CMS Finalizes Rate Notice for Medicare Parts C and D (CY 2027)

On April 6, 2026, the Centers for Medicare and Medicaid Services (CMS) circulated the Announcement of Calendar Year (CY) 2027 Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies (the CY 2027 Rate Announcement) to communicate Medicare Advantage (MA) capitation rates and Parts C and D payment policies. The Rate Announcement announces decisions regarding proposals initially published on January 26, 2026, in CMS’s CY 2027 Advance Notice for MA and Part D. The following is a summary of the most significant issues in the Rate Announcement, with further details below: 

• • Growth Rate Adjustment: CMS finalized a growth rate of 2.48% that was a significant increase from the proposed adjustment of 0.09%.
  • Part C Risk Adjustment: CMS did not finalize a proposed updated risk adjustment model for CY 2027. However, CMS is finalizing a proposal to disallow the submission of diagnosis codes for risk adjustment based on unlinked chart review records (CRR), with an exception for beneficiaries transitioning between plans.
  • Part D Risk Adjustment: CMS finalized proposed updates to the CY 2027 prescription drug risk adjustment model by creating separate model segments for Medicare Advantage Prescription Drug (MA-PD) plans and Prescription Drug Plans (PDP), recalibrating with more recent data, and excluding diagnoses stemming from unlinked CRRs from risk score calculations.
  • Program of All-Inclusive Care for the Elderly (PACE): The agency will continue to transition PACE organizations toward full encounter data submission and alignment with the standard CMS Hierarchical Condition Categories (CMS-HCC) model by adopting a 50/50 blended approach for CY 2027.

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Growth Rate Adjustment

CMS finalized a rate increase of 2.48% after proposing a nearly flat rate increase of 0.09%.

The proposed rate increase fell well below expectations, especially compared to those put forth in previous years, and CMS received significant comments regarding the suggested rate for CY 2027. According to CMS, the agency’s final decision regarding the rate increase was related to  its decisions with respect to other policies, such as its choice not to adopt an updated Part C risk adjustment model for CY 2027, as well as higher-than-projected spending in traditional Medicare for the fourth quarter of 2025.

Part C Risk Adjustment

The Rate Announcement confirms several adjustments to the Part C risk adjustment model, which adjusts capitated payments to reflect the varying risk of enrolled beneficiaries based on demographic characteristics and diagnosis information.

One of the most significant proposals being finalized is the decision to exclude diagnoses associated with unlinked CRRs from risk score calculations; however, in response to comments, CMS stated that it plans to finalize the proposal with an exception for beneficiaries transitioning from one Medicare Advantage plan to another.

In the Proposed Rule, CMS proposed updating the Part C risk adjustment model using more recent underlying updated data from 2023 diagnoses and 2024 expenditures. However, the agency has delayed implementation of that updated model and announced that it will continue to use the 2024 model for CY2027, which was calibrated with 2018 diagnoses and 2019 expenditure data.

Part D Risk Adjustment

CMS is also finalizing an update to the prescription drug hierarchical condition category (RxHCC) risk adjustment model for CY 2027, which is used to ensure that payments to Part D plans reflect the plans’ expected drug costs. The agency will separate RxHCC model segments for MA-PDs and standalone PDPs in an effort to improve the model’s predictive accuracy for MA-PD plans and PDPs compared to a model that uses the same relative factors for both sectors.

Additionally, CMS confirmed changes for Part D that are similar to those being finalized for Part C risk adjustment — in particular, no longer allowing the submission of diagnoses from unlinked CRRs.

CMS further cemented several Inflation Reduction Act (IRA)-related updates, including continuing to use adjusted annual out-of-pocket thresholds for pre-IRA data years, increasing manufacturer discounts to reflect CY 2027 amounts, updating the model’s list of adult vaccines and covered insulin products, and continuing to adjust gross drug costs to account for the maximum fair prices (MFP) of selected drugs for initial price applicability year (IPAY) 2026.

Star Ratings Update

In the Advance Notice, CMS solicited feedback on new measures and measure concepts, as well as display measures that could be removed to simplify the program and remove burden. CMS does not directly address future changes in the Rate Announcement, instead signaling that it will be continuing its efforts to simplify and modify the Star Ratings methodology in the future.  

Program of All-Inclusive Care for the Elderly (PACE)

CMS finalized its proposed plan to continue its transition for PACE organizations to fully submitting risk adjustment data to the encounter data system (EDS) and align with the model used to pay organizations other than PACE “as soon as practicable.”

For 2027, CMS will adopt a blended approach: 50% of the risk score will be derived from CMS-HCC models used for organizations other than PACE (relying on encounter data and Medicare fee-for-service diagnoses and 50% will be calculated based on the PACE organization model, including diagnoses submitted to the legacy Risk Adjustment Processing System (RAPS)).

Next Steps for Health Care Organizations

If your organization is interested in learning more about the Rate Announcement’s potential implications, please contact any of the authors listed below; we are ready and available to provide our perspective and assist in the implementation process of these policy changes. The Crowell & Moring Health Care Group can provide compliance counseling and meaningful support with dispute resolution around these policy changes.