Exploring CMS’s 2026 Advance Notice: Key Updates for Medicare Advantage and Part D Programs

The Centers for Medicare & Medicaid Services (CMS) has released the Advance Notice of Methodological Changes for Calendar Year 2026, unveiling updates to payment methodologies for Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies. These changes are designed to refine payment accuracy, improve beneficiary outcomes, and align with evolving healthcare needs. Below, we summarize the key highlights and their significance. 

Key Highlights of the 2026 Advance Notice 

1. Medicare Advantage Capitation Rates 

  • Growth Rate: CMS proposes a 5.93% effective growth rate, reflecting increases in Fee-for-Service (FFS) trends. This rate is the highest in nine years, addressing higher claims costs and loss ratios experienced by Medicare carriers. 

  • Risk Adjustment Model Transition: CMS will fully implement the 2024 CMS-HCC model for risk score calculations, ensuring improved accuracy in diagnosing and predicting costs. 

  • Medical Education Costs: The phase-in of adjustments for indirect medical education (IME) costs will be completed in 2026. While this reduces growth rates slightly, it enhances payment precision. 

2. Part D Program Updates 

  • Annual Out-of-Pocket (OOP) Cap: CMS will introduce a $2,100 cap on annual OOP prescription drug costs for beneficiaries, as mandated by the Inflation Reduction Act (IRA). This provides significant financial relief for enrollees. 

  • Manufacturer Discount Program: Replacing the Coverage Gap Discount Program, manufacturers will now provide a 10% discount in the initial coverage phase and a 20% discount in the catastrophic phase for applicable drugs. 

  • Risk Adjustment Updates: Adjustments to the Part D risk model reflect the updated benefit design, aligning scores with the $2,100 OOP threshold and incorporating changes to manufacturer discounts. 

3. Star Ratings Enhancements 

CMS plans updates to Star Ratings to prioritize clinical care, outcomes, and patient experience. 

  • New Measures: The Kidney Health Evaluation for Patients with Diabetes measure will debut in 2026. 

  • Returning Measures: “Improving or Maintaining Physical and Mental Health” metrics will return with increased weights in subsequent years. 

  • Weight Adjustments: Patient experience and complaints measures will see their weight reduced from 4x to 2x, reflecting a shift towards clinical outcomes. 

4. PACE (Programs of All-Inclusive Care for the Elderly) Adjustments 

CMS proposes a gradual transition for PACE organizations to adopt the updated CMS-HCC model fully by CY 2029, starting with a 10% blend of the 2024 model in 2026. This ensures a smoother shift while maintaining payment stability for these organizations. 

5. Data Systems and Normalization Factors 

  • Migration to AWS: The MARx system's transition to a cloud-based infrastructure is enhancing efficiency and scalability, though CMS acknowledges discrepancies in payment calculations, with fixes prioritized. 

  • Normalization Factors: CMS will use updated methodologies to calculate factors for Part C and Part D risk adjustment models, incorporating trends from both pre- and post-COVID-19 periods. 

Implications for Stakeholders 

These updates have far-reaching implications for Medicare plans: 

  1. Enhanced Payment Accuracy: By refining growth rates, risk adjustment models, and normalization factors, CMS ensures payments better reflect the needs of beneficiaries. 

  1. Increased Beneficiary Protections: The IRA-driven OOP cap and manufacturer discounts alleviate financial burdens for enrollees. 

  1. Focus on Quality: Updates to Star Ratings emphasize outcomes and equity, encouraging plans to prioritize patient-centered care. 

Next Steps for Organizations 

  1. Review and Analyze: Plans should evaluate the potential impact of proposed changes on operations, payment models, and beneficiary engagement. 

  1. Submit Feedback: CMS invites public comments on the Advance Notice by February 10, 2025, with final policies expected by April 7, 2025. Feedback can be submitted via Regulations.gov. 

  1. Prepare for Transition: Organizations should align operations to adopt new risk adjustment models and payment structures effectively. 

Conclusion 

The 2026 Advance Notice represents CMS’s commitment to improving Medicare Advantage and Part D programs through precise payment methodologies, innovative benefit designs, and a stronger focus on equity and outcomes. For stakeholders, these updates present opportunities to enhance care delivery while navigating new regulatory landscapes. 

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