CMS Advance Notice of Methodological Changes for Calendar Year (CY) 2025

Executive Summary Only, download document above for full article

The Centers for Medicare & Medicaid Services (CMS) Advance Notice of Methodological Changes for Calendar Year (CY) 2025 for Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies was recently released[1] accompanied by a summary fact sheet.[2] This is a particularly technical annual release which provides significant detail into model factors, however, this summary will primarily discuss the content related to growth percentages and MA/PD payment parameters changes proposed for the upcoming Calendar Year.

The Advanced Notice goes into detail regarding the underlying methodology used to determine growth rates (see download above), which we do not believe have changed significantly from the prior Advanced Notice. Items of interest include the impact on growth rates related to the continuation of the phase-in of the removal of medical education expenditures from growth rates, COVID-19 impacts, Inflation Reduction Act (IRA) impacts, and more information regarding the Supreme Court decision related to the 340B drug program.

Regarding the MA/Program of All-Inclusive Care for the Elderly (PACE) payment methodology, (see download above) CMS proposed changes to the data and methodology used to calculate Direct Graduate Medical Education (DGME) and Indirect Medical Education (IME) carve outs for hospitals participating in the Maryland Total Cost of Care (TCOC) Model, which allowed Maryland to set rates for Inpatient Prospective Payment System (IPPS) and the Outpatient Prospective Payment System (OPPS) services and impacts the CMS system data used to develop the DGME and IME carve-outs. CMS also proposed reducing provider incentive payments for participation in the Advanced Alternative Payment Model to 3.5% for CY2025. 2025 is also proposed to be the second year of the phase-in for an updated risk adjustment model, referred to as the 2024 CMS-HCC model, which is expected to be fully implemented in 2026. This phase-in will also impact CMS’ proposed frailty scores which will be based on a blend of the 2020 and 2024 HCC models.

The IRA provisions will impact the Part D payment methodology (see download above) significantly in CY 2025, as the closing of the gap phase will make the Defined Standard a three-phase benefit with a maximum annual OOP threshold of $2,000. Additionally, the Coverage Gap Discount Program (CGDP) will be replaced by the new Discount Program, which will continue to require manufacturer discounts which will be provided through the initial coverage phase.

[1] https://www.cms.gov/files/document/2025-advance-notice.pdf

[2] https://www.cms.gov/newsroom/fact-sheets/2025-medicare-advantage-and-part-d-advance-notice-fact-sheet