CMS Releases Advance Notice of Methodological Changes for CY 2027

On January 26, 2026, CMS released the Advance Notice of Methodological Changes for Calendar Year (“CY”) 2027 for Medicare Advantage (“MA”) Capitation Rate and Part C and Part D Payment Policies (the “Advance Notice”). In the Advance Notice, CMS announced plans to modify the methodologies it applies to both MA capitation rates and risk adjustment under Medicare Parts C and D. Contrary industry expectations, CMS is projecting a nearly flat average change for year-over-year payment increase for CY 2027 (0.09%), or over $700 million in MA payments to health plans in CY 2027. This net average year-over-year change in payment is derived from CMS’s assessment of various MA payment components relative to the previous year, and demonstrated below in Table 1. 

Year-to-Year Percentage Change

Table 1. Projected Impact of Proposed Changes to Medicare Advantage Payment Components Announced in the CY 2027 Advance Notice [1]

Below we distill in brief some of the updates announced in the CY 2027 Advanced Notice.

A. Effective Growth Rate – The Effective Growth Rate reflects current estimates of growth in MA payment rates based primarily on Original Medicare per capita costs. As in previous years, CMS updates its historical estimates of per capita Medicare costs based on growth percentages from 2026 to 2027.[2]

B. Part C Risk Adjustment Model for MA and Program of All Inclusive Care for the Elderly (PACE) Organizations – CMS proposes an update to the Part C risk adjustment model to reflect more current costs associated with diseases, conditions, and demographic characteristics. If proposals are finalized, CMS would implement an updated CMS-Hierarchical Condition Categories (“CMS-HCC”) risk adjustment model, that uses a structure and variables similar to the 2017 CMS-HCC currently being phased out. The new model will incorporate more recent data years to predict expenditures, and will use the most recent five years of Fee-for-Service (“FFS”) risk scores (2021-2025) to calculate all FFS normalization factors for CMS-HCC models. The model would also exclude diagnoses from audio-only encounters, as well as diagnosis information from unlinked Chart Review Records (“CRRs”) from risk score calculations. Excluding unlinked CRRs would alone decrease MA plan payments by an average of 1.53% relative to CY 2026 or $7.12 billion. With respect to PACE organizations, CMS would transition submission of risk adjustment data for PACE organizations from the Risk Adjustment Processing System to full submission of risk adjustment data to the encounter data system.

C. Part D Risk Adjustment Model – For Part D, CMS proposes updates to reflect Inflation Reduction Act changes to the Part D benefit that will be in effect in CY 2027. The Advance Notice also provides updates to the Part D benefit parameters for CY 2027 with revisions to the RxHCC risk adjustment models for standalone Prescription Drug Plans and MA Prescription Drug plans. Additionally, if the proposed policies are finalized, diagnoses from audio-only encounters and unlinked CRRs would be excluded from risk score calculations to align with Part C policies.

D. Updates to Part C and D Star Ratings – In the Advance Notice, CMS reminds plans of four new or updated measures being added and three measures being removed with the 2027 Star Ratings.

Measures Being Added

• Colorectal Cancer Screening, 
• Care for Older Adults – Functional Status Assessment, 
• Concurrent Use of Opioids and Benzodiazepines (COB), and 
• Polypharmacy: Use of Multiple Anticholinergic Medications in Older Adults (Poly-ACH).

Measures Being Removed

• Care for Older Adults – Pain Assessment
• Medication Reconciliation Post-Discharge
• Medication Therapy Management (MTM) Program Completion Rate for Comprehensive Medication Review (CMR)

The Advance Notice also provides the list of eligible disasters for adjustment, non-substantive measure specification updates, and the list of measures included in the Part C and D improvement measures for the 2027 Star Ratings. CMS is seeking feedback on substantive measure specification updates and is soliciting comments on new measure concepts.

CMS will announce the final MA capitation rates and payment policies for CY 2027 no later than Monday, April 6, 2026. 

FOOTNOTES

[1] Centers for Medicare & Medicaid Services. 2027 Medicare Advantage and Part D Advance Notice Fact Sheet, (January 29, 2026). Available at: https://www.cms.gov/newsroom/fact-sheets/2027-medicare-advantage-part-d-advance-notice.

[2] In the Advance Notice, CMS updates its historical estimates of per capita Medicare costs based on recent data and provides estimates of three separate United States Per Capita Costs (or “USPCC”) – including Non-End Stage Renal Disease (ESRD) Fee-for-Service (“FFS”) USPCC, Total USPCC non-ESRD, and FFS Dialysis ESRD USPCC – for each calendar year to derive the effective growth rate.

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