The Centers for Medicare & Medicaid Services has issued its final rules for payments to Medicare Advantage plans for Calendar Year 2024.  The final rules phase in changes to the determination of risk adjustment payments to the Medicare Advantage plans intended to reduce overbilling by these plans.  Medicare Advantage plans are among the most profitable lines of business for the nation’s health insurers.  And, Medicare Advantage plans have become increasingly popular, with over half of eligible Medicare beneficiaries choosing Medicare Advantage plans.

The government pays Medicare Advantage plans on a capitated per member per month basis, which payment is risk adjusted to account for a member’s diagnoses.  In short, the Medicare program pays higher capitated payments for members who are expected to require higher than average costs for medical care, incenting the plans to identify additional diagnoses not listed on providers’ claims for payment.  In audits, the government has found that many Medicare Advantage plans have significantly overbilled the Medicare program for risk adjustment payments and it has brought lawsuits seeking re-payment.

The new rules are an effort to reduce these overpayments by billions of dollars a year by reducing the number of diagnosis codes eligible for additional risk adjustment payments. Specifically, CMS eliminated diagnosis codes that had not been shown to result in additional costs for medical care. Originally, CMS had intended to make these changes immediately, but in the face of fierce lobbying by the plans that the cuts would force them to increase premiums or reduce benefits, the final rules phase in the cuts over three years. Even so, payments to Medicare Advantage plans are expected to increase by $13.8 billion or 3.32% in 2024.

In a press release announcing the final rules, CMS Administrator Chiquita Brooks-LaSure stated: “Paying Medicare Advantage plans more accurately for the care they provide is how we ensure that people enrolled in Medicare Advantage, especially populations with the highest health disparities and people in underserved communities, can continue to access the care they deserve.”

CMS’s press release also highlighted several other actions it has taken to hold Medicare Advantage plans accountable, including cracking down on confusing marketing, addressing problematic prior authorization practices that prevent timely access to care, and making it easier for beneficiaries to access behavioral health care.

CMS’s press release announcing the final rules is linked here.

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