CMS Proposes CY 2027 Growth Rate and Changes to Risk Adjustment for Medicare Parts C and D

On January 26, 2026, the Centers for Medicare and Medicaid Services (CMS) circulated the Calendar Year (CY) 2027 Advance Notice to communicate proposed changes to Medicare Advantage (MA) capitation rates and Parts C and D payment policies.  The changes are expected to be finalized in April 2026 but may be delayed. The following is a summary of the most significant proposals, with further details below:

• • Growth Rate Adjustment: CMS proposes a CY 2027 rate increase of 0.09% ($700 million), which falls short of expectations—the agency announced a 5.06% increase in 2026 and 3.7% increase in 2025.
  • Part C Risk Adjustment: CMS proposes to exclude diagnoses from unlinked chart review records (CRRs) for risk score calculation, citing data integrity concerns.
  • Part D Risk Adjustment: CMS plans to update 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 (PDPs), recalibrating with more recent data, and excluding diagnoses stemming from unlinked CRRs from risk score calculations.
  • Medicare Advantage Star Ratings Changes: CMS proposes both adding and removing several measures from its Star Ratings program. The agency is also seeking feedback on new measures to discourage unnecessary or low-value care (including those related to medical errors and misdiagnoses) as well as on display measures that could be removed to simplify the program and reduce reporting burden.
  • Program of All-Inclusive Care for the Elderly (PACE): The agency plans to continue transitioning 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.

The agency is expected to announce its final Medicare Advantage (MA) capitation rates and payment policies by April 6, 2026—however, the window for healthcare organizations and other relevant entities to comment on the proposals will officially close on March 1, 2026. If your organization is interested in learning more about this Advance Notice’s potential implications or would like to submit a comment, please contact any of the authors listed below; we are ready and available to provide our perspective and assist in the comment submission process.

Growth Rate Adjustment

CMS is proposing a nearly flat rate increase which, if finalized, would result in an average year-over-year increase of 0.09%, or an additional $700 million in additional Medicare Parts C and D payments. 

This proposed rate increase falls below expectations, especially compared to rate increases in previous years. In 2026, rates increased by 5.06% (over $25 billion in additional payments), and by 3.7% ($16 billion in additional payments) in 2025. CMS explained that the proposed rate increase would ensure payment accuracy, affordable coverage, and program sustainability while preserving beneficiary choice. However, there is concern that this proposal may not keep pace with rising healthcare costs and utilization.

Part C Risk Adjustment

The Advance Notice proposes 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 set forth in the Advance Notice is CMS’s plan to exclude diagnoses associated with unlinked chart review records from risk score calculation.

To support its proposal, CMS states that the submission of unlinked CRRs “raises data integrity concerns as some MA organizations may be continuing to submit unlinked CRRs in lieu of EDRs [encounter data records] for some service records despite the ability to submit EDRs.” CMS further reasons that items and services should be reported on an EDR, so a “CRR should not be the only record with information about a healthcare item or service provided to a plan enrollee.” 

Other than the proposed exclusion of unlinked CRRs, the proposed 2027 CMS-HCC model largely maintains the same segmentation structure and uses the same demographic variables and HCCs as the 2024 CMS-HCC model, including eight model segments, condition count variables, and version 28 of the clinical classification of HCCs. The agency did propose a few technical changes to the Part C risk adjustment model for CY 2027, including:

• • To update calibration data from 2018 diagnoses predicting 2019 expenditures to 2023 diagnoses predicting 2024 expenditures
  • To update the denominator year from 2020 to 2024
  • To exclude diagnoses from audio-only services to align with Medicare Advantage (MA) diagnosis submission policy

Part D Risk Adjustment

CMS proposes updating 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 (PDPs).

The Advance Notice proposes 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 given their enrolled population by calculating beneficiary risk scores that represent expected plan liability for a specific beneficiary’s drug costs relative to the average drug costs for all Part D beneficiaries. The agency plans to separate RxHCC model segments for MA-PDs and standalone PDPs, asserting in the Advance Notice that doing so will 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 is proposing changes for Part D that are similar to those it is making for Part C risk adjustment, including updating the underlying data used in the model calibration to more recent years, specifically using diagnoses from 2023 fee-for-service (FFS) claims and MA encounter data records and gross drug costs from 2024 PDEs, and updating the denominator year from 2023 to 2024. The agency further proposes excluding diagnoses from audio-only services, as well as those submitted on unlinked CRRs.

Lastly, CMS is proposing 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 (MFPs) of selected drugs for initial price applicability year (IPAY) 2026.

CMS will continue calculating separate normalization factors for MA-PD plans and PDPs, with proposed normalization factors of 1.109 for MA-PD plans and 1.005 for PDPs using the multiple linear regression methodology and average risk scores from 2020 to 2024.

Star Ratings Update

CMS is seeking input on measures that may encourage plans to steer their members away from medically unnecessary or low-value care.

Beginning with the 2027 Star Ratings, four new or updated measures are being added beginning with the 2027 Star Ratings: Colorectal Cancer Screening, Care for Older Adults - Functional Status Assessment, Concurrent Use of Opioids and Benzodiazepines (COB), and Polypharmacy: Use of Multiple Anticholinergic Medications in Older Adults (Poly-ACH). Additionally, three measures are set to be removed beginning with the 2027 Star Ratings: Care for Older Adults - Pain Assessment, Medication Reconciliation Post-Discharge, and Medication Therapy Management (MTM) Program Completion Rate for Comprehensive Medication Review (CMR).

CMS is soliciting feedback on new measures or measure concepts that would incentivize plans from providing unnecessary, inappropriate, or low-value care, and expressed an interest in measures related to medical errors or misdiagnoses, including measures focused on the clinical appropriateness of care or measures focused on ensuring diagnoses are not missed. Additionally, CMS is requesting feedback on display measures, which are published separately from Star Ratings, that could be removed to simplify the program and reduce reporting burden.

Finally, CMS is considering methodological enhancements to the Star Ratings program to make the calculations easier to understand and implement, including potentially using percentile distribution cut offs to assign measure stars instead of the current clustering methodology for non-CAHPS measures.

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

CMS is proposing to continue its transition for PACE organizations to fully submitting risk adjustment data to the encounter data system (EDS), and to 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 FFS diagnoses) and 50% will be calculated based on the PACE organization model (including diagnoses submitted to the legacy Risk Adjustment Processing System (RAPS)). The exclusion of diagnoses from unlinked CRRs for risk score calculation will not apply to PACE organizations for CY 2027. CMS noted in the agency’s January 2024 technical submission instructions that PACE organizations should submit diagnoses for services for which they do not collect a claim via an encounter data record or an unlinked CRR. CMS will continue to use EDRs, linked CRRs, and unlinked CRRs to calculate risk scores applicable to PACE organizations

Next Steps for Health Care Companies 

Organizations may submit comments on CMS’s proposals put forth in the Advance Notice until March 1, 2026. Crowell & Moring is available to assist with such comments.  In addition, the Crowell Health Care Group can assist with compliance counseling, submission review, appeal strategy, and dispute resolution around these new proposals. Please reach out to the authors listed below for further information.