The 169-page Advance Notice includes a slight payment increase and major changes to the Medicare Advantage (MA) and Part D risk adjustment models.
The Centers for Medicare & Medicaid Services (CMS) on Monday issued the Calendar Year (CY) 2027 Advance Notice for the MA and the Medicare Part D Prescription Drug Programs.
The Advance Notice proposes routine and technical updates intended to keep payments accurate, promote greater payment precision, strengthen beneficiary choice, and ensure long-term program stability.
“These proposed payment policies are about making sure Medicare Advantage works better for the people it serves,” said CMS Administrator Dr. Mehmet Oz in an announcement. “By strengthening payment accuracy and modernizing risk adjustment, CMS is helping ensure beneficiaries continue to have affordable plan choices and reliable benefits, while protecting taxpayers from unnecessary spending that is not oriented towards addressing real health needs.”
If finalized, CMS expects payments to MA plans to rise 0.09 percent year over year—over $700 million between 2026 and 2027. This estimate reflects growth in underlying costs, 2026 Star Ratings affecting 2027 quality bonus payments, and risk adjustment updates.
The proposed changes include:
Net payment impact
In a fact sheet, CMS said it expects
- Medicare costs to grow by 4.97 percent in 2027
- MA plans will see a 0.09 percent change in revenue
- The estimated increase in risk scores will be 2.54 percent
The effective growth rate continues to be driven largely by increases in original Medicare per capita costs, as estimated by the Office of the Actuary.
Part C Risk Adjustment Model
During a conference call on Monday about the Advance Notice, Alec Aramanda, principal deputy director of the Center for Medicare, said the proposed changes to the risk adjustment model reflect the agency’s desire to achieve three goals:
- Simplify MA risk adjustment to reduce burdens for plans and providers.
- Promote fair competition between health plans based on value delivered to enrollees.
- Prioritize payment accuracy so adjustments reflect true health needs.
Use newer data: In 2027, CMS plans to incorporate 2023 diagnosis data and 2024 expenditure data, replacing older pre-COVID data.
Redefine diagnoses eligible for payments: CMS proposes paying only for diagnoses from chart review records linked to provider visits and excluding audio-only encounters. MA organizations may still submit unlinked chart review record diagnoses, but CMS would not use them for risk score calculations. Aramanda said the proposed changes aim to reduce incentives for plans to maximize risk adjustment payments without providing care.
Maintain coding pattern adjustment: By law, CMS must apply a minimum 5.9 percent adjustment for diagnostic coding differences between MA and original Medicare. No additional adjustment is proposed for 2027.
Part C Risk Adjustment Model for PACE organizations
CMS plans to continue transitioning Program of All-Inclusive Care for the Elderly (PACE) organizations from the legacy Risk Adjustment Processing System (RAPS) to encounter data system submissions and to align PACE payment models with those used for other organizations.
For CY 2027, CMS proposes calculating PACE risk scores using a blend of 50 percent from the 2017 CMS-HCC model and 50 percent from the proposed 2027 CMS-HCC model.
Part D Risk Adjustment
CMS also proposes updates to the Part D risk adjustment model that reflect Inflation Reduction Act (IRA) changes effective in 2027, including phased-in increases in manufacturer discounts for certain small manufacturers. The model would also use 2023 diagnoses and 2024 cost data.
The updated model also excludes audio-only diagnoses and unlinked chart review records, consistent with changes proposed for Part C.
CMS also wants to calibrate the model separately for MA-PD plans and stand-alone prescription drug plans and continuing separate normalization factors to ensure accurate plan bids.
Part C and D Star ratings
The Advance Notice outlines proposed updates to improvement measures, the categorical adjustment index, and the list of eligible disasters qualifying for extreme and uncontrollable circumstances adjustments. CMS is also seeking feedback on possible future measure specification and display measure changes.
Next steps
CMS will accept public comments on the Advance Notice through 11:59 p.m. ET on February 25. The final Rate Announcement will be published by April 6.
Learn more about the proposed changes at RISE National, March 23-25,in Orlando.