

adjust for the precision of available data. Finally, CMS offers contracts the option of

augmenting their CAHPS sample sizes if they wish to obtain more precise overall results

and/or perform subgroup analyses with larger samples. CMS reminds sponsors that the case-

mix coefficients for the CAHPS Star Ratings measures are available in the Star Ratings

Technical Notes each year.

We received several comments requesting that CMS shorten the MA CAHPS survey. CMS

is committed to shortening the 2017 MA CAHPS survey by removing some questions that

are not used in current Star Ratings measures.

5. MPF Price Accuracy (Part D Star Rating). CMS plans to make a few updates to this

measure for the 2018 Star Ratings. The first change is related to the method by which claims

are excluded from the measure. Currently, the measure is limited to claims filled for a 30-

day supply at pharmacies reported by sponsors as retail only or retail and limited access only

in their MPF Pharmacy Cost files. That is, claims that are not filled for exactly a 30-day

supply, or claims filled for 60 and 90 days’ supply are excluded. Additionally, claims filled

by retail pharmacies that are also long term care, mail order, or home infusion pharmacies are

excluded. These restrictions result in the exclusion of many PDEs, thus potentially biasing

the reliability of the measure.

We plan to include claims with 28-34 day supply, as we believe it would be appropriate to

compare their PDE costs to MPF’s fixed display of 1 month pricing. We also plan to include

60-62 and 90-93 day supply claims for a more comprehensive evaluation of PDE claims.

Beginning with CY 2015 MPF submissions, plans must provide brand and generic

dispensing fees for 60 and 90 day supply claims in the Pharmacy Cost file. CMS can use

these data, along with 60 and 90 day supply Pricing File data, to compare MPF and PDE

costs.

Additionally, we plan to use the PDE-reported Pharmacy Service Type code in conjunction

with the MPF Pharmacy Cost data to identify retail claims. CMS began requiring

pharmacies to populate the Pharmacy Service Type field on all PDEs at the end of February

2013. We recommend expanding the retail claims identification process to include all PDEs

that are from retail pharmacies according to the Pharmacy Cost data and have a Pharmacy

Service Type of either Community/Retail or Managed Care Organization (MCO). Although

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some sponsors cited concern about the accuracy of these data as reported by pharmacists,

Part D sponsors are ultimately responsible for the accuracy of their submitted PDE to CMS.

According to PDE requirements, CMS expects “…sponsors and their network pharmacies to

develop and implement controls to improve the accuracy of this information during 2013…”

This methodology change would increase the number of PDEs eligible for inclusion in the

Price Accuracy Scores while continuing to identify only retail claims.

We plan to make changes to the methodology by which price accuracy is calculated. The

current methodology measures the magnitude, but not the frequency, of a contract’s PDE

prices being higher than the MPF prices. A contract’s accuracy score can be significantly

impacted by high price PDEs. As a result, contracts with divergent accurate price reporting

and/or consistency can receive the same Price Accuracy Score. CMS is interested in

modifying the methodology to factor in both how much and how often PDE prices exceeded

the prices reflected on the MPF. The frequency of inaccuracy by a contract would be the

percent of claims where the PDE price is greater than the MPF price. The numerator is the

number of claims where the PDE price is greater than MPF price, and the denominator is the

total number of claims. This ratio is then subtracted from 1 and multiplied by 100 to

calculate the Claim Percentage Score, with 100 as the best possible score and 0 as the worst

possible score. The contract’s accuracy score would be a composite of the Price Accuracy

Score and the Claim Percentage Score.

By capturing the frequency of inaccuracy as well as the magnitude, the measure would better

depict the reliability of a contract’s MPF advertised prices. CMS is aware that while the

MPF display is updated every two weeks, real time pricing, at the point of sale, can change as

often as every day. Some sponsors have expressed concern that in order to perform well in

the Price Accuracy measure, they cannot offer lower prices at point of sale in real time than

the prices are displayed on MPF. We note that PDEs priced lower than MPF displayed

pricing do not lower a contract’s score in this measure.

CMS’ simulation of this proposal found little change in the range of contracts’ accuracy

scores. Other options we explored include measuring the magnitude of inaccuracy as a

percentage cost difference, instead of the current measure’s use of absolute cost difference.

Testing however found this method may overstate small differences between PDE and MPF

costs for low-cost claims. For example, when using percentage cost differences, a claim with

a $2.00 PDE price and a $1.00 MPF price would be considered equally overpriced as a claim

with a $200.00 PDE price and a $100.00 MPF price.

We plan to implement these changes for the 2018 Star Ratings (using 2016 PDE and MPF

data). We believe the changes will greatly improve the Price Accuracy Scores, making them

a more comprehensive assessment of contracts’ price reporting for Part D beneficiaries. For

consistency, we will also implement these changes for the 2018 display measure, Plan

Submitted Higher Prices for Display on MPF.

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6. Drug-Drug Interactions (DDI) (Part D Display). The PQA-endorsed DDI measure is

currently a Part D display measure. This measure is defined as the percent of Medicare Part

D beneficiaries who received a prescription for a target medication during the measurement

period and who were dispensed a prescription for a contraindicated medication with or

subsequent to the initial prescription.

The PQA has conducted an extensive review of the drug-drug pairs included in the DDI

measure. They engaged a DDI expert panel convened by the University of Arizona on

PQA's behalf, which completed the review, including a comparison to the DDI list developed

for the Office of the National Coordinator for Health Information Technology (ONC). The

Expert Panel's recommendations were reviewed by the PQA’s Measure Update Panel for

consideration by the PQA’s Quality Metrics Expert Panel (QMEP). Next, the PQA will test

the DDI measure specifications because there will be extensive changes. We will closely

monitor any updates to this measure, test updated specifications when available, and propose

changes in the future for the Part D display measure and patient safety reporting.

7. Center for Medicare and Medicaid Innovation Model Tests. We note that some

stakeholders (and commenters to the Request for Comments and draft Call Letter) have

expressed concern regarding the potential for the improvements in quality resulting from the

Medicare Advantage Value-Based Insurance Design (MA-VBID) and the Part D Enhanced

MTM Model test to adversely influence the Star Ratings of contracts ineligible to participate

(or that include some PBPs ineligible to participate). CMS’ goal is to not penalize

participants or non-participants in either model.

As the model tests are implemented, we will closely monitor performance trends of

participating plans across individual measures and determine if any changes are warranted.

For the MA-VBID Model test, CMS is considering the exclusion of some of the model-

participants’ data when calculating measure-level cut points.

The Part D plans participating in the Part D Enhanced MTM Model test will be waived from

the MTM requirements under Section 1860D–4(c)(2) and 42 CFR 423.153(d) and the Part D

Reporting Requirements for MTM. However, Part D sponsors will not be waived from

establishing MTM programs in compliance with current requirements and reporting data for

the remaining plans under each Part D contract. Therefore, the MTM Program CMR

Completion Rates will be calculated using available plan-reported data from the remaining

plans under the Part D contract.

Some stakeholders in response to the Request for Comments and draft Call Letter expressed

concern that Enhanced MTM Model participants will sometimes be significantly advantaged

or disadvantaged by the removal of the participating PBPs from the calculation of the CMR

completion rate measure at the contract level, and have suggested the elimination of this

measure for PDP contracts with model-participating plans. Some alternative possible options

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are to establish different cut points for model participants or to case-mix adjust scores for the

purpose of determining cut points. We are aware that the national scope of many PDP

contracts must be taken into consideration in evaluating options for addressing potential

differences in performance between participating and non-participating plans. Commenters

requested that CMS engage stakeholders and provide information as these potential

adjustments are developed. CMS will continue to consider how to address any potential

differences in performance between participating and non-participating plans, taking these

comments into consideration.

Measurement and Methodological Enhancements

CMS is committed to continuing to improve the Part C and D Star Ratings by identifying new

measures and methodological enhancements. Feedback or recommendations can help CMS’

continuing analyses, as well as our collaboration with measurement development entities such as

NCQA and PQA.

As announced in the March 8, 2016 HPMS memo, CMS is suspending the reduction in the

overall and summary Star Ratings of contracts that are under sanction, while CMS re-evaluates

the impact of sanctions, audits, and CMPs on the Star Ratings

. CMS plans to describe our

proposals in the Request for Comments in fall 2016.

Based on feedback received from the Star Ratings Request for Comments in fall 2015 and the

CY 2017 draft Call Letter concerning our methodology for the Call Center Monitoring measure,

beginning in 2017 CMS will allow the interpreter an extra 60 seconds to address an introductory

question that is asked prior to three specific plan benefit questions. This will affect the 2018 Star

Ratings.

CMS would like to clarify that the Call Center Monitoring tasks are described in the annual

memos issued via HPMS each year, which ask plans to update all phone numbers in

HPMS. Specifically, CMS informs health plans that “[t]he Timeliness Study measures

Medicare Part C and Part D current enrollee beneficiary call center phone lines and pharmacy

technical help desk lines to determine average hold times and disconnect rates” and “The

Accuracy and Accessibility Study measures plan sponsors’ Medicare Part C and Medicare

Part D prospective enrollee beneficiary call center phone lines to determine (1) the availability

of interpreters for individuals, (2) TTY functionality, and (3) the accuracy of plan information

provided by customer service representatives (CSRs) in all languages.” The same description is

used in any compliance action issued. The pharmacy technical assistance line, or what is labeled

as “pharmacy” in the monitoring results or compliance actions, refers to the requirement found at

42 C.F.R. § 423.128(d)(1). The Medicare Marketing Guidelines, at Appendix 3, clarifies the

Prior to the suspension of this policy, contracts under an enrollment sanction were automatically assigned 2.5 stars for their

highest rating. If a contract under sanction already had 2.5 stars or lower for their high rating, it received a 1-star reduction.

Contracts were evaluated and adjusted for enrollment sanctions at two periods each year.

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requirement as, “Part D Sponsors must operate a toll-free pharmacy technical help call center or

make available call support to respond to inquiries from pharmacies and providers regarding the

beneficiary’s Medicare prescription drug benefit; inquiries may pertain to operational areas

such as claims processing, benefit coverage, claims submission, and claims payment.” The

pharmacy technical assistance line listed in HPMS must be the toll-free number that pharmacies

and providers would use to inquire about issues like claims submission or claims processing, and

it is not intended to be the number a beneficiary would call. The Part D current enrollee or

prospective member lines are the numbers intended for use by a current or prospective

beneficiary.

Finally, we note that CMS has a rigorous Quality Assurance and Audit process over the test call

process that involves multiple layers of review before, during and after each monitoring

period. We encourage plans/sponsors to request and review their raw call data to validate the

results. CMS believes that validation of the information by plans/sponsors is an important tool in

our overall review of the monitoring contractor’s performance, and we encourage plans/sponsors

to contact CMS via [email protected] if they believe an error occurred.

Medicare Parts C & D Program Audits

Proposed Release Date for the 2017 Part C and Part D Program Audit Protocols

Each year, the Medicare Parts C & D Oversight & Enforcement Group (MOEG) releases the Part

C and Part D audit protocols to the industry in an effort to be as transparent as possible about our

audit approach. We remain committed to continuous improvement in the development of our

audit processes and protocols, and value the input and feedback of all sponsors and stakeholders.

We have received feedback previously that sponsors would appreciate our audit protocols being

released well in advance of the audit year, to allow more time to implement the new protocols

and prepare for audits.

In the draft Call Letter, we indicated that beginning with the 2017 audit protocols, we would

release the following year’s protocols by the end of July, instead of mid-to-late fall. In other

words, the 2017 protocols will be released in July of 2016. This release date should allow

sponsors sufficient time to program their systems to pull accurate audit universes, conduct self-

assessments, and prepare for an audit.

We noted, however, that this approach would delay our ability to incorporate sponsor’s feedback

on protocols until the following year’s versions were released; so, feedback gathered on 2016

protocols would be incorporated into the 2018 protocols. We received multiple comments from

sponsors, and all were very supportive of publishing audit protocols earlier. However, many

sponsors raised concerns with the lag time that would occur with respect to incorporating

feedback from the industry. We received many suggestions, including issuing interim updates to

protocols in between annual releases, but most sponsors suggested we post protocols in draft,

allow time for comment and then publish them in final. However, our earlier proposal failed to

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consider the time to get changes to protocols approved by the Office of Management and Budget

(OMB) under the Paperwork Reduction Act (PRA). When protocols are going through the PRA

approval process, they are published in the Federal Register for a 60 day and then subsequent 30

day comment periods. We will solicit sponsor feedback on our protocols during this more

formal process. Audit protocols will be submitted to OMB annually, allowing sponsors an

opportunity to provide feedback and have that feedback considered for incorporation each year.

We will continue to work to issue audit protocols early in the year.

This new release cycle will have a particular impact on the two audit protocols that are being

piloted in 2016, the Medication Therapy Management (MTM) and Provider Network Adequacy

(PNA) protocols.

As stated in the draft Call Letter, we gather feedback from sponsors who take part in an audit

with pilot protocols and use their feedback and experience to evaluate if updates and changes are

needed to our pilot protocols prior to finalizing them. Since we will begin the process of

finalizing the 2017 protocols only a few months into the 2016 pilot audit period, we do not

believe that we will have gathered enough feedback on the pilot protocols prior to the July

release date. Therefore, we are extending the pilot of these protocols into 2017 in order to allow

time to gather feedback and determine if revisions are needed to the pilot audit protocols.

Therefore, these protocols will be subject to a separate release cycle for 2016 and 2017.

As a reminder, sponsors subject to pilot protocols do not receive a score for the pilot, nor does it

factor into their overall audit score. Finally, the results from the pilot audit protocol do not

appear in the final audit report.

We would also like to acknowledge that the Provider Network Adequacy protocol will not be

administered as a normal audit protocol and will not happen in conjunction with the remainder of

our program audits. As mentioned in Section II of this document, wide scale monitoring efforts

are underway with respect to network adequacy and provider directory. MOEG, in coordination

with the Medicare Parts C & D Contract Administration Group (MCAG) are taking a

comprehensive approach to monitor, audit and validate compliance with these requirements.

Therefore, MOEG will be using the results of MCAG’s provider directory monitoring each year

to audit and validate correction of any deficiencies identified throughout the year. Those

organizations that fail to correct and come into compliance with these requirements may be

subject to possible enforcement action, including civil money penalties or enrollment sanctions.

Medicare Parts C & D Enforcement Actions

Civil Money Penalty (CMP) Calculation Methodology

When CMS makes a determination that a plan sponsor’s operational deficiencies adversely

affected or had the substantial likelihood of adversely affecting enrollees, the agency imposes

Civil Money Penalties (CMPs) in accordance with Subpart O of 42 C.F.R. §§ 422 and 423. As

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noted in the draft Call Letter and reflected again in comments to the draft Call Letter, a number

of plan sponsors and industry groups have requested more information on the approach CMS

uses to determine CMP amounts and how the impact of certain deficiencies are factored into a

given CMP. In response to this interest, CMS plans to release a memo describing our

interpretation of the applicable rules in a CMP Methodology by 2017, but will provide an

opportunity for industry to comment before finalizing. This CMP methodology may be modified

and republished on an as needed basis.

Compliance and Enforcement Actions Related to Part D Auto-Forwards

Part D plan sponsors are required to have procedures for making timely coverage determinations

and redeterminations and for notifying enrollees of those decisions within the required

adjudication timeframes. If notice of the decision is not provided within the required timeframe,

the case must be automatically forwarded to the Part D Independent Review Entity (IRE). While

all auto-forwarded cases represent non-compliance with CMS requirements for timely

processing, of particular concern to CMS are plan sponsors with inordinately high levels of cases

that are auto-forwarded throughout the plan year due to the plan sponsor’s failure to meet the

required adjudication timeframes. The requirements related to auto-forwarding untimely cases

from the sponsor to the Part D IRE are set forth at 42 CFR Part 423, Subpart M and in Chapter

18 of the Medicare Prescription Drug Benefit Manual.

As stated in the draft Call Letter, the volume of cases auto-forwarded to the IRE has been

significant and sustained over the past several years. CMS has been monitoring auto-forward

rates with the expectation that there would be a meaningful reduction of this volume over time as

Part D plan sponsors gained program experience. In 2017, CMS will continue to increase the level

and severity of the compliance and enforcement actions imposed on plans that substantially fail

to comply with adjudication requirements for coverage determinations and redeterminations.

We received a number of comments asking CMS to clarify what thresholds will be used in

determining whether a sponsor is considered an outlier. CMS will use data to determine which

plan sponsors are outliers with respect to untimely decisions and the corresponding rate at which

cases are auto-forwarded to the Part D IRE per 10,000 enrollees. This outlier threshold will be

established each year and will be based on a quarterly auto-forward rate per 10,000

enrollees. This outlier threshold will be in alignment with the Star Ratings auto-forward measure

2-star cut-point (for the 2016 Star Ratings this annual cut-point was 38.5 - 66.8).

Pursuant to § 423.752(c)(1)(i), CMS has the authority to impose CMPs on sponsors that

substantially fail to comply with the requirements related to coverage determinations, appeals

and grievances in accordance with § 423.509(a)(4)(ii). A plan sponsor’s inordinately high auto-

forward rate is evidence of substantial failure to comply with the requirements to notify enrollees

of coverage determination and redetermination decisions within the required timeframes. These

failures adversely affect (or have the substantial likelihood of adversely affecting) beneficiaries

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by causing inappropriate delays in accessing needed prescription drugs and/or financial hardship

to beneficiaries.

Enforcement Actions Related to One Third Financial Audit Findings

Sections 1857(d)(1) and 1860D-12(b)(c) of the Social Security Act require the HHS Secretary to

provide for the annual audit of the financial records of at least one-third of the Medicare

Advantage Organizations (MAOs) and Prescription Drug Plans (PDPs). The one-third financial

audit program is designed to examine the health plans’ financial records, internal controls over

payment disbursements, Medicare utilization and costs, and the computation of Part C & D

bids. As stated in the draft Call Letter, instances of noncompliance from these audits have

identified significant financial errors, disallowed costs, and internal control weaknesses. While

sponsors are required to put a corrective action in place and rectify their deficiencies, certain

findings with adverse beneficiary impact, such as incorrect or increased cost-sharing or

copayments for beneficiaries, warrant further enforcement actions. As a result, for audits

conducted in 2017 (based on CY 2015) CMS will begin to consider findings and observations of

noncompliance from the one-third financial audits for potential enforcement actions, in

accordance with 42 CFR §§422.752(c)(i) and 423.752(c)(i). We received comments requesting

further information about what criteria will be used in determining potential enforcement actions.

Therefore, information related to these actions will be shared in advance with the industry.

Innovations in Health Plan Design

The CMS Innovation Center is responsible for developing and testing new payment and service

delivery models that will lower costs and improve quality for Medicare, Medicaid, and CHIP

beneficiaries. In the CY 2016 Call Letter, CMS indicated its intention to partner with private

payers to test innovations in health plan design for CMS beneficiaries.

Since the CY 2016 Call Letter, CMS has announced the Medicare Advantage Value-Based

Insurance Design (MA-VBID) and the Part D Enhanced Medication Therapy Management

(MTM) Model tests, both scheduled to begin on January 1, 2017. These model tests are

described below.

We received suggestions for potential model tests for CMS to conduct under Innovation Center

authority, and a request that CMS include both participants and non-participants in model test

learning. CMS appreciates these suggestions, and looks forward to continuing to engage

stakeholders in the model test development and learning processes.

Medicare Advantage Value-Based Insurance Design Model Test

The MA-VBID Model test is an opportunity for MAOs to offer mandatory supplemental benefits

or reduced cost sharing to enrollees with CMS-specified chronic conditions, focused on the

services that are of highest clinical value to them. Only those MAOs approved by CMS to

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participate in the model may do so, and only within PBPs accepted into the model test. The

model will test whether these interventions can improve health outcomes and lower expenditures

for Medicare Advantage enrollees and for the Medicare program. CMS is conducting the model

test in seven states, and the application period for joining the model in CY 2017 closed in

January 2016.

We received comments supportive of the MA-VBID model test, with suggestions for

improvement in future model years, and will take these suggestions into account. Two

commenters requested that CMS allow participating MAOs to offer supplemental non-covered

benefits contingent on participation in disease management or related programs for the clinically-

targeted enrollee population. CMS views this type of intervention as being within the flexibility

offered by the model test’s Request for Applications, and MAOs wishing to offer innovative

approaches to VBID should make appropriate proposals to CMS for our consideration in future

application cycles.

Part D Enhanced MTM Model

The Part D Enhanced MTM Model will test whether providing Part D sponsors with additional

payment incentives and regulatory flexibilities will engender enhancements in the MTM

program, leading to improved therapeutic outcomes, while reducing net Medicare expenditures.

The model is an opportunity for stand-alone basic Part D plans to right-size their investments in

MTM services, identify and implement innovative strategies to optimize medication use,

improve coordination of care between plans and providers, and strengthen system linkages.

Standalone PDP basic plans that have applied and been approved to participate in the CMS

Innovation Center’s Enhanced MTM Model will offer MTM programs subject to the terms and

conditions of the model test in the five selected Part D regions. All other Part D plans, including

any ineligible plans offered by the PDP sponsors of participating plans, will remain subject to the

current regulatory requirements for MTM programs and must include those costs in their 2017

Part D bids. None of the waivers or funding available to model-participating plans is applicable

to the other ineligible plans offered by those PDP sponsors. A participating plan sponsor may

use lessons learned from model beneficiary and provider engagement and intervention strategies

to increase participation within its mandatory MTM programs in other plans, to the extent

allowable outside of the model. For more information, please visit: https://innovation.cms.gov/

initiatives/enhancedmtm/.

We received comments generally supportive of the Enhanced MTM model test, with several

comments requesting continued robust stakeholder engagement on the model. CMS will take

these comments into consideration as the model progresses. Three commenters suggested that

CMS modify the Enhanced MTM model to allow drug manufacturers to participate in the

development of new MTM strategies. The Enhanced MTM model is designed to test PDP

Sponsor-driven approaches to improving medication usage among at-risk enrollees. The model

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test does not permit collaboration with drug manufacturers. However CMS will continue to

evaluate all avenues to improve medication usage and health outcomes in considering future

model tests.

Section II – Part C

Guidance on the Future of Provider Directory Requirements and Best Practices

CMS wants to further emphasize the importance of providing accurate provider directories to

MA enrollees. Inaccurate provider directories can impede access to care and bring into question

the adequacy and validity of the MAO’s network as a whole. In concert with previously released

guidance, our focus remains making sure provider directories are accurate for Medicare

beneficiaries and their caregivers who rely on them to make informed decisions regarding their

health care choices.

CMS is aware of pilot programs being tested by some MAOs to use new technology to simplify

the process of updating provider directories for physicians and other network participants. We

are supportive of industry efforts to improve provider directories and encourage MAOs and

providers to continue to work collaboratively to develop more effective and efficient methods of

maintaining accurate provide directories. We see great potential with the use of technologies

that capitalize on machine readable information. To foster the development of such

technologies, we urge both industry and provider community to strive to provide data, including

provider information on network participation, in a machine readable format. CMS has

purposefully not prescribed the means by which MAOs must update their provider directories in

order to allow innovation in this area such as updating provider directories by gathering a digital

representation of provider participation and contact information directly from a provider’s web

page.

We received comments on the critical role that providers play in ensuring provider directory

accuracy. CMS agrees that a component of accuracy relies on providers keeping plans abreast of

changes. CMS has taken this into account in our Medicare Marketing Guidelines (MMG)

regarding quarterly provider outreach and updating any identified errors within 30 days of

receipt. We continue to encourage the industry and the provider community to work

collaboratively to address this important matter.

Preliminary data gathered by CMS, as well as continued stakeholder concerns, has intensified

our concerns with provider directory accuracy. We will continue to aggressively identify and

pursue instances of non-compliance by using a host of oversight methods. For example, with

contractor support, we have developed a comprehensive process for monitoring provider

directory accuracy, which is currently underway. The data collected through our monitoring

activities could drive additional reviews of network adequacy, as well as future monitoring

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and/or audit-based activities. Moreover, identified areas of non-compliance may be subject to

compliance and/or enforcement actions, including civil money penalties or enrollment sanctions.

We received a number of comments regarding the provider directory monitoring activities

currently underway. Commenters urged CMS to share our methodology for the reviews as well

as to provide preliminary data to MAOs prior to taking any compliance and/or enforcement

action. We will share the methodology in an upcoming HPMS memo. We will also provide

preliminary data related to the monitoring to MAOs prior to taking any action. Additionally,

some commenters requested leniency from CMS as MAOs work to improve accuracy of

provider directories. While we acknowledge the industry’s efforts thus far, our focus remains on

overall directory accuracy, which is a long-standing Medicare Advantage requirement. We will

continue along the path of issuing compliance and enforcement actions when necessary.

CMS also remains committed to making provider directory requirements across CMS programs

consistent. As such, the MA program is taking steps to harmonize the requirements and provide

organizations that operate across multiple CMS programs consistency in the application of

provider directory requirements.

Currently among MA, QHPs and the Medicaid managed care programs, MA provides the least

prescriptive provider directory requirements. (See 42 C.F.R. §422.111(b)(3)(i) and explained in

sections 60.4 and 100.4 of the Medicare Marketing Guidelines (https://www.cms.gov/Medicare/

Health-Plans/ManagedCareMarketing/Downloads/2016-Medicare-Marketing-Guidelines-

Updated.pdf). The MA program also has the fewest data elements required for its provider

directory. In addition, both Medicaid and the QHPs have moved toward some level of machine

readability for online provider directory content (see 45 C.F.R. 156.230(c) with additional

guidance provided via Draft 2017 Letter to Issuers in the Federally-facilitated Marketplaces; and

Proposed Medicaid Final Rule CMS–2390–P, 42 C.F.R. 438.10(h)(4)), while MA has not. The

Office of Management and Budget (OMB) defines "machine readable" as a format in a standard

computer language (not English text) that can be read automatically by a web browser or

computer system.

We received a number of comments in support of harmonizing the provider directory

requirements across CMS programs. We received mixed comments regarding the additional data

elements that were identified. We will continue to review and consider additional data elements

in the future. As this is only a best practice at this time, we will share this information with our

counterparts who work on the QHPs and Medicaid requirements.

Regulatory updates to § 422.111 would generally be needed to require MA organizations to issue

provider directories that include the additional elements. CMS intends to propose such revisions

in the future and encourages the inclusion of the elements listed below in provider directory

requirements as a best practice and urges MAOs to incorporate them into their production of

such directories in advance of future rulemaking.

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The following are the provider directory data elements we believe are appropriate to use in

current MAOs’ provider directories:



Machine readable content



Provider medical group



Provider institutional affiliation



Non-English languages spoken by provider



Provider website address



Accessibility for people with physical disabilities

We received a number of comments regarding machine readability, with commenters requesting

additional information and some requesting CMS select a standard for machine readability.

Since machine readability is currently a best practice for Medicare Advantage, CMS urges the

industry to look to the guidance provided by the QHPs and Medicaid to strengthen oversight

processes, as well as to identify a standardized format for machine readable information.

We recognize that MAO customer service call centers use a variety of approaches to address

calls from enrollees who need assistance in locating a provider that is accepting new patients.

We also understand that there is no single approach that can be used for all calls or situations.

To further augment the customer service experience, we are encouraging MAOs institute the best

practice of incorporating a “warm transfer” policy to their customer service call when practical.

For enrollees calling to request help finding a provider that is accepting new patients, the CSR

would close the call by calling the provider’s office, establishing the need(s) of the enrollee, and

transferring the enrollee to the provider’s office to complete the appointment process. When

determining if a warm transfer should be used, the MAO should guard against steering by

providing the enrollee with choices of providers and to provide any needed materials/resources

to aid in provider selection, the MAO should consider the time of the call and the likelihood of

the provider’s office being available, and most importantly, the MAO should determine if the

enrollee would like to be transferred to the providers office.

Overview of CY 2017 Benefits and Bid Review

Portions of this guidance apply to cost-based plans and MA plans (including EGWPs, Dual-

Eligible Special Needs Plans (D-SNPs), Chronic Care Special Needs Plans (C-SNPs), and

Institutional Special Needs Plans (I-SNPs)). We currently do not evaluate whether employer

group plans, D-SNPs, and 1876 Cost Plans are duplicative under §422.256(b)(4), also referred to

as the “meaningful difference” evaluation. Similarly, employer group plans and 1876 Cost Plans

are not evaluated for low enrollment under §422.506(b)(1)(iv) and (b)(2). CMS reserves the

right to review employer group plans for low enrollment and/or meaningful difference in future

years.

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Medicare-Medicaid Plans in Capitated Financial Alignment Demonstrations are not subject to

the review criteria summarized in the table below and benefits and benefit review guidance for

these plans will be provided separately.

CMS makes all of the necessary tools and information available to MAOs in advance of the bid

submission deadline, and therefore expects all MAOs to submit their best, accurate, and

complete bid(s) on or before the Monday, June 6, 2016 deadline. Any organization whose bid

fails the published Part C Service Category Cost Sharing, PMPM Actuarial Equivalent Cost

Sharing, Meaningful Difference, Total Beneficiary Cost (TBC), and/or Optional Supplemental

Benefit requirements at any time prior to final approval will receive a compliance notice, even if

the organization is allowed to correct the deficiency. The severity of compliance notice may

depend on the type and/or severity of errors.

IMPORTANT NOTE: As indicated in the Rate Announcement, CMS has adopted the proposal

to waive MA employer bidding requirements beginning in CY 2017. Although this change

affects CMS’ ability to evaluate the PMPM Actuarial Equivalent Cost Sharing discussed in this

section, MA employer plans continue to be subject to all unwaived MA requirements regardless

of whether they are evaluated as part of bid review or reviewed in connection with other

oversight. Employer plans will not be submitting a Bid Pricing Tool (BPT), but must submit a

Plan Benefit Package (PBP) in accordance with CMS requirements (consistent with past years)

and make a good faith effort in projecting CY 2017 member months for each plan and place the

amount in Section A-2 of the PBP. Please see “Plan Benefit Package (PBP) Updates and

Guidance” of this Call Letter for additional information.

The following chart displays key MA bid review criteria and identifies which criteria are used in

reviewing the bids of the plan types identified in the column headings.

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Table 13. Plan Types and Applicable Bid Review Criteria

Bid Review Criteria

Applies to Non-

Employer Plans

(Excluding Dual

Eligible SNPs)

Applies to

Non-Employer

Dual Eligible

SNPs

Applies to

1876 Cost

Plans

Applies to

Employer

Plans

Low Enrollment

Yes

Meaningful Difference

Yes

Total Beneficiary Cost

Yes

Maximum Out-of –

Pocket (MOOP) Limits

Yes

PMPM Actuarial

Equivalent Cost

Sharing

Yes

Service Category Cost

Sharing

Yes

Part C Optional

Supplemental Benefits

Yes

Section 1876 Cost Plans and MA plans may not charge enrollees higher cost sharing than is charged under Original Medicare

for chemotherapy administration, skilled nursing care and renal dialysis services (42 CFR §§417.454(e) and 422.100(j)).

CMS has made changes to service category cost sharing amounts, PMPM Actuarial Equivalence

factors, and Total Beneficiary Cost (TBC) requirements for CY 2017 and have provided these

changes in each applicable section below. Consistent with past years, MAOs must also address

requirements implemented under the Affordable Care Act, such as the medical loss ratio and

health insurance providers fee, and are expected to do so independently of our requirements for

benefits or bid review. Therefore, we are not making specific adjustments or allowances for

these changes in the benefits review requirements.

Plans with Low Enrollment

At the end of March, CMS sent affected MAOs a list of non-SNP plans that have fewer than 500

enrollees or fewer than 100 enrollees for SNP plans and that have been in existence for three or

more years [as of March 2016 (three annual election periods)]. The notification represents CMS’

decision not to renew such plans under 42 CFR §422.506(b)(1)(iv) and (b)(2). The list did not

include plans with low enrollment that CMS determines are located in service areas that do not

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have a sufficient number of competing options of the same plan type (such that the low

enrollment plan still represents a viable plan option for enrollees).

Through return e-mail, MAOs must either (1) confirm that each of the low enrollment plans

identified by CMS will be eliminated or consolidated with another of the organization’s plans for

CY 2017, or (2) provide a justification for renewal. If CMS does not find a unique or compelling

reason that the low enrollment plan is a viable independent option for enrollees, CMS will

instruct the organization to eliminate or consolidate the plan. Instructions and the timeframe for

submitting business cases and the information required in those submissions were included with

the list of low enrollment plans sent to the MAO.

Note: These requirements do not apply to Section 1876 cost plans, employer plans, or MA

Medical Savings Account (MSA) plans.

CMS recognizes there may be certain factors, such as the specific populations served and

geographic location of the plan, that lead to a plan’s low enrollment. SNPs, for example, may

legitimately have low enrollments because they focus on a subset of enrollees with certain

medical conditions. CMS will consider this information when evaluating whether specific plans

should be non-renewed based on insufficient enrollment. MAOs should follow CMS

renewal/non-renewal guidance (see the Medicare Managed Care Manual: section 150 of Chapter

4, and/or section 60.2 of Chapter 16B) to determine whether a low enrollment plan may be

consolidated with another plan(s). CMS will continue to evaluate and implement low enrollment

requirements on an annual basis.

CMS received comments expressing concerns about applying low enrollment restrictions to

employer plans in the future. Although CMS does not intend to apply low enrollment criteria to

employer plans in CY 2017, we will consider in the future how to apply the applicable standard

(that the “plan does not have a sufficient number of enrollees to establish that it is a viable

independent plan option”) to employer plans and whether to take enforcement action in that

context.

Meaningful Difference (Substantially Duplicative Plan Offerings)

Pursuant to §422.254(a)(4), MAOs offering more than one plan in a given service area must

guarantee the plans are substantially different so that beneficiaries can easily identify the

differences between those plans in order to determine which plan provides the highest value at

the lowest cost to address their needs. For CY 2017, CMS will use plan-specific per member per

month (PMPM) out-of-pocket cost (OOPC) estimates to identify meaningful differences in

beneficiary costs among the same plan types. For CY 2017, benefits and the reduction in cost

sharing that are offered as part of the Value-Based Insurance Design (VBID) model test will not

be included in the meaningful difference evaluation. Documentation and instructions for the

OOPC model are available at: https://www.cms.gov/Medicare/Prescription-Drug-Coverage/

PrescriptionDrugCovGenIn/OOPCResources.html.

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CMS considers HMO and HMO-POS as one plan type, unless the HMO-POS plan covers all

Parts A and B services outside the network, in which case the HMO-POS plan is considered

meaningfully different from the HMO plan. Consistent with CY 2016, this standard for

evaluating meaningful difference will not include geographic or provider limitations on the out-

of-network benefits. However, CMS in future years may consider HMO-POS plans

meaningfully different only if the plans do not place geographic or provider limitations on the

out-of-network benefits.

We received several comments recommending that CMS not move forward with further

restrictions on HMO-POS plans in the future. CMS will take these comments into consideration

as part of our ability to interpret and apply the meaningful difference regulatory requirement in

the future.

For CY 2017, CMS will evaluate meaningful differences among CY 2017 non-employer and

non-cost contractor plans offered by the same MAO, in the same county and, under the same

contract, as follows:

1. The MAO’s plan offerings will be separated into five plan type groups on a county basis:

(1) HMO and HMO-POS not offering all Parts A and B services out-of-network; (2)

HMO POS offering all Parts A and B services out-of-network; (3) Local PPO; (4)

Regional PPO; and (5) PFFS.

2. SNP plan offerings will be further separated into groups representing the specific target

populations served by the SNP. Chronic Care SNPs will be separated by the chronic

disease served and Institutional SNPs will be separated into the following three

categories: Institutional (Facility); Institutional Equivalent (Living in the Community);

and a combination of Institutional (Facility) and Institutional Equivalent (Living in the

Community). We currently do not apply the meaningful difference evaluation to D-

SNPs.

3. Plans within each plan type group will be further divided into MA-only and MA-PD sub-

groups for evaluation. That is, the presence or absence of a Part D benefit is considered a

meaningful difference.

4. The OOPC (Part C and Part D) PMPM estimate will be calculated for each plan. CMS

considers a difference of at least $20.00 PMPM between the OOPC for each plan offered

by the same MAO in the same county to be meaningful for purposes of applying the

meaningfully different standard.

CMS is considering whether to conduct this evaluation at either the legal entity or parent

organization level in future years. We received several comments recommending that CMS not

move forward with this approach in future years due to the potential restrictions it could place on

organizations and the benefits offered to the enrollees. CMS will take these comments into

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consideration as part of our ability to interpret and apply the meaningful difference regulatory

requirement in the future.

Note that plan characteristics such as premium, variations in provider networks, and/or serving

different populations are not considered meaningfully different characteristics. Commenters

requested CMS to consider allowing premium and/or provider network differences as part of

their meaningful difference evaluation. We will continue to consider these comments, but will

maintain our current position. Premium is excluded from the criteria because the regulatory

meaningful difference requirement is intended to be an objective measure of benefits between

two plans; the inclusion of premium would introduce risk selection, costs, and margin into the

evaluation, resulting in a negation of the evaluation’s objectivity. Provider network differences

have also been excluded from our criteria because having a provider in one plan and not the

other is not a change in benefit coverage. In addition, plan providers can change throughout the

year (e.g., terminate their provider contract or close their practice to new members), so it is not

necessarily accurate or transparent to a beneficiary making a plan choice for the year.

CMS expects MAOs to submit CY 2017 plan bids that meet the meaningful difference standards,

but will not prescribe how the MAOs should redesign benefit packages to achieve the

differences. Furthermore, MAOs will have access to the necessary tools to calculate OOPC

estimates for each plan prior to bid submission. CMS will not approve plan bids that do not meet

these standards.

CMS notes that meaningful difference will be evaluated based on the "as submitted formulary"

prior to rebate reallocation, and "first approved formulary" following rebate reallocation. MAOs

must follow the CY 2017 renewal/non-renewal guidance in the Final Call Letter to determine if

their plans may be consolidated with other plans.

NOTE: Please see Plan Benefit Package (PBP) and policy updates below for changes to PBP that

may impact the OOPC model and could potentially affect the meaningful difference evaluation

for certain plans.

Total Beneficiary Cost (TBC)

CMS will exercise its authority under section 1854(a)(5)(C)(ii) of the Act to deny MAO bids, on

a case-by-case basis, if it determines the bid proposes too significant an increase in cost sharing

or decrease in benefits from one plan year to the next through the use of the TBC standard. A

plan’s TBC is the sum of the plan-specific Part B premium, plan premium, and estimated

beneficiary out-of-pocket costs. The change in TBC from one year to the next captures the

combined financial impact of premium changes and benefit design changes (i.e., cost sharing

changes) on plan enrollees; an increase in TBC is indicative of a reduction in benefits. By

limiting excessive increases in the TBC from one year to the next, CMS is able to confirm

enrollees who continue enrollment in the same plan are not exposed to significant cost increases.

As in past years, CMS will evaluate TBC for non-employer plans (excluding D-SNPs). For CY

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2017, benefits and cost sharing that are offered as part of the Value-Based Insurance Design

(VBID) model test will not be included in the TBC evaluation. The MA plans that are

participating in the VBID model test will be evaluated under the TBC calculation, including plan

premium and non-VBID benefits and cost sharing.

Under §422.254, CMS reserves the right to further examine and request changes to a plan bid

even if a plan’s TBC is within the required amount. This approach not only protects enrollees

from significant increases in cost sharing or decreases in benefits, but also confirms enrollees

have access to viable and sustainable MA plan offerings.

CMS has focused on sharing information with and providing transparency to the MAOs as it

relates to the TBC year-to-year evaluation. CMS proposed to modify the payment adjustment in

a different way than indicated in the CY 2016 Final Call Letter. Rather than “discounting” the

plan-specific payment adjustment (including a coding intensity component), CMS proposed to

eliminate the coding intensity adjustment factor. Since most of the Affordable Care Act (ACA)

payment changes have been implemented, it is our expectation that MAOs are better positioned

to share payment changes and provide affordable and effective benefits for beneficiaries. Going

forward, the payment adjustment in the TBC calculation will account for changes in county

benchmarks, quality bonus payment, and/or rebate percentages.

CMS received comments from several organizations opposed to this change in interpretation and

implementation because future coding intensity and other rate pressures are unknown and could

result in unanticipated revenue pressure. Some commenters suggested CMS should keep the

coding intensity adjustment and also include an adjustment for changes in the risk score model to

provide greater flexibility in modifying benefits. Other comments supported our proposal since

most of the ACA payment changes have been implemented and MAOs should be positioned to

share in payment changes. We appreciate the comments and will move forward with eliminating

the coding intensity adjustment factor as part of our TBC analysis for CY 2017.

Other comments suggested giving consideration to indexing the TBC change amount to account

for annual medical inflation and that Institutional SNPs may warrant special consideration in

applying the TBC evaluation. We will give consideration to these suggestions as policy and

guidance is developed for CY 2018.

In addition, we received comments concerned about expectations related to the Health Insurance

Providers Fee moratorium as bids are prepared for CY 2017 and its year-to-year impact on the

TBC evaluation. Consistent with past years, MAOs must address requirements implemented

under the ACA, such as the medical loss ratio and health insurance providers fee, and are

expected to do so independently of our requirements for benefits or bid review. Therefore, we

are not making specific adjustments or allowances for these changes in the benefits review

requirements.

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CMS will continue to incorporate the technical and payment adjustments described below and

expect organizations to address other factors, such as coding intensity changes, risk adjustment

model changes and payment of the health insurance provider’s fee independently of our TBC

requirement. As such, plans are expected to anticipate and manage changes in payment and

other environmental factors to minimize changes in benefit and cost sharing over time. CMS

also reminds MAOs that the Office of the Actuary extends flexibility on margin requirements so

MAOs can satisfy the TBC requirement.

In mid-April 2016, as in past years, CMS will provide plan specific CY 2016 TBC values and

the following adjustments that are incorporated in the TBC calculation to account for changes

from one year to the next:



Technical Adjustments: (1) annual changes in OOPC model software and (2) maximum

Part B premium buy-down amount change in the bid pricing tool, if applicable (no

change for CY 2017).



Payment Adjustments: (1) county benchmark, and (2) quality bonus payment and/or

rebate percentages.

CMS will maintain the TBC change threshold at $32.00 PMPM for CY 2017. A plan

experiencing a net increase in adjustments must have an effective TBC change amount below the

$32.00 PMPM threshold to avoid denial of the bid under section 1854(a)(5)(C)(ii). Conversely,

a plan experiencing a net decrease in adjustments may have an effective TBC change amount

above the $32.00 PMPM threshold. In an effort to support plans that improve quality

compensation and experience large payment adjustments, along with holding plans accountable

for lower quality, CMS will apply the TBC evaluation as follows.

For CY 2017, the TBC change evaluation will be treated differently for the following specific

situations:



Plans with an increase in quality bonus payment and/or rebate percentage, and an overall

payment adjustment amount greater than $32.00 PMPM will have a TBC change

threshold of $0.00 PMPM (i.e., −1 times the TBC change limit of $32 PMPM) plus

applicable technical adjustments.



Plans with a decrease in quality bonus payments and/or rebate percentage, and an overall

payment adjustment amount less than -$32.00 PMPM will have a TBC change threshold

of $64.00 PMPM (i.e., 2 times TBC change limit of $32.00 PMPM) plus applicable

technical adjustments. That is, plans would not be allowed to make changes that result in

greater than $64.00 worth of decreased benefits or increased premiums.



Plans with a star rating below 3.0 and an overall payment adjustment amount less than

−$32.00 PMPM will have a TBC change threshold of $64.00 PMPM (i.e., 2 times TBC

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change limit of $32.00) plus applicable technical adjustments.



Plans not accounted for in the three specific situations above will be evaluated at the $32

PMPM limit, similar to last year.

CMS received feedback subsequent to last year’s Call Letter suggesting that CMS make changes

to the TBC evaluation for Special Needs Plans for End Stage Renal Disease (ESRD), which are

subject to larger increases and/or decreases in payment amounts. To moderate potentially large

payment changes and provide MAOs with the ability to maintain benefit stability year-to-year,

while helping provide protection for this vulnerable beneficiary population, CMS proposed this

year to apply limits to the payment adjustment for ESRD plans as described below:



Plans with an increase in the overall payment adjustment amount greater than $32.00

PMPM will have a TBC change threshold of $0.00 PMPM (i.e., −1 times the TBC

change limit of $32 PMPM) plus applicable technical adjustments.



Plans with a decrease in the overall payment adjustment amount less than -$32.00

PMPM will have a TBC change threshold of $64.00 PMPM (i.e., 2 times TBC change

limit of $32.00 PMPM) plus applicable technical adjustments. That is, plans would not

be allowed to make changes that result in greater than $64.00 worth of decreased

benefits or increased premiums.

We received comments acknowledging CMS’s efforts to address the TBC challenges facing

ESRD plans, but expressing concern that the proposed changes may not go far enough in

managing the potential impact of ESRD payment changes. Some commenters recommended a

separate TBC evaluation for ESRD plans. We understand that organizations may have concerns

related to this limitation when payments are decreasing, but are finalizing this guidance for CY

2017. CMS will monitor and evaluate potential modifications for CY 2018.

Consistent with the CY 2016 Final Call Letter, CMS proposed that each individual plan being

consolidated into another plan must meet the TBC requirement on its own merit. For CY 2017,

CMS will be moving forward with this interpretation and implementation; therefore,

organizations consolidating multiple plans into a single plan will no longer be permitted to use

the enrollment-weighted average TBC change of the consolidating plans.

We received comments from several organizations expressing concerns because multiple plans

may need to be consolidated due to organizational or marketplace changes, as well as CMS

pressures. Commenters pointed out that if plans were unable to meet this requirement, it could

result in disruption for beneficiaries. CMS is finalizing this approach for CY 2017 as it affords

greater protection for beneficiaries and enrollees in non-renewing plans will be able to actively

select another MA plan from the same or competing organization based on CMS non-renewal

guidance.

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NOTE: Please see policy updates below for changes to the PBP that will impact the OOPC

model and may potentially affect the TBC evaluation for certain plans.

Maximum Out-of-Pocket (MOOP) Limits

As codified at 42 CFR §422.100(f)(4) and (5) and §422.101(d)(2) and (3), all MA plans,

including employer group plans and SNPs, must establish limits on enrollee out-of-pocket

spending that do not exceed the annual maximum amounts set by CMS. Although the MOOP

requirement is for Parts A and B services, an MAO can include supplemental benefits as services

subject to the MOOP. MA plans may establish as their MOOP any amount within the ranges

shown in the table.

Table 14 below displays the CY 2017 mandatory and voluntary MOOP amounts and the

combined (catastrophic) MOOP amount limits applicable to Local PPOs and Regional PPOs. A

plan’s adoption of a MOOP limit that qualifies as a voluntary MOOP ($0 - $3,400) results in

greater flexibility for individual service category cost sharing. We chose to display the possible

ranges of the MOOP amount within each plan type in order to illustrate that MOOP limits may

be lower than the CMS-established maximum amounts and what MOOP amounts qualify as

mandatory and voluntary MOOP limits.

Table 14. CY 2017 Voluntary and Mandatory MOOP Range Amounts by Plan Type

Plan Type

Voluntary

Mandatory

HMO

$0 - $3,400

$3,401 - $6,700

HMO POS

$0 - $3,400 In-network

$3,401 - $6,700 In-network

Local PPO

$0 - $3,400 In-network and

$0 -$5,100 Combined

$3,401 - $6,700 In-network and

$3,401 - $10,000 Combined

Regional PPO

$0 - $3,400 In-network and

$0 - $5,100 Combined

$3,401 - $6,700 In-network and

$3,401 - $10,000 Combined

PFFS (full

network)

$0 - $3,400 Combined

$3,401 - $6,700 Combined

PFFS (partial

network)

$0 - $3,400 Combined

$3,401 - $6,700 Combined

PFFS (non-

network)

$0 - $3,400

$3,401 - $6,700

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We received a comment requesting clarification as to whether PPOs are permitted to offer a

combined MOOP amount within the mandatory range, while having an in-network MOOP

amount within the voluntary range. Although we will take this comment under consideration for

the future, CMS’s current policy is that the in-network MOOP amount dictates the combined

MOOP range for PPOs. The MOOP ranges stated in the Call Letter above are accurate.

As explained in the CY 2012 Call Letter, MOOP limits are based on a beneficiary-level

distribution of Parts A and B cost sharing for individuals enrolled in Original Medicare. The

mandatory MOOP amount represented approximately the 95th percentile of projected

beneficiary out-of-pocket spending. Stated differently, five percent of Original Medicare

beneficiaries are expected to incur approximately $6,700 or more in Parts A and B deductibles,

copayments and coinsurance. The voluntary MOOP amount of $3,400 represents approximately

the 85th percentile of projected Original Medicare out-of-pocket costs.

The Office of the Actuary conducts an annual analysis to help CMS determine the proposed

MOOP amount. Since the MOOP requirement was finalized in §422.100(f)(4) and (5), a strict

application of the 95th and 85th percentile would have resulted in MOOP limits fluctuating up

and down year-to-year. CMS has exercised discretion to maintain stable MOOP limits from

year-to-year, if the beneficiary-level distribution of Parts A and B cost sharing for individuals

enrolled in Original Medicare is approximately equal to the appropriate percentile. This

approach avoids enrollee confusion, allows plans to provide stable benefit packages, and does

not discourage the adoption of the lower voluntary MOOP amount if the limit increases one year

and then decreases the next. CMS expects to increase MOOP limits if a consistent pattern of

increasing costs emerges over a period of time.

Although it may be rare that a dual-eligible enrollee would be responsible for paying any cost

sharing (because the State Medicaid program is making those payments on his/her behalf), all

MA plans must track enrollees’ actual out-of-pocket spending for covered services in order to

make certain an enrollee does not spend more than the MOOP amount limit established by the

plan. If the plan charges cost sharing for covered services, some dual-eligible enrollees may

incur cost sharing and any enrollee losing his/her Medicaid eligibility would be responsible for

cost sharing. D-SNPs have the flexibility to establish $0 as the MOOP amount, thereby

guaranteeing there is no cost sharing for plan enrollees, including those who are liable for

Medicare cost sharing. Otherwise, if the D-SNP does charge cost sharing for Medicare covered

or non-covered services, it must track enrollees’ out-of-pocket spending and it is up to the plan to

develop the process and vehicle for doing so.

Per Member Per Month (PMPM) Actuarial Equivalent (AE) Cost Sharing Limits

IMPORTANT NOTE: As indicated in the Rate Announcement, CMS has adopted the proposal

to waive MA employer bidding requirements beginning in CY 2017. Although this change

affects CMS’ ability to evaluate the PMPM Actuarial Equivalent Cost Sharing discussed in this

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section, MA employer plans continue to be subject to all unwaived MA regulatory requirements

whether they are evaluated as part of bid review or reviewed in connection with other oversight.

Total MA cost sharing for Parts A and B services must not exceed cost sharing for those services

in Original Medicare on an actuarially equivalent basis. See 42 CFR §422.254(b)(4). CMS will

apply this requirement separately to the following service categories for CY 2017: Inpatient,

Skilled Nursing Facility (SNF), Durable Medical Equipment (DME), and Part B drugs. Please

note that factors for Inpatient and SNF in Column 4 of the table below (Part B Adjustment Factor

to Incorporate Part B Cost Sharing) have been updated for CY 2017.

Whether in the aggregate, or on a service-specific basis, excess cost sharing is identified by

comparing two values found in Worksheet 4 of the BPT. Specifically, a plan’s PMPM cost

sharing for Medicare covered services (BPT Worksheet 4, Section IIA, column l) is compared to

Original Medicare Actuarially Equivalent Cost Sharing (BPT Worksheet 4, Section IIA, column

n). For Inpatient and SNF services, the AE Original Medicare cost sharing values, unlike plan

cost sharing values, do not include Part B cost sharing; therefore, an adjustment factor is applied

to these AE Original Medicare values to incorporate Part B cost sharing and to make the

comparison valid.

Once the comparison amounts have been determined, excess cost sharing can be identified.

Excess cost sharing is the difference (if positive) between the plan cost sharing amount (column

#1) and the comparison amount (column #5). The chart below uses illustrative values to

demonstrate the mechanics of this determination.

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Table 15. Illustrative Comparison of Service-Level Actuarial Equivalent Costs to Identify

Excessive Cost Sharing

BPT

Benefit

Category

PMPM

Plan

Cost

Sharing

Original

Medicare

Allowed

Original

Medicare

AE Cost

sharing

Part B

Adjustment

Factor to

Incorporate

Part B Cost

Sharing

Comparison

Amount

Excess

Cost

Sharing

Pass/Fail

(Parts

A&B)

(Based on

FFS data)

(BPT

Col. l)

(BPT

Col. m)

(BPT

Col. n)

(#3 × #4)

(#1 −

#5, min

of $0)

Inpatient

$33.49

$331.06

$25.30

1.382

$34.97

$0.00

Pass

SNF

$10.83

$58.19

$9.89

1.069

$10.58

$0.25

Fail

DME

$3.00

$11.37

$2.65

$0.35

Fail

Part B-

$0.06

$1.42

$0.33

$0.00

Pass

PMPM values in column 3 for Inpatient and Skilled Nursing Facility only reflect Part A fee-for-service actuarial equivalent cost

sharing for that service category.

Part C Cost Sharing Standards

For CY 2017, CMS will continue the current policy of affording MA plans greater flexibility in

establishing Parts A and B cost sharing by adopting a lower voluntary MOOP limit than is

available to plans that adopt a higher, mandatory MOOP limit. Table 16 below summarizes the

standards and cost sharing amounts by MOOP type (e.g., mandatory or voluntary) for local and

regional MA plans that we will not consider discriminatory or in violation of other applicable

standards. CY 2017 bids must reflect enrollee cost sharing for in-network services no greater

than the amounts displayed below. For LPPOs and RPPOs, these standards will be applied only

to in-network services. All standards and cost sharing are inclusive of applicable service

category deductibles, copayments and coinsurance, but do not include plan level deductibles.

Inpatient standards have been updated to reflect estimated changes in Original Medicare cost for

CY 2017.

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Table 16. CY 2017 In-Network Service Category Cost Sharing Requirements

Cost Sharing Limits

Service Category

PBP Section B data

entry field

Voluntary

MOOP

Mandatory

MOOP

Inpatient - 60 days

N/A

$4,177

Inpatient - 10 days

$2,471

$1,977

Inpatient - 6 days

$2,251

$1,801

Mental Health Inpatient - 60 days

$2,606

$2,085

Mental Health Inpatient - 15 days

$1,988

$1,590

Skilled Nursing Facility – First 20 Days

$20/day

$0/day

Skilled Nursing Facility – Days 21 through 100

$164.50/day

Emergency Care/Post Stabilization Care

$75

Urgently Needed Services

$65

Partial Hospitalization

$55/day

Home Health

20% or $35

Primary Care Physician

$35

Chiropractic Care

$20

Occupational Therapy

$40

Physician Specialist

$50

Psychiatric and Mental Health Specialty Services

7e and 7h

$40

Physical Therapy and Speech-language Pathology

$40

Therapeutic Radiological Services

20% or $60

DME-Equipment

11a

N/A

20%

DME-Prosthetics

11b

N/A

20%

DME-Medical Supplies

11b

N/A

20%

DME-Diabetes Monitoring Supplies

11c

N/A

20% or $10

DME-Diabetic Shoes or Inserts

11c

N/A

20% or $10

Dialysis Services

20% or $30

Part B Drugs-Chemotherapy

20% or $75

Part B Drugs-Other

20% or $50

MA plans and 1876 Cost Plans may not charge enrollees higher cost sharing than is charged under Original Medicare for

chemotherapy administration, skilled nursing care and renal dialysis services (42 CFR §§417.454(e) and 422.100(j)).

MA plans may have cost sharing for the first 20 days of a SNF stay. The per-day cost sharing for days 21 through 100 must not

be greater than the Original Medicare SNF amount. Total cost sharing for the overall SNF benefit must be no higher than the

actuarially equivalent cost sharing in Original Medicare, pursuant to §1852(a)(1)(B).

Emergency Care and Urgently Needed Care benefits are not subject to plan level deductible amount and/or out-of-network

providers.

Part B Drugs - Chemotherapy cost sharing displayed is for services provided on an outpatient basis and includes administration

services. MAOs have the option to charge either coinsurance or a copayment for most service category benefits. For example,

based on the cost sharing requirements indicated above for Part B Drugs – Chemotherapy, a plan can choose to either assign up

to a 20% coinsurance or $75 copayment to that particular benefit.

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MAOs with benefit designs that use a coinsurance or copayment amount for which CMS does

not have an established amount (e.g., coinsurance for inpatient or copayment for durable medical

equipment) must submit documentation with their initial bid that clearly demonstrates how the

coinsurance or copayment amount satisfies CMS service category requirements. This

documentation must be submitted under the “cost sharing justification upload” section in the Bid

Submission module of HPMS (Navigation Path: Plan Bids > Bid Submission > CY 2017 >

Substantiation > Select Applicable Contract Number). CMS annually evaluates available

Medicare data and other information to apply MA requirements in accordance with applicable

law. Organizations are afforded the flexibility to design their benefits as they see fit so long as

they satisfy Medicare coverage requirements.

As indicated in the table above, for SNF days 1 through 20, CMS will reduce the cost sharing

limit for CY 2017 voluntary MOOP plans from $40 per day to $20 per day for beneficiary

protection. In addition, we also intend to reduce the cost sharing limit from $20 per day to $0

per day for CY 2018 MA plans so that SNF cost sharing will align with Original Medicare for

both voluntary and mandatory MOOP. We received comments from organizations in support of

this change because it aligns with Original Medicare and helps vulnerable beneficiaries

experiencing health care challenges, while other commenters expressed concerns about limiting

benefit flexibility. CMS appreciates these comments and is finalizing the change for CY 2017

and expects to make the proposed change for CY 2018.

CMS has traditionally afforded MAOs greater flexibility in establishing Parts A and B cost

sharing by adopting a lower, voluntary maximum out-of-pocket (MOOP) limit than is available

to plans that adopt a higher, mandatory MOOP limit. The number of MA plans with voluntary

MOOPs has decreased significantly over the past several years which may call into question the

value of allowing cost sharing flexibility and serve to minimize the impact of changes made to

this policy.

CMS requested comments about whether current cost sharing flexibility should still be available

to voluntary MOOP plans, and suggestions about other incentives to encourage MAOs to offer

plans with a lower voluntary MOOP for enrollees. For example, flexibilities to highlight

voluntary MOOP plans in marketing materials or a special indicator or priority sorting on

Medicare Plan Finder. These types of marketing-related incentives may encourage plans and

brokers to educate beneficiaries on the MOOP and its value to their overall financial protection

should they experience large medical expenses during a plan year.

Most commenters recommended that CMS continue to provide benefit flexibility so that

organizations would be encouraged to offer voluntary MOOP plans and also provided helpful

suggestions. For example, expanding the benefit flexibility to other categories, modifying both

the voluntary and mandatory MOOP amounts, providing potential marketing and/or preferential

treatment on Medicare Plan Finder. Some commenters supported efforts to limit high cost

173

sharing, but did not want plans to be discouraged from offering plans with lower MOOP amounts

which affords greater beneficiary protection.

We appreciate these comments and expect to continue cost sharing flexibility for voluntary

MOOP plans. CMS will consider expanding benefit flexibility to additional service categories,

adjusting MOOP amounts, and providing additional marketing and Medicare Plan Finder

incentives. However, the difference in cost sharing limits between a voluntary MOOP and

mandatory MOOP plan may be reduced somewhat to balance concerns about potentially

discriminatory benefit designs.

We received comments about increasing the limits for certain services (e.g., emergency care),

decreasing limits for certain services (e.g., physical therapy and speech-language pathology

services), and publishing limits for services that CMS communicated with organizations about

potentially high cost sharing (e.g., cardiac and pulmonary rehabilitation services). We also

received a comment expressing concern about having separate categories for mental health and

non-mental health benefits in the plan benefit package (PBP) and separate service category cost

sharing requirements.

MA plans may not charge enrollees higher cost sharing than is charged under Original Medicare

for chemotherapy administration, skilled nursing care and renal dialysis services (42 CFR

§422.100(j)). Although CMS has not established a specific service category cost sharing limit

for all possible services in the Call Letter, MA plans may not pay less than 50% of the contracted

(or Medicare allowable) rate and cost sharing for services cannot exceed 50% of the total MA

plan financial liability for the benefit. If a plan uses a copayment method of cost sharing, then

the copayment for an in-network Original Medicare service category cannot exceed 50% of the

average contracted rate of that service (Medicare Managed Care Manual, Chapter 4, Section

50.1). Organizations typically have much lower cost sharing for enrollees than this requirement

due to effective managed care principles, effective negotiations between organizations and

providers, and competition.

MAOs are not permitted to design “benefits to discriminate against beneficiaries, promote

discrimination, discourage enrollment or encourage disenrollment, steer subsets of Medicare

beneficiaries to particular MA plans, or inhibit access to services” (42 CFR §422.100(f)(2)).

CMS evaluates bid and marketplace data to identify areas of concern, conducts research, and

may add service category cost sharing limits in the future based on these analyses. For example,

cardiac and pulmonary rehabilitation services are areas of concern that we continue to monitor,

and we will ask MA organizations to provide justification for cost sharing above the following

amounts for CY 2017 benefit designs as part of bid review:



Cardiac Rehabilitation Services: $50



Intensive Cardiac Rehabilitation Services: $100

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

Pulmonary Rehabilitation Services: $30

CMS recognizes that mental health services may have a different cost structure than non-mental

health services which is reflected in the plan benefit package (PBP) by having different

categories. PBP documentation defines the differences between these categories and

organizations have the flexibility to use reasonable methods to distinguish between mental health

and non-mental health services.

Part C Optional Supplemental Benefits

As part of our evaluation whether the bid and benefits are not discriminatory against enrollees

with specific (or high cost) health needs, CMS will continue to review non-employer bid

submissions to verify enrollees electing optional supplemental benefits are receiving reasonable

value. As in CY 2016, CMS considers a plan to be not discriminatory when the total value of all

optional supplemental benefits offered to non-employer plans under each contract meets the

following thresholds: (a) the enrollment-weighted contract-level projected gain/loss margin, as

measured by a percent of premium, is no greater than 15% and (b) the sum of the enrollment-

weighted contract-level projected gain/loss margin and non-benefit expenses, as measured by a

percent of premium, is no greater than 30%.

CMS understands some supplemental benefits are based on a multi-year basis, but the plan bids

submitted each year are evaluated based on that particular plan year.

Plan Benefit Package (PBP) Updates and Guidance

Projected Member Months

As indicated in the Rate Announcement, CMS has adopted the proposal to waive MA employer

bidding requirements beginning in CY 2017. Employer plans will not be submitting a MA or

Part D Bid Pricing Tool (BPT), but must complete and submit a Plan Benefit Package (PBP) in

accordance with CMS requirements (consistent with past years). Organizations should make a

good faith effort in projecting CY 2017 member months for each plan and place the amount in

Section A-2 of the PBP. The following question must be completed for all MA and 1876 Cost

Plan organizations that do not submit a Bid Pricing Tool (BPT): “Indicate CY 2017 total

projected member months for this plan.”

Medical Services Performed in Multiple Health Care Settings

In our continuing effort to avoid duplication of medical services entered in the PBP, CMS is

offering additional guidance on how to place services that can be performed in different health

care settings (e.g., physician office, outpatient hospital, and free standing facility) in the

appropriate service category and correctly complete data entry within the PBP.

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The outpatient hospital service category in the PBP has historically included a variety of services

that may have their own dedicated PBP category. By including the same service in multiple

locations throughout the PBP, we are concerned that marketing materials may be confusing and

that CMS cost sharing requirements could be compromised. Based on the out-of-pocket cost

(OOPC) model methodology, including services with zero cost sharing for the minimum amount

in a multiple service category will reduce the estimated out-of-pocket costs used by beneficiaries

in comparing plans on Medicare Plan Finder and adversely affect CMS bid review for

meaningful difference and Total Beneficiary Cost (TBC).

Our goal is to ultimately have PBP service categories reflect cost sharing for services provided in

different places of service. For example, Cardiac and Pulmonary Rehabilitation Services can be

administered in a number of health care settings including outpatient hospitals, free- standing

facilities, or a physician’s office. Instead of having these services appear in multiple PBP service

categories, we expect cost sharing for these services to appear only in PBP Service Category 3

(Cardiac and Pulmonary Rehabilitation Services). The minimum/maximum data fields allow

plans to reflect the varying cost sharing associated with different places of service, when needed.

The note for this service category will describe the cost sharing associated with the various

places of service and must be consistent with the data entry. Cardiac and Pulmonary

Rehabilitation Services in any other section of the PBP will not satisfy CMS requirements and

the organization will be asked to correct its bid submission.

Another area of particular concern is Medicare-covered preventive services. All Medicare-

covered zero dollar cost sharing preventive services must be included in PBP Service Category

14a and must not be included in any other service category (i.e., those benefits that are rated as A

or B by the United States Preventive Services Task Force). For example, we do not expect to see

a zero in the minimum data field in 9a (Outpatient hospital services) with a note that explains the

zero dollar amount is for preventive services. All of the zero dollar Medicare-covered preventive

services are to be placed in 14a only.

For CY 2016, plans were required to reflect cost sharing for the service categories listed in the

table below appropriately within each designated service category:

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PBP Sec. B

Service Category

Cardiac and Pulmonary Rehabilitation Services

Primary Care Physician Services

Physician Specialist Services excluding Psychiatric Services

Podiatry Services

Outpatient Blood Services

11b

Prosthetics/Medical Supplies

Dialysis Services

14a

Medicare-Covered Zero Cost-Sharing Preventive Services

Medicare Part B Rx Drugs and Home Infusion Drugs

In addition to the service categories listed above, plans must enter cost sharing for the service

categories shown in the table below appropriately within each designated service category for

CY 2017. These services should not be referenced in any other service category. We anticipate

these changes will improve transparency and streamline the data entry so the cost sharing

associated with those PBP service categories below reflects the services provided across a

variety of healthcare settings.

PBP Sec. B

Service Category

Occupational Therapy Services

Other Health Care Professional Services

Physical therapy and Speech Language Pathology Services

Outpatient Diagnostic Procedures and Tests and Lab Services

Outpatient Diagnostic and Therapeutic Radiological Services

Outpatient Hospital Services

Ambulatory Surgical Center Services (ASC)

CMS received several comments regarding PBP category B9a. One organization suggested this

service category be eliminated, while another commenter requested examples of services that

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may be included in this category. Examples of services we expect to be identified under B9a in

the PBP include observation, outpatient palliative care, and outpatient surgical services (i.e.,

outpatient surgical services not provided in an Ambulatory Surgical Center as defined by

Original Medicare). We will continue to evaluate opportunities to streamline data entry and

avoid duplication in the PBP in the future.

We also received a comment requesting clarification on a service that may be related to more

than one PBP category during the same patient encounter. We do not expect a service to take

place in more than one service category during a patient encounter. For additional guidance

related to professional and facility fees being charged by providers during a patient encounter,

please refer to the section titled “Cost Sharing/Bundling and Facility.”

Medicare-Covered Preventive Services

In previous years, MAOs were able to include non-zero dollar Medicare-covered preventive

services in multiple service categories. CMS is modifying the PBP to rename B14a from

"Medicare-covered Preventive Services" to "Medicare-covered Zero Dollar Preventive Services,"

and will create a new service category where all other Medicare-covered preventive services and

any cost sharing (if applicable) can be identified clearly. This new services category will be

B14e "Other Medicare-Covered Preventive Services," and will replace B14e "Diabetes Self-

Management Training." PBP service category B14e "Other Medicare-Covered Preventive

Services" will include cost sharing fields for the glaucoma screening benefit, diabetes self-

management training, as well as up to five other optional Medicare-covered preventive services

for which a copayment may be required that can be entered by the MAO.

CMS received comments requesting examples of preventive services that may be included in the

B14a and B14e PBP service categories. Preventive services included in the B14a PBP service

category, are subject to §422.100(k), which requires coverage of preventive services by MA

plans without cost sharing, based on coverage under Original Medicare without cost sharing

because of a grade A or B recommendation by the US Preventive Services Task Force (USPSTF)

and are listed at §410.152(l). As noted in the 2011 final rule [76 FR 21475 (April 15, 2011)],

§422.100(k) is designed to require zero cost-sharing for services within the scope of

§1833(a)(1)(Y), which requires that the preventive service be graded A or B by USPSTF. Please

note that services not graded A or B by USPSTF and/or not covered without cost sharing by

Original Medicare are appropriate for the B14e service category.

We also received a comment recommending inclusion of information regarding Advance Care

Planning coverage in the Call Letter. Advance Care Planning is a Medicare covered benefit, and

as such, is required to be covered by MA plans.

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Policy Updates

Tiered Cost Sharing of Medical Benefits

MAOs may choose to tier the cost sharing for contracted providers as an incentive to encourage

enrollees to seek care from providers the plan identifies based on efficiency and quality data. In

addition to other standards for this plan design that are provided in the Medicare Managed Care

Manual, Chapter 4, the tiered cost sharing must be applied so that all plan enrollees are charged

the same cost sharing amount for any specific provider and all providers are available and

accessible to all enrollees in the plan. CMS reminds organizations that they may not exclude any

members from being eligible to access tiered providers.

We received comments expressing concern about the criteria the plans are using to select tiered

providers, and about beneficiaries being challenged to navigate plans that tier medical benefits in

order to have access to the most appropriate physicians and hospitals. Organizations are

permitted to define their tiering approach based on their own efficiency and quality data. In

addition, organizations are required to satisfy all MA provider contracting and benefit

requirements, as well as communicate benefits in a clear and transparent manner through

marketing materials.

CMS received comments requesting further clarification on tiering requirements and the tiering

request submission process. For CY 2017, MAOs will be submitting tiering requests through an

electronic mailbox. Organizations must submit the benefit design to CMS prior to bid

submission to help make sure benefits are acceptable and communications are transparent for

beneficiaries. Organizations also are permitted to modify proposed cost sharing amounts in their

actual bid submission. Further details regarding the process will be provided in an HPMS

memorandum in mid-April.

Cost Sharing /Bundling and Facility

As discussed in the draft Call Letter, CMS wants to make sure that cost sharing requirements are

transparent to MA enrollees and Medicare beneficiaries who are considering enrolling in MA.

We look to MA plans to present enrollee cost sharing so that it is simple and easy to understand.

Specifically, MA plans should not unbundle Medicare services and charge multiple cost sharing

for services. For example, we are aware that in some cases an enrollee may receive a service in a

facility setting that includes an additional facility fee that does not apply when the service is

furnished in a physician’s office. While MA plans may have higher copays based on place of

service, the enrollee’s entire cost sharing responsibility should be apparent and included in a

single copayment or coinsurance. This approach makes it easier for enrollees to understand and

anticipate the cost sharing they will incur prior to receiving services. Our policy to provide as

much transparency as possible about MA benefits and enrollee cost sharing, is long-standing and

is consistent with MA disclosure requirements at 42 CFR section 422.111(b)(2) which require

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that MA plans clearly and accurately disclose benefits and cost sharing. Accordingly, in

situations where there is a difference in cost sharing based on place of service, charges such as

“facility fees,” should be combined (bundled) into the cost sharing amount for that particular

place of service and clearly reflected as a total copayment in appropriate materials distributed to

beneficiaries. Our goal is not to prevent appropriate cost sharing, but to ensure that cost sharing

is transparent.

We received several comments on this issue, a number of which were supportive and a few that

asked for additional clarification and examples. Our expectation is that an MA enrollee will see

the actual and complete cost sharing for a particular service fully and clearly disclosed in the

members’ Evidence of Coverage (EOC) document, in Medicare Plan Finder, and in plan

materials. We have encountered instances where it was not readily apparent in plan disclosure

documents that the member would be charged cost sharing for a particular service furnished in a

specific place of service in addition to a separate facility fee. To avoid the enrollee confusion

caused by charging multiple cost share amount for a single service we are clarifying that we

expect MAOs to charge a single cost sharing amount to enrollees that combines all cost sharing

associated with a particular service.

Interoperability-MA Plans and Contracted Providers

Background

Interoperability is the ability of systems to exchange and use electronic health information from

other systems without special effort on the part of the user.

The health care industry is moving

towards interoperability because it promotes more effective exchange of health information,

seamless care transitions, improved care coordination and enrollee health outcomes and enables

providers and communities to deliver smarter, safer and more efficient care.

We believe that commercial payers as well as the Medicaid program have taken steps to promote

interoperability across provider settings, and align with Office of the National Coordinator for

Health Information Technology (ONC) standards for meaningful use and certified electronic

health records (EHRs). CMS issued a final rule on October 16,

2015 requiring eligible

professionals to utilize certified technology to promote health information exchange as part of

the Medicare and Medicaid EHR Incentive Program. This is a broader effort, however, to

support delivery system reform and quality initiatives focused on patient outcomes.

In addition, §13112 of the American Recovery and Reinvestment Act of 2009 (ARRA), requires

that our contracts require MAOs to utilize, where available, health information technology

systems and products that meet standards and implementation specifications adopted under

§3004 of the Public Health Services Act, as amended by §13101 of the ARRA.

Institute of Electrical and Electronic Engineers- http://www.ieee.org/200Bindex.html?WT.mc_id=mn_ieee.

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In alignment with the referenced legislation and Medicaid, CMS is currently exploring how best

to encourage the adoption of technology that supports interoperability between MAOs and their

contracted providers, and the need for rulemaking to require such adoption. In the draft Call

Letter, CMS sought comment from the industry regarding their experience with these activities,

including barriers to successful adoption.

We received several comments regarding experience with the adoption of technology supporting

interoperability between MAOs and contracted providers. Most of the comments received were

supportive of interoperability and recognized the benefits of sharing information and having a

more complete and informed view of enrollees. Commenters outlined the barriers to adopting

the necessary technology and made recommendations. We appreciate the comments received on

this topic and will take them into consideration as we consider future policy-making, especially

with respect to providers participating in alternative payment models. In addition, CMS will

continue to gain insight from the industry and other stakeholders, into the complexities of

adopting technology that supports interoperability.

Alternative Payment Models (APMs)

Alternative Payment Models (APMs) are provider payment structures that incentivize health care

quality, emphasize value over volume, and improve care coordination activities. To help

promote the transformation of our health care delivery system away from rewarding volume over

value, the Administration has set a goal to have 30 percent of Medicare fee-for-service payments

made tied to APMs by the end of 2016 and 50 percent by the end of 2018. The Administration

announced that an estimated 30 percent of Medicare payments are tied to alternative payment

models as of January 2016.

In the Contract Year (CY) 2016 Call Letter, CMS indicated that we would reach out to MAOs to

gain a better understanding of their use of provider incentives and value based contracting for

physician services. Subsequently, CMS had conversations with a number of MAOs concerning

their use of APMs. As a result of the high level of interest in the use of APMs and the long term

Administration payment goals, CMS has added APM questions to the Part C reporting

requirements. Specifically, CMS will ask MAOs to report on the proportion of payments made

to providers based on the HHS developed four categories of value based payment: fee-for-

service with no link to quality; fee-for-service with a link to quality; alternative payment models

built on fee-for-service architecture; and population-based payment.

In order to maintain consistency with HHS goals of increasing the proportion of payment made

based on quality and value, CMS will continue to support MAOs’ efforts to improve cost

efficiency, reduce costs, and improve health outcomes through the use of APMs. In order to

better support the continued implementation, growth, and sustainability of these models in MA,

in the draft Call Letter, CMS sought comments from the industry regarding challenges and

concerns associated with the use of APMs in MA.

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We received many comments from physician groups, beneficiary advocates, MAOs, and other

stakeholders, expressing support for CMS’s efforts in this area. Some MAOs asked that CMS

further clarify and define the HHS categories of value based payment. For further information

concerning these categories, we ask that plans refer to the LAN APM Definitional Framework

White Paper at https://hcp-lan.org/workproducts/apm-whitepaper.pdf.

Connecting Beneficiaries to Care

As a reminder, MA beneficiaries are entitled to an introductory “Welcome to Medicare”

preventive visit within their first twelve months in Medicare. Each year thereafter, MA

beneficiaries are then entitled to an Annual Wellness Visit (AWV). CMS recognizes the

importance of yearly preventive visits to drive quality improvement in the care beneficiaries

receive and will continue to look at ways in which MAOs can further engage beneficiaries and

connect them to preventive and needed care.

Counseling and Related Support Services

Recognizing that Alzheimer’s disease and related dementias pose a serious and growing threat to

Medicare beneficiaries and their families, CMS encourages MAOs to offer enrollees who are

diagnosed with Alzheimer’s or other related dementias innovative supplemental benefits that

could enable their enrollees to remain in the community. Such benefits would provide a defined

set of counseling and related supports to the enrollee or to the enrollee together with their

informal (non-paid) caregivers. In designing their supplemental benefits, MAOs can take

advantage of a variety of resources, including those provided by the Alzheimer’s Association,

and learning from models such as the New York University Caregiver Intervention (NYUCI) and

the Department of Veterans’ Affairs Resources for Enhancing Alzheimer’s Caregivers Health

(REACH) program.

Prohibition on Billing Medicare-Medicaid Enrollees for Medicare Cost-Sharing

We remind all Medicare Advantage (MA) plans of their obligation to protect dual eligible

beneficiaries from incurring liability for Medicare cost-sharing. In July 2015, CMS released a

study finding that confusion and inappropriate balance billing persist notwithstanding laws

prohibiting Medicare cost-sharing charges for QMB beneficiaries, Access to Care Issues Among

Qualified Medicare Beneficiaries (QMB) (“Access to Care”) https://www.cms.gov/Medicare-

Medicaid-Coordination/Medicare-and-Medicaid-Coordination/Medicare-Medicaid-

Coordination-Office/Downloads/

Access_to_Care_Issues_Among_Qualified_Medicare_Beneficiaries.pdf. These findings

underscore the need to re-educate providers, plans, and beneficiaries about proper billing

practices for dual eligible enrollees.

Under 42 CFR §422.504(g)(1)(iii), all MAOs --without exception-- must educate providers about

balance billing protections applicable to dual eligible enrollees. Federal law bars Medicare

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providers from collecting Medicare Part A and Medicare Part B deductibles, coinsurance, or

copayments from those enrolled in the Qualified Medicare Beneficiaries (QMB) program, a dual

eligible program which exempts individuals from Medicare cost-sharing liability. (See Section

1902(n)(3)(B) of the Social Security Act, as modified by 4714 of the Balanced Budget Act of

1997). Balance billing prohibitions may likewise apply to other dual eligible beneficiaries in MA

plans if the State Medicaid Program holds these individuals harmless for Part A and Part B cost

sharing. See 42 CFR §422.504(g)(1)(iii). For more information about dual eligible categories

and benefits, please visit: https://www.cms.gov/Outreach-and-Education/Medicare-Learning-

Network-MLN/MLNProducts/downloads/

medicare_beneficiaries_dual_eligibles_at_a_glance.pdf.

In contracts with providers, MAOs must specify these balance billing prohibitions and instruct

providers to either accept the MA payment as payment in full or bill the State for applicable

Medicare cost-sharing for enrollees that are eligible for both Medicare and Medicaid. MA plans

can find information about an enrollee’s dual eligible status in the Monthly Membership Detail

Data File. (See Appendix F.12, # 85 Dual Status Code in the Plan Communications User Guide

Appendices at https://www.cms.gov/Research-Statistics-Data-and-Systems/CMS-Information-

Technology/mapdhelpdesk/Plan_Communications_User_Guide.html).

In addition, CMS encourages MAOs to take affirmative steps to address common points of

confusion among providers regarding balance billing. For example, we urge MAOs to explain

that all MA providers-- not only those that accept Medicaid-- must abide by the balance billing

prohibitions. Further, CMS suggests that plans clarify that balance billing restrictions apply

regardless of whether the State Medicaid Agency is liable to pay the full Medicare cost sharing

amounts. (Federal law allows State Medicaid Programs to reduce or negate Medicare cost-

sharing reimbursements for QMBs in certain circumstances. See Section 1902(n)(3)(B) of the

Social Security Act, as modified by 4714 of the Balanced Budget Act of 1997).

Finally, to monitor provider compliance with balance billing rules and target provider outreach,

CMS encourages MAOs to identify problem areas from plan grievance and CMS Complaint

Tracking Module data. These steps will complement continued MAO efforts to remediate

individual violations and clarify appropriate billing procedures.

We received several supportive comments regarding the draft Call Letter’s reminder to MA

plans of their obligations to protect dual eligible beneficiaries from balance billing by educating

providers about billing prohibitions. Numerous commenters concurred that confusion and

inappropriate billing still exist, agreed that provider contracts must specify applicable rules, and

supported our recommendations that plans address common points of confusion and use

grievance and Complaint Tracking Module data to monitor plan compliance. We thank

commenters for these comments and note that we are adopting the draft language in its entirety.

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Additionally, we received a number of requests seeking further information for providers and

additional CMS recommendations to improve compliance. In response to commenters’ request

for clarification, we note that our interpretation of the applicable anti-discrimination provisions is

that MA providers are prohibited from discriminating against patients based on their QMB

status. (See Managed Care Manual, Ch. 4, Section 10.2.5). We will consider adding a policy

clarification to future guidance in this regard. We point out that CMS has stepped up efforts to

educate providers and beneficiaries about balance billing rules and is considering administrative

options to help providers better identify QMB patients. Finally, CMS continues to explore

further measures to address and track billing problems and to promote adherence to billing rules.

Medicare Advantage Organization Responsibilities for Clinical Trials

We want to remind MAOs of their responsibilities regarding clinical trials. These

responsibilities are also specified in section 10.7 of Chapter 4 of the Medicare Managed Care

Manual. While Original Medicare is generally responsible for payment of costs for most clinical

trials, under National Coverage Determination (NCD) 310.1, MAOs are responsible for payment

in the following instances:



Category A and B investigational device exemption trials

MAOs are responsible for payment of claims related to enrollees’ participation in both

Category A and B investigational device exemption (IDE) studies that are covered by the

Medicare Administrative Contractor (MAC) with jurisdiction over the MA plan’s service

area. The MAO is responsible for payment of routine care items and services in CMS-

approved Category A IDE studies and for routine care items and services, as well as the

Category B device under study in Category B IDE studies.

The local MAC(s) with jurisdiction over the MA plan’s service area determines coverage

of IDE studies.



NCDs for clinical trials with coverage with evidence development

In separate NCDs requiring coverage with evidence development (CED), original

Medicare covers items and services in CMS-approved CED studies. MAOs are

responsible for payment of items and services in CMS-approved CED studies unless

CMS determines, for each NCD, that the significant cost threshold is exceeded for that

item or service (see 42 CFR §422.109). Approved CED studies are posted on the CMS

Coverage with Evidence Development webpage (see

http://www.cms.gov/Medicare/Coverage/Coverage-with-Evidence-

Development/index.html). Billing instructions are issued for each NCD.

In the case of clinical trials that are paid for by Original Medicare under NCD 310.1, we require

MAOs, to provide coverage for: (1) services to diagnose conditions covered by clinical trial

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services, (2) most services furnished as follow-up care to clinical trial services and (3) services

already covered by the MAO. Should an MA plan beneficiary choose to participate in a clinical

trial, he or she may remain in his or her MA plan while paying Original Medicare costs for a

qualifying clinical trial.

We received one comment on this section during the public comment period. The commenter

disagreed with CMS’s current policy of paying on a fee-for-service basis for qualified clinical

trials items and services provided to MA beneficiaries that are covered under the relevant NCDs

on clinical trials. CMS is not revising its current clinical trial policy.

Dual-Eligible Special Needs Plans

We received broad support from commenters, including D-SNP sponsors, states, and beneficiary

advocates, to take administrative steps that enhance CMS-state cooperation in managing the D-

SNP program and improving the experience for dually-eligible beneficiaries enrolled in these

plans. We are grateful for this support. Commenters provided helpful recommendations on how

we could best operationalize the steps proposed in the draft Call Letter and suggested other

actions we could take in this area. We are taking all those comments into consideration as we

move forward.

In addition to the comments on the specific areas below, we received comments regarding four

additional areas in which CMS should use its administrative flexibility: (1) the use of integrated

model marketing materials; (2) translation requirements; (3) joint CMS and State oversight of D-

SNPs; and (4) use of Medicare-Medicaid Plan (MMP) network adequacy standards and

processes. Several commenters recommended that CMS expand the use of modified MMP

member materials to other D-SNPs beyond those participating in the Minnesota Demonstration

to Align Administrative Functions for Improvements in Beneficiary Experience. CMS has

received positive feedback from states and plans, including those in Minnesota, regarding

integrated model materials, such as a Summary of Benefits, Annual Notice of Change, Evidence

of Coverage/Member Handbook, List of Covered Drugs (formulary), and Provider and Pharmacy

Directory, developed for both the Financial Alignment Initiative demonstrations as well as the

Minnesota demonstration. The materials integrate Part C, Part D, and Medicaid benefits

information and have been consumer tested. CMS will continue to explore the feasibility of

allowing integrated D-SNPs to use these model material templates in lieu of the Medicare

Advantage and Part D models.

Several commenters requested that CMS expand its translation requirements to encompass more

materials and more languages than are currently required under the MA and Part D regulations

and the Medicare Marketing Guidance. While changing the translation standard for Medicare

health plans would require a regulation change, we will continue to explore other options for

Clinical trials are covered under the Clinical Trials National Coverage Determination (NCD) (NCD manual, Pub. 100-3, Part 4,

Section 310).

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addressing the concerns about receipt of the Multilanguage Insert, as well as translation of

additional materials than those currently required in the Medicare Marketing Guidelines pursuant

to 42 CFR§ 422.2264(e) and § 423.2264(e). We also note that states can impose additional

requirements regarding translation of member materials via their MIPPA contracting with D-

SNPs. In addition, as outlined in 42 CFR § 422.111(h)(1)(iii) and § 423.128(d)(1)(iii),

MAOs/Part D sponsors must provide interpreter service to all non-English speaking and limited

English proficient beneficiaries regardless of the percentage of non-English speaking

beneficiaries in the service area.

We received several comments requesting the collaborative contract oversight process and the

network standards used in the Minnesota demonstration be extended to other integrated D-SNPs.

CMS intends to continue to test the network standards that target the dual eligible population in

the Minnesota demonstration before making a determination on using the standards for other

integrated D-SNPs.

CMS will continue to evaluate how best to provide effective oversight in other states with

integrated D-SNPs. We note that CMS has already established joint monitoring calls in one

other state.

D-SNP Non-Renewals

We received broad support to notify states of pending nonrenewals, service area reductions, and

terminations of integrated D-SNPs that deliver Medicaid benefits prior to the public release of

this information in the fall, when D-SNPs and other MA plans must send their nonrenewal

notices. Commenters stated that early notification would allow states to make preparations to

minimize any disruption in the delivery of Medicaid benefits provided by nonrenewing

integrated D-SNPs and to work with their contracted D-SNPs to ensure D-SNP messaging,

including the required nonrenewal notice, accurately conveys the impact nonrenewal will have

on the delivery of Medicaid benefits and the options Medicare-Medicaid enrollees have for their

Medicaid coverage. We will work with states and plan sponsors as we develop procedures,

including appropriate assurances of confidentiality when notifying states of pending nonrenewals

of their contracted D-SNPs. In addition, we will work with stakeholders to improve the model

nonrenewal notice for integrated D-SNPs that we piloted last year in Arizona.

D-SNP Model of Care

Beneficiary advocates, states, and D-SNP sponsors were generally supportive of a process for

interested states to add specificity to existing elements that describe state requirements related to

the management of Medicaid Long-Term Services and Supports (LTSS) to the CMS review

criteria for model of care (MOC) employed by D-SNPs that deliver Medicaid LTSS. Similarly,

we received support for allowing states to review MOCs against their requirements concurrent

with NCQA’s review of MOCs in HPMS. Taken together, these proposals would help the MOC

review ensure that the D-SNP MOCs fully address state goals for the delivery of LTSS by their

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contracted D-SNPs. We intend to work with stakeholders to ensure that this process does not

create a more burdensome MOC review process for D-SNP sponsors.

While we intend to create a process that would allow states to share the results of their review

with CMS, we reiterate that the joint review process would not change the current CMS

requirements for review and approval of D-SNP MOCs by NCQA. We also note that states have

the ability now through their D-SNP MIPPA contracts to require that the MOC address delivery

of Medicaid benefits, in particular LTSS, and to require their contracted D-SNPs to revise their

MOCs to meet state requirements. This process does not alter that ability but integrates the state

and CMS process for review of the MOC for integrated D-SNPs.

Finally, we recognize that the review of MOCs at the contract level may require some changes to

the way in which the MOC describes different care processes for different populations under the

contract, particular when some D-SNPs under the same contract may deliver Medicaid LTSS

while other D-SNPs do not. We will work with D-SNP sponsors so that the contract-level MOC

can reflect the differing care needs of different populations under the contract.

Section III – Part D

Formulary Submissions

CY 2017 Formulary Submission Window

The CY 2017 HPMS formulary submission window will open this year on May 16, 2016 and

close at 11:59 pm PDT on June 6, 2016. CMS must be in receipt of a successfully submitted and

validated formulary submission by the deadline of June 6, 2016 in order for the formulary to be

considered for review. The Part D formulary is part of the plan’s complete bid and therefore a

failure to submit and link a formulary to each plan that uses a formulary by the June 6th deadline

will result in denial of that bid submission.

CY 2017 Formulary Reference File

CMS released the first CY 2017 Formulary Reference File (FRF) in March 2016. The March

FRF release will be used in the production of the Out-of-Pocket Cost (OOPC) model tool,

scheduled to be released in April 2016, in order to assist plan sponsors in satisfying meaningful

difference and MA TBC requirements prior to bid submission. Sponsors should note that the

OOPC model released in April will not be modified to incorporate any subsequent FRF updates,

as described below.

In May 2016, CMS is planning to provide a subsequent release of the 2017 FRF prior to the June

6th formulary submission deadline. We will aim to make the May FRF available earlier this

year, although it will be released in mid to late-May in order to allow for sufficient time to

evaluate and add new Part D drugs that become available in our datasets. Since the OOPC

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model incorporates Medicare Current Beneficiary Survey (MCBS) data from 2010 and 2011,

new Part D drugs cannot be included in the OOPC model since they would not have appeared in

the survey. Further, given the limited timeframe between the May release of the 2017 FRF and

the June 6th deadline, CMS is unable to accommodate an updated version of the 2017 OOPC

model to incorporate the new generics that may be added to the May FRF. Therefore, CMS

cautions plan sponsors that any newly added drugs on the May release of the 2017 FRF will not

be included in the 2017 OOPC model.

CMS will continue to offer a summer formulary update; however, formulary changes during this

particular update submission will be limited to: 1) the addition of drugs that are new to the

summer release of the FRF (historically posted in July); and 2) the submission of negative

changes on brand drugs, only if the equivalent generic is added to the summer FRF and

corresponding formulary file. Thus, plan sponsors need to carefully consider any newly added

drugs to the May release of the 2017 FRF, since additional limitations will be imposed on the

summer formulary update window. While moving the summer formulary update window later in

the year would result in more up-to-date formulary information, this benefit must be weighed

against Part D sponsors’ ability to print marketing materials by necessary deadlines. We will,

however, investigate whether an additional HPMS formulary enhancement-only window is

possible for CY 2017.

Part D sponsors are reminded that they may enhance their formularies by adding Part D drugs

(with or without utilization management restrictions), reducing beneficiary cost-sharing, or

removing utilization management edits between the summer update window and the first HPMS

submission of the upcoming plan year. Consistent with section 60.5 of the Medicare Marketing

Guidelines, these enhancements must be included in the Part D sponsor’s marketing materials

and must be submitted during the next available HPMS formulary submission

window. Sponsors are encouraged to notify beneficiaries of formulary additions in a timely

manner since in some cases, such as new generics, an earlier conversion could lead to better

value for the beneficiary and potentially reduce program costs.

In an effort to better align plan sponsors’ submission of quantity limits (QLs) with CMS’ review,

a new column will be added to the HPMS-posted FRF that indicates the unit for which sponsors

must submit their QLs. While the vast majority of submitted QLs, such as those for solid oral

dosage forms are straightforward, this additional information will be useful for products such as

kits that contain prefilled syringes. The HPMS formulary submission will not be validated

against this field. Rather, it will serve as a point of reference for CMS and Part D sponsors

during the review of submitted QLs. Finally, we are evaluating the feasibility of including an

informational column on the FRF that would periodically track price changes for FRF drugs.

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Appropriate Utilization of Prior Authorization Requirements to Determine Part D

Drug Status

Consistent with 42 CFR §423.153(b), CMS reminded sponsors in the 2015 Call Letter that they

must establish utilization management controls, such as prior authorization (PA), in order to

reduce costs and to prevent inappropriate utilization of prescribed medications under Part D.

Currently, we permit Part D sponsors to implement point of sale (POS) PA edits to determine

whether a drug is: 1) covered under Medicare Parts A or B; 2) being used for a Part D medically-

accepted indication (MAI) (as defined in section 1860D-2(e)(4) of the Social Security Act); or 3)

a drug, drug class, or has a medical use that is excluded from coverage or otherwise restricted

under Part D as defined in section 1860D-2(e)(2) of the Act (e.g., when used for cosmetic

purposes or hair growth). While CMS allows sponsors to implement these PAs during transition

(either for new enrollees into a plan or for current enrollees affected by formulary changes) to

prevent Part D coverage for excluded drugs or for non-medically-accepted indications of Part D

drugs, sponsors continue to be confused about which POS PA edits are permitted during

transition. Section 30.4.8 of Chapter 6 of the Prescription Drug Benefit Manual (available at

https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovContra/

Downloads/Part-D-Benefits-Manual-Chapter-6.pdf) discusses edits for transition fills. The

requirements for Part D sponsors to limit coverage to Part D drugs and Part D medically-

accepted indications, assist in preventing over-utilization and under-utilization of prescribed

medications, and utilize quality assurance measures and systems to reduce medication errors and

adverse drug interactions and improve medication use apply regardless of the transitional status

of an enrollee’s medication(s). In other words, POS PA edits for such purposes are appropriate

even during transition.

The 2015 Call Letter encouraged sponsors to utilize PA for drugs that have a high likelihood of

use for a non-medically-accepted indication. Section 10.6 of Chapter 6 of the Prescription Drug

Benefit Manual discusses medically-accepted indication (available at:

https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovContra/

Downloads/Part-D-Benefits-Manual-Chapter-6.pdf)

The 2015 Call Letter specified Transmucosal Immediate Release Fentanyl (TIRF) products and

Cialis as examples of drugs that have a high likelihood of use for non-medically-accepted

indications. Our guidance is focused on those drugs that pose the greatest risk for non-medically

accepted indications, and, therefore, CMS does not expect to see POS PA edits during transition

to determine the indication on most Part D drugs.

Coverage duration is a required component of criteria that are submitted to CMS as part of the

formulary review process for PA approval. Sponsors often approve criteria for the duration of

the plan year or for one calendar year from the initial approval date. Once a PA is approved,

sponsors are not prohibited from utilizing “grandfathering” policies that allow beneficiaries to

receive a drug from year to year without a requirement to satisfy the PA criteria in the future. In

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general, policies that facilitate appropriate access to medications for beneficiaries with chronic

conditions are looked upon favorably by CMS. However, if such policies are implemented for

products that have significant safety concerns and the high potential for non-MAI use (e.g., TIRF

drugs), we expect sponsors to periodically confirm that beneficiaries continue to use these drugs

for medically-accepted indications. This confirmation can be accomplished by establishing

limits to the “grandfathering” processes for these drugs or through robust retrospective drug

utilization review processes. This expectation would also apply to cases where members are

moving across plans or when a new PBM is being utilized, for example.

Medication Therapy Management (MTM)

Annual MTM Eligibility Cost Threshold

Targeted beneficiaries for a Part D plan’s MTM program, in general, are enrollees who meet all

of the following criteria: have multiple chronic diseases, are taking multiple Part D drugs, and

are likely to incur annual Part D drug costs that meet or exceed a certain threshold. Per

§423.153(d), for 2012 and subsequent years, the annual cost threshold for targeting beneficiaries

is specified as costs for covered Part D drugs in an amount greater than or equal to $3,000

increased by the annual percentage specified in §423.104(d)(5)(iv). The 2016 MTM program

annual cost threshold is $3,507. The 2017 MTM program annual cost threshold is updated for

2017 using the annual percentage increase of 11.75%, as specified in the Calendar Year (CY) 2017

Medicare Advantage Capitation Rates and Medicare Advantage and Part D Payment Policies.

Therefore, the 2017 MTM program annual cost threshold is $3,919.

Annual MTM Submission and Approval Process

A memo containing MTM program guidance and submission instructions is released each year

by CMS and is available on the CMS.gov MTM page at: https://www.cms.gov/Medicare/

Prescription-Drug-Coverage/PrescriptionDrugCovContra/MTM.html. The guidance memo for

CY 2017 will be released approximately one month before the 2017 MTM program submission

deadline. The CY 2017 guidance memo will include the MTM program submission template.

Questions regarding the MTM submission process or policy may be sent via email to

[email protected].

Annually, Part D plan sponsors must submit an MTM program description to CMS through the

Health Plan Management System (HPMS) for review and approval. CMS evaluates each

program description to verify that it meets the current minimum requirements for the program

year.

Due to enhancements to the HPMS MTM submission module and expanded guidance and

submission instructions over the years, MTM program submissions have increasingly high rates

of initial approval. Beginning with the CY 2017 submissions, we will implement a modified

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annual MTM program review process and add attestations to the HPMS submission module as

described below.

 All Part D sponsors will continue to submit an MTM program description through

HPMS each year. Sponsors will continue to submit change requests throughout the

year.

 Attestations of the Part D sponsor’s compliance with Part D MTM program

requirements will be added to the MTM submission module in HPMS. The

attestation will be included in the CY 2017 guidance memo.

 Sponsors must attest to meeting the MTM program requirements during the annual

submission. Sponsors must re-attest when they submit change requests. The MTM

Attestation must be completed via HPMS by the Chief Executive Officer (CEO),

Chief Operating Officer (COO), or the Chief Financial Officer (CFO).

 A subset of MTM program submissions will be comprehensively reviewed including:

o Any new contracts;

o Any contracts whose MTM submission failed initial review the prior year;

o Any contracts that failed reporting requirements data validation or audit for

MTM (when implemented);

o Any contracts that scored less than 3 stars on the MTM comprehensive

medication review completion rate measure; and

o Any contracts selected based on a random sample of other program submissions.

The Annual Calendar in this Call Letter highlights key dates for the submission of MTM

programs and attestations, as applicable. Of note, the attestation deadline is two weeks after the

deadline for submission of CY 2017 MTM programs in HPMS. We will continue to monitor

beneficiary complaints, validation results of plan-reported MTM data, and CMS program audits

of MTM programs.

Submission Requirements for Enhanced MTM Model Participants

The CMS Center for Medicare and Medicaid Innovation announced the Part D Enhanced MTM

Model, an opportunity for stand-alone basic Prescription Drug Plans (PDPs) in selected regions

to offer innovative MTM programs, aimed at improving the quality of care while also reducing

costs. More information about the model test is available at https://innovation.cms.gov/

initiatives/enhancedmtm/.

The Enhanced MTM Model test will begin January 1, 2017 with a five-year performance

period. CMS will test the model in 5 Part D regions: Region 7 (Virginia), Region 11 (Florida),

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Region 21 (Louisiana), Region 25 (Iowa, Minnesota, Montana, Nebraska, North Dakota, South

Dakota, Wyoming), and Region 28 (Arizona). Eligible defined standard, actuarially equivalent,

or basic alternative stand-alone PDPs in these regions, upon approval from CMS, can vary the

intensity and types of MTM items and services based on beneficiary risk level and seek out a

range of strategies to individualize beneficiary and prescriber outreach and engagement.

The current MTM requirements are waived for the PBPs approved to participate in the Enhanced

MTM Model and data on participating PBPs must not be reported per the Part D Reporting

Requirements under the current MTM program. This MTM data will instead be reported in

accordance with model terms and conditions.

Plan sponsors with contracts that include PBPs that are not eligible to participate in the model

must ensure that those non-participating plans comply with all standard MTM program

requirements, including the submission of MTM program details in HPMS. More information

will be provided in the CY 2017 guidance memo.

Part D Reporting Requirements for MTM

For monitoring purposes, Part D sponsors are responsible for reporting several data elements to

CMS related to their MTM program per the Part D Reporting Requirements. Element X,

“Topics discussed with the beneficiary during the comprehensive medication review (CMR),

including the medication or care issue to be resolved or behavior to be encouraged,” is suspended

for the 2016 Part D Reporting Requirements until a more standardized set of data can be

collected.

The industry, including the Pharmacy Quality Alliance (PQA) and the Academy of Managed

Care Pharmacy (AMCP), is working on a framework to define drug therapy problems (DTPs).

Once finalized by industry, sponsors should begin to develop the capacity to collect and report

drug therapy problems using a standard framework and common terminology. Also, after

industry development, we will consider proposing new MTM data elements for the Part D

Reporting Requirements through the Paperwork Reduction Act (PRA) process as early as the

2018 Part D Reporting Requirements to capture drug therapy problems at the beneficiary-level

using standard categories and definitions. This process allows for public comment.

Improving Clinical Decision-Making for Certain Part D Coverage Determinations

In the draft Call Letter, CMS solicited stakeholder feedback on potentially proposing regulatory

changes that would permit Part D plans to extend the adjudication timeframe for certain coverage

determination requests for drugs subject to prior authorization (PA) or step therapy (ST) where

the plan has been unable to obtain needed clinical information from the prescriber and the

adjudication timeframe has been impacted by a weekend or holiday. We received numerous

comments from a range of stakeholders in response to our request, and thank all commenters for

their helpful feedback. Almost all commenters were strongly supportive of our goal to ensure

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that coverage determinations are made with the benefit of all information and clinical

documentation necessary for making a correct and clinically sound decision as quickly as

possible and, whenever possible, at the initial coverage determination level.

About half the comments we received were from Part D plan sponsors and PBMs. Most were in

favor of longer timeframes, but many expressed concerns that the limitations we suggested

would be confusing, as well as costly and difficult for plans to implement. Several plans and

PBMs noted that the problem of prescribers not responding to requests for additional information

is not limited to weekends and holidays, and a few stated that providing a short extension will

not likely resolve the problem of non-responsive prescribers. Some commenters expressed

concern that the Part D adjudication timeframes, even with a limited extension, would be too

short to allow for written notice of the extension without causing significant confusion, since the

written notice would be likely to arrive in the mail after the plan has rendered a decision and

provided verbal notification to the enrollee. Commenters also noted that implementation of an

extension for some types of coverage determinations, along with tolling of exception requests for

prescriber supporting statements, would create additional implementation difficulties.

For the reasons described above, most plans and PBMs that supported implementation of

extensions in Part D sought more expansive opportunities to extend the timeframes, including

allowing both tolling and extensions, allowing extensions for all coverage determinations,

eliminating the written notice requirement to the beneficiary, extending the adjudication

timeframes for standard and/or expedited cases by adding 24 or 48 hours, or advocated changes

that would allow tolling for all coverage determinations where the timeframe does not begin until

all information is received. A few plans urged CMS to immediately proceed with proposed

rulemaking that would provide longer timeframes.

Some plans and PBMs expressed concerns that CMS must ensure the use of extensions does not

adversely affect beneficiary access, and a few recommended that extensions not be allowed for

expedited requests. A few commenters believed that prescribers are more likely to respond to a

denial notice than a request for information, suggesting that issuing the denial rather than

delaying the decision may actually reduce any delay in accessing needed medications. One PBM

recommended that CMS approach this issue by urging network MA-PD and Medicare-enrolled

prescribers to be more accountable to beneficiaries when seeking coverage of a needed drug.

We received several comments from beneficiary and patient advocacy organizations, which were

also in favor of informed decision-making, but expressed significant concerns about potential

overuse of extensions and adverse impact on beneficiary health. These commenters agreed with

CMS statements in the draft Call Letter that any extensions would have to be carefully limited to

protect beneficiary access to drugs. Some commenters did not support extensions for expedited

requests. Beneficiary advocates strongly supported testing a potential policy change through a

pilot or demonstration that is open to stakeholder feedback in its design and includes benchmark

testing.

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Comments received from pharmacies and manufacturers were mixed, with some support for

allowing sufficient time to obtain missing information and reduce rejected claim and appeals

volumes, but they also urged CMS to establish clear rules and safeguards to avoid unnecessary

delays and adverse impact on beneficiary health status. LTC pharmacies opposed extensions,

noting existing payment issues due to their requirement to dispense; further delays would cause

additional payment issues. Pharmaceutical manufacturers opposed extensions for expedited

requests because of the risk of beneficiary harm.

We received comments from a few prescriber organizations. Prescribers are opposed to

utilization management generally because they believe it does not improve quality of care and

requires too much time and paperwork. Commenters expressed concern that delays in approval

can delay or interrupt treatment and result in beneficiary harm. One commenter argued that

plans would use extensions when they failed to conduct appropriate outreach to the prescriber.

After review of all comments submitted, CMS does not intend to move forward with any

proposed regulatory changes for extensions in Part D at this time. As we stated in the draft Call

Letter, we recognize the challenge posed by the short adjudication timeframes for plans to

successfully obtain needed information from prescribers and provide a fully informed decision

within the timeframe. However, we agree with the commenters who noted that written notice of

the extension—an important beneficiary protection—would not be feasible, and that the

limitations we suggested could be confusing for plans, beneficiaries and prescribers, and difficult

for plans to implement and oversee effectively. We also agree with the numerous commenters

who expressed concerns about making broader changes to adjudication timeframes, including a

more expansive extension opportunity, given the more immediate need for access to drug therapy

and that fact that coverage must be approved before the enrollee can access the drug.

Acknowledging the challenges inherent in existing timeframes, we also recognize the limitations

we have in extending those timeframes while still complying with the statutory requirement for

timely determinations that emphasize the health needs of the beneficiary. This is particularly

true for expedited requests, where the prescriber or the plan has determined that taking additional

time to render a decision could seriously jeopardize the life or health of the beneficiary. While

retaining existing requirements, which do not allow extensions, may increase the likelihood that

plans will have to deny requests to meet the timeframes, we believe that there is great value in

the enrollee receiving the standardized denial notice that includes a written denial rationale and

an explanation of the appeals process.

While we do not intend to move forward with any rulemaking to allow extensions in Part D,

CMS will continue to explore how we might assist plans and PBMs in providing fully informed

coverage determinations, limiting unnecessary denials, and avoiding delays that could potentially

cause beneficiary harm. After consideration of the comments received on the draft Call Letter,

we intend to direct our efforts on reducing the volume of coverage determination requests that

are initially incomplete, including exploring how increased use of electronic health records and

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other technology could make the information needed from prescribers more accessible outside of

business hours; encouraging the increased use of e-prescribing and e-prior authorization to

increase dissemination of plan formularies to prescribers at the point of care; and leveraging

MA-PD plan contracting arrangements with network providers who are prescribing Part D drugs.

CMS is currently developing additional subregulatory guidance to help ensure that Part D plan

sponsors are consistently conducting appropriate outreach to prescribers to obtain missing

information and make informed decisions within the existing Part D timeframes.

Some plans and PBMs who commented on this proposal included related plan data, e.g., rates of

adverse coverage determinations based on missing information and rates of appeals of those

denials. We want to particularly thank those commenters for providing this information as we

continue to contemplate how we might improve clinical decision-making as early as possible in

the coverage and appeals process.

Access to Preferred Cost-Sharing Pharmacies

In the CY 2016 Call Letter, CMS announced several steps we would take to address low access

to preferred cost-sharing pharmacies (PCSPs). First, we announced that we would post

information about 2016 PCSP access levels on the CMS website. Second, we announced that we

would require plans who were outliers with respect to access to PCSPs to disclose that their

plan’s PCSP network offered lower access than other plans. Outliers were set at the bottom 10

percentile compared to all Part D plans in a given geographic type, using 2014 data. CMS

required marketing materials to include specific disclaimer language for plans offering access

within 2 miles of less than 40% of beneficiaries’ residences in urban areas, within 5 miles of less

than 87% of beneficiaries’ residences in suburban areas, and within 15 miles of less than 70% of

beneficiaries’ residences in rural areas. Finally, we announced that we would work with plans

that were extreme outliers to address concerns about beneficiary access and marketing

representations relating to preferred cost-sharing. We worked with several such plans to either

improve access or develop targeted marketing strategies to ensure that beneficiaries selecting

these plans were aware of their status as extreme outliers.

CMS is pleased to note that plans increased PCSP access dramatically for 2016. As shown in the

table below, the bottom 10

percentile of plans in 2016 offer access within two miles to 71% of

urban beneficiaries, compared to 40% in 2014.

Table 17. PCSP Access Rates for the Bottom 10

Percentile of Plans, 2014 through 2016

2014

2015

2016

Convenient Access Standard

for All Retail Pharmacies

Urban Access Rate

40%

62%

71%

90%

Suburban Access Rate

87%

92%

95%

90%

Rural Access Rate

77%

82%

70%

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Because we believe the current policy is increasing access to PCSPs, we do not plan to make

significant changes for 2017. Specifically, we will not change the outlier thresholds for 2017 to

reflect the higher access levels achieved for 2016.

Therefore, CMS will continue its PCSP policy as announced in the 2016 Call Letter and

implemented for the 2016 plan year. Plans that provide PCSP pharmacy access within 2 miles of

less than 40% of beneficiaries’ residences in urban areas, within 5 miles of less than 87% of

beneficiaries’ residences in suburban areas, and within 15 miles of less than 70% of

beneficiaries’ residences in rural areas will be identified as outliers in 2017. Outlier plans will be

required to disclose in marketing materials, including websites, that their plans’ PCSP networks

offer lower access. Contract Year 2016 disclaimer language was announced in the June 24, 2015

HPMS memo “Marketing Disclaimer Language for Plans with Limited Access to Preferred Cost-

Sharing Pharmacies,” and in the final “Medicare Marketing Guidelines” released on July 2,

2015. CMS continues to expect that plans will analyze their own 2016 and 2017 networks to

determine whether they are below outlier thresholds. CMS will analyze preferred cost-sharing

pharmacy access on a quarterly basis and will remind plans of their outlier status periodically.

CMS will also continue to work with extreme outliers to address concerns about beneficiary

access and marketing representations related to preferred cost-sharing. CMS will notify these

plans in or around April 2016 that we plan to address 2017 PCSP access issues with them during

bid negotiations. In 2016, most plans identified as extreme outliers opted to improve access

rather than develop marketing plans to better inform beneficiaries of low PCSP access. We

anticipate plans will take similar steps during 2017 negotiations.

We will continue to publish information about PCSP access levels annually on the CMS website

at: https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovContra/

index.html. We will also explore the feasibility of incorporating this information into the

Medicare Plan Finder in the future.

Sponsors that fail to include required marketing disclosure language and/or do not meet the terms

of bid negotiation agreements will be subject to compliance and/or enforcement actions.

Part D Benefit Parameters for Non-Defined Standard Plans

Each year, in order to implement certain regulations, we set forth certain benefit parameters,

which are based on updated data analysis, and therefore, are subject to change from year to year.

Specifically, pursuant to §423.272(b)(3)(i), CMS will only approve a bid submitted by a Part D

sponsor if its plan benefit package (other than defined standard) or plan cost structure is

substantially different from those of other plan offerings by the sponsor in the service area with

respect to key characteristics such as premiums, cost-sharing, formulary structure, or benefits

offered; and, pursuant to 42 CFR §423.104(d)(2)(iii), tiered cost-sharing for non-defined

standard benefit designs may not exceed levels annually determined by CMS to be

discriminatory. The benefit parameters for CY 2017 are set forth in Table 19 below.

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Adjustments to the Minimum Meaningful Difference and specialty tier thresholds are described

below. The other cost-sharing thresholds are established consistent with previous years

methodology based on the 95th percentile of the CY 2016 Bid Data. For CY 2017, we will be

maintaining the copayment cost-sharing thresholds without the inflation adjustment.

Tier Labeling and Composition

We again remind sponsors that we expect Drug Tier Labels to be representative of the drugs that

make up that tier. However, we have received a number of plan sponsors’ comments via the

2016 Call Letter and in response to the Request for Comments on Non-Defined Standard Plan

Tier Models for CY 2017, solicited through a HPMS memo in June 2015, recommending that

CMS provide a non-preferred drug tier option that will allow for a drug mix regardless of

generic/brand status. Based on the comments received and as part of our continued efforts to

provide tier label options that provide flexibility and transparency in benefit design, CMS

included additional tier models for CY 2017 with a non-preferred drug tier option. The details of

CY 2017 tier model options are included in the CY 2017 Plan Benefit Package Software and

Formulary Submission PRA information collection request, now pending approval at the Office

of Management and Budget, Office of Information and Regulatory Affairs. This information

collection request is available on the CMS website at: https://www.cms.gov/Regulations-and-

Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS-R-262.html?

DLPage=4&DLEntries=10&DLSort=1&DLSortDir=descending.

With the addition of a non-preferred drug tier, sponsors will have the option of selecting a non-

preferred drug tier or non-preferred brand tier but not both. If sponsors continue to use a non-

preferred brand tier, CMS will evaluate the brand/generic composition of that tier as part of the

bid review process. Non-preferred brand tier outliers will be communicated for any plans that do

not have a majority of brand drug products in that tier.

Table 18. 2015 Prescription Drug Event Data

2015 PDE Data

Average of % Beneficiary Cost-Share

Generic Drugs

Brand Drugs

All Drugs

Non-Preferred Brand Total

32.56%

20.77%

22.81%

Plan w/ Copay

35.75%

19.90%

22.48%

Plan w/ Coinsurance

26.02%

22.72%

23.54%

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CMS review of preliminary 2015 prescription drug event data (PDE) (Table 18.) showed that

beneficiaries pay a lower cost-share for generics in plans that have a coinsurance cost-sharing

structure (26.02%) for their non-preferred brand tier than in plans that use a copay cost-sharing

structure (35.75%). Overall, on average for all drugs on the non-preferred brand tier, there was

no substantial difference in beneficiary cost-sharing between plans that use a copay cost-sharing

structure and those that use coinsurance. However, based on industry comments received, it is

our understanding that the new non-preferred drug tier likely will contain a greater proportion of

generic drug products than the current non-preferred brand tier composition. While we

appreciate that generic drug price increases are changing the paradigm, we also acknowledge that

sponsors may include lower cost generics on the non-preferred drug tier in an effort to balance

the brand/generic drug composition of the tier and maintain actuarial equivalence. As cost trends

in the Part D program are increasingly driven by high cost drugs it is important that we consider

policy impacts on beneficiaries with lower overall drug costs. In the draft Call Letter, we

proposed that Part D sponsors consider the use of a coinsurance structure for the non-preferred

drug tier instead of a copay. While the analysis outlined above in Table 18 demonstrated

reduced cost-sharing for generics on non-preferred brand tiers with coinsurance cost structures,

we did receive comments that suggest beneficiaries tend to prefer copay structures and that Part

D sponsors would like to continue to have options in their benefit design. We recognize that

there are advantages and disadvantages of copay/coinsurance cost-sharing structures, including

the consistency that a copay structure offers to beneficiaries. As such, CMS will allow Part D

sponsors the flexibility to determine what cost-sharing structure is most appropriate for their

benefit design. We will expect, however, that sponsors evaluate, and be prepared to demonstrate

if necessary, that the cost-sharing structure chosen provides a value for beneficiaries. During the

first year of implementation and until further notice, CMS will conduct an outlier test for those

Part D sponsors who choose a copay for the non-preferred drug tier, to determine if beneficiaries

will receive a benefit for drugs on this tier at the proposed copay. Moving forward, we will

continue to evaluate the type and level of cost-sharing that is most appropriate for this tier and

that balances the Part D sponsor’s ability to mix brand and generic drugs within a tier while

maintaining transparency and a meaningful benefit offering for the beneficiaries who enroll in

plans with non-preferred drug tiers.

A few commenters requested guidance on how to handle tiering exceptions for the non-preferred

drug tier option. Sponsors should refer to existing tiering exception guidance, which can be

found at 42 CFR §423.578(a) and in Chapter 18, section 30.2.1 of the Prescription Drug Benefit

Manual. This guidance is applicable to this new tiering option. Tiering exceptions allow an

enrollee to request coverage of a drug in a higher cost-sharing tier at the more favorable terms

applicable to drugs in a lower cost-sharing tier provided certain conditions are met. The

applicability of a tiering exception is generally not determined by the name of the tier (e.g.,

Preferred Generic, Non-Preferred Brand), but rather by the drugs included on that tier, the

availability of therapeutically equivalent drugs on the plan sponsor’s formulary, and a

determination by the plan, based on the prescriber’s supporting statement, that the drug in the

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lower cost-sharing tier for the treatment of the enrollee’s condition 1) would not be as effective

as the requested drug in the higher cost-sharing tier and/or 2) would have adverse effects.

For purposes of determining whether coverage gap cost-sharing thresholds specified in Table 19

have been met, we will continue to rely on the FDA marketing status to identify formulary drugs

as applicable or non-applicable. The maximum coinsurance of 60% applies to tiers that contain

only applicable drugs. If non-applicable (i.e., generic) drugs or a combination of both generic

and applicable drugs are on a tier, then the maximum coinsurance of 31% applies. We remind

sponsors that when cost-sharing reductions beyond the standard benefit are offered through a

supplemental Part D benefit, the plan liability is applied to applicable drugs for applicable

beneficiaries before the manufacturer discount.

Benefit Review

We will continue to scrutinize the expected cost-sharing amounts incurred by beneficiaries under

coinsurance tiers in order to more consistently compare copay and coinsurance cost-sharing

impacts. If a sponsor submits coinsurance values (instead of copayment values) for its non-

specialty tiers that are greater than the standard benefit of 25%, we will compare the average

expected cost-sharing amounts submitted by sponsors in the PBP to the established copay

thresholds to determine whether the coinsurance values are discriminatory. Please note that we

will conduct the same cost-sharing analysis for the Select Care/Diabetic Drug Tiers, even though

the maximum allowable coinsurance value is less than 25%. We will also continue to disallow

incentives such as $0 or very low cost-sharing for 30 day supplies at mail service, unless offering

the same cost-sharing at the retail network.

Despite ACIP recommendations and Healthy People 2020 targets, adult immunization rates still

remain low. We encourage Part D sponsors to consider offering $0 or low cost-sharing for

vaccines to promote this important benefit. While the inclusion of a dedicated vaccine tier or a

Select Care/Select Diabetes tier that contains vaccine products as part of a 5 or 6 tier formulary

structure is not a requirement, sponsors who choose to offer one of these formulary tiers must set

the cost-sharing at $0 for that tier. This policy is unchanged from CY 2016.

Over the last three years, we have seen a continuing decrease in the 95

percentile meaningful

difference between basic and enhanced alternative (EA) plans which indicates there is a

decreasing differential between basic and EA plan drug benefits. In order to continue to drive

the participation of plans that provide distinct product offerings, CMS will use a meaningful

difference threshold based on the 50

percentile for CY 2017 instead of the 95

percentile. As a

result of the closing of the coverage gap, the change for CY 2017 to the 50

percentile is

necessary to maintain an OOPC differential within the range of the original meaningful

difference threshold. Specifically, the meaningful difference threshold will be based on the 50

percentile of the October CY 2016 Bid Data run through the CY 2016 OOPC MPF model which

incorporates CY 2016 Formulary Data, 2010/11 MCBS Data, and FDA data for brand/generic

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determinations related to coverage gap cost-sharing estimates. In contrast to the continuing

decrease in the 95

percentile meaningful difference between basic and EA plans, we have seen

a continuing increase in year over year meaningful difference between EA to EA plans. The

increase in meaningful difference between EA to EA plans makes it more challenging for plan

sponsors to offer second EA plans. For CY 2017, we will also use the 50

percentile, instead of

the 95

percentile, to establish the meaningful difference threshold between EA to EA plans to

lessen the impact of EA to EA differences year over year and help maintain stability in the

program.

Therefore, in 2017 the minimum monthly cost-sharing OOPC difference between basic and

enhanced PDP offerings will be $23 and the minimum monthly cost-sharing OOPC difference

between enhanced PDP offerings will be $34. These values remain in close range of those

established originally for this policy in 2012.As in the past, these meaningful difference

requirements apply to all stand-alone PDPs, including those belonging to sponsors under a

consolidation plan. We also continue to expect that the additional EA PDPs within a service area

will have a higher value than the first EA plan and will include additional gap cost-sharing

reductions for at least 10 percent of their formulary brand drugs.

In the CY 2012 Call Letter CMS explained that it does not believe that sponsors can demonstrate

meaningful differences based on expected OOPCs between two stand-alone basic Part D benefit

designs while maintaining both the statutory actuarial equivalence requirements and fulfilling the

requirement to maintain cost effective drug utilization review programs. As we approach CY

2020 and the coverage gap closes, CMS believes that Part D sponsors will find it difficult to

maintain three plans (a basic and at most two EA plans) that will meet the meaningful difference

test between all plans when the coverage gap is closed. Therefore, CMS encourages plan

sponsors to consider the impact of the coverage gap closing on their current and future plan

offerings to minimize future beneficiary disruption. We expect that for CY 2017 our application

of the meaningful difference standard will still allow us to approve up to 3 plan benefit packages

(1 basic and at most, two enhanced plans).

The methodology for developing the CY 2017 out-of-pocket costs (OOPC) model is consistent

with last year’s methodology. For more information, please reference the HPMS memorandum

dated December 18, 2015 titled “Medicare Plan Finder (MPF) Plan Version (V1) of Out-of-

Pocket Cost (OOPC) Model for CY 2016 and Updated Total Beneficiary Costs (TBC) Data

Released on HPMS.” Customary updates for utilization data, as well as PBP and formulary data

used for CY 2017 bid submissions, are also included in the 2017 model.

In the 2016 Call Letter, we proposed instituting a Total Beneficiary Cost (TBC) measure for

PDPs, similar to what has been in place for MAOs. The proposed change was intended to meet

CMS’s goals of establishing a more transparent and predictable process that beneficiaries can use

to select plans that meet their health care needs, while also being protected from high or

unexpected cost-sharing. After completing analysis and engaging in discussions with

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stakeholders, CMS will not implement for CY 2017 an out-of-pocket cost (OOPC) or market

basket approach to set thresholds for increases in cost-sharing and premiums whereby we would

deny Part D plan bids with significant increases, pursuant to our authority in Section 3209 of the

Affordable Care Act. Instead CMS will calculate and publish the Part D TBC to support

transparency related to the out-of-pocket beneficiary costs year over year.

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Table 19. Benefit Parameters

CY 2017 Threshold Values

Minimum Meaningful Differences (PDP Cost-Sharing OOPC)

Enhanced Alternative Plan vs. Basic Plan

$23

Enhanced Alternative Plan vs. Enhanced Alternative Plan

$34

Maximum Copay: Pre-ICL and Additional Cost- Sharing Reductions in

the Gap (3 or more tiers)

2,3

Preferred Generic Tier

<$20

Generic Tier

$20

Preferred Brand/Brand Tier

$47

Non-Preferred Drug Tier

$100

Non-Preferred Brand Tier

$100

Injectable Tier

$100

Select Care/Diabetic Tiers

$11

Maximum Coinsurance: Pre-ICL (3 or more tiers)

2,3

Preferred Generic Tier

25%

Generic Tier

25%

Preferred Brand/Brand Tier

25%

Non-Preferred Drug Tier

50%

Non-Preferred Brand Tier

50%

Injectable tier

33%

Select Care/Diabetic Tiers

15%

Maximum Coinsurance: Additional Cost-Sharing Reductions in the

Gap for Applicable Beneficiaries (all tier designs)

Preferred Generic Tier

31%

Generic Tier

31%

Preferred Brand/Brand Tier

60%

Non-Preferred Drug Tier

60%

Non-Preferred Brand Tier

60%

Injectable Tier

60%

Select Care/Diabetic Tiers

60%

Minimum Specialty Tier Eligibility

1-month supply at in-network retail pharmacy

$670

The Enhanced Alternative Plan to Basic Plan meaningful difference minimum threshold is based on the 50

percentile of

the October CY 2016 Bid Data run through the CY 2016 OOPC MPF model which incorporates CY 2016 Formulary Data,

2010/11 MCBS Data, and FDA data for brand/generic determinations related to coverage gap cost-sharing estimates. For each

parent organization, any cost-sharing OOPC comparison between a basic plan and EA plan in the same region must meet the

minimum Enhanced Alternative Plan vs. Basic Plan threshold. For each parent organization, any cost-sharing OOPC

comparison between two EA plans in the same region must meet the threshold established annually by CMS.

These thresholds are based on the 95

percentile of the CY 2016 Bid Data. As in previous years, we will also set similar

thresholds for plans with atypical tiering structures, such as a two tier formulary.

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“S” in the above chart refers to “standard retail cost-sharing” at a network pharmacy. Standard retail cost-sharing (S) is cost-

sharing other than preferred retail cost-sharing offered at a network pharmacy.

Cost-sharing for the Preferred Generic Tier need only be lower than that for the cost-sharing of the Generic Tier. There is not

a separate maximum cost-share threshold for the Preferred Generic Tier.

The Select Care Drug and Select Diabetic Drug Tiers must provide a meaningful benefit offering with low or $0 beneficiary

cost-sharing for drugs targeting specific conditions (e.g., $0 tier for drugs related to diabetes and/or smoking cessation). The

coinsurance threshold for these tiers is derived from an average expected copayment amount using PDE data for drugs

submitted on preferred cost-sharing tiers. As noted earlier in this section, we continue to expect cost-sharing for the Vaccine

tier, or Select Care/Select Diabetes tiers that contain vaccines, to be $0.

Additional gap cost-sharing reductions for applicable beneficiaries are communicated in the PBP at the tier level and

sponsors may elect to provide this gap benefit for all drugs on a tier (full tier coverage) or a subset of drugs on a tier (partial

tier coverage). If the additional gap cost- sharing reduction benefit for a brand labeled tier applies to only non-applicable (i.e.,

generic) drugs or both generic and applicable drugs on that tier, then the generic drug beneficiary coinsurance maximum of

31% applies. Injectable, Specialty, Select Care and Select Diabetic Drug labeled tiers for which additional gap coverage is

offered, if any, will be analyzed in the same manner as brand labeled tiers with respect to beneficiary coinsurance maximums.

Note, the beneficiary coinsurance maximums for the coverage gap reflect the plan liability, but exclude the 50% manufacturer

discount for applicable drugs.

Specialty Tiers

Per 42 CFR 423.578 (a)(7), if a Part D plan sponsor maintains a formulary tier (the specialty tier)

in which it places very high cost and unique items, such as genomic and biotech products, the

sponsor may design its exception process so that very high cost or unique drugs are not eligible

for a tiering exception. Only Part D drugs with sponsor-negotiated prices that exceed an

established dollar-per-month threshold are eligible for specialty tier placement. The current cost

threshold of $600 was established in CY 2008.

In order to make sure that a Part D sponsor does not substantially discourage enrollment by

specific patient populations reliant upon these medications, CMS will only approve specialty

tiers within formularies and benefit designs that meet the standards set forth in Section 30.2.4 of

Chapter 6 of the Prescription Drug Benefit Manual. Part D sponsors offering prescription drug

benefit plans with a specialty tier are limited to the defined standard cost-sharing of 25%, if the

plan requires the standard deductible, and up to 33% cost-sharing if no deductible is required, or

some percentage in-between dependent on a decreased deductible. In return Part D sponsors are

shielded from tier exceptions for the most expensive drugs, and as a result would not need to

increase their bids or their Part D premiums to maintain actuarial equivalence.

As noted in the CY 2016 Call Letter, we continue to evaluate the specialty tier eligibility cost

threshold. The current $600 threshold repeatedly identified outlier prescription drug event

(PDE) data – less than one percent of 30 day equivalent fills exceeded $600. However, initial

analyses of 2015 PDE indicate that this percentage now slightly exceeds one percent. This,

coupled with the significant increase in the cost of Part D drugs since the last adjustment to the

specialty tier threshold, supports an increase in the specialty tier threshold for CY 2017. To

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adjust the threshold, we propose applying the annual percentage increase used in the Part D

benefit parameter updates to the existing threshold. Thus, for CY 2017, the specialty tier cost

threshold will be $670. We may or may not increase the threshold on an annual basis moving

forward. Annually, we will test the proposed increased threshold and continue to perform other

analyses to assess whether threshold adjustments are necessary. To assist in future policy

decisions, we will also conduct a series of analyses to investigate 1) whether the inclusion of Part

D drugs on a specialty tier adversely affects drug utilization or enrollment decisions by certain

types of beneficiaries, and 2) the impact of tiering exceptions for specialty tier drugs.

To support CMS’s transparency initiatives, raise awareness, and educate beneficiaries on the cost

of prescription drugs and their impact on the Part D program, CMS intends to add a hyperlink on

the Medicare Plan Finder on Medicare.gov to the Medicare Drug Spending Dashboard, which is

published on CMS.gov, and estimates implementation for 2017 Open Enrollment in fall 2016.

Generic Tier $0 Copay Plans

Since the program began in 2006, use of lower cost generic alternatives by Medicare Part D

enrollees has been high and steadily increasing as single source drugs lose patent exclusivity.

However, low-income subsidy (LIS) enrollees continue to have lower use of generics compared

to enrollees without income subsidies. Lower generic use is often attributed to the small

differential between generic and brand drug copays legislatively mandated for LIS enrollees.

Changes in copay to increase cost differential between brand and generic drugs for LIS

beneficiaries requires Congressional authority; however, lowering the generic copay does not

and in 2012, 685 or 21.1% of plans offered generic-tier $0-copay plans. Of those 685 plans, 265

were PDP plans and 420 were MA-PD plans. We, therefore, explored the impact of enrollment

in generic-tier $0 copay plans on generic substitution rates between both LIS and Non-LIS

enrollees compared to enrollment in generic-tier non-$0 copay plans.

Using 2012 prescription drug event data, our analysis found that generic substitution rates (GSR)

for generic-tier $0 copay plans were 1.2 to 3.0 percentage points higher than in non-$0 copay

plans. This finding held true for both Enhanced PDP and MA-PD plans, and PDP Basic plans

for both LIS and non-LIS Part D populations. Within MA-PD Basic plans, GSR was not

statistically different for LIS or non-LIS populations, but there were very few MA-PD generic-

tier $0 copay basic plans. The lack of basic MA-PD plans is attributed to policy that does not

require MA plans to offer a basic plan if they offer an EA plan without a monthly supplemental

Part D premium in the same service area. Overall, if Part D enrollment were shifted from

generic-tier non-$0 into $0 copay plans, generic use could potentially increase. Even small

increases in generic use could mean significant savings to beneficiaries and to the Medicare Part

D program. However, our analysis is not without limitations. A complete description of the

study is found here: https://www.cms.gov/Medicare/Prescription-Drug-Coverage/

PrescriptionDrugCovGenIn/ProgramReports.html. At this time, CMS is providing these results

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as informational only and as an opportunity for further discussion on ways to increase generic

use in Part D and in particular, the LIS population.

CMS has seen an increase in the number of plans with deductibles in 2016 compared to 2015.

Some of these plans have a $0 cost-share for generic drugs but require the beneficiary to meet a

deductible prior to receiving generic medications for free. One option available to Part D

sponsors is to provide first dollar generic coverage for medications on the $0 generic copay tier

by exempting the $0 cost-sharing tier from the deductible. CMS encourages plan sponsors to

consider first dollar coverage for generic medications and other ways to increase generic use in

the Part D program.

Part D Employer Group Waiver Plans (EGWPs)

Since January 1, 2014, supplemental benefits provided by employer group waiver plans

(EGWPs) beyond the parameters of the defined standard benefit are always considered non-

Medicare other health insurance (OHI). (See 77 Federal Register 22072 (April 12, 2012); and 80

Federal Register 7912 (February 12, 2015).) As a result of this change, we have continued to

receive industry questions regarding the effect, if any, it had on other EGWP and Part D rules.

The purpose of this guidance is to clarify CMS requirements for EGWPs with respect to some

Part D rules involving plan design and formularies that consistently have been the focus of these

and other inquiries.

Section 1860D-22(b) of the Social Security Act gives CMS the authority to waive or modify Part

D requirements that hinder the design of, offering of, or enrollment in EGWPs. All Medicare

Part D requirements apply unless explicitly waived or modified by CMS, and the waivers are

only available to those EGWPs that meet the circumstances and conditions imposed as part of

those waivers. See 42 CFR §423.458(c)(3) and (4). In general, Part D sponsors cannot offer

EGWPs with combined benefits (i.e., Part D plus employer OHI) with lesser value than the basic

Part D benefit nor establish benefit designs that substantially discourage enrollment by certain

Part D eligible beneficiaries. EGWPs must follow Part D rules in cases in which the provision of

employer OHI is inextricably intertwined with drugs offered under the Part D benefit such that

the two cannot be separated as a practical matter. (See also January 25, 2013 HPMS memo

including Insurance Standards Bulletin Series guidance: “Because the Affordable Care Act has

increased basic Part D benefits in the coverage gap, as of 2013 there will be very few claims that

do not contain some basic Part D benefits and would not ultimately be governed (as a practical

matter) by the Part D regulations.”)

As conditions of the waivers identified below, we remind Part D sponsors of EGWPs of the

following: (Please note that other conditions may attach to these waivers.)

Waiver: Part D sponsors offering EGWPs are not required to submit the same bid packages in

their entirety as are Part D sponsors of individual plans. Prescription Drug Benefit Manual

(PDBM), Ch. 12, EGWPs, §20.9. (For details, see 2016 HPMS Memo entitled “Release of the

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2016 Plan Benefit Package and Bid Pricing Tool Software and Related Technical Bidding

Guidance for Part D Employer/Union-Only Group Waiver Plans” (April 10, 2015).

 EGWP benefits (meaning, the Part D benefits, taking into consideration employer OHI)

must continue to meet the following applicable actuarial standards in 42 CFR

§423.104(e):

o Deductible is limited to no greater than defined standard deductible;

o Total Benefit is at least actuarially equivalent to the basic Part D benefit; and

o Catastrophic Benefit is at least actuarially equivalent to the basic Part D

catastrophic benefit.