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Understanding CMS’s 2026 Medicare Advantage and Part D Final Rule
1. Key Changes That Will Reshape Value-Based Care, Payment Accuracy, and Quality Outcomes
As part of its annual regulatory cycle, the Centers for Medicare & Medicaid Services (CMS) released the final 2026 Rate Announcement for Medicare Advantage (MA) and Part D on April 7, 2025, implementing a series of sweeping updates aimed at enhancing payment accuracy, managing drug costs, and strengthening value-based care delivery. This rule will directly affect how health plans operate, bid, and manage populations starting in Calendar Year 2026.
2. Medicare Advantage Payment Policy Updates
CMS finalized a 5.06% effective growth rate in MA capitation rates — the highest in nearly a decade — fueled by updated fee-for-service (FFS) cost estimates and policy-driven changes. Notably:
The CMS-HCC Version 28 (v28) risk adjustment model is fully implemented in 2026. This marks a significant shift from earlier phased approaches, especially impacting coding and revenue strategies for MA plans.
Adjustments to account for indirect medical education (IME) costs are now complete, improving equity in reimbursement for provider systems engaged in medical training.
CMS updated normalization factors, which reflect expected risk score distributions, now incorporating post-COVID-19 trends. This results in a 3.01% reduction in normalized scores for non-PACE plans.
Together, these revisions underscore CMS’s ongoing commitment to improving payment accuracy while reflecting changing patterns in beneficiary health and utilization.
3. Part D: Drug Benefit Redesign and Cost Protections
2026 also brings a fundamental transformation to the Part D prescription drug benefit, aligning with the Inflation Reduction Act mandates. Key changes include:
A $2,100 annual out-of-pocket (OOP) spending cap for beneficiaries, drastically reducing financial exposure for seniors with high-cost medications.
Implementation of a new manufacturer discount program during both the initial and catastrophic phases of coverage, replacing earlier coverage gap subsidies.
Calibration of Maximum Fair Prices to manage drug price inflation and enhance transparency.
Updates to the Part D risk adjustment model, now reflecting 2022 and 2023 data, to better align plan payments with contemporary utilization trends and cost patterns.
Health plans must recalibrate their bid strategies and formularies to reflect these structural cost changes — especially as premium pressures rise due to reduced federal reinsurance subsidies.
4. Star Ratings and Quality Measures: Renewed Emphasis on Whole-Person Care
CMS continues to refine its Star Ratings program to better capture clinical effectiveness and holistic care outcomes. For 2026, enhancements include:
The addition of the Kidney Health Evaluation measure for patients with diabetes, encouraging better screening and prevention practices.
Increased weighting for measures related to maintaining or improving physical and mental health, reflecting a shift toward sustained quality of life metrics.
Ongoing review of the Health Equity Index (HEI) and other social determinants-based adjustments that aim to address disparities in care delivery across plan populations.
These changes directly impact how plans are scored and compensated under the Star Ratings system, making clinical documentation accuracy, member engagement, and health equity initiatives more critical than ever.
5. PACE Program Adjustments: Slow, Steady Transition to Risk Model v28
The Program of All-Inclusive Care for the Elderly (PACE), which serves frail seniors with complex needs, begins its transition to the CMS-HCC v28 model in 2026. The shift will be gradual:
CMS introduces a 10% blend of the v28 model into PACE payments starting in 2026.
Full implementation is expected by 2029, allowing providers ample time to adjust.
This phased approach recognizes the unique structure of PACE while encouraging better alignment between risk-adjusted payments and care intensity.
6. Technical Infrastructure: MARx System Migrates to the Cloud
To support the growing complexity of Medicare Advantage operations, CMS is migrating the Medicare Advantage and Prescription Drug (MARx) system to a cloud-based infrastructure. Benefits include:
Improved accuracy and scalability for plan submissions.
Enhanced processing speed and reliability for eligibility and payment data.
Reduced errors and improved visibility into CMS interactions.
For plans, this means adapting to new technical standards and ensuring that internal systems can seamlessly interface with the MARx cloud environment.
7. What Health Plans Should Do Next
The scope of changes finalized in the 2026 Rate Announcement creates a clear mandate for plans to:
Enhance coding accuracy and align documentation practices with v28 model requirements.
Optimize benefit design to reflect the new OOP cap and shifting Part D cost structures.
Invest in member engagement strategies, especially in mental health, chronic condition screening, and wellness tracking.
Monitor Star Ratings performance closely and embed health equity interventions into core operations.
Ensure compliance with MARx system changes through timely technical upgrades and staff training.
Conclusion
CMS’s 2026 updates to Medicare Advantage and Part D payment systems reflect the agency’s dual priorities: financial sustainability and quality-first care delivery. With new cost protections for beneficiaries, a sharpened focus on risk adjustment accuracy, and redesigned incentives for chronic care management and prevention, health plans must evolve quickly to meet regulatory demands — and to succeed in a competitive value-based landscape.
Health Data Max stands ready to support plans in navigating these changes — from risk score optimization to quality improvement and compliance advisory — ensuring you're ready for 2026 and beyond.