The Centers for Medicare & Medicaid Services (CMS) on Monday made final payment policy changes for Medicare Advantage (MA) and Medicare Part D Prescription Drug (Part D) drug programs in 2026.
The notice, along with the 2026 MA and Part D final rule that was released on Friday, April 4, makes annual routine and technical updates to the programs.
RELATED: First look at the 2026 Medicare Advantage Final Rule
Net payment impact
The good news: Payments to MA plans will be higher than initially proposed in the Advance Notice.
CMS said that MA will receive an average 5.06 percent increase, or over $25 billion in payments, from 2025 to 2026. This is an increase of 2.83 percentage points since the 2026 Advance Notice was published. CMS attributes the increase due to a rise in the effective growth rate. Indeed, the effective growth rate is 9.04 percent, which is higher than the estimate of 5.93 percent in the 2026 Advance Notice. CMS said the change is due to the inclusion of additional data on fee-for-service (FFS) expenditures, including payment data through the fourth quarter of 2024, which was not included when the Advance Notice came out because it was published earlier than usual.
During a phone call with MA plans on Monday, CMS also attributed the difference in the growth rates between the Advance Notice and Rate Announcement to higher inpatient hospital spending resulting from an increase in utilization of services. In addition, spending on physician administered drugs is also higher in the Rate Announcement estimates due to a significant increase in expenditures for synthetic skin products.
The growth rates also include a technical adjustment regarding the per capita cost calculations pertaining to MA related medical education costs. In 2026, CMS will also complete the three-year phased-in approach for removing the medical education costs—related to services MA enrollees receive—from the historical and projected expenditures supporting the FFS costs that are included in the growth rate calculations. In 2026, the agency will apply 100 percent of the adjustment for MA-related medical education costs.
Part C risk adjustment model
As previously announced, 2026 is the third and final year of the phase-in for the 2024 CMS-HCC risk adjustment model. CMS will calculate 100 percent of the risk scores in 2026 using only this Part C risk adjustment model, which supports more accurate MA payments.
The fully phased in risk assessment model improves payment accuracy by incorporating more recent utilization coding and expenditure patterns in the relative weight of condition categories in the model, CMS said. In addition, reclassified condition categories reflect clinical cost patterns associated with ICD-10 codes.
PACE organizations: Part C risk adjustment model
For organizations involved in the Program of All-Inclusive Care for the Elderly (PACE), CMS will begin phasing out the 2017 Part C risk adjustment model as proposed in the 2026 Advance Notice.
In 2026, CMS will calculate risk scores for PACE organizations using a blend of 10 percent of the risk score calculated using the 2024 CMS-HCC model and 90 percent of the risk scores calculated using the 2017 Part C risk adjustment model. A full transition to the 2024 CMS-HCC model will increase payment accuracy and reduce the burden on PACE organizations, according to CMS.
Part C normalization factor
CMS officials explained during the phone call with plans that it applies the FFS normalization factor to MA risk scores in a payment year to account for a trend in the FFS risk scores between the year used to create the relative factors, known as the denominator year, and the MA payment year. For calendar year 2025, CMS developed and finalized a multiple linear regression methodology which more accurately addresses the impact of the COVID-19 pandemic without excluding additional data years.
CMS will continue using that methodology in 2026, incorporating the most recent five years of average FFS risk scores for 2020 through 2024, as well as a flag that identifies whether a risk score is based on dates of service before or after the onset of the COVID-19 pandemic.
The impact of the update to the normalization factor is not shown in the CMS fact sheet separately because there is a considerable interaction between the impact of the risk adjustment model updates and the normalization factor update. Therefore, the combined impact of the full model phase and normalization is shown in the fact sheet.
Part D risk adjustment
CMS will update the Part D risk adjustment model to reflect the Inflation Reduction Act's changes to the Part D benefit. These updates include the continued implementation of the Manufacturer Discount Program, updated out-of-pocket thresholds, and the new Medicare Drug Price Negotiation Program.
In addition, the Part D risk adjustment models for 2026 will also include the use of more recent data years 2022 diagnoses and 2023 costs. These updates are essential for plan sponsors to develop accurate bids for 2026, CMS said. In addition, the agency finalized the use of multiple linear regression methodology to calculate separate Part D normalization factors, in alignment with what it started doing in 2025 for the Part C risk adjustment models.
Part C and D Star ratings
CMS finalized updates to Star ratings include providing the list of eligible disasters for adjustment, non-substantive measure specification updates, and the list of measures included in the Part C and Part D Improvement measures and Categorical Adjustment Index for the 2026 Star Ratings.
In the Advance Notice, CMS also sought initial feedback on substantive measure specification updates and comments on new measure concepts. The agency asked for ways to simplify and refocus the Universal Foundation measure set to focus more on clinical care, outcomes, and patient experience of care measures. No changes were announced as a result of the feedback.
“We will consider these comments as we contemplate proposing future changes to the measures,” CMS said. “All substantive measure specification changes, the addition of new measures, and methodological changes must go through rulemaking.”
Updates due to the IRA
The IRA made several changes to the standard Part D drug benefit for 2023 and subsequent years. Part D benefit-related IRA updates will be in place for 2026 and are described in the CY 2026 Rate Announcement and the related Final CY 2026 Part D Redesign Program Instructions. These changes include the establishment of the selected drug subsidy program and guidance on the successor regulation exception to the IRA’s formulary inclusion requirement for selected drugs under the Medicare Drug Price Negotiation Program.
Other previously implemented IRA benefits will continue, including:
- No cost sharing for enrollees in the catastrophic phase. For 2026, this will begin after an annual out-of-pocket threshold of $2,100 is reached.
- A cap on enrollee cost sharing for a month’s supply of each covered insulin product, which, beginning in 2026, is the lesser of $35, 25 percent of the maximum fair price established under the Medicare Drug Price Negotiation Program, or 25 percent of the negotiated price under the prescription drug plan (PDP) or MA prescription drug (MA-PD) plan.
- No cost sharing for adult vaccines recommended by the Advisory Committee on Immunization Practices that are covered under Part D.