Introduction
The Centers for Medicare and Medicaid Services (CMS) recently published the proposed 2027 Part C and Part D Advance Notice, drawing significant attention from healthcare policy analysts. Matthew Fiedler submitted a formal comment letter addressing key concerns raised by the proposal. His analysis centers on three critical issues: the continued inflation of Medicare Advantage (MA) payments due to higher coding intensity, the uncertain effectiveness of excluding unlinked chart review records (CRRs) from risk adjustment calculations, and the inadequacy of CMS’ proposed coding pattern adjustment to achieve actuarial equivalence in 2027.
Understanding these issues is essential for policymakers, insurers, and healthcare stakeholders who depend on accurate, fair Medicare payment structures.
MA Coding Intensity and Payment Inflation
The Growing Gap Between MA and Traditional Medicare
Preliminary estimates from the Medicare Payment Advisory Commission (MedPAC) indicate that higher MA coding intensity will inflate payments to Medicare Advantage plans by approximately 4% in 2026, even after applying the coding pattern adjustment. This figure is not static — historical trends show that the coding intensity differential between MA and traditional Medicare has consistently grown over time in the absence of deliberate policy intervention.
Statutory Actuarial Equivalence at Risk
Federal law requires actuarial equivalence between MA payments and what traditional Medicare would spend on the same population. When MA coding intensity artificially inflates risk scores, payments exceed what actuarial equivalence demands. Because the differential is expected to be higher than 4% in 2027 under current policies, achieving the statutory goal will require direct, meaningful action targeting coding intensity — not incremental adjustments that fall short of closing the gap.
Unlinked Chart Review Records and Risk Adjustment
What CMS Is Proposing
CMS has proposed excluding unlinked chart review records (CRRs) from risk adjustment calculations as a strategy to reduce MA coding intensity. Chart reviews allow insurers to add diagnoses that providers did not record directly on encounter records, often resulting in higher risk scores — and higher payments — than clinical data from face-to-face care would otherwise support.
Why Insurers May Neutralize the Impact
While the proposal aims to curb inflated coding, its real-world effectiveness may be significantly limited. In practice, insurers frequently have the ability to link currently unlinked CRRs to existing encounter records, or they can incentivize healthcare providers to directly document the relevant diagnoses during patient encounters. Either pathway allows insurers to effectively recapture the diagnoses that CMS is attempting to exclude.
Compliance Costs Without Proportional Benefits
This recapture dynamic creates a troubling scenario: the policy generates new and potentially significant compliance costs for all parties involved, while the actual reduction in coding intensity may be far smaller than CMS anticipates. Whether these costs are justified depends on several factors — including the volume of recapture that occurs, the magnitude of associated costs, and whether the remaining reduction in coding intensity is concentrated among the highest-coding insurers. A higher coding pattern adjustment could potentially achieve similar goals with fewer compliance burdens.
CMS Coding Pattern Adjustment Falls Short
CMS Projections and the Actuarial Equivalence Problem
Under the policies outlined in the Advance Notice — which include maintaining the statutory minimum coding pattern adjustment — CMS’ own projections suggest that the coding differential between MA and traditional Medicare will decline by just 2.4 percentage points in 2027. However, because this decline is smaller than MedPAC’s estimated coding intensity differential for 2026, it is mathematically insufficient to achieve actuarial equivalence in 2027.
The Case for a Higher Coding Pattern Adjustment
Achieving true actuarial equivalence in 2027 would likely require CMS to implement a higher-than-minimum coding pattern adjustment. Furthermore, if insurers succeed in recapturing most of the diagnoses currently reported through unlinked CRRs, the required increase in the adjustment would be even larger than current estimates suggest. A more aggressive coding pattern adjustment may ultimately be the more efficient and effective policy lever — one that reduces overpayments without triggering the compliance costs and recapture behaviors associated with the CRR exclusion proposal.
Policy Recommendations and the Path Forward
Fiedler’s analysis points to a clear policy imperative: CMS must take bolder action to address MA coding intensity if it is to fulfill its statutory mandate of actuarial equivalence. The current proposal, while well-intentioned, risks being undermined by insurer adaptation strategies that preserve inflated risk scores. Policymakers should carefully weigh the following:
- Whether the CRR exclusion proposal generates meaningful reductions in coding intensity or merely shifts the mechanism through which diagnoses are captured
- Whether compliance costs associated with the proposal are proportional to any expected payment savings
- Whether a higher coding pattern adjustment represents a more direct, administratively efficient path to actuarial equivalence
Conclusion
The proposed 2027 Part C and D Advance Notice raises important questions about CMS’ ability to address persistent MA payment inflation driven by coding intensity. MedPAC’s estimates confirm that the problem is growing, and the current proposals may not be sufficient to reverse that trend. A higher coding pattern adjustment, carefully calibrated and transparently implemented, remains a compelling alternative — one that could achieve the statutory goal of actuarial equivalence with fewer unintended consequences.
