CMS Finalizes Contract Year 2027 Medicare Advantage and Part D Final Rule and Rate Announcement

Firm Publication

Two recent announcements from the Centers for Medicare & Medicaid Services (CMS) continue to signal the Trump administration’s approach to the Medicare Advantage (MA) program, building on trends first seen in the Contract Year (CY) 2026 rulemaking cycle.

On April 2, CMS issued the CY 2027 Medicare Advantage and Part D Final Rule (Final Rule), which finalizes significant changes to the Star Ratings system, codifies key provisions of the Inflation Reduction Act of 2022 (IRA), refines regulations governing supplemental benefits, and implements several deregulatory measures consistent with Executive Order 14192 “Unleashing Prosperity Through Deregulation.”

Four days later, on April 6, CMS published the CY 2027 Medicare Advantage and Part D Rate Announcement (Rate Announcement), which projects a net average increase in MA payments of 2.48%, or over $13 billion in additional payments to plans. The CY 2027 rate increase is less than the 5.06% increase finalized for CY 2026, but higher than the initially expected overall increase of 0.09% identified in the CY 2027 Advance Notice.

Below is a more detailed summary of the Final Rule and Rate Announcement, including an overview of the finalized updates to program and payment policies for the 2027 plan year.

Final Rule Updates

Updates to Star Ratings

The Final Rule makes several notable changes to the Part C and Part D Star Ratings system:

  1. CMS removed the Health Equity Index (HEI) reward (also known as the Excellent Health Outcomes for All reward) for 2027 Star Ratings and will instead continue the historical reward factor. CMS noted the HEI was developed to improve performance for a subset of enrollees, while the historical reward factor will encourage consistently high performance for all enrollees across all quality measures.
  2. CMS streamlined the Star Ratings measure set by removing 11 measures that CMS characterizes as focused on administrative processes and areas where beneficiaries cannot meaningfully distinguish performance between plans due to high performance and little variation. Two of the removals are effective for the 2028 Star Ratings, including Call Center—Foreign Language Interpreter and TTY Availability (Parts C and D) and Statin Therapy for Patients with Cardiovascular Disease (Part C only). The remaining removals are otherwise effective for the 2029 Star Ratings. Notably, CMS retained the Diabetes Care—Eye Exam measure, declining to finalize its proposed removal.
  3. CMS added a new Part C Depression Screening and Follow-Up measure to the Star Ratings, beginning with the 2029 Star Ratings (measurement year 2027), to address behavioral health gaps. CMS noted that removal of other measures should help plans focus on new areas where there is significant room for improvement in clinical care, including depression screening.
IRA Implementation

The IRA made major changes to the Medicare Part D prescription drug benefit design, impacting payment obligations of enrollees, Part D plan sponsors, drug manufacturers, and CMS. Pursuant to the IRA, CMS implemented those changes through 2026 via program instructions, rather than notice-and-comment rulemaking. With such program instruction authority soon expiring, the Final Rule formally promulgates these changes for CY 2027 and beyond in CMS regulations.

Key provisions of the IRA are codified to account for the Part D benefit redesign, which restructured the Part D benefit into three phases (deductible, initial coverage, and catastrophic), established a reduced annual out-of-pocket threshold (currently $2,100 for CY 2026), eliminated the coverage gap phase (commonly referred to as the “donut hole”), removed cost sharing for enrollees in the catastrophic phase, and replaced the Coverage Gap Discount Program (CGDP) with the Manufacturer Discount Program (MDP) beginning on January 1, 2025. Under the new MDP framework, manufacturers that enter into an MDP agreement are required to provide discounts on applicable drugs in both the initial and catastrophic coverage phases of the Part D benefit. To implement these changes, the Final Rule includes new regulations at Part 423 that codify existing policy, including by establishing participation requirements, discount obligations, invoicing, and dispute resolution processes under the new MDP.

Supplemental Benefits

The Final Rule also includes several changes to Supplemental Benefits and Special Supplemental Benefits for the Chronically Ill (SSBCI).

CMS updated regulations regarding cannabis products by amending language to state more precisely that cannabis products that are illegal under applicable state or federal law are not allowable as SSBCI. CMS stated this clarification aligns MA benefit policies with current federal law while maintaining existing safeguards. The amended language also clarifies that MA organizations remain prohibited from covering any cannabis product, including any hemp-derived cannabis product, that is illegal under state law within their service area, regardless of the product’s federal legal status.

The Final Rule also finalized two supplemental benefit policies that were initially proposed in the CY 2026 rule. First, CMS strengthened SSBCI administration by clarifying eligibility requirements and increasing transparency, including by requiring plans to publicly post their SSBCI eligibility criteria.

CMS also clarified requirements for administering supplemental benefits through debit cards, including the following requirements that debit cards:

  1. Be electronically linked to plan-covered items and services through a real-time identification mechanism to verify eligibility at the point of sale.
  2. Be limited to the specific plan year.
  3. Have an alternative reimbursement process where the debit card is not usable at the point of sale due to a malfunction.

Notably, CMS did not finalize the previously proposed prohibition on marketing the dollar value of supplemental benefits. The decision not to finalize this marketing restriction is a significant development for MA organizations, as it preserves their ability to communicate the monetary value of supplemental benefit offerings to current and prospective enrollees.

Reducing Regulatory Burden Under Executive Order 14192

Consistent with Executive Order 14192, CMS also finalized several changes aimed at removing duplicative and burdensome regulatory requirements, including:

  • Exempting account-based plans (such as health reimbursement arrangements, flexible spending accounts, and health savings accounts) from creditable coverage disclosure requirements.
  • Rescinding the requirement for MA plans to send mid-year notices about unused supplemental benefits.
  • Eliminating the requirement for MA quality improvement programs to include activities that reduce health disparities.
  • Removing health equity requirements for MA Utilization Management Committees, including the requirements for a health equity expert member, annual health equity analyses, and public posting of such analyses.
  • Waiving the requirement for the Limited Income Newly Eligible Transition (LI NET) program to maintain toll-free customer call centers open from 8 a.m. to 8 p.m. in all regions.
  • Removing restrictions on the time and manner by which beneficiaries can have conversations with licensed agents and brokers. Specifically, CMS is allowing a marketing event to directly follow an educational event in the same location, permitting a personal marketing appointment to occur at any point following completion of a scope of appointment (SOA) form, and allowing the SOA form to be collected from beneficiaries at educational events.
  • Easing requirements on third-party marketing organizations (TPMOs), including by modifying disclaimer requirements so that disclaimers are provided before discussing benefits (and not necessarily in the first minute of a call), and reducing call recording retention requirements from 10 to six years.
Provisions Not Finalized

CMS declined to finalize several proposals from the CY 2027 proposed rule. Most notably, CMS is not finalizing a proposed special enrollment period (SEP) related to provider contract terminations. The agency acknowledged stakeholder feedback but chose not to move forward and did not respond to comments, indicating the issue may be revisited in future rulemaking.

In addition, although the CY 2027 proposed rule solicited comment on the growth of chronic condition special needs plans (C-SNPs) and institutional special needs plans (I-SNPs) and dually eligible beneficiary enrollment in those plans, and raised concerns that these plans may, in some cases, serve as alternatives to more integrated Dual Eligible Special Needs Plans (D-SNPs), CMS did not respond to comments or finalize policies in this area. Instead, the agency indicated that the feedback received on the proposed rule may inform future rulemaking in this area.

Rate Announcement Updates

Exclusion of Diagnoses from Unlinked Chart Review Records

In addition to projections regarding the CY 2027 rate increase, the Rate Announcement finalized CMS’s proposal to exclude diagnoses from unlinked chart review records (CRRs) from risk score calculation, with a modification to include an exception for beneficiaries who switch from one MA organization to another.

CMS emphasized that risk-adjusted payments should reflect the documented health status of beneficiaries as evidenced by clinical encounters. By requiring MA organizations to link diagnoses submitted on CRRs to an encounter to be eligible for risk adjustment, CMS explained that it will have information on how diagnoses are associated with services provided to MA enrollees and be able to ensure that the diagnoses included for risk adjustment align with program requirements. MA organizations will be able to submit unlinked chart reviews for beneficiaries who were enrolled in MA with a different parent organization in the prior year, and diagnoses reported on unlinked CRRs for such beneficiaries will be included for risk adjustment purposes if they otherwise satisfy risk adjustment criteria. CMS intends for this exception to mitigate operational challenges faced by receiving plans in linking diagnoses to prior-year encounter data.

Updates to Part C and Part D Risk Adjustment Models

The Rate Announcement made several updates to the Part C and Part D risk adjustment models. In CY 2027, CMS will continue to use the 2024 CMS-HCC risk adjustment model to calculate risk scores, although it had proposed to update the Part C risk adjustment model using more recent underlying Original Medicare data, to allow the MA market more time to adjust to the recently completed phase-in of that model. CMS finalized its proposal to exclude diagnoses from audio-only services using modifiers “93” or “FQ” from risk score calculation for CY 2027 for consistency with previously issued CMS guidance and the longstanding requirement that diagnoses must result from a face-to-face visit to be considered for risk adjustment. CMS will only exclude diagnoses from audio-only services if no other service reported on the encounter is risk adjustment eligible.

CMS will implement updated versions of the Part D risk adjustment model in CY 2027, including using 2023 diagnoses and 2024 expenditure data and using separate enrollee model segments for beneficiaries enrolled in MA prescription drug plans (MA-PDs) and standalone Part D prescription drug plans (PDPs), which aligns with changes resulting from the IRA. CMS believes this approach will improve predictive accuracy and lead to more appropriate relative weights for RxHCCs based on the utilization and cost patterns of the MA-PD and PDP markets. CMS will apply the same exclusion of diagnoses from unlinked CRRs (with the exception for beneficiaries who switch between MA organizations) and diagnoses from audio-only services for Part D risk score calculation.

If you have any questions about the Final Rule or Rate Announcement, please contact the authors.

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Firm Publication

Two recent announcements from the Centers for Medicare & Medicaid Services (CMS) continue to signal the Trump administration’s approach to the Medicare Advantage (MA) program, building on trends first seen in the Contract Year (CY) 2026 rulemaking cycle.

On April 2, CMS issued the CY 2027 Medicare Advantage and Part D Final Rule (Final Rule), which finalizes significant changes to the Star Ratings system, codifies key provisions of the Inflation Reduction Act of 2022 (IRA), refines regulations governing supplemental benefits, and implements several deregulatory measures consistent with Executive Order 14192 “Unleashing Prosperity Through Deregulation.”

Four days later, on April 6, CMS published the CY 2027 Medicare Advantage and Part D Rate Announcement (Rate Announcement), which projects a net average increase in MA payments of 2.48%, or over $13 billion in additional payments to plans. The CY 2027 rate increase is less than the 5.06% increase finalized for CY 2026, but higher than the initially expected overall increase of 0.09% identified in the CY 2027 Advance Notice.

Below is a more detailed summary of the Final Rule and Rate Announcement, including an overview of the finalized updates to program and payment policies for the 2027 plan year.

Final Rule Updates

Updates to Star Ratings

The Final Rule makes several notable changes to the Part C and Part D Star Ratings system:

  1. CMS removed the Health Equity Index (HEI) reward (also known as the Excellent Health Outcomes for All reward) for 2027 Star Ratings and will instead continue the historical reward factor. CMS noted the HEI was developed to improve performance for a subset of enrollees, while the historical reward factor will encourage consistently high performance for all enrollees across all quality measures.
  2. CMS streamlined the Star Ratings measure set by removing 11 measures that CMS characterizes as focused on administrative processes and areas where beneficiaries cannot meaningfully distinguish performance between plans due to high performance and little variation. Two of the removals are effective for the 2028 Star Ratings, including Call Center—Foreign Language Interpreter and TTY Availability (Parts C and D) and Statin Therapy for Patients with Cardiovascular Disease (Part C only). The remaining removals are otherwise effective for the 2029 Star Ratings. Notably, CMS retained the Diabetes Care—Eye Exam measure, declining to finalize its proposed removal.
  3. CMS added a new Part C Depression Screening and Follow-Up measure to the Star Ratings, beginning with the 2029 Star Ratings (measurement year 2027), to address behavioral health gaps. CMS noted that removal of other measures should help plans focus on new areas where there is significant room for improvement in clinical care, including depression screening.
IRA Implementation

The IRA made major changes to the Medicare Part D prescription drug benefit design, impacting payment obligations of enrollees, Part D plan sponsors, drug manufacturers, and CMS. Pursuant to the IRA, CMS implemented those changes through 2026 via program instructions, rather than notice-and-comment rulemaking. With such program instruction authority soon expiring, the Final Rule formally promulgates these changes for CY 2027 and beyond in CMS regulations.

Key provisions of the IRA are codified to account for the Part D benefit redesign, which restructured the Part D benefit into three phases (deductible, initial coverage, and catastrophic), established a reduced annual out-of-pocket threshold (currently $2,100 for CY 2026), eliminated the coverage gap phase (commonly referred to as the “donut hole”), removed cost sharing for enrollees in the catastrophic phase, and replaced the Coverage Gap Discount Program (CGDP) with the Manufacturer Discount Program (MDP) beginning on January 1, 2025. Under the new MDP framework, manufacturers that enter into an MDP agreement are required to provide discounts on applicable drugs in both the initial and catastrophic coverage phases of the Part D benefit. To implement these changes, the Final Rule includes new regulations at Part 423 that codify existing policy, including by establishing participation requirements, discount obligations, invoicing, and dispute resolution processes under the new MDP.

Supplemental Benefits

The Final Rule also includes several changes to Supplemental Benefits and Special Supplemental Benefits for the Chronically Ill (SSBCI).

CMS updated regulations regarding cannabis products by amending language to state more precisely that cannabis products that are illegal under applicable state or federal law are not allowable as SSBCI. CMS stated this clarification aligns MA benefit policies with current federal law while maintaining existing safeguards. The amended language also clarifies that MA organizations remain prohibited from covering any cannabis product, including any hemp-derived cannabis product, that is illegal under state law within their service area, regardless of the product’s federal legal status.

The Final Rule also finalized two supplemental benefit policies that were initially proposed in the CY 2026 rule. First, CMS strengthened SSBCI administration by clarifying eligibility requirements and increasing transparency, including by requiring plans to publicly post their SSBCI eligibility criteria.

CMS also clarified requirements for administering supplemental benefits through debit cards, including the following requirements that debit cards:

  1. Be electronically linked to plan-covered items and services through a real-time identification mechanism to verify eligibility at the point of sale.
  2. Be limited to the specific plan year.
  3. Have an alternative reimbursement process where the debit card is not usable at the point of sale due to a malfunction.

Notably, CMS did not finalize the previously proposed prohibition on marketing the dollar value of supplemental benefits. The decision not to finalize this marketing restriction is a significant development for MA organizations, as it preserves their ability to communicate the monetary value of supplemental benefit offerings to current and prospective enrollees.

Reducing Regulatory Burden Under Executive Order 14192

Consistent with Executive Order 14192, CMS also finalized several changes aimed at removing duplicative and burdensome regulatory requirements, including:

  • Exempting account-based plans (such as health reimbursement arrangements, flexible spending accounts, and health savings accounts) from creditable coverage disclosure requirements.
  • Rescinding the requirement for MA plans to send mid-year notices about unused supplemental benefits.
  • Eliminating the requirement for MA quality improvement programs to include activities that reduce health disparities.
  • Removing health equity requirements for MA Utilization Management Committees, including the requirements for a health equity expert member, annual health equity analyses, and public posting of such analyses.
  • Waiving the requirement for the Limited Income Newly Eligible Transition (LI NET) program to maintain toll-free customer call centers open from 8 a.m. to 8 p.m. in all regions.
  • Removing restrictions on the time and manner by which beneficiaries can have conversations with licensed agents and brokers. Specifically, CMS is allowing a marketing event to directly follow an educational event in the same location, permitting a personal marketing appointment to occur at any point following completion of a scope of appointment (SOA) form, and allowing the SOA form to be collected from beneficiaries at educational events.
  • Easing requirements on third-party marketing organizations (TPMOs), including by modifying disclaimer requirements so that disclaimers are provided before discussing benefits (and not necessarily in the first minute of a call), and reducing call recording retention requirements from 10 to six years.
Provisions Not Finalized

CMS declined to finalize several proposals from the CY 2027 proposed rule. Most notably, CMS is not finalizing a proposed special enrollment period (SEP) related to provider contract terminations. The agency acknowledged stakeholder feedback but chose not to move forward and did not respond to comments, indicating the issue may be revisited in future rulemaking.

In addition, although the CY 2027 proposed rule solicited comment on the growth of chronic condition special needs plans (C-SNPs) and institutional special needs plans (I-SNPs) and dually eligible beneficiary enrollment in those plans, and raised concerns that these plans may, in some cases, serve as alternatives to more integrated Dual Eligible Special Needs Plans (D-SNPs), CMS did not respond to comments or finalize policies in this area. Instead, the agency indicated that the feedback received on the proposed rule may inform future rulemaking in this area.

Rate Announcement Updates

Exclusion of Diagnoses from Unlinked Chart Review Records

In addition to projections regarding the CY 2027 rate increase, the Rate Announcement finalized CMS’s proposal to exclude diagnoses from unlinked chart review records (CRRs) from risk score calculation, with a modification to include an exception for beneficiaries who switch from one MA organization to another.

CMS emphasized that risk-adjusted payments should reflect the documented health status of beneficiaries as evidenced by clinical encounters. By requiring MA organizations to link diagnoses submitted on CRRs to an encounter to be eligible for risk adjustment, CMS explained that it will have information on how diagnoses are associated with services provided to MA enrollees and be able to ensure that the diagnoses included for risk adjustment align with program requirements. MA organizations will be able to submit unlinked chart reviews for beneficiaries who were enrolled in MA with a different parent organization in the prior year, and diagnoses reported on unlinked CRRs for such beneficiaries will be included for risk adjustment purposes if they otherwise satisfy risk adjustment criteria. CMS intends for this exception to mitigate operational challenges faced by receiving plans in linking diagnoses to prior-year encounter data.

Updates to Part C and Part D Risk Adjustment Models

The Rate Announcement made several updates to the Part C and Part D risk adjustment models. In CY 2027, CMS will continue to use the 2024 CMS-HCC risk adjustment model to calculate risk scores, although it had proposed to update the Part C risk adjustment model using more recent underlying Original Medicare data, to allow the MA market more time to adjust to the recently completed phase-in of that model. CMS finalized its proposal to exclude diagnoses from audio-only services using modifiers “93” or “FQ” from risk score calculation for CY 2027 for consistency with previously issued CMS guidance and the longstanding requirement that diagnoses must result from a face-to-face visit to be considered for risk adjustment. CMS will only exclude diagnoses from audio-only services if no other service reported on the encounter is risk adjustment eligible.

CMS will implement updated versions of the Part D risk adjustment model in CY 2027, including using 2023 diagnoses and 2024 expenditure data and using separate enrollee model segments for beneficiaries enrolled in MA prescription drug plans (MA-PDs) and standalone Part D prescription drug plans (PDPs), which aligns with changes resulting from the IRA. CMS believes this approach will improve predictive accuracy and lead to more appropriate relative weights for RxHCCs based on the utilization and cost patterns of the MA-PD and PDP markets. CMS will apply the same exclusion of diagnoses from unlinked CRRs (with the exception for beneficiaries who switch between MA organizations) and diagnoses from audio-only services for Part D risk score calculation.

If you have any questions about the Final Rule or Rate Announcement, please contact the authors.

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