On April 1, the Centers for Medicare & Medicaid (CMS) backtracked on planned cuts of 2.2% to Medicare Advantage (MA) plan payments for 2014 that were announced in February, and, instead, raised its final estimate of the combined effect of the National MA Growth Percentage and Medicare Fee-for-Service Growth Percentage to an increase of 3.3%. As part of the rate announcement, CMS reversed its historical practice of assuming Congress will not later enact the “doc fix” to the physician payment rates generated by the Sustainable Growth Rate formula, which it has enacted annually since 2003. This change, made in large part due to comments received by CMS over the years, results in an estimate of what CMS believes will occur based on current law and recent legislative practices rather than what CMS believes would occur to the physician fee schedule for the upcoming year under current law only. As part of the rate announcement, CMS assumes a zero percent change in the physician fee schedule for 2014 as it believes Congress will again implement the doc fix later this year and override the scheduled 27% reduction in the Medicare physician fee schedule.

The revised growth estimate comes after pressure from members of Congress of both parties and a significant lobbying effort by MA organizations, which were facing an estimated reduction in revenue of 6.9% to 7.8% for 2014 based on the planned cuts and other payment policy changes included in PPACA, according to an Oliver Wyman report, and seniors who were facing an increase in MA plan premiums and/or reduced benefits of $50 to $90 per month to account for the lost plan revenue according to the report.

Also, as part of the rate announcement, CMS reduced the deductible, initial coverage limit and out-of-pocket threshold for the defined standard prescription drug (Part D) plan for 2014 relative to 2013 levels, thereby adjusting downward a beneficiary’s entrance into and exit from the prescription drug coverage gap, or “donut hole.” A comparison of the 2013 and 2014 rates is included below:

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Source: Press Release dated April 1, 2013 Regarding Rate Announcement and Final Call Letter.