Medicare Program; Contract Year 2027 and Certain Contract Year 2026 Policy and Technical Changes to the Medicare Advantage Program, Medicare Prescription Drug Benefit Program, and Medicare Cost Plan Program

Risk adjustment shapes many aspects of the MA program. Risk adjustment constitutes a key part of the payment process and can influence the MA program in a number of direct as well as indirect ways. MA plan payments are calculated at an individual level to account for a beneficiary's expected health care costs, based on their specific demographic and health characteristics. Risk adjustment is accomplished through the calculation of the risk score, a number representing the ratio between a specific enrollee's predicted Original Medicare costs and average costs within Original Medicare. Ultimately, because risk adjustment has such an important role in payment policy, it can influence the types of enrollees that MA plans target for enrollment, how they market to enrollees, the types of supplemental benefits that plans offer, the prescription drugs that they cover, the providers they contract with, and the types of care that MA enrollees receive.\136\

\136\ Medicare Payment Advisory Commission. (June 2023). “Report to the Congress: Medicare Payment Policy, Chapter 4, The Medicare Advantage Program: Status Report.” https://www.medpac.gov/wp-content/uploads/2023/06/Jun23_Ch4_MedPAC_Report_To_Congress_SEC.pdf.

Moreover, risk adjustment impacts competition between MA organizations and may impose inherent disadvantages on certain types of organizations over others.\137\ The existing risk adjustment model relies on medical diagnoses to predict health care costs, in addition to demographic factors, which could lead plans to code more intensely than what is observed in Original Medicare. And while risk adjustment policies are intended to adequately compensate MA plans for their enrollees' expected costs, higher payments associated with higher risk scores may encourage MA organizations to prioritize investments in coding activities over care management or treatment.

\137\ Kronick, R., Chua, F. M., Krauss, R., Johnson, L., & Waldo, D. (2025). Insurer-Level Estimates of Revenue From Differential Coding in Medicare Advantage. Annals of internal medicine, 178(5), 655-662.

To account for differences in coding patterns between MA and Original Medicare, section 1853(a)(1)(C)(ii) of the Act requires CMS to apply a coding adjustment factor each year when risk adjusting payments. In 2019 and subsequent years, the adjustment must be at least 5.9 percent. Nevertheless, the higher rates of coding in MA relative to Original Medicare may increase taxpayer expenditures and impose administrative burdens on plans, without any accompanying improvements to quality of care.\138\

\138\ Medicare Payment Advisory Commission. (March 2025). “Report to the Congress: Medicare Payment Policy, Chapter 11, The Medicare Advantage Program: Status Report.” https://www.medpac.gov/wp-content/uploads/2025/03/Mar25_Ch11_MedPAC_Report_To_Congress_SEC.pdf.

CMS, therefore, requested feedback in the CY 2027 Proposed Rule on options for risk adjustment, including near-term changes to the existing risk adjustment methodology and entirely new approaches for risk adjustment, such as those that account for recent advances in technology. For example, CMS previously contemplated including MA encounter data in the calibration of risk adjustment models, rather than solely relying on FFS data, to better capture patterns specific to the MA population. CMS sought ideas for additional data sources and data elements for risk adjustment, and for how those data sources should best be incorporated, particularly to minimize opportunities for gaming by MA organizations,

incentivize positive health outcomes, and minimize administrative burden for plans and providers. In particular, CMS sought ideas for risk adjustment approaches that do not rely on collection of diagnoses data and, instead, incorporate alternative factors to infer a patient's health risk as well as the severity of that risk. Finally, CMS was interested in risk adjustment approaches that advance competition and foster a level playing field between different types of MA plans and MA organizations. 2. Solicitation of Comments

We solicited comments on opportunities for improving risk adjustment, inviting comments from a broad range of stakeholders and interested parties, including MA organizations, beneficiary advocates, healthcare providers, and industry experts. We were particularly interested in comments on how to achieve the following goals with risk adjustment, relative to the current state:

Advancing competition, removing anti-competitive barriers, and ensuring a level playing field for regional, smaller, and less well-resourced plans.

Reducing manipulability of the risk adjustment system as well as the day-to-day administrative burden for both plans and providers.

Ensuring accurate payments for sicker beneficiaries, while rewarding effective treatment and favorable patient outcomes.

Mitigating unintended consequences and effectively navigating tradeoffs. (For example, how to approach a situation where a potential input to the risk adjustment model improves the predictive accuracy of the model but would also directly disincentivize valuable treatments for patients.)

Incentivizing provision of tangible and high-value benefits and services and maximizing the value that beneficiaries, as well as taxpayers, get from payments to MA plans.

We also solicited more specific comments on potential methods for improving the MA risk adjustment program through the following questions:

Which diagnoses are most essential for CMS to include in its MA risk adjustment model? In certain instances, should CMS limit the use of diagnoses in risk adjustment based on a minimum threshold of disease severity or to patient encounters within specific settings? Should CMS require diagnoses to be substantiated by follow-up encounters or treatments? Similarly, should CMS exclude diagnoses from plan-initiated encounters that do not lead to follow-up care, such as those resulting from in-home health risk assessments, or diagnoses not linked to specific services furnished to an enrollee?

Over what timeframes should CMS incorporate diagnostic data for risk adjustment purposes? How can CMS account for certain illnesses and injuries that are likely to persist but may not be captured within a given data year by a patient encounter? Similarly, how should CMS account for past conditions that are no longer active, but continue appearing as diagnoses?

When incorporating diagnostic data from particular encounters, should CMS account for the payment status of the services associated with that encounter? For example, should the risk adjustment model include diagnoses from encounters where a payment was denied, or approved and later found to be improper?

CMS has publicly discussed the prospect of moving towards a risk adjustment model calibrated based on encounter data. In addition to these efforts, should CMS consider testing new risk adjustment methods that replace the current Hierarchical Condition Category (HCC)- based risk adjustment model, such as an inferred risk adjustment model? How should CMS think about a model that is not primarily or solely based off medical diagnoses, but instead uses other types of information, such as utilization of medical services to infer both the presence and the severity of different conditions? What are alternative inputs that CMS should consider, which would be effective at predicting future health care spending by a patient, incentivizing appropriate care, while not being readily susceptible to gaming and manipulation? Likewise, how can a next generation risk adjustment model be structured to minimize unnecessary administrative burden for plans and providers, and structured to minimize the sensitivity of risk scores to administrative effort or administrative skill? How should a model be structured to best support competition and to ensure a level playing field for all MA plans?

How might CMS utilize technological innovations, such as artificial intelligence (AI) and machine learning, in calibrating current or future risk adjustment methodologies? What are the benefits and risks of shifting from the existing linear regression methodology to one that utilizes AI and/or machine learning? Do plans have best practices when using AI? What types of protections need to be established to ensure the use of AI is fair? Can the efficiencies of AI be leveraged so as to reduce fraud, waste, and abuse?

As part of either the existing HCC model or a next generation risk adjustment model, should CMS draw on additional elements within existing data sources, as well as entirely new sources of data? For example, should CMS incorporate prescription drug event data, beneficiary survey data, electronic medical record data, or lab data to infer an MA patient's expected health care spending and the severity of their medical conditions? What kinds of data elements should CMS draw on within existing data sources, specifically from medical claims and beneficiary characteristics files (for example, procedure information)? Should CMS incorporate additional adjustments for a patient's place of residence to account for variation in costs within individual counties? How should CMS think about potential data sources that are not currently readily accessible or usable for the full population of Medicare beneficiaries, such as electronic medical record data? How should CMS go about making such novel data sources accessible and usable for risk adjustment, given that they would need to be accessible for every Medicare beneficiary?

What other policy approaches should CMS consider to ensure that risk adjustment maximizes incentives for offering high-quality coverage rather than investment in coding practices that may not improve enrollee health?

In this RFI, we solicited information from stakeholders and all interested parties to inform future policy development and potential refinement to the QBP structure for MA plans as authorized under section 1853(o) of the Act and the impact of QBPs on rebates as authorized under section 1854(b) of the Act.

The solicitation was meant to build upon information obtained from and issues that surfaced under past RFIs. For example, in the 2024 Consolidation in Health Care Markets RFI \139\ jointly released by the Federal Trade Commission, the Department of Justice, and the Department of Health and Human Services, some respondents notably requested reforms to address potential gaming of risk and quality scores. Also, this solicitation was

intended to address issues previously documented by MedPAC, academic researchers, and others, and in public comments on the annual Advance Notice of Methodological Changes for MA Capitation Rates and Part C and Part D Payment Policies (the Advance Notice).

\139\ Request for Information on Consolidation in Health Care Markets. (June 2024). https://www.regulations.gov/docket/FTC-2024-0022/document.

It takes several years to test, validate, propose, and add a new measure to the Part C and Part D Star Ratings. Separately, for measures that are already implemented, a 2-year lag exists between the end of the measurement period and actual payment to the MA plan. CMS would like to explore potential options to shorten the timeline for implementation of new measures, as well as the lag between measurement and payment for existing measures.

The regulations at 42 CFR 422.164(c)(2) and 42 CFR 423.184(c)(2) require CMS to announce potential new measures and solicit feedback through the Advance Notice and Rate Announcement process described in section 1853(b) of the Act and subsequently propose and finalize new measures through rulemaking. In addition, 42 CFR 422.164(c)(3) and 423.184(c)(3) require measures be on the display page on the CMS website for a minimum of 2 years prior to being finalized as Star Ratings measures used for payment. We, therefore, solicited comments on potential methods to condense the timeline to add a new measure to the Star Ratings, for example, by reducing the display period for new measures.

For existing measures, the lag between the Star Ratings measurement year and payment year is due to the statutory requirements at sections 1853(o) and 1854(b)(1)(C)(v)-(vi) of the Act, which link the MA bid process to QBP ratings. Since section 1854(a)(1)(A) of the Act requires that MA plans submit their bids not later than the first Monday in June prior to the start of the contract year (which is more than 6 months prior to the start of the contract year), and an MA plan's quality bonus amount impacts their bid submission, CMS uses the latest QBP ratings available as of that date. The QBP ratings thus employed as of the time of the bid involve a measure period from two calendar years prior, ultimately translating into up to a three-year overall lag between measurement and payment. Meanwhile, the time lag between the measurement and payment years creates a disconnect between the quality and financial reward, as MA plans receive bonuses based on their quality performance two years prior, which does not reflect any remediation since that time. To that effect, CMS also solicited information on whether CMS should test an Innovation Center model that would delink QBPs from MA bids, with the aim of further incentivizing health plans to improve quality and providing beneficiaries with more timely and actionable quality information. Specifically, CMS solicited comments on the following questions:

What could an alternative policy look like, if one is needed at all?

What are the potential advantages and disadvantages of the suggested alternative?

When should bonus payments be finalized and disbursed? More broadly, how might CMS better incentivize cost containment within the MA program, while improving care quality?

Commenters broadly supported updating MA risk adjustment and the Quality Bonus Payment/Star Ratings framework to better align payments and incentives with beneficiary needs and meaningful outcomes. For risk adjustment, many urged CMS to improve payment accuracy and reduce incentives for coding intensity, including by strengthening the underlying data and better accounting for persistent chronic conditions while avoiding continued credit for conditions that are no longer clinically active. Commenters emphasized transparency, testing, and phased implementation to prevent unintended impacts on high-need populations and program stability.

For QBP/Star Ratings, commenters recommended refining measure selection, weighting, and program design to better reflect outcomes and beneficiary experience, improve alignment with other CMS quality programs, and reduce timing lags between measurement and payment. Some raised concerns about overall spending and whether QBP should be budget neutral, while others cautioned against abrupt changes that could disrupt plan benefits and supplemental offerings.

We appreciate the feedback received on MA risk adjustment and the Quality Bonus Payment/Star Ratings programs. We will consider these comments as we evaluate future policy directions for the MA program.

We proposed to update our regulations related to Medicare Advantage and the Medicare Prescription Drug Program to align with E.O. 14168-- Defending Women From Gender Ideology Extremism and Restoring Biological Truth to the Federal Government, issued on January 20, 2025. Per this E.O., we proposed to replace the word “gender” with “sex” in Sec. Sec. 422.308(c)(1) and 423.884(c)(2)(v)(D).

As these terms have no discernable operational difference in meaning with regard to risk adjustment and applications for qualified retiree prescription drug plans, there is no associated burden. Therefore, we did not include a discussion of this provision in the COI section of this rule.

We did score this provision in the Regulatory Impact Analysis section because this technical change has no impact on program operations.

Comment: A few commenters stated that the technical change will create

barriers to care for gender-diverse beneficiaries. A commenter was concerned that the terminology change will create confusion across Medicare Advantage and Medicare Part D payer policies, leading to variability in the interpretation and application of coverage requirements by plans. This commenter also noted that the policy change may lead to confusion in practices because it is not consistent with coding and medical documentation.

Response: We recognize the concerns raised by the commenters. However, these terms have no discernable operational difference in meaning with regard to risk adjustment and applications for qualified retiree prescription drug plans.

After consideration of the public comments we received, we are finalizing the technical change as proposed.

Under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et seq.), we are required to provide notice in the Federal Register and solicit public comment before a “collection of information,” as defined under 5 CFR 1320.3(c) of the PRA's implementing regulations, is submitted to the Office of Management and Budget (OMB) for review and approval. To fairly evaluate whether an information collection requirement should be approved by OMB, section 3506(c)(2)(A) of the PRA requires that we solicit comment on the following issues:

The need for the information collection and its usefulness in carrying out the proper functions of our agency.

The accuracy of our estimate of the information collection burden.

The quality, utility, and clarity of the information to be collected.

Recommendations to minimize the information collection burden on the affected public, including automated collection techniques.

In the Contract Year 2027 proposed rule (90 FR 54894), we solicited public comment on each of these issues for the following sections of the rule that contained information collection requirements. Such comments were received for the provisions proposed under ICR #2 (Strengthened Documentation Standards for Part D Plan Sponsors) and ICR #4 (Appeals Process for Part D Program Integrity Prescription Drug Event Record Review Audits). A summary of the comments and our responses follow under the applicable ICR section of this final rule. Separately, we received a comment on our use of BLS's National Occupational Employment and Wage Estimates to calculate costs. A summary of that comment and our response follow under section X.A. (Wage Data) of this final rule.

While a number of requirements were finalized on April 15, 2025 (90 FR 15792) under CMS-4208-F (RIN 0938-AV40), the proposed information collection requirement in section VI.B.9. of the Contract Year 2026 proposed rule CMS-4208-P (89 FR 99340) titled “ICRs Regarding Eligibility for Supplemental Benefits for the Chronically Ill (SSBCI) (Sec. 422.102(f)(4)(iii)(C))” was not finalized at that time. As indicated throughout this preamble, this provision is being finalized in this CMS-4208-F3 rule.

To derive average (mean) costs, we are using data from the most current U.S. Bureau of Labor Statistics' (BLS's) National Occupational Employment and Wage Estimates for all salary estimates (https://www.bls.gov/oes/tables.htm), which, at the time of publication of this final rule, provides May 2024 wages. In this regard, table 6 presents BLS's mean hourly wage, our estimated cost of fringe benefits and other indirect costs (calculated at 100 percent of salary), and our adjusted hourly wage. [GRAPHIC] [TIFF OMITTED] TR06AP26.036

In response to the commenter's recommendation to use BLS's Employer Costs for Employee Compensation data, we use BLS's National Occupational Employment and Wage Estimates, which provide more job- specific details and categories of employees. In addition, the employer costs shown in both datasets are fairly comparable. For example, the BLS's ECEC dataset for September 2025 estimates the total hourly compensation for management, professional, and related occupations at $77.26/hour.\140\ By contrast, BLS's OEW dataset for May 2024 for management occupations (occupational code 11-0000) reflects a mean hourly wage of $68.15. To account for the cost of fringe benefits and other indirect costs, we doubled the OEW mean hourly wage, yielding a total hourly compensation estimate of $136.30. Our use of BLS's OEW data yields a conservative estimate of labor costs while providing greater specificity in distinguishing wage estimates across job titles and occupational classifications. Accordingly, this rule relies on BLS's OEW data as the basis for the occupational wage estimates used in calculating the burden costs associated with the provisions in this final rule. We will continue to evaluate estimation methods and policy implementation timelines, as appropriate.

\140\ U.S. Bureau of Labor Statistics, Employer Costs for Employee Compensation, https://www.bls.gov/web/ecec.supp.toc.htm.

After consideration of the public comments we received, we are finalizing the proposed collection of information requirements using BLS's mean hourly wages doubled for fringe benefits and other indirect costs to estimate the adjusted mean hourly wages.

The following ICRs are listed in the order of appearance within the preamble of this final rule.

1. ICRs Regarding Manufacturer Discount Program (Sec. 423.100 and Sec. Sec. 423.2700 Through 423.2768)

As described in section II.C. of the Contract Year 2027 proposed rule, we proposed to codify the policies established under the Manufacturer Discount Program Final Guidance,\141\ with certain refinements, as new subpart AA of part 423.

\141\ Available at: https://www.cms.gov/files/document/revised-manufacturer-discount-programfinal-guidance122024.pdf.

Codification of the Manufacturer Discount Program policies in this final rule have no impact on the requirements or burden estimates that are currently approved by OMB under control number 0938-1451 (CMS- 10846). The collection of information requirements/burden in the Final Guidance are active and properly accounted for in CMS-10846 without the need for change. In this regard, our finalized provisions are not subject to the requirements of the PRA.

We received no comments regarding information collection requirements for the Manufacturer Discount Program. We are finalizing the regulatory policies for the Manufacturer Discount Program largely as proposed, with limited modifications, which are described in greater detail in section II.C. of this final rule. 2. ICRs Regarding Strengthened Documentation Standards for Part D Plan Sponsors (Sec. 423.505)

Under section 1860D-12(b)(3)(C) of the Act and Sec. 423.505(d) and (e), Part D plan sponsors are required to maintain certain categories of documentation for specified periods of time. Specifically, Sec. 423.505(d) requires that the contract between a Part D plan sponsor and CMS include an agreement by the Part D plan sponsor to maintain books, records, documents, and other evidence of accounting procedures and practices for 10 years that are sufficient to meet certain requirements, including enabling CMS to evaluate the quality, appropriateness, and timeliness of services performed under the contract and to audit the services performed or determinations of amounts payable under the contract. In addition, Sec. 423.505(e) requires that Part D plan sponsors agree to HHS, the Comptroller General or their designee to evaluate through audit, inspection, or other means (1) the quality, appropriateness, and timeliness of those services furnished to Medicare enrollees; (2) compliance with CMS requirements for maintaining the privacy and security of protected health information and other personally identifiable information of Medicare enrollees; (3) facilities of the Part D sponsor; and (4) enrollment/disenrollment records for the current contract period and 10 prior periods. Furthermore, Sec. Sec. 423.568(a)(3), 423.570(c)(2), and 423.584(c)(1) outline requirements for Part D plan sponsors to establish and maintain a method of documenting and to retain documentation for oral requests for coverage determinations under standard timeframes, expedited timeframes, and redeterminations respectively.

In the Contract Year 2027 proposed rule, CMS proposed to standardize the documentation requirements that plan sponsors must maintain, in regulation at Sec. 423.505, to ensure that Part D plan sponsors provide CMS with all the information that the plan sponsors use for determining payment responsibility under the Part D benefit. CMS proposed to standardize the documentation requirements because information currently obtained from and relied upon during coverage determinations, or point-of-sale (POS) edits, utilized to determine payment responsibility, are not always maintained in the necessary detail by the Part D plan sponsors to allow CMS to evaluate if the PDE record was covered and paid under the Medicare Part D benefit in compliance with CMS policy or policies.

CMS proposed to modify Sec. 423.505 to further clarify and set expectations on the specific type of information needed to support final payment determinations for coverage determinations, and POS edits to determine payment responsibility under the Part D benefit. We proposed documentation requirements that include certain written, verbal, and electronic communications, such as the date and time the request was received; the name and title of the individual who submitted or verified the request; and the information used to make the coverage determination.

Based on the current regulations and plan sponsor expectations, CMS believes that this proposal is exempt from PRA requirements as such recordkeeping is a usual and customary business practice (5 CFR 1320.3(b)(2)). The ability of the plan sponsor to demonstrate their compliance with the rules and regulations of the Medicare Part D program is a basic requirement upon entering a contractual relationship with CMS. Plan sponsors are expected to maintain documentation and produce that documentation upon request by CMS to evaluate the appropriateness of the services provided to the Medicare enrollee in accordance with the requirements at Sec. 423.505. Based upon our past audit experience, plan sponsors maintain documentation to varying degrees and in some instances the documentation maintained is not sufficient for CMS to have confidence that the PDE record was covered and paid under the Part D benefit in accordance with CMS policy(ies). As such, CMS proposed the documentation standards to allow CMS to perform the task of evaluating the appropriateness of the Medicare Part D coverage provided by plan sponsors for coverage determinations and POS edits that determine coverage. The documentation requirements must also be provided to CMS, in accordance with requirements at Sec. 423.505 that allow CMS the right to evaluate and provide oversight of the program though audit. As such, we believe the proposed documentation standards that provide clarification of current expectations are exempt from any PRA.

As indicated, comments were received. A summary of the comments and our response follow.

Comment: A few commenters mentioned that the documentation standard proposed may cause increased administrative burden for Part D plan sponsors.

Response: We have included minor updates to the proposed language and addressed comments for documentation standards, including commenters' concerns surrounding burden for plan sponsors in this rule's provision for “Strengthened Documentation Standards for Part D Plan Sponsors”. CMS provided clarification that plan sponsors (1) do not need to maintain audio recordings and that transcripts or call notes suffice, (2) only need to maintain communications that they have with pharmacists, prescribers, enrollees or other stakeholders entities and not communications between these entities, and (3) do not need to perform additional outreach if information available clearly illustrates how a decision for Part D coverage was made.

After consideration of the public comments we received, we are finalizing the proposed provisions with minor modifications in the original draft language to clarify plan sponsor expectations. 3. ICRs Regarding Removing Rules on Time and Manner of Beneficiary Outreach (Sec. Sec. 422.2264(c) and 423.2264(c))

CMS is finalizing three deregulatory changes to Sec. Sec. 422.2264(c) and 423.2264(c) to remove rules on the time and manner of beneficiary outreach. The changes are designed to improve the plan decision making process by

creating a more convenient, beneficiary-friendly outreach experience and to reduce burden on beneficiaries, plans, and agents/brokers. The deregulatory changes concern: (1) marketing events following educational events in the same location; (2) the timing of a personal marketing appointment after Scope of Appointment (SOA) form completion; and (3) SOA forms at educational events. a. Marketing Events Following Educational Events in Same Location

For the elimination of the requirement for a 12-hour delay between an educational and marketing event at Sec. Sec. 422.2264(c)(2)(i) and 423.2264(c)(2)(i), this rule removes the one-time burden to change the MA organization's policies and procedures. With 697 contracts and 15 minutes (0.25 hr) per response at $88.82/hr for a business operations specialist, we estimate a reduction of minus 174 hours (697 contracts x 0.25 hr) and minus $15,477 (174 hr x $88.82/hr). b. Timing of Personal Marketing Appointment After Scope of Appointment (SOA) Form Completion

For the elimination of the 48-hour waiting period required between the SOA completion and a personal marketing appointment at Sec. Sec. 422.2264(c)(3)(i) and 423.2264(c)(3)(i), this rule removes the one-time burden to change the MA organization's policies and procedures. With 697 contracts and 15 minutes (0.25 hr) per response at $88.82/hr for a business operations specialist, we estimate a reduction of minus 174 hours (697 contracts x 0.25 hr) and minus $15,477 (174 hr x $88.82/hr). c. Scope of Appointment (SOA) Forms at Educational Events

For the elimination of the prohibition of the collection of SOA forms at educational events at Sec. Sec. 422.2264(c)(1)(ii)(D) and 423.2264(c)(1)(ii)(D), this rule removes the one-time burden to change the MA organization's policies and procedures. With 697 contracts and 15 minutes (0.25 hr) per response at $88.82/hr for a business operations specialist, we estimate a reduction of minus 174 hours (697 contracts x 0.25 hr) and minus $15,477 (174 hr x $88.82/hr). d. Burden Summary

The following table summarizes our burden estimates.

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We did not receive any comments related to the aforementioned collection of information requirements and burden estimates and are finalizing them in this rule as proposed. 4. ICRs Regarding Appeals Process for Part D Program Integrity Prescription Drug Event Record Review Audits (Part 423, Subpart Z)

The effort associated with our finalized requirements under part 423, subpart Z consists of the time for plan sponsors to prepare and submit the appeal requests for: (1) reconsiderations; (2) hearing official review; and (3) review by the Administrator. However, the burden associated with the preparation and submission of appeals is exempt from the requirements of the PRA since such appeals would be submitted in response to an administrative action (5 CFR 1320.4(a)(2) and (c)).

We also believe that there would be no need for plan sponsors to establish a new appeals process or revise an existing appeals process.

As indicated, comments were received. A summary of the comments and our response follow.

Comment: A few commenters mentioned that the appeals process may cause increased administrative burden for Part D plan sponsors.

Response: CMS has addressed comments for the appeals process, including commenters' concerns surrounding burden for plan sponsors in this rule's provision for “Appeals Process for Part D Program Integrity Prescription Drug Event Record Review Audits”.

After consideration of the public comments we received, we are finalizing the proposed provisions without modification. 5. ICRs Regarding Eligibility for Supplemental Benefits for the Chronically Ill (SSBCI) (Sec. 422.102(f)(4)(iii)(C))

The following changes will be submitted to OMB for approval under control number 0938-0753 (CMS-R-267).

As outlined in the CY 2026 proposed rule, for each SSBCI, the plan must post the written policies and objective criteria on which the policies are based to a public-facing website. For web developers and programmers to annually post the required information on the plan website, we estimate it will take 2 hours at $130.68/hr (89 FR 99392). We estimate that there are 697 plans including local and regional CCPs, MSA, and PFFS. In aggregate, we estimate an annual burden of 1,394 hours (697 plans * 2 hr/plan) at a cost of $182,168 (1,394 hr * $130.68) Medicare Cost plans are excluded from the count since they are not permitted to offer SSBCI.

The following table summarizes our burden estimates.

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We did not receive any comments related to the aforementioned collection of information requirements and burden estimates. We are finalizing our estimates in this rule based on the proposed methodology but with more current data for wages and MA contracts. Our original estimates used wage data and a count of MA contracts that are no longer accurate. 6. ICRs Regarding Passive Enrollment by CMS (Sec. 422.60)

The requirement and burden change for D-SNPs will be submitted to OMB for approval under control number 0938-TBD (CMS-10953). At this time, the OMB control number has yet to be determined. However, it will be assigned by OMB upon their approval of this collection of information request. The public can monitor the status of our request at reginfo.gov under Information Collection Review.

In our April 2018 final rule, we finalized language authorizing CMS to passively enroll certain dually eligible individuals currently enrolled in an integrated D-SNP into another integrated D-SNP, after consulting with the State Medicaid agency that contracts with the D-SNP or other integrated managed care plan, when CMS determines that the passive enrollment will promote continuity of care and integrated care under Sec. 422.60(g)(1)(iii). We also finalized, under Sec. 422.60(g)(2), requirements an MA plan will have to meet to qualify to receive passive enrollments under paragraph (g)(1)(iii). However, in multiple situations where we have attempted to implement these requirements, we have encountered difficulty with receiving integrated D-SNPs meeting the portion of Sec. 422.60(g)(2)(ii) requiring that receiving integrated D-SNPs have provider networks and facility networks that are substantially similar to the relinquishing integrated D-SNP. In our attempts to utilize passive enrollment, we found that while prospective receiving integrated D-SNPs had Medicare provider and facility networks that meet the MA network adequacy criteria at Sec. 422.112, these networks were not substantially similar to the provider and facility networks in the relinquishing integrated D-SNPs.

To address this issue, we are finalizing an amendment at Sec. 422.60(g)(2)(ii) to require that the integrated D-SNP receiving passive enrollment provide a continuity of care to all incoming enrollees for 120 days. We believe that this extended continuity of care period will address the issue that we attempted to address at 83 FR 16504 in the April 2018 final rule, namely that the provider network comparability analysis will minimize the number of enrollees whose provider relationships are disrupted as a result of passive enrollment.

Based on July 2025 total D-SNP enrollment, we estimated 6,168,649 D-SNP enrollees per 949 D-SNPs or a CY 2025 average of 6,500 enrollees per D-SNP (6,168,649 D-SNP enrollees/949 D-SNPs).\142\

\142\ CMS, SNP Comprehensive Report, July 2025. Available from: https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-advantagepart-d-contract-and-enrollment-data/special-needs-plan-snp-data/snp-comprehensive-report-2025-07.

We assumed the following costs include paper, toner, envelopes, and postage (envelope weight is normally considered negligible when citing these rates and is not included) for hard-copy mailings:

Paper: $3.50 for a ream of 500 sheets. The cost for one page is $0.007 ($3.50/500 sheets).

Toner: $70 for 10,000 pages. The toner cost per page is $0.007 ($70/10,000 pages).

Envelope: Bulk envelope costs are $440 for 10,000 envelopes or $0.044 per envelope.

Postage: The cost of first-class metered mail is $0.73 per letter up to 1 ounce. We estimated that a sheet of paper weighs 0.16 ounces (10.0 lb/1,000 sheets x 16 oz/lb), and did not anticipate additional postage for mailings in excess of 1 ounce.

We estimated the aggregate cost per mailed notice is $0.802 ([$0.007 for paper * 2 pages] + [$0.007 for toner * 2 pages] + $0.73 for postage + $0.044 per envelope). We assumed a maximum of 2 double- sided pages (generally, weighing less than 1 ounce) would be needed for a passive enrollment notice. Because preparing and generating a hard- copy enrollment notice is automated once the systems have been developed, we did not estimate any labor costs. Therefore, we estimated a total mailing cost by sponsors of $114,686 (6,500 enrollees/D-SNP * 2 mailings * 11 D-SNPs * $0.802/mailing).

We did not receive comments on the information collection requirements associated with our proposal and, therefore, are finalizing the information collection requirements without modification.

The following table summarizes our burden estimates.

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7. ICRs Regarding Continuity in Enrollment for Full-Benefit Dually Eligible Individuals in a D-SNP and Medicaid Fee-for-Service (Sec. Sec. 422.107(d)(1) and 422.514(h))

The following changes will be submitted to OMB for approval under control number 0938-0753 (CMS-R-267). While the control number has expired, we are setting out this rule's collection of information requirements/burden to score the impact of such changes. We intend to use the standard PRA process (which includes the publication of 60- and 30-day non-rule Federal Register notices) to reinstate the control number with change. The initial 60-day notice will publish sometime after the publication of this final rule.

We are amending Sec. Sec. 422.107(d)(1) and 422.514(h) to allow D- SNPs that serve full-benefit dually eligible individuals in a coordination-only D-SNP or HIDE SNP to continue enrollment of full- benefit dually eligible individuals in a D-SNP in the same service area where

those individuals are enrolled in Medicaid FFS. As discussed in section VI.C. of this final rule, we are revising specific provisions from the April 2024 final rule, which limited enrollment in certain D-SNPs to those individuals who are also enrolled in an affiliated Medicaid managed care organization (MCO), and limited the number of D-SNP plan benefit packages an MA organization, its parent organization, or entity that shares a parent organization with the MA organization, could offer in the same service area as an affiliated Medicaid MCO. The provisions that we are finalizing at Sec. Sec. 422.107(d)(1) and 422.514(h) will create another exception to allow D-SNPs that serve full-benefit dually eligible individuals in a HIDE SNP or coordination-only D-SNP to continue enrollment of full-benefit dually eligible individuals in a D- SNP in the same service area where those individuals are enrolled in Medicaid FFS.

In the information collection requirements in the April 2024 final rule (89 FR 30784), we stated that the provisions we finalized would create burden for MA organizations that offer multiple D-SNPs in a service area with a Medicaid MCO, noting that impacted MA organizations would need to non-renew or (more likely) combine plans and update systems as well as notify enrollees of plan changes. Using BLS's May 2022 wage data, we also stated in the April 2024 final rule that we expected that MA organizations would need two software engineers with each working 4 hours (or a total of 8 hours) at $127.82/hr to update software in the first year with no additional burden in future years and one business operations specialist working 4 hours at $79.50/hr to update plan policies and procedures in the first year with no additional burden in future years. In aggregate, we estimated a one- time burden (for plan year 2027) of 600 hours (50 plans * 12 hr/plan) at a cost of $67,028 (50 plans x [(8 hr * $127.82/hr) + (4 hr * $79.50/ hr)]).

The modifications that we are finalizing in section VI.C. of this rule to Sec. Sec. 422.107(d)(1) and 422.514(h) will allow D-SNPs that serve full-benefit dually eligible individuals in a coordination-only D-SNP or HIDE SNP to continue enrollment of full-benefit dually eligible individuals in a D-SNP in the same service area where those individuals are enrolled in Medicaid FFS, and as such, will change which D-SNPs will be required to non-renew or combine plans, affecting the burden estimates finalized in the April 2024 final rule. Given the landscape of States that do not require mandatory Medicaid managed care for all of their full-benefit dually eligible individuals, we believe that based on our estimates, 15 MA organizations would be affected by this finalized exception. To account for the reduction in affected MA organizations under this finalized change to Sec. Sec. 422.107(d)(1) and 422.514(h) as compared to the finalized burden estimates in the April 2024 final rule, we are reducing the previous burden calculation of 50 MA organizations by 15 MA organizations.

Because we estimate that amendments to Sec. Sec. 422.107(d)(1) and 422.514(h) will reduce the number of impacted MA organizations by 15 as compared to our finalized estimate in the April 2024 final rule, we are providing our estimate in the reduction of burden that would result in finalizing the amendments to Sec. Sec. 422.107(d)(1) and 422.514(h). The wage estimates reflect May 2024 BLS National Occupational Employment and Wage Estimates, whereas our estimates in the April 2024 final rule used BLS National Occupational Employment and Wage Estimates from May 2022.

Using BLS's May 2024 wage data, we continue to expect that MA organizations would need two software engineers with each working 4 hours at $139.00/hr to update software in the first year with no additional burden in future years and one business operations specialist working 4 hours at $88.82/hr to update plan policies and procedures in the first year with no additional burden in future years. In aggregate, we estimated a revised one-time burden (for plan year 2027) of 420 hours (35 plans * 12 hr/plan) at a cost of $51,355 (35 plans x [(8 hr * $139.00/hr) + (4 hr * $88.82/hr)]).

In this regard, we estimated a burden reduction of minus 180 hours (420 hr revised-600 hr active) and minus $15,673 ($51,355 revised- $67,028 active).

The following table summarizes our burden estimates.

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We did not receive comments on the information collection requirements associated with this proposal and are finalizing the information collection requirements without modification. 8. ICRs Removing Account-Based Medical Plans From Entities Required To Provide Creditable Coverage Disclosures

The following changes will be submitted to OMB for approval under control number 0938-1013 (CMS-10198).

As described in section VII.A. (90 FR 54984) of the Contract Year 2027 proposed rule, account-based plans, such as HRAs, including ICHRAs, are group health plans that are not, as section 1860D- 13(b)(6)(B)(i) of the Act requires, entities that offer prescription drug coverage. Therefore, the benefit design of account-based plans makes concepts, such as disclosure of creditable coverage, inapplicable to those arrangements. This rule's finalized provision to exclude account-based plans from the group health plans that are required to disclose creditable coverage status to the Secretary and to Medicare- eligible individuals as required under Sec. 423.56 will reduce private expenditures required to comply with federal regulations to provide creditable coverage disclosures, by avoiding duplicative efforts, and eliminating the need for these account-based plans to acquire additional resources and expertise to provide these disclosures.

The disclosure to the Secretary is required for certain entities listed at Sec. 423.56(b) that are not excluded at Sec. 423.56(e). The entities exempted under Sec. 423.56(e) include PDPs, MA-PD plans, and PACE or cost-based HMOs or CMPs that provide “qualified Part D coverage” within the meaning of Sec. 423.100. Among the plans that are required to submit this disclosure are group health plans (offered by employers, union/Taft-Hartley plans, church, State and local government, and other group-sponsored plans) including the Federal Employees Health Benefits Program; and qualified retiree prescription drug plans as defined in

section 1860D-22(a)(2) of the Act. As described in section VII.A. of the Contract Year 2027 proposed rule (90 FR 54984), the term, “Group Health Plan” (GHP) was codified at Sec. 423.882 in the 2005 Part D final rule (70 FR 4577), and this definition includes account-based medical plans. The CMS online disclosure system allows entities to select the general type of GHP they offer (for example, employer- sponsored plans). However, the system does not provide for further subsets of the plan type. For example, account-based plans are not sub- categorized under the GHP category. Therefore, CMS does not have specific data on the number of account-based plans that may be making creditable coverage disclosures.

As stated in section VII.A. of the Contract Year 2027 proposed rule, ICHRAs, a type of HRAs, are account-based plans that were more recently recognized by the Labor, Health and Human Services, and Treasury Departments in the June 20, 2019 final rule titled, “Health Reimbursement Arrangements and Other Account-Based Group Health Plans” (84 FR 28888). Generally, the impetus for this proposal to not require account-based plans to provide creditable coverage disclosures was from feedback that CMS received from stakeholders asking if ICHRAs were required to provide creditable coverage disclosures. To date, CMS has received minimal to no inquiries on the requirement for other types of account-based plans to make creditable coverage disclosures. Therefore, we attempted to show a decrease in burden by comparing the number of ICHRA plans compared to the total universe of health plans, (about 5 percent), and inputting that percentage to estimate the number of ICHRA plans that are potentially making creditable coverage disclosures to the Secretary.\143\

\143\ According to the 2024 KFF Employer Health Benefits Survey (available at https://www.kff.org/health-costs/report/2024-employer-health-benefits-survey/), of firms offering health benefits, 4 percent provide employees funds to purchase non-group coverage (such as through an ICHRA). Of firms not offering health benefits, 7 percent similarly provide employees funds to purchase non-group coverage (such as through an ICHRA). Based on these survey estimates, the weighted number of firms offering health benefits (1,670,244), and the estimated weighted number of firms not offering health benefits (1,589,106), it is estimated that there are 178,047 ICHRA plans in total. This is calculated as (1,670,244*0.04) + (1,589,106*0.07) = 178,047.

Using this data, we estimate that about 5 percent of the 140,974 GHPs, or about 7,049 entities (140,974 x 0.05) in our active burden estimates would not be required to make creditable coverage disclosures to the Secretary. Taking approximately 5 total minutes (0.083 hr) for either a Human Resources Manager at $154.30/hr or a Compensation and Benefits Manager at $150.22/hr (whichever individual/occupational title is assigned by the plan) to complete the online disclosure form, we estimate a burden reduction of minus 585 hours (7,049 * 0.083 hr) and minus $90,266 (585 * $154.30/hr for a Human Resources Manager) or minus $87,879 (585 * $150.22/hr for a Compensation and Benefits Manager). We used the higher of our two cost estimates (namely, $90,266) to score our total burden estimates.

The following table summarizes our burden estimates.

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We received no comments on this proposal and therefore are finalizing this provision without modification. 9. ICRs Regarding Rescinding the Annual Health Equity Analysis of Utilization Management (UM) Policies and Procedures (Sec. 422.137(c)(5), (d)(6), and (d)(7))

Section 422.137(c)(5) requires a member of the UM Committee to have expertise in health equity. CMS estimated it takes 30 minutes at $81.72/hr for a compliance officer to update the policies and procedures. By removing this requirement, CMS estimates a one-time burden of 348 hours (697 contracts * 0.5 hr) and $28,438 (348 hr * $81.72/hr).

Section 422.137(d)(6) requires the UM Committee to conduct an annual health equity analysis of the use of prior authorization. CMS estimated it takes 8 hours at $139.00/hr for a software developer to collect and aggregate the health equity analysis data required to produce the report. By removing this requirement, CMS estimates an annual burden reduction of minus 5,576 hours (697 contracts * 8 hr/ plan) and minus $775,064 (5,576 hr * $139.00/hr).

Finally, Sec. 422.137(d)(7) requires that annually, the health equity analysis must be produced and posted to the plan's website. CMS estimated it takes 10 minutes (0.1667 hr) at $88.82/hr for a business operations specialist to produce, inspect, and post the report. By removing this requirement, CMS estimates an annual burden reduction of minus 116 hours (697 contracts * 0.1667 hr/plan) and minus $10,303 (116 hr * $88.82/hr).

The following table summarizes our burden estimates.

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We did not receive any comments related to the aforementioned collection of information requirements and burden estimates and are finalizing them in this rule as proposed.

This final rule addresses several critical needs in the Medicare Advantage (Part C), Medicare Prescription Drug Benefit (Part D), and Medicare cost plan programs that require regulatory action to ensure program integrity, beneficiary protection, and statutory compliance. The provisions finalized in this rule are intended to codify statutory requirements of the Inflation Reduction Act of 2022 (IRA) (Pub. L. 117- 169), and provide greater clarity on the Star Ratings system for plans operating in the MA and Part D spaces.

One of the primary drivers for this rulemaking is the statutory mandate to codify changes made by the IRA. The IRA fundamentally restructured the Part D benefit design and established new payment obligations for enrollees, Part D plan sponsors, pharmaceutical manufacturers, and CMS. Without regulatory implementation of these statutory changes, the Medicare program cannot comply with Federal law or provide the intended beneficiary protections and cost savings provided under statute. Specifically, the IRA requires CMS to codify changes to Part D benefit phases, including the deductible, initial coverage limit, coverage gap, and the annual out-of-pocket threshold, as well as to sunset the Coverage Gap Discount Program and to establish the Medicare Part D Manufacturer Discount Program.

The changes to Star Ratings address the ongoing need to simplify and refocus quality measurement, improving transparency for MA organizations and Part D sponsors. The current Star Ratings system has grown in complexity over time, and stakeholders have requested streamlining to focus on the most impactful quality measures. The modifications being finalized respond to these requests and should make the Star Ratings system more comprehensible and predictable.

The absence of regulatory action would result in statutory non- compliance regarding IRA implementation, ongoing operational inefficiencies, and missed opportunities for program improvement and innovation. Therefore, this rulemaking is necessary to ensure the Medicare program operates effectively, efficiently, and in compliance with Federal law while serving the best interests of Medicare beneficiaries.

We have examined the impacts of this final rule as required by Executive Order 12866 on Regulatory Planning and Review (September 30, 1993); Executive Order 13132, “Federalism”; Executive Order 14192, “Unleashing Prosperity Through Deregulation”; the Regulatory Flexibility Act (RFA) (Pub. L. 96-354); section 1102(b) of the Act; and section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) (Pub. L. 104-4).

Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, and distributive impacts). Section 3(f) of Executive Order 12866 defines a “significant regulatory action” as an any regulatory action that is likely to result in a rule that may: (1) have an annual effect on the economy of $100 million or more, or adversely affect in a material way a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or Tribal governments or communities; (2) create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) materially alter the budgetary impacts of entitlement grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raise novel legal or policy issues arising out of legal mandates, or the President's priorities.

A regulatory impact analysis (RIA) must be prepared for a regulatory action that is significant under section 3(f)(1) of E.O. 12866. Based on our estimates, OIRA has determined this rulemaking is significant under section 3(f)(1) of E.O. 12866.

Many provisions of this final rule have negligible impact either because they are technical provisions or clarifications. Throughout the preamble we have noted when we estimated that provisions have no impact. Additionally, this Regulatory Impact Analysis discusses several provisions with either zero impact or impact that cannot be quantified. The remaining provisions' effects are estimated in section X. of this final rule, which estimates costs associated with paperwork burden resulting from this rule. Where appropriate, when a group of provisions have both paperwork and non-paperwork impact, this RIA cross-references impacts from section X. of this final rule in order to arrive at the total impact. Table 7 summarizes the estimated transfers and costs associated with the various provisions in this final rule over a 10- year period. Further details are provided later in this RIA.

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1. Effects of Part D Redesign: Redesigned Part D Benefit

In the Contract Year 2027 proposed rule, we proposed to codify changes to the Part D benefit made by section 11201 of the IRA related to the deductible, the initial coverage limit, the coverage gap, the annual out-of-pocket (OOP) threshold, and alternative prescription drug coverage options.

The CMS Office of the Actuary estimated the impacts of the drug provisions of the IRA using the 2024 President's Budget as a baseline early in calendar year 2023. These estimates were made prior to many policy decisions to implement the law, and independently from other components of CMS. Since the majority of these provisions have already been implemented through program instruction,\144\ this estimate should be taken only in its historical context, not as a reflection on the experience since the provisions' effectuation. Additionally, these estimates measure the overall impact of the IRA on Medicare, whereas this regulation codifies only certain provisions of the law. We will highlight certain components of this estimate where recent experience has diverged from our initial assumptions.

\144\ This includes the Medicare Drug Price Negotiation Program Guidance with respect to initial price applicability years 2026, 2027, and 2028; the Part D Redesign Program Instructions for CY 2025 and 2026 (as discussed in section II.A. of this final rule); and the Medicare Part D Manufacturer Discount Program Final Guidance for CYs 2025 and 2026 (as discussed in section II.C. of this final rule).

The IRA has a range of Medicare provisions, including restraining price growth and negotiating drug prices for certain drugs payable under Part B and covered under Part D, as well as redesigning the Part D benefit structure to decrease beneficiary out-of-pocket costs. The provisions of the IRA take effect over several years, resulting in very different effects by year. Much of the Part D benefit redesign became effective in 2025, for example, before the Negotiation Program provisions can have any offsetting effects.

To model the Negotiation Program provisions of the IRA, we first determined which drugs would be selected for negotiation in accordance with sections 11001 and 11002 of the IRA. Using 2022 experience for Part B and Part D claims, we ranked drugs by Part B and Part D expenditures and then applied the eligibility criteria specified in the IRA--verifying, in particular, that the ranked drugs had been on the market long enough to qualify for negotiation. From this list, we generated the potential list of drugs to be negotiated in each year for Part B and Part D.

To estimate the impact of negotiation and to measure the differences between the current prices and the ceiling price and other pricing parameters laid out in the IRA, we used 2021 data from a variety of sources, including PDE records, Medicaid Average Manufacturer Price data, and Part B ASP data. We assumed, after comparing the Medicare prices to the ceiling prices in each projection year, that Medicare would be able to negotiate slightly below the ceiling price in Part D. We then adjusted for generic and biosimilar launches that, should they happen after the selection process, would potentially limit the impact of the maximum fair price. Lastly, we adjusted for changes in the percentage of spending that the selected drugs would represent over time. The discounts relative to total 2021 Part D allowed cost, prior to manufacturer rebates and total Part B allowed cost, are shown in Table 8. [GRAPHIC] [TIFF OMITTED] TR06AP26.045

For Part D, the benefit is considerably enriched under the IRA redesign, and the most impactful changes took effect in 2025. To estimate these effects inclusive of the Negotiation Program impacts, we incorporated the negotiated price at the drug level into a beneficiary- and claim-level detailed model. Then, we recalculated the new benefit on the negotiated prices to determine the combined result under the defined standard benefit design by year. To protect beneficiaries from large premium increases, the IRA limits the premium change in years 2024 through 2029 before ultimately readjusting the base beneficiary premium percentage to a minimum of 20 percent in 2030 and later years. The major benefit changes and beneficiary premium protections by year are shown in Table 9.

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To complete the modeling of the Negotiation Program, prescription drug inflation rebates, and benefit provisions, we applied the results from the Part D claim-level detailed simulation to our total Part D benefit model. This model also incorporated changes to the per capita cost trends to reflect: (i) the impact of most existing brand-name drugs moving to a CPI-level increase; (ii) the expected growth in new drug costs; and (iii) the expected induced utilization due to the enriched benefit. We assumed that drugs with a significant amount of spending in Part D would temper their price increases rather than pay the inflation rebates required by the IRA. Additionally, we reduced manufacturer rebates to compensate for the lower negotiated prices and lower price growth on existing drugs.

For drugs payable under Part B, we applied the negotiated price discounts to the OM spending for separately payable Part B drugs. We further adjusted these results to account for the impact to private health plan expenditures to obtain a total impact. While there are also inflation rebates required for certain drugs payable under Part B drugs under the IRA, price increases on existing drugs payable under Part B historically have been close to the CPI in aggregate, and therefore we did not project an effect for this provision in the drugs payable under Part B. We also incorporated other, less significant changes from the IRA, such as the lower cost sharing for insulins furnished under durable medical equipment and the temporary payment increase for biosimilar products.

Our assumptions on the impacts of the IRA differed from those used in other public estimates in a few critical ways. Most importantly, we assumed that the inflation rebates required by the IRA would result in manufacturers paying relatively small inflation rebate amounts for drugs covered under Part D and nothing for drugs payable under Part B. We assumed that manufacturers would prefer to have lower price trends that would incentivize greater use than pay publicly reported fees for price increases that exceed inflation. Under this assumption, the effects of the inflation rebate provisions of the IRA are changed because the difference in price is shared across the benefit rather than accruing directly to the government. In other words, lower list price trends will reduce prices paid at the pharmacy relative to the baseline, which results in lower beneficiary cost sharing and lower state clawback payments, thereby increasing the federal cost for the Part D benefit. To compensate for the loss of price increases, we expected manufacturers to reduce rebates offered to plan sponsors.

Additionally, we expected that the initial pool of drugs covered under Part D selected for negotiation would have a large proportion of heavily rebated drugs. In these cases, we expected that the price net of rebate will be substantially lower than the other ceiling prices described in the IRA. We further estimated that the effect of negotiation in the early years would be similar to the impact of shifting rebates to the point of sale. This shift reduces beneficiary cost sharing as the price at the point of sale is lower, but increases bid amounts and increases federal expenditures.

In summary, the total effects were to reduce government expenditures for Part B, to increase expenditures for Part D through 2030, and to decrease Part D expenditures beginning in 2031. Part B savings were primarily due to: (i) the substantial lowering of payments, relative to current payment, as a result of negotiated prices; and (ii) small impacts from other provisions. Part D ultimately generated cost savings at the end of the budget window, but many of the gains from negotiated prices and lower trends were initially spent on increased benefits and the loss of manufacturer rebates. The impact on benefits and premiums and the impact in total are shown in Table 10 using the 2024 President's Budget as a basis.

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Since we produced these estimates, both the Part B and Part D programs have had large increases in drug expenditures. Part D trends have accelerated dramatically, with the per capita gross drug cost increasing more than 18 percent in 2025 over 2024, driven by higher glucagon-like peptide-1 (GLP-1) and specialty drug usage. Meanwhile Part B drug trends have also increased, although the primary driver was skin substitutes that were not FDA-approved drugs. There are a variety of other causes contributing to observed changes in expenditures for both programs.

The Part D trends in per capita gross costs are shown in table 11. Much of the IRA Part D benefit redesign took effect in 2025, including limiting annual out of pocket expenditures to $2,000 per enrollee for 2025 (to be annually increased by the annual percentage increase, as described in section 1860D-2(b)(6) of the Act). While this new feature could have induced spending beyond the assumption we included in our initial estimate, it is worth noting that the 2024 benefit structure under the IRA also eliminated cost-sharing in the catastrophic phase of the benefit, effectively implementing an out-of-pocket maximum without a pronounced increase in costs. Additionally, some of the increase may be attributable to manufacturers reducing spending on patient assistance programs, which would cause more claims to run through the Part D program. Expanded indications for cancer drugs also contributed to the increase.

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The observed discounts from maximum fair prices for selected drugs also differed from what we initially assumed. For initial price applicability year 2026, the projected negotiated discount impact on allowed costs--ingredient cost, dispensing fee, and sales tax--using 2025 experience data is 11.3 percent, while the projected impact for initial price applicability year 2027 is 18.2 percent. Compared with the original estimated effects shown in Table 8, the actual negotiated discounts are more than two percent greater than the original modeling results. These differences reflect the deviation in price levels, updated information about generic and biosimilar launches, and the percentage of expense the negotiated drugs represent for each year. Part B negotiated prices for initial price applicability year 2028 are not currently available, so we do not quantify the change from our original assumptions. We also had assumed that maximum fair prices for initial price applicability years 2026 and 2027 would also apply to Part B utilization. Final policies for those years contained the maximum fair prices to the Part D benefit. This change from our assumption did not meaningfully affect overall estimates, due to multiple factors including limited observed utilization of most IPAY 2026 and IPAY 2027 drugs in Part B and the timing of certain generic or biosimilar entrants.

Part D drug inflation rebates were higher than originally assumed. Converting the published inflation rebates owed from the applicable period to a calendar year basis, 2023 inflation rebates were over $500 million dollars. This is higher than the $400 million dollar estimate shown in Table 10. This implies that drug prices increased slightly faster than originally assumed, generating higher inflation rebates. As a percentage of gross drug costs, the original estimate represents 0.01 percent, while the actual amount was 0.02 percent.

For Part B, our original estimates assumed that the drug inflation rebates would be negligible. Actual Part B drug inflation rebates due for calendar years 2023 and 2024 were $14 million and $121 million, respectively. These amounts represent approximately 0.01 percent and 0.04 percent of the incurred charges for OM in 2023 and 2024. Since drug inflation rebates are not incurred on MA utilization, this is the most appropriate comparison.

Other, more nuanced elements of the IRA changes also differed from our original expectations. For example, the Manufacturer Discount Program is likely larger than we initially assumed, but the PDE reporting is not yet complete for the discount's first year. Similarly, the impacts of the IRA on Part D DIR are unknown, as Part D plan sponsors have not yet submitted the 2025 DIR reports. These elements may have larger effects on overall Part D expense than the other assumption deviations described previously.

The costs and transfers attributable to the Part D redesign are attributable to the IRA and are not a result of this rule.

We received no comments on the impacts of the Part D redesign proposals. We are finalizing those provisions without modification, as discussed in section II.A. of this final rule. 2. Effects of Part D Redesign: Specialty Tier a. Limit on Specialty-Tier Cost Threshold Adjustment (Sec. 423.104(d)(2)(iv)(B))

In the Contract Year 2027 proposed rule, we proposed to revise Sec. 423.104(d)(2)(iv)(B)(1) and (2) to allow CMS to reduce the specialty-tier cost threshold under certain circumstances, in addition to the current authority to increase the threshold. This change will provide CMS with additional flexibility to reduce the threshold in response to market conditions, such as potential reductions in Part D drug costs resulting from the Medicare Drug Price Negotiation Program.

The methodology for determining whether a threshold adjustment is warranted remains the same (at least 10 percent change from the prior year), and the rounding methodology remains unchanged. This provision does not impose new requirements on Part D sponsors or change existing operational processes.

This provision codifies a conforming change made in response to the redesigned Part D benefit; thus, the impact analysis of the redesigned Part D benefit discussed in section XI.C.1. of this final rule does not relate to this provision. We do not anticipate that this provision will have a measurable economic impact on Part D sponsors, beneficiaries, or the Medicare program, as it is only providing CMS with flexibility in making threshold adjustments without altering the underlying methodology or operational requirements.

In the Contract Year 2027 proposed rule, we proposed to codify the methodology for determining the specialty-tier coinsurance/deductible ranges that was established in the Final CY 2025 Part D Redesign Program Instructions. This provision will update the existing calculation methodology to align with the redesigned Part D benefit structure implemented under the IRA, which eliminated the initial coverage limit.

The methodology maintains the existing 25 percent minimum and 33 percent maximum coinsurance for specialty tiers. While the underlying calculation has been updated to reflect the redesigned Part D benefit, the range of allowable coinsurance percentages remains unchanged. Part D sponsors must continue to ensure their benefit designs are actuarially equivalent to the defined standard benefit, as required under existing regulations.

Because this provision codifies a conforming change made in response to the redesigned Part D benefit, the impact analysis of the redesigned Part D benefit discussed in section XI.C.1. of this final rule does not relate to this provision. In the Contract Year 2022 final rule (86 FR 6078), we codified the specialty-tier maximum allowable cost-sharing methodology and concluded that the specialty-tier provisions, including those permitting Part D sponsors to structure their benefits with a second, “preferred” specialty tier were unlikely to have a material impact on Part D costs. Likewise, we do not anticipate that finalizing our update to this methodology to align with the redesigned Part D benefit will have a measurable economic impact on Part D sponsors, beneficiaries, or the Medicare program, as it maintains the same coinsurance ranges that are currently in effect.

We received no comments on the impacts of this proposal and are finalizing this provision without modification. 3. Effects of the Medicare Coverage Gap Discount Program (Sec. Sec. 423.100, and 423.2300 through 423.2345 (Subpart W))

In the Contract Year 2027 proposed rule, we proposed to codify the sunset of the Coverage Gap Discount Program, which was enacted under the Affordable Care Act and began on January 1, 2011. The Part D benefit redesign under section 11201 of the IRA, which eliminated the coverage gap phase of the Part D benefit, included sunsetting the Coverage Gap Discount Program on January 1, 2025, and, with respect to applicable drugs dispensed prior to such date, continue to apply on and after January 1, 2025.

The costs and transfers attributable to the Part D benefit redesign, including sunsetting the Coverage Gap Discount Program, are attributable to the IRA, as described in greater detail in section C.1 of this Detailed Economic Analysis, and are not a result of this rule.

We received no comments on the impacts of the proposals related to the Coverage Gap Discount Program, which we are finalizing without modification. 4. Effects of the Medicare Part D Manufacturer Discount Program (Sec. Sec. 423.1, 423.100, 423.505(b), 423.1000, 423.1002, and 423.2700 through 423.2768 (Subpart AA))

In the Contract Year 2027 proposed rule, we proposed to codify policies implementing the Manufacturer Discount Program, established under section 11201 of the IRA as part of the Part D benefit redesign. Section 11201(f) of the IRA directed CMS to implement the Manufacturer Discount Program using program instruction or other forms of program guidance for 2025 and 2026. The Manufacturer Discount Program began on January 1, 2025, and we proposed to codify the policies that have been in place since the program's implementation, with refinements.

The costs and transfers attributable to the Part D Redesign, including codifying the Manufacturer Discount Program, are attributable to the IRA, as described in greater detail in section C.1. of this Detailed Economic Analysis, and are not a result of this rule.

We received no comments on the impacts of the Manufacturer Discount Program proposals. We are finalizing the policies largely as proposed, with limited modifications, which are described in greater detail in section II.C. of this final rule. 5. Effects of Third-Party Marketing Organization (TPMO) Oversight: Revising the Record Retention Requirements for Marketing and Sales Call Recordings

This provision proposed to reduce the amount of time that MA organizations and Part D sponsors are required to retain recordings for sales and marketing calls from 10 to 6 years, which was originally established in the May 2022 final rule (87 FR 27704) and subsequently modified in the April 2023 final rule (88 FR 22120) which required an MA organization or a Part D sponsor's contract, written arrangement and/or agreement with the aforementioned entities to ensure that marketing, sales, and enrollment calls with beneficiaries are recorded in their entirety. In addition, CMS has advised that marketing, sales, and enrollment call recordings must comply with the record retention requirements at Sec. Sec. 422.504(d) and 423.505(d). As finalized, CMS is reducing the overall retention time from 10 to 6 years. Years 1 through 3 must be audio recordings, and years 4 through 6 can be either audio recordings or transcripts. This will take effect on October 1, 2026, to coincide with the beginning of the 2027 plan year marketing, as defined under Sec. Sec. 422.2263(a) and 423.2263(a).

To determine the cost of the existing requirement and thus estimate the cost savings, CMS reviewed different types of storage costs. The first type is cloud storage where an entity pays per gigabyte or terabyte and the cost is determined based on the amount of data and how accessible the entity wants the data to be (for example, standard storage, cold line storage, archive storage, etc.). CMS also reviewed other options available for TPMOs, especially individual agents or small agencies, to record and store calls. In this review, CMS found that the industry created or marketed (or both) different recording tools available to agents and brokers. These tools have a wide range of costs, ranging from free recording services to other tools that are structured around monthly or yearly fees. Moreover, based on information gleaned from previous regulatory work, CMS has also been made aware that field marketing organizations (FMOs) may provide agents and brokers with access to call recording technology at a reduced cost or otherwise factor it into agent/broker contractual arrangements. Finally, CMS noted that many of these tools are proprietary and total costs may not be fully transparent until a purchase (or contractual agreement) is made. All told, the variability made it more difficult to establish the savings associated with this provision.

In this final rule, CMS is finalizing a requirement that agent and broker marketing and sales audio call recordings to be stored for years 1 through 3 and permits either audio call recordings or transcripts for years 4 through 6. To estimate the cost savings associated with revising the call recording retention requirement, CMS had to estimate both the cost to record and retain audio recordings as well as the cost to transcribe calls and retain the transcriptions. In estimating costs, CMS assumes MA plans and Part D sponsors will retain documentation through the use of transcripts for years 4 through 6.

CMS used the same methodology as in the Contract Year 2027 proposed rule for estimating the costs of call recordings. CMS first estimated the number of licensed and appointed agents to sell Medicare products, including MA plans and PDPs, to be 100,000.\145\ CMS acknowledged that there is a range of how each agent accesses call recordings and storage and how much each will pay for these features. CMS also acknowledged that the typical cost to agents combines both the recording and the storage costs into one fee. With these challenges acknowledged, for the Contract Year 2027 proposed rule, CMS used an average cost of $35 per month, or $420 per year for call recording tools based on the median of the costs that agency was able to identify.146 147 148 149 Further, CMS estimated that approximately 60 percent of the cost is attributed to the recording costs while the other 40 percent is attributed to the cost of storage ($14 is storage [35*0.4]). The Contract Year 2027 proposed rule for a 6-year audio recording retention period estimated a savings of $5.6 per month ($14*0.4), resulting in a savings of $67.2 per year per agent. Using the $67.2 per year, combined with the estimated 100,000 agents and brokers licensed and appointed to sell Medicare products, CMS estimated that this provision would save an estimated $6.72 million per year ($67.2 [savings per agent per year] * 100,000 [agents]), or $67.2 million over a 10-year period.

\145\ https://www.sparkadvisors.com/resource/where-agents-become-pawns-the-dark-side-of-fmo-contracting-and-what-it-means-for-agents.

\146\ https://www.claap.io/blog/chorus-pricing.

\147\ https://www.nextiva.com/x20/lpGVDT11_i?utm_source=getvoip&utm_medium=affiliate&utm_campaign=lpgvdt&utm_term=nextiva%20plans.

\148\ https://www.zoom.us/pricing/zoom-phone.

\149\ CMS recognizes that some of the tools do not include unlimited, 10-year storage. Storage may be an additional cost.

To estimate the cost to capture and retain calls via a transcript, CMS reviewed the cost and processes associated with converting calls into transcripts. Converting recorded calls into transcripts range from $0.10 to $0.30 per minute for AI generated transcripts while human generated transcripts beginning at $1.25 per minute.\150\ These costs were based on transcriptions being completed after the call, using the original call recording.

\150\ https://rev.outgrow.us/rev-pricing-calculator; https://www.scribbl.co/post/cost-for-transcription-services; https://www.gmrtranscription.com/prices#GenTranscription; https:// www.dittotranscripts.com/blog/how-much-do-human-transcription- services-cost/ #:~:text=How%20Much%20Does%20Human%20Transcription,and%20thus%20incur %20higher%20fees.

While reviewing the costs to transcribe calls, CMS identified other methods of recording and transcribing calls. In the current marketplace, applications are available to simultaneously record and transcribe calls. These applications vary in pricing, with the estimated cost ranging from $109 per year to $300 per year, depending on whether the agent/broker is using a “standard” or “pro version”.\151\ Using these updated costs, CMS is revising our final cost estimate for the final regulation.

\151\ https://www.withallo.com/blog/best-call-transcription-software-apps.

Using the originally proposed number of agents at 100,000 and an average of the updated cost of $204.5 [109+300)/2], CMS estimates that the final regulation will save $20.5 million per year ($204.5*100,000) or $205 million over the course of 10 years. Based on the previous noted limitations, CMS specifically requested comments on these estimates and welcomed additional data that may help the Agency to further quantify the savings associated with this provision. We requested comments on our assumptions of savings, taking into account the continued requirement for the recording of a beneficiary's enrollment into a plan.

We did not receive comments on the impact of this provision in the Contract Year 2027 proposed rule. Based on CMS's updated information the provision is being finalized with the modifications identified previously. 6. Effects of Medicare Advantage/Part C and Part D Prescription Drug Plan Quality Rating System (Sec. Sec. 422.164, 422.166, 423.184, and 423.186)

We proposed to add and remove certain measures from the Part C and D Star Ratings program. Historically, measure additions and removals are routine, and such routine changes have had very little or no impact on the highest ratings (that is, overall rating for MA-PD contracts, Part C summary rating for MA-only contracts, and Part D summary rating for PDPs). However, given the number of measure removals finalized in this rule, we have estimated the impact of the measure removals on the Medicare Trust Fund in this rule. We also proposed to not move forward with the implementation of the Health Equity Index (HEI) reward and to continue to include the historical reward factor in the Star Ratings methodology. Beyond the Medicare Trust Fund, there may be effects on supplemental benefits, premiums, and plan profits. These impacts will likely vary significantly from plan to plan (or contract to contract) based on the business strategies and the competitive landscape for each plan and contract.

We simulated the cumulative impact of the finalized changes on MA contracts using the 2025 Star Ratings data. We calculated the net impacts summarized in Table 7 due to these finalized Star Ratings updates by quantifying the difference in the MA organization's final Star Rating with the finalized changes and without the finalized changes. We assume Medicare Trust Fund impacts due to the Star Ratings changes associated with these finalized revisions to the measure set and methodology. Not moving forward with the implementation of the HEI and continuing to include the historical reward factor will be effective for the 2027 Star Ratings and will impact the 2028 plan payments and 2028 Quality Bonus Payments (QBPs). The removal of the Call Center--Foreign Language Interpreter and TTY Availability (Part C), Call Center--Foreign Language Interpreter and TTY Availability (Part D), and Statin Therapy for Patients with Cardiovascular Disease (Part C) measures will be effective also for the 2028 Star Ratings and will impact the 2029 plan payments and 2029 QBPs. The removal of the remaining measures (with the exception of the Diabetes Care--Eye Exam measure which will remain in the Star Ratings, as discussed in section V.B. of this final rule) will be effective for the 2029 Star Ratings and will impact the 2030 plan payments and 2030 QBPs.

All impacts are considered transfers, but we requested comments on the extent to which provision of goods or services would increase or decrease in association with the payment changes. The impact analysis for the Star Ratings updates takes into consideration the final quality ratings for those MA contracts that would have Star Ratings changes under this final rule impact analysis. There are two ways that Star Ratings changes will impact the Medicare Trust Fund:

A Star Rating of 4.0 or higher will result in a QBP for the MA contract, which, in turn, leads to a higher benchmark for the MA plans offered by the MA organization under that contract. MA organizations that achieve an overall Star Rating of at least 4.0 qualify for a QBP that is capped at 5 percent (or 10 percent for certain counties).

The rebate share of the savings will be higher for those MA organizations that achieve a higher Star Rating. The

rebate share of savings amounts to 50 percent for plans with a rating of 3.0 or fewer stars, 65 percent for plans with a rating of 3.5 or 4.0 stars, and 70 percent for plans with a rating of 4.5 or 5.0 stars.

In order to estimate the impact of the Star Ratings updates, baseline assumptions are updated with the assumed Star Ratings changes described in this final rule. We estimated the cumulative impact of the finalized changes to the Star Ratings calculations since there are interactions between the changes. We updated the estimated impacts from the Contract Year 2027 proposed rule because, as discussed in section V.B. of this final rule, we are retaining the Diabetes Care--Eye Exam measure in the Star Ratings. The impacts are shown in Table 12. For the Star Ratings updates, the net impact is estimated to be between $5.02 billion in 2028 and $1.89 billion in 2036, resulting in a 10-year net impact estimate of $18.56 billion, which equates to 0.21 percent of the Medicare payments to private health plans for the years 2027 through 2036. [GRAPHIC] [TIFF OMITTED] TR06AP26.049

Comment: A couple of commenters requested that CMS update the modeling using data from the 2026 Part C and D Star Ratings, with a commenter noting that this would take into account the three new measures added to the 2026 Star Ratings. These commenters also requested that CMS clarify the measures and weights used in the modeling.

Response: The impact analysis included in the Contract Year 2027 proposed rule was based on modeling that used data from the 2025 Star Ratings but accounted for measure and measure weight changes that occurred in the 2026 Star Ratings. Based on this, CMS does not believe it is necessary to update the modeling using data from the 2026 Star Ratings. The modeling included the three measures added to the 2026 Star Ratings (Improving or Maintaining Physical Health, Improving or Maintaining Menth Health, and Kidney Health Evaluation for Patients with Diabetes) and the weight changes for the patient experience, complaints, and access measures from 4 to 2. In other words, the modeling used the measure set and measure weights from the 2026 Star Ratings. Measure changes for years beyond the 2026 Star Ratings were not included.

Comment: A commenter estimated the impact of the proposed changes and came to substantially different estimates than CMS shared in the Contract Year 2027 proposed rule. This commenter estimated the net impact would be savings of billions of dollars to the Medicare Trust Fund rather than the cost estimated by CMS.

Response: We appreciate this commenter's analysis of the impact of the proposed changes; however, this commenter would not have all necessary data available to estimate the impact of the proposed changes. For example, while contracts have data on their own performance on the reward factor and simulated HEI reward, the commenter would not have data on the HEI or the reward factor for the full set of contracts included in the Star Ratings as CMS has not made those data publicly available.

After consideration of the public comments we received, we are finalizing all of the Star Ratings provisions except the proposal to remove the Diabetes Care--Eye Exam measure (Part C). 7. Effects of Continuity in Enrollment for Full-Benefit Dually Eligible Individuals in a D-SNP and Medicaid Fee-for-Service (Sec. Sec. 422.107 and 422.514)

In the April 2024 final rule, we finalized a package of provisions at Sec. Sec. 422.503(b)(8), 422.504(a)(20), and 422.514(h) that require that, beginning in contract year 2027, where an MA organization offers a D-SNP and the MA organization, its parent organization, or any entity that shares a parent organization with the MA organization also contracts with a State as a Medicaid MCO that enrolls full-benefit dual eligible individuals in the same service areas (even if there is only partial overlap of the service areas), the MA organization: (a) may only offer, or have a parent organization or share a parent organization with another MA organization that offers, one D-SNP for full-benefit dual eligible individuals, except as otherwise provided in Sec. 422.514(h)(3); and (b) must limit new enrollment in the D-SNP to individuals enrolled in, or in the process of

enrolling in, the Medicaid MCO. Per Sec. 422.514(h)(2), beginning in contract year 2030, such D-SNPs must only enroll (or continue to enroll) individuals enrolled in (or in the process of enrolling in) the affiliated Medicaid MCO, except that such D-SNPs may continue to implement deemed continued eligibility requirements as described in Sec. 422.52(d). We also codified at Sec. 422.514(h)(3) two exceptions to the requirements at Sec. 422.514(h)(1) and (2) for exceptions related to instances where (a) the State Medicaid agency contract (SMAC) with the MA organization differentiates enrollment into D-SNPs by age group or to align enrollment in the D-SNP with the eligibility or benefit design used in the State's Medicaid managed care program and (b) the MA organization, its parent organization, or an entity that shares a parent organization with the MA organization offers both HMO D-SNPs and PPO D-SNPs.

In the April 2024 final rule at 89 FR 30802 through 30805, we stated that our changes would yield an overall annual estimate of net Part C costs ranging from -$6 million in contract year 2027 to -$207 million in contract year 2034 with total net Part C costs of -$961 million from contract years 2027 through 2034. We estimated an overall annual estimate of net Part D costs would range from -$7 million in contract year 2027 to -$286 million in contract year 2034 with total net Part D costs of -$1,341 million from contract years 2027 through 2034. In the April 2024 final rule (89 FR 30803), we explained that the regulatory change would shift enrollment from less integrated D-SNPs to more integrated D-SNPs over time as more D-SNPs align with Medicaid MCOs. For more context regarding the estimation methodology, see the April 2024 final rule (89 FR 30802 through 30805).

In this final rule, we are finalizing a third exception at Sec. 422.514(h)(3) to allow D-SNPs that serve full-benefit dually eligible individuals in a coordination-only D-SNP or HIDE SNP to continue enrollment of full-benefit dually eligible individuals in a D-SNP in the same service area where those individuals are enrolled in Medicaid FFS. These changes will address the challenges of MA organizations complying with the requirements at Sec. 422.514(h) in States where there is no mandatory Medicaid managed care program and avoid the need for MA organizations in those States to cease enrolling full-benefit dually eligible individuals who are in Medicaid FFS starting in 2027 and to begin disenrolling those members in 2030 as currently required under Sec. 422.514(h).

We expect that establishing a third exception at Sec. 422.514(h)(3) will slightly reduce the savings estimates included in the April 2024 final rule since the number of D-SNPs and enrollees impacted by the existing requirement at Sec. 422.514(h) will be reduced. We note that we are also finalizing a fourth exception at Sec. 422.514(h)(3) to exempt U.S. Territories that have not adopted Medicare Savings Programs (as defined at Sec. 435.4) from the requirements at Sec. 422.514(h)(1)(i), but we do not expect this exception to have an impact on savings estimates in the April 2024 final rule. The methodologies and baseline data used in the estimates presented in Table 10 are consistent with those used in the April 2024 final rule estimates, except the Tables 10 and 11 estimates exclude certain coordination-only D-SNPs and HIDE SNPs that would be exempt under this final rule.

For our third exception at Sec. 422.514(h)(3), as shown in Table 13, we estimate the Part C costs to the Medicare Trust Funds range from $0 million in 2027 to $3 million in 2036, summing to $18 million for the years 2027 through 2036. These estimated costs mean our overall expected Part C savings from implementation of Sec. 422.514(h) would be $943 million (rather than $961 million) over 10 years. [GRAPHIC] [TIFF OMITTED] TR06AP26.050

Table 14 shows the estimated Part D costs of the amendment to Sec. 422.514(h) range from $0 million in 2027 to $4 million in 2036, summing to $24 million for the years 2027 through 2036. These estimated costs mean our overall expected Part D savings from implementation of Sec. 422.514(h) would be $1,317 million (rather than $1,341 million) over 10 years.

[GRAPHIC] [TIFF OMITTED] TR06AP26.051

We did not receive comments on the regulatory impact analysis associated with this proposal and, therefore, are finalizing the regulatory impact analysis without modification. We respond to public comments received on other aspects of our proposal in section IV.C. of this final rule. We are finalizing the amendments to Sec. Sec. 422.107(d)(1) and 422.514(h) largely as proposed, with some modifications, which are described in detail in section IV.C. of this final rule. 8. Effects of Rescinding the Mid-Year Supplemental Benefits Notice

This provision rescinds the requirement established in the April 2024 final rule (89 FR 30448) that required MA organizations to provide annual mid-year notices to enrollees regarding unused supplemental benefits. The requirement was to take effect on January 1, 2026, and required MA organizations to mail a notice between June 30 and July 31 of each plan year to enrollees listing any supplemental benefits they had not utilized during the first 6 months of the plan year. Note that on September 8, 2025, CMS announced its decision to delay enforcement of the requirements under Sec. Sec. 422.111(l) and 422.2267(e)(42) until further notice. MA organizations were not expected to complete the Mid-Year Supplemental Benefits Notice requirements for the 2026 plan year. a. Information Collection Requirements

In anticipation of this rescission, CMS removed the associated information collection requirements from PRA package CMS R-267 prior to its submission to OMB for review. Therefore, there are no current information collection requirements associated with this provision that require OMB review or approval for rescission.

The rescission of this requirement will prevent the burden that would have been imposed on MA organizations. Based on updated BLS wage data, this will prevent approximately $498,522 in one-time costs for system updates and policy changes, and approximately $1,355,520 annually in printing and mailing costs. b. Updated One-time Cost Prevention

The rescission of this requirement will prevent approximately $499,091 in one-time costs for system updates and policy changes across 774 prepaid contracts. This includes $430,344 (774 prepaid contracts * 4 hours * $139.00/hour) for software system updates performed by software developers, and $68,747 (774 prepaid contracts * 1 hour * $88.82/hour) for policy and procedure updates performed by business operations specialists. c. Annual Cost Prevention

The rescission of this requirement will prevent approximately $1,355,520 per year in printing and mailing costs across 774 prepaid contracts serving 32 million enrollees. This includes $451,840 (32,000,000 notices x $0.01412/page) for single-page mailings, with an estimated average of 3 pages per enrollee resulting in total annual cost prevention of $1,355,520 (32,000,000 notices x 3 pages x $0.01412/ page).

Over a 10-year period from 2027 to 2036, we estimated this provision will save approximately $14.1 million (approximately $1.4 million per year), primarily from the elimination of printing and mailing costs that would have been incurred annually, plus the one-time system and policy update costs prevented.

This rescission is consistent with E.O. 14192, “Unleashing Prosperity through Deregulation,” which instructs federal agencies to review regulations to alleviate unnecessary regulatory burdens. After reviewing stakeholder feedback and current data on supplemental benefit utilization, CMS determined that the Mid-Year Notice requirement imposes a significant administrative burden on MA organizations that outweighs the intended benefit. Additionally, recent evidence suggests that enrollees are utilizing supplemental benefits when they need them, with 70 percent of MA enrollees in a recent survey reporting they had used at least one supplemental benefit in the past year.

CMS received no comments regarding the impacts of this proposal and is finalizing this provision without modification. 9. Effects of Waiver of Part D Customer Call Center Hours for All Regions Served by LI NET

This provision adds a new waiver to the list of Part D requirements waived for the LI NET program by exempting the customer call center hours of operation requirements in Sec. 423.128(d)(1)(i)(A). Currently, Part D sponsors are required to maintain toll-free customer call centers open from 8:00 a.m. to 8:00 p.m. in all regions served by the Part D plan. This waiver allows the LI NET program to operate its customer call center Monday through Friday, except holidays, from 8:00 a.m. to 7:00 p.m. Eastern Time.

We estimate that this waiver will result in cost savings of approximately $800,000 to $1,000,000 annually for the LI NET program. These savings result from reduced operational costs

associated with maintaining extended customer call center hours.

The reduced hours are appropriate for the LI NET program due to several factors: low call volume after 7:00 p.m. ET historically; automatic enrollment of 90 to 95 percent of LI NET beneficiaries by CMS, reducing the need for prospective enrollee assistance; the transitional nature of the LI NET program; LI NET's open formulary structure; availability of a 24-hour call center serving pharmacists and pharmacies to address the majority of inquiries.

This provision would not adversely impact the LI NET sponsor, individuals' access to prescription drug benefits, or the Medicare Trust Fund. The 24-hour pharmacy call center ensures continued access to necessary support, while the reduced customer call center hours align with actual usage patterns.

In this section, CMS includes discussions of alternatives considered. Several provisions of this final rule codify existing policy where we have evidence, as discussed in the appropriate preamble sections, that the codification of existing policy would not affect compliance. In such cases, the preamble typically discusses the effectiveness metrics of these provisions for public health. 1. Waiver of Part D Customer Call Center Hours for All Regions Served by LI NET (Sec. 423.2536)

The first alternative we considered would maintain the current customer call center hours requirement. The LI NET program would comply with the existing customer call center hours requirement in Sec. 423.128(d)(1)(i)(A), maintaining operations from 8:00 a.m. to 8:00 p.m. in all regions served by the Part D plan. This alternative would result in continued operational costs of approximately $800,000 to $1,000,000 annually compared to the proposed waiver. We reject this alternative because maintaining extended hours is not cost-effective given the historically low call volume after 7:00 p.m. ET. The automatic enrollment process for 90 to 95 percent of LI NET beneficiaries significantly reduces customer service needs, making the extended hours unnecessary. The continued availability of 24-hour pharmacy support ensures adequate access to assistance.

The second alternative we considered would eliminate the customer call center requirements for LI NET. The LI NET program would be completely exempt from maintaining any customer call center, relying solely on the 24-hour pharmacy call center. This alternative would result in maximum cost savings but could potentially impact beneficiary access to customer service. We reject this alternative because it could create access barriers for the 5 to 10 percent of LI NET beneficiaries who are not automatically enrolled and may need customer service assistance. Maintaining customer call center operations during standard business hours (8:00 a.m. to 7:00 p.m. ET) provides an appropriate balance between cost efficiency and beneficiary access to support services.

The finalized provision represents the optimal balance between operational efficiency and beneficiary protection, providing necessary customer service access while eliminating unnecessary costs associated with low-utilization hours.

We did not receive comments on this proposal and are finalizing this provision without modification.

If regulations impose administrative costs on reviewers, such as the time needed to read and interpret this final rule, then we should estimate the cost associated with regulatory review. We received approximately 42,632 comments specific to the provisions in this final rule, and we estimate that a similar number will review this rule upon publication in the Federal Register.

Using the BLS wage information for medical and health service managers (code 11-9111), we estimate that the cost of reviewing this final rule is $132.44 per hour, including fringe benefits, overhead, and other indirect costs (http://www.bls.gov/oes/current/oes_nat.htm). Assuming an average reading speed, we estimate that it will take approximately 10 hours for each person to review this final rule. For each entity that reviews the rule, the estimated cost is therefore $1,324.40 (10 hours x $132.44). Therefore, we estimate that the maximum total cost of reviewing the final rule is $56.4 million ($1,324.40 x 42,632 reviewers). However, we expect that many reviewers, for example pharmaceutical companies and PBMs, will not review the entire rule but review just the sections that are relevant to them. We expect that on average (with fluctuations) 10 percent of the proposed rule will be reviewed by an individual reviewer; we therefore estimate the total cost of reviewing to be $5.6 million.

We noted that this analysis assumes one reader per contract. Some alternatives included assuming one reader per parent organization. Using parent organizations instead of contracts would reduce the number of reviewers. However, we believe it is likely that review will be performed by contract. The rationale for this is that a parent organization might have local reviewers assessing potential region- specific effects from the rule.

The RFA, as amended, requires agencies to analyze options for regulatory relief of small businesses if a rule has a significant impact on a substantial number of small entities. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and small governmental jurisdictions.

We believe this final rule will have a direct economic impact on beneficiaries, health insurance plans, and third-party marketing organizations (TPMOs). Based on the size standards set by the Small Business Administration (SBA) effective March 17, 2023, (for details, see the Small Business Administration's website at https://www.sba.gov/document/support-table-size-standards), Direct Health and Medical Insurance Carriers, classified using the NAICS code 524114, have a $47 million threshold for “small size.” Many Medicare Advantage organizations (about 30 to 40 percent) are not-for-profit,\152\ which allows them to qualify as “small entities” so long as they are independently owned and operated and nondominant in their field. We believe all of the not-for-profit organizations qualify as small under the aforementioned criteria. Of the 1,071 businesses using this NAICS code, we believe 799 (or 74.6 percent) are small businesses. Third party marketing organizations, which CMS has usually determined to belong to the category of Insurance Agencies and Brokerages (NAICS code of 524210), have a small size threshold of $15 million. In total, 99.7 percent (424,395 out of 425,715) are considered small.\153\

\152\ Medicare Advantage/Part D Contract and Enrollment Data, https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-advantagepart-d-contract-and-enrollment-data.

\153\ US Census Bureau, 2022 SUSB Annual Data Tables by Establishment Industry, https://www.census.gov/data/tables/2022/econ/susb/2022-susb-annual.html; and US Census Bureau, 2022 Nonemployer Statistics Datasets, https://www.census.gov/programs-surveys/nonemployer-statistics/data/datasets.html?text-list-d6a8ce0de1%3Atab=2022#text-list-d6a8ce0de1.

The RFA does not define the terms “significant economic impact” or “substantial number.” The SBA advises that this absence of statutory specificity allows what is “significant” or “substantial” to vary, depending on the problem that is to be addressed in the rulemaking, the rule's requirements, and the preliminary assessment of the rule's impact. Nevertheless, HHS typically considers a “significant economic impact” to be 3 to 5 percent or more of the affected entities' costs or revenues, and a “substantial number” to mean 5 percent or more of affected small entities within a given industry.\154\ To explain our position, we will first note certain operational aspects of the Medicare program.

\154\ U.S. Department of Health and Human Services, Guidance on Proper Consideration of Small Entities in Rulemaking, https://aspe.hhs.gov/sites/default/files/documents/dd6288d1b8db19ee8a1f37b3ce775003/guidance-proper-consideration-hhs-2003-rulemaking.pdf.

Each year, MA organizations submit a bid for each plan for furnishing Parts A and B benefits and the entire bid amount is paid to the plan by the government through the Medicare Trust Funds, if the plan's bid is below an administratively set benchmark. If the plan's bid exceeds that benchmark, the beneficiary pays the difference in the form of a basic premium (note that, historically, only 2 percent of plans bid above the benchmark, and they contain roughly 1 percent of all plan enrollees). Part D sponsors also submit a bid for each plan, and the payments made to stand-alone Part D plans (PDPs) are covered by the Supplementary Medical Insurance Medicare Trust Fund. PACE organizations are paid a capitation amount that is funded by both the Medicare Trust Funds (the Hospital Insurance and Supplementary Medical Insurance trust funds) as well as the State Medicaid programs they contract with.

MA plans can also offer enhanced benefits--that is, benefits not covered under Original Medicare. These enhanced benefits are paid for through enrollee premiums, rebates or a combination. Under the statutory payment formula, if the plan bid submitted by an MA organization for furnishing Part A and B benefits is lower than the administratively set benchmark, the government pays a portion of the difference to the plan in the form of a rebate. The rebate must be used to provide supplemental benefits (that is, benefits not covered under Original Medicare) and/or to lower beneficiary cost sharing, Part B or Part D premiums. Some examples of these supplemental benefits include vision, dental, and hearing, fitness and worldwide coverage of emergency and urgently needed services.

Part D sponsors submit bids and plans are paid through a combination of Medicare funds and beneficiary premiums. In addition, for enrolled low-income beneficiaries, Part D plans receive special government payments to cover most of premium and cost sharing amounts those beneficiaries would otherwise pay.

Thus, the cost of providing services by these insurers is funded by the government and, in some cases, by enrollee premiums. As a result, MA plans, Part D plans, Prescription Drug Plans, and PACE organizations are not expected to incur burden or losses since the private companies' costs are being supported by the government and enrolled beneficiaries. This lack of expected burden applies to both large and small health plans.

The preceding analysis shows that meeting the direct cost of the rule does not have a significant economic impact on a substantial number of small entities, as required by the RFA. Besides the direct costs discussed earlier, there are certain indirect consequences of these provisions which also create impact. We have already explained that 98 percent of MA plans (including MA-PD plans) bid below the benchmark. Thus, their estimated costs for the coming year are fully paid by the Federal Government, given that as previously noted, under the statutory payment formula, if a bid submitted by a MA plan for furnishing Part A and B benefits is lower than the administratively set benchmark, the government pays a portion of the difference to the plan in the form of a beneficiary rebate, which must be used to provide supplemental benefits or lower beneficiary cost sharing or both, Part B or Part D premiums. If the plan's bid exceeds the administratively set benchmark, the beneficiary pays the difference in the form of a basic premium. However, as also noted previously, the number of MA plans bidding above the benchmark to whom this burden applies does not meet the RFA criteria of a significant number of firms. If the provisions of the rule were to cause bids to increase and if the benchmark remains unchanged or increases by less than the bid does, the result could be a reduced rebate. Plans have different ways to address this in the short- term, such as reducing administrative costs, modifying benefit structures, or adjusting profit margins. These decisions may be driven by market forces. Part of the challenge in pinpointing the indirect effects is that there are many other factors combining with the effects of the rule, making it effectively impossible to determine whether a particular policy had a long-term effect on bids, administrative costs, margins, or supplemental benefits.

As indicated in Table 7, the proposals described in this rule are expected to result in cost savings amounting to approximately $23.4 million in 2027 and $23.5 million in subsequent years. Most affected entities are expected to

have cost savings as a result of this rule. For example, we anticipate that the 697 MA organizations will experience a net cost savings. The provisions on Removing Rules on Time and Manner of Beneficiary Outreach are expected to reduce costs for 697 MA organizations by over $45,000 in 2027, while the provision Rescinding the Annual Health Equity Analysis of Utilization Management Policies and Procedures is expected to lower costs for 697 MA organizations by $756,929 in 2027 and $785,367 annually in subsequent years. Likewise, the provision Rescinding the Mid-Year Supplemental Benefits Notice is estimated to result in $1,854,611 in cost savings for 774 MA organization contracts in 2026 and $1,355,520 annually thereafter, or $2,396 in year one and $1,751 per year after that. For those Medicare Advantage organizations to which all of these provisions apply, expected net cost savings will be $2,396 for 2026, $2,902 for 2027, and $2,878 per year starting in 2028.

Many of the other entities affected by the provisions of this final rule are similarly expected to see cost savings, though others will see negligible cost increases. The following table outlines costs savings, the estimated number of entities affected, and aggregate costs and cost savings over the next 10 years: [GRAPHIC] [TIFF OMITTED] TR06AP26.053

We reiterate our belief that this final rule will not have a significant economic impact on a substantial number of small entities. In the case of TPMOs, though we do not know how many are operating in the Medicare space, this rule is expected to produce cost savings for them. The vast majority of MA organizations are likewise expected to see cost savings as a result of this rule. These cost savings are described in Table 7. Even among the D-SNPs that are expected to incur new net costs through the passive enrollment provision, D-SNPs must agree to receive enrollees through the passive enrollment process. Especially small D-SNPs that cannot incur the additional costs would opt not to participate in passive enrollment. Finally, we also reiterate that Medicare Advantage organizations, including D-SNPs, are expected to include the costs of compliance in their bids. For these reasons, we do not believe these costs result in a significant economic impact on the affected plans.

Comment: A commenter expressed concerns about the assumptions used in the Regulatory Impact Analysis. The commenter noted that the new out-of-pocket maximum and sunsetting of the Medicare Coverage Gap Discount Program may disproportionately burden smaller plans with limited revenue to absorb increased drug costs. The commenter added that the proposed changes will impact plans differently based on size, type, and populations served, noting that certain Star Ratings changes may harm SNPs and small plans serving vulnerable populations in long- term care facilities. The commenter recommended that CMS conduct a granular analysis of how each change affects small and specialty plans, and to tailor regulations to avoid harming plans serving beneficiaries requiring institutional or institutional-equivalent care.

Response: We appreciate the commenter's concerns regarding the potential impact of this rule on small MA organizations and SNPs. However, we consider aspects of the commenter's statement to concern statutory changes and are out of scope, and on the whole we believe that the rule will not have a significant economic impact on most small entities. We reiterate that the vast majority of affected entities, including small plans, are expected to experience net cost savings as a result of this rule. Our analysis of cost estimates and time burdens are specific to each respondent type (i.e., MA organization, D-SNP, Part D sponsor, group health plan, etc.) to ensure that estimated impacts reflect the burden experienced by each type of entity. Many provisions also do not have an impact on small entities as they do not produce costs or cost savings; therefore, we do not include those provisions in this analysis. In addition, MA organizations are expected to include compliance costs in their bids, ensuring small plans have necessary resources, and can address cost changes through adjusting administrative costs, modifying benefit structures, and adjusting profit margins. CMS remains committed to ensuring all Medicare enrollees, including those served by SNPs and small plans, have access to high-quality, affordable coverage, and we will continue to monitor the impact of these provisions.

We are certifying that this rule will not have a significant economic impact on a substantial number of small entities. The analysis in this rule provides descriptions of the statutory provisions, identifies the policies, and presents rationales for our decisions and, where relevant, alternatives that were considered. The analysis discussed in this section and throughout the preamble of this final rule constitutes our RFA analysis.