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Medicare News

Medicare Advantage Plans Win Major Concession from Obama Administration

Payments to insurers was forecast in February to be cut for 2014, but it goes up in revision released Monday

April 2, 2013 – The final rate announcement for Medicare was to be announced yesterday but was a little delayed as the Centers for Medicare & Medicaid carefully worded the news release revealing a 3.3 percent increase for insurance companies offering Medicare Advantage plans, rather than the 2.2 percent reduction forecast in a February announcement.

Kaiser Health News reported, “The insurance industry won a major lobbying victory Monday after the Obama administration backtracked on an earlier plan to cut Medicare Advantage payments to insurers by 2.2 percent in 2014 and instead decided to give them a 3.3 percent increase.”

“Health insurers stand to get significantly more money for running Medicare Advantage plans next year than they had feared, reported The Wall Street Journal

“The final announcement appeared to significantly improve on a mid-February proposal that featured unexpectedly sharp cuts and prompted a busy lobbying effort from health insurers.

“Companies that sell the plans, such as Humana Inc., warned that cutting funding too much would hurt benefits for seniors while driving plans out of some markets. The warnings and the lobbying push drew substantial support in Congress, where at least 160 lawmakers signed letters to regulators urging industry-friendly changes.”

CMS issued the 2014 rate announcement and final call letter for Medicare Advantage (MA) and prescription drug benefit (Part D) programs yesterday and declared it sets ‘a stable path for Medicare Advantage” and implements a number of policies designed to improve payment accuracy.

Some Positive Highlights for 2014

For the first time since inception of the Part D program, the deductible for the defined standard plan will be lower.

Since enactment of the Affordable Care Act in 2010, Medicare Advantage enrollment is up by 25 percent while premiums have fallen.

Out-of-pocket limit for the defined standard prescription drug (Part D) plan, will be lower.

Due to Affordable Care Act, enrollees in the donut hole will receive expanded coverage and discounts of 52.5 percent on covered brand name drugs and coverage of 28 percent on covered generic drugs.

The number of four and five star Medicare Advantage plans has increased significantly

The press release said:

“Health care spending has been slowing across the nation, with Medicare spending per beneficiary growing at only 0.4 percent per capita in 2012.

For the first time since inception of the Part D program, the deductible for the defined standard plan will be lower in 2014 than in previous years. Today’s guidance will give people in Medicare health and drug plans more value in the care they receive and greater protections against increasing costs.

“Since enactment of the Affordable Care Act in 2010, Medicare Advantage enrollment is up by 25 percent while premiums have fallen. Medicare Advantage will remain a strong option for beneficiaries under the policies announced today.”

Jonathan Blum, CMS acting principal deputy administrator, was quoted as saying, “The policies announced today further the agency’s goal of improving payment accuracy in all our programs, while at the same time ensuring program stability and preserving beneficiary choice.”

CMS acknowledged the changes and said in the release, “After careful consideration of public comments, key changes and updates finalized in the Rate “Announcement and final Call Letter include:

   ● Lower Out-of-Pocket Drug Spending:

As detailed in the table below, deductible and out-of-pocket limit for the defined standard prescription drug (Part D) plan, will be lower in 2014, compared to 2013. Beneficiary costs will be further reduced as coverage for Medicare enrollees who have reached the prescription drug coverage gap, or “donut hole” continues to expand in 2014. As a result of the Affordable Care Act, in 2014, enrollees in the donut hole will receive coverage and discounts of 52.5 percent on covered brand name drugs and coverage of 28 percent on covered generic drugs. To date, 6.3 million beneficiaries have received savings of $6.1 billion on prescription drugs.

   ● Greater Protection for Beneficiaries:

      ▪ As authorized by the Affordable Care Act, to protect enrollees in Medicare Advantage plans from significant increases in costs or cuts in benefits from one year to the next, the amount of any permissible increase to total beneficiary costs is limited to $34 per member per month for 2014 (down from $36 per member per month in previous years). 

      ▪ To avoid unnecessary and unwanted prescriptions being delivered and charged to Medicare enrollees because of “auto-ship” services, Part D plans will require their network pharmacies to obtain enrollee consent prior to each delivery, unless the enrollee personally requests the refill.  CMS strongly encourages Part D plans to implement this consent requirement for the remainder of this year. 

   ● Payments to Plans

      ▪ The final estimate of the combined effect of the Medicare Advantage growth percentage and the fee-for-service growth percentage is 3.3 percent. These growth rates assume a zero percent change for the 2014 physician fee schedule (PFS) by taking into account the likely Congressional override of the schedule physician payment reduction. 

      ▪ CMS will continue implementation of payment based on quality in Medicare Advantage. Over the last year, the number of four and five star plans has increased significantly, with 127 such plans in Medicare Advantage in 2013, 21 more than the prior year.

      ▪ Other changes that are being finalized as proposed will continue the phased-in alignment of MA benchmarks with Medicare fee-for-service (FFS) costs, and adjust for diagnostic coding differences between Medicare Advantage plans and Medicare fee-for-service providers. 

   ● Improved Risk Adjustment Model: CMS will implement the proposed updated and clinically revised risk adjustment model which also limits opportunities for Medicare Advantage plans to be paid more for better coding improvements. As a transitional step, the risk scores for 2014 will be a blend of those calculated under the 2014 and 2013 models. 

   ● Improved Coordination of Care: In coordination with the Million Hearts initiative, plans are encouraged to improve access and adherence to anti-hypertensive medications by expanding their target enrollee populations for medication therapy management (MTM). Individuals who receive MTM may experience better blood pressure control, increased adherence to these vital medications, and better self-management of their medications and health condition.”

The 2014 statutory updates to the annual parameters for the defined standard Part D prescription drug benefit are finalized as proposed:

Part D Benefit Parameters



Defined Standard Benefit






Initial Coverage Limit



Out-of-Pocket Threshold



Minimum Cost-sharing for Generic/Preferred Multi-Source Drugs in the Catastrophic Phase



Minimum Cost-sharing for Other Drugs in the Catastrophic Phase



Retiree Drug Subsidy (RDS)



Cost Threshold (Amount RDS sponsor must spend before claiming the RDS subsidy)



Cost Limit (Amount after which RDS sponsor claims no RDS subsidy)



(Note: The changes from 2013 to 2014 are rounded to the closest appropriate level.)

The Rate Announcement and final Call Letter may be viewed using the following link:, click on Announcements and Documents for access to the 2014 files.

More Medicare News Online Today

The Associated Press: CMS Softens Medicare Advantage Funding Changes
Medicare Advantage customers may not see the drastic benefit cuts or premium hikes next year that insurers have been warning about after all. Health insurers had predicted big, painful changes for many of their Medicare Advantage customers after the federal government said in February that the amount it pays per person for the popular coverage could fall more than 2 percent in 2014. The Centers for Medicare and Medicaid Services then changed course on Monday and said it now expects that the cost per person to climb more than 3 percent (Murphy, 4/1).

The Hill: HHS Scraps Proposed Cuts To Private Medicare Plans
The insurance industry won a major lobbying victory Monday as the federal Medicare agency scrapped a proposed cut to Medicare Advantage plans. The Health and Human Services Department announced Monday that it will not follow through on a proposed cut to Medicare Advantage plans, which are administered by private insurers (Baker, 4/1).

Modern Healthcare: CMS Does About-Face On Medicare Advantage Payment Cuts
Apparently swayed by insurers and lawmakers, the CMS backtracked on an earlier plan to cut Medicare Advantage payments to insurers by 2.2% in 2014 and instead decided to give them a 3.3% increase. The CMS ultimately agreed, according to a final payment policy issued today (PDF), that "it is a more reasonable expectation" that Congress will again act to avert the dramatic physician pay cut scheduled under Medicare's sustainable growth rate formula. A draft policy issued in February was based on the CMS' actuary's customary calculation based on current law (Block, 4/1).

Meanwhile, Medicare has proposed ending reimbursement for post-treatment PET scans in prostate cancer patients based on evidence it provides no useful information.

Modern HealthCare: Limited Funding
In an effort to scale back use of high-priced imaging of questionable value in cancer treatment, Medicare has proposed ending reimbursement for post-treatment positron emission tomography scanning in prostate cancer patients and limiting its use to one scan for most other cancer indications. Use of the technology, which involves injecting F-18 fluorodeoxyglucose (FDG) into the blood so the PET scan can identify regions of heightened metabolic activity, a sign of cancer metastasis, has grown sharply in recent years.

The CMS, in giving preliminary approval to payments for the technology in 2005, required manufacturers and radiologists to establish a registry to monitor outcomes from its use. The evidence garnered from that registry convinced the CMS that the scans provided no useful information for oncologists treating prostate cancer patients who had already completed their initial therapy, according to the March 13 proposed decision memo (Lee, 3/30).

Medicare also announced it would allow an independent board of attorneys to decide whether it should cover sex-change surgery for some patients.

Medpage Today: CMS Flip-Flops On Sex Change Surgery
On the same day Medicare said it would reconsider whether to cover sex-change surgery for certain patients, officials shifted gears and will now allow an independent board of attorneys to make the judgment.

The Centers for Medicare and Medicaid Services (CMS) announced Friday it would open a national coverage determination for gender-change surgery under Medicare for patients with gender identity disorder, otherwise known as severe gender dysphoria. Medicare currently does not cover the surgery; CMS last looked at the procedure in 1981 and decided that it was "experimental" and therefore could not be covered. But soon after CMS placed the call for public comments on the medical evidence of the procedure Friday afternoon, it removed the announcement from its website (Pittman, 4/1).

This is part of Kaiser Health News' Daily Report - a summary of health policy coverage from more than 300 news organizations. The full summary of the day's news can be found here and you can sign up for e-mail subscriptions to the Daily Report here. In addition, our staff of reporters and correspondents file original stories each day, which you can find on our home page.

Some of this information is reprinted from with permission from the Henry J. Kaiser Family Foundation. You can view the entire Kaiser Daily Health Policy Report, search the archives and sign up for email delivery. © Henry J. Kaiser Family Foundation. All rights reserved.

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