The Centers for Medicare & Medicaid Services (CMS) has a myriad of rules for different administrative procedures for the Part A, Part B and Part D programs. Some rules are subject to interpretation. In this blog, we shall describe some scenarios that can be a consequence of “misinterpretation” of the rules. For CY 2026, CMS is proposing changes to the inclusions and exclusions in medical loss ratio (MLR). We shall suggest some best practices to prepare for the forthcoming changes.
A. Turnaround timeframes for pre-service organization determinations
Effective January 1, 2020, processing timeframe requirements for preservice organization determinations and plan reconsiderations related to Part B drug requests have changed to 72 hours for standard organization determinations, 24 hours for expedited organization determinations, 7 days for standard reconsiderations and 72 hours for expedited reconsiderations.
Certain medical procedures are performed with pharmaceuticals, such as cardiovascular stress tests. Some Medicare Advantage (MA) plans interpret the shortened timeframe for procedures that involve a drug even when the drug is used as an ancillary agent and not for treatment. For instance, adenosine (J0153) is used in a diagnostic test (CPT 93015) for checking blood flow to the heart and assessing heart functions. For this procedure, adenosine is not used for treatment. Another drug used for a similar procedure is dobutamine (J1250). National Coverage Determination A57184 provides the utilization guidelines for the procedure with the drug. The pre-service determination is for the stress test, so the turnaround time is 72 hours for expedited and 14 days for standard request.[1]
In general, MA plans should apply exigency standards to evaluate the pre-service request making decisions as “expeditiously as the enrollee’s health condition requires.”[2] The exigency standard is also applicable to processing grievances especially if the complaint is about access to a medically necessary drug[3] or quality of care even if 30 day is the timeframe for resolution and notification. Expedited grievances have to be resolved and enrollees notified within 24 hours of receipt. Grievances can be expedited only when a pre-service organization determination is downgraded from expedited to standard and the enrollee disagrees with the downgrade or a 14-day extension for the organization determination[4]. Extensions for organization determination should be implemented only at the request of the enrollee or if the MA plan justifies a need for additional information and documents how the delay is in the best interest of the enrollee and not for the convenience of the plan. MA Plans must promptly notify the enrollee in writing if the extension is going to be taken and explain the reason for the delay such as additional medical evidence from a non-contract provider is needed in order to make a decision favorable to the enrollee.[5]
Timely access to Part D drugs is one of the Medicare rules which is one of the reasons for the transition fill requirement for Part D drugs. For the same reason, continuity of care for Part C services and treatments also changed as of January 1, 2024. MA plans have to offer new members a 90-day continuity of care, or transition period, for active/current treatments for Part C drugs and service to ensure that enrollees do not experience any disruption in treatment. CMS recommends aggressively resolving Part B versus Part D payments at the point of sale as a best practice.
B. Inclusions and exclusions of expenses in Medical Loss Ratio (MLR) calculation
The 2010 Patient Protection and Affordable Care Act (ACA) requires a minimum Medical Loss Ratio (MLR) of 85 percent for Medicare Advantage organizations and Part D sponsors who are required to report their MLRs to CMS annually and are subject to financial and other penalties for noncompliance. Sponsors with contracts resulting in an MLR lower than 85 percent in a given plan year must provide a financial rebate to CMS. While the formula for calculating MLR is straightforward[6], the determination of allowable quality improvement activities (QIA), as an example, may not. CMS is going to address the standards for QIA to be included in the MLR numerators.
On November 26, 2024,[7][8] CMS published proposed changes to the regulations that govern MLR requirements for MA and Part D to include:
- Exclusion of administrative costs from QIA in the MA and Part D MLR numerators to disincentivize overly generous reimbursement for medical management or services that carry out various utilization, care, or quality management functions. CMS will establish clinical and quality improvement standards for provider incentives and bonus arrangements in the MA MLR numerator in order to help align such bonus payments with care outcomes and avoid excess premium transfer to providers which are the downstream or related entities of large MA plans;
- A description of how expenses are allocated across lines of business such as commercial and Medicaid plans in MA and Part D MLR reports;
- Additional requirements for the allocation of expenses in the MLR. CMS will establish new audit and appeals processes for MLR compliance; and
- Detailed information regarding provider payment arrangements in Medicare MLR reporting to discourage steering of these providers’ patients to join the health plans.
C. Preparation for finalized MLR changes
Before publication of CMS final rule 4208 F, sponsors can begin planning some best practices for MLR tracking and reporting.
- Enhanced Documentation: MA plans should maintain detailed records showing how medical expenses are apportioned, with clear methodologies that align with CMS expectations; e.g., provider incentives and bonuses made, or expected to be made, that are tied to clearly defined, objectively measurable, and well documented clinical or quality improvement standards.
- Internal Audits: Conduct regular internal reviews to ensure cost allocations are defensible and proportional to Medicare-specific activities.
- Training: Educate finance and compliance teams on CMS cost-reporting requirements to avoid overreach in medical expenses especially QIA. Train staff on the latest CMS rules regarding allowable costs and outcome measurement of QIA.
- Policy updates: Develop and enforce an internal policy that flags and excludes non-allowable administrative costs, with specific examples drawn from CMS regulations.
- Clear Definitions: Establish internal policies that align with CMS’ definitions of QIA[9] and require justification for each classification.
- External Validation and system update: Engage third-party auditors to review classifications and ensure compliance with CMS standards and to configure financial systems to automatically segregate non-allowable expenses in budgeting and reporting.
- Vendor Oversight: Implement contractual requirements for contractors to provide detailed breakdowns of their billings to ensure transparency and alignment with Medicare rule and regularly review contractor invoices to ensure charges are reasonable and tied to Medicare-specific services.
- CMS Guidance Review: Consult the Yellow Book[10] and the bid pricing tool guidance to check for compliance.
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Reference:
[1] Section 40.10 Parts C & D Enrollee Grievances, Organization/Coverage Determinations, and Appeals Guidance Effective November18, 2024
[2] Section 10.5.3 Parts C & D Enrollee Grievances, Organization/Coverage Determinations, and Appeals Guidance Effective November18, 2024
[3] In this case, the complaint should be processed as a grievance and a request for coverage determination for the drug
[4] Section 30.2 Parts C & D Enrollee Grievances, Organization/Coverage Determinations, and Appeals Guidance Effective November18, 2024
[5] Section 40.8 Parts C & D Enrollee Grievances, Organization/Coverage Determinations, and Appeals Guidance Effective November18, 2024
[6] Numerator= the sum of incurred medical claims (including supplemental benefits) and activities that improve health care quality Denominator= the sum of earned premiums minus allowable deductions.
[7] Proposed rules were published in Federal Register on December 10, 2024. The final rule is not yet published.
[8] https://www.federalregister.gov/documents/2024/12/10/2024-27939/medicare-and-medicaid-programs-contract-year-2026-policy-and-technical-changes-to-the-medicare
[9] 45 CFR § 158.150
[10] Government Auditing Standards published by the US Government Accounting Office