CMS Finalizes CY 2027 Medicare Advantage and Part D Rule

The Centers for Medicare & Medicaid Services (CMS) has finalized the calendar year (CY) 2027 Medicare Advantage (MA) and Part D rule, with policies effective June 1, 2026, and applicable to coverage beginning January 1, 2027. View the related press release and fact sheet.

As a refresher, CMS' annual MA and Part D policy cycle includes three key releases:

• the Advance Notice, which proposes payment and methodological updates
• the Rate Announcement, which finalizes payment rates
• the MA and Part D Final Rule, which governs program operations, quality measurement, enrollment and benefit design

Of these, only the MA and Part D rule are promulgated through formal notice-and-comment rulemaking.

The CY 2027 final rule reflects a broader shift in CMS policy priorities, emphasizing deregulation, simplification of quality programs and codification of previously implemented statutory changes, particularly those related to the Inflation Reduction Act of 2022 (IRA). The rule also finalizes targeted updates to marketing practices, supplemental benefits and program oversight while declining to finalize certain beneficiary protection proposals.

Key Takeaways

• Part D Redesign Codified: CMS finalized regulatory changes implementing the IRA's redesign of the Part D benefit, including elimination of the coverage gap, establishment of an annual out-of-pocket cap and updated liability across stakeholders.
• Manufacturer Discount Program: CMS codified the transition from the Coverage Gap Discount Program (CGDP) to the Manufacturer Discount Program, with limited modifications.
• Star Ratings Reforms: CMS finalized removal of 11 measures and declined to implement the Health Equity Index reward, maintaining the existing reward factor structure.
• Third-Party Marketing Organization (TPMO) Oversight Updates: CMS finalized modifications to TPMO requirements, including disclaimer and record retention changes.
• Supplemental Benefits Guardrails: CMS strengthened requirements for Special Supplemental Benefits for the Chronically Ill (SSBCI), including eligibility standards and debit card safeguards.
• Cannabis Policy Clarified: CMS clarified that cannabis products that are illegal under federal or applicable state law cannot be offered as SSBCI.
• Deregulatory Changes: CMS finalized a series of policies aimed at reducing administrative burdens, including removal of certain health equity-related requirements.
• Special Enrollment Period (SEP) Proposal Not Finalized: CMS declined to finalize changes to the SEP for provider network terminations but signaled potential future rulemaking.

Medicare Part D Redesign Under the IRA: Finalized as Proposed

CMS finalized regulatory updates codifying the Part D redesign established under the IRA. These changes, previously implemented through subregulatory guidance, are now incorporated into regulation and will apply beginning in CY 2027 and beyond.

Key provisions include:

• elimination of the coverage gap phase and restructuring of benefit phases that began in 2025
• annual out-of-pocket cap, set at $2,100 for 2026 and indexed annually; CMS finalized revisions to address how these thresholds change from year to year
• deductible protections, clarifying that Advisory Committee on Immunization Practices-recommended vaccines and covered insulin products are exempt
• updates to true out-of-pocket (TrOOP), reinsurance and gross covered drug cost calculations, including incorporation of Manufacturer Discount Program payments
• medical loss ratio adjustments reflecting IRA-related payment changes
• conforming updates to the retiree drug subsidy, low-income cost-sharing subsidies and base beneficiary premium

CMS also finalized updates to specialty-tier thresholds and indexing methodologies tied to drug expenditure growth and inflation. For the specialty-tier regulations, this includes updating the CY 2026 specialty-tier coinsurance thresholds to reflect the maximum allowable specialty-tier coinsurance percentages. The calculation methodology aligns with the prior Part D benefit redesign instructions.

Overall, CMS is largely codifying existing policy rather than introducing new substantive changes, providing plans with regulatory certainty ahead of the June 1, 2026, bid deadline.

Part D Manufacturer Discount Program: Finalized with Modification

CMS finalized policies implementing the transition from the CGDP to the Manufacturer Discount Program, consistent with IRA requirements.

The final rule:

• formally terminates CGDP agreements as of January 1, 2025
• codifies manufacturer obligations to provide discounts in both the initial and catastrophic phases
• includes minor modifications to support potential remote audits of third-party administrator (TPA) data; also clarifies the requirement that agreement holders provide 60 calendar days' notice before auditing the TPA and specifies the supporting documentation expected from the manufacturer for any timely recalculation request for the phase-in eligibility determination
• clarifies audit timelines and documentation requirements for recalculation requests

These updates largely reflect current program operations and maintain CMS' approach of implementing IRA provisions through guidance followed by rulemaking codification.

Star Ratings Updates: Finalized with Modification

CMS finalized significant changes to the MA Star Ratings program, including:

• removal of 11 measures across Part C and D Star Ratings, primarily administrative or process-based, effective beginning with the 2029 Star Ratings, with the exception of the Call Center – Foreign Language Interpreter and TTY Availability (Part C and D) and Statin Therapy for Patients with Cardiovascular Disease (Part C) measures, which will be removed starting with the 2028 Star Ratings
• addition of a depression screening and follow-up measure for the 2029 Star Ratings/2027 measurement year
• removal of the Health Equity Index reward, with continuation of the existing reward factor

CMS indicates these changes are intended to streamline the program and focus on outcomes-based measures while acknowledging stakeholder concerns about potential disruption.

The agency estimates these modifications will increase federal spending by approximately $18.6 billion over 10 years, largely due to increased bonus payments.

TPMO Practice Updates: Finalized with Modification

CMS finalized several updates to TPMO requirements:

• modified disclaimer requirements, including timing and content adjustments
• reduced record retention period from 10 years to six years, with audio retention required for the first three years, after which they may keep either audio recordings or complete transcripts for the remaining three years
• clarifications on submission of materials for dual-eligible special needs plans (D-SNPs) and multi-contract entities

These changes reflect CMS' effort to modernize marketing oversight while reducing administrative burden.

SEP Policy: Not Finalized

CMS did not finalize its proposal to modify the SEP for Significant Change in Provider Network. The agency does not address comments but indicates it may revisit the policy in future rulemaking.

In the proposed rule, CMS had outlined changes to the SEP for Significant Change in Provider Network intended to make it easier for enrollees affected by provider terminations to change plans. Specifically, CMS proposed removing the requirement that the network change be deemed "significant" by CMS or the MA organization. The proposal would have also required MA organizations to provide clear notification of SEP eligibility to affected enrollees within the required provider termination notice, along with details on the Annual Coordinated Election Period and MA Open Enrollment Period, Medigap guaranteed issue rights and guidance for individuals with employer‑based coverage.

CMS did finalize policies clarifying that certain SEPs require prior CMS approval, including those related to contract violations and exceptional circumstances.

Supplemental Benefits and SSBCI Policies

CMS finalized several updates to supplemental benefits:

SSBCI Eligibility – Finalized with Modification

• Plans must use objective criteria, not self-attestation, to determine eligibility.
• MA organizations must publicly post eligibility criteria.

Debit Card Administration

• Plans must disclose all benefit conditions and eligible items.
• Plans must maintain alternative reimbursement mechanisms if debit cards fail.
• The agency did not finalize proposals to limit methods for administering cost-sharing reductions or prohibit MA organizations from marketing the dollar value or administration of supplemental benefits, including debit cards.

Cannabis Policy Clarification

• Cannabis products that are illegal under federal or state law cannot be offered as SSBCI.
• Certain hemp-derived products remain permissible if they are compliant with applicable law.

Deregulatory Changes

Consistent with the administration's broader deregulatory agenda, CMS finalized policies to reduce administrative burden, including:

• removal of health equity analysis requirements for utilization management
• elimination of equity-specific mandates in quality improvement programs
• changes to midyear supplemental benefit notices and other reporting requirements

Dual-Eligible Supplemental Benefits Pathway: Not Finalized

CMS declined to finalize its proposal to remove the regulatory pathway permitting D-SNPs to offer supplemental benefits, maintaining current policy in response to stakeholder feedback.

Requests for Information

• C-SNP and I-SNP Growth and Dually Eligible Individuals – No Policy Finalized: CMS sought stakeholder input on the rapid growth of Chronic Condition Special Needs Plans (C-SNPs) and Institutional Special Needs Plans (I-SNPs), particularly those with a high proportion of dually eligible enrollees. The agency raised concerns that these plan types may, in some cases, function as alternatives to more integrated models such as D-SNPs, potentially undermining efforts to improve Medicare-Medicaid coordination. CMS requested comment on potential policy changes, including applying state Medicaid agency contract requirements, enhancing care coordination standards and extending D-SNP lookalike contracting limitations to certain C-SNPs. The agency also sought input on improving care for individuals with serious mental illness and substance use disorders within SNP models. Though CMS did not respond to comments or finalize any policies in this rule, it indicated that stakeholder feedback will inform future rulemaking and potential Innovation Center model development. Given the agency's focus on integration and growth trends identified, this request for information (RFI) signals a strong likelihood of future policy action in this area.
• Future Directions in MA – No Policy Finalized: CMS sought stakeholder input on potential long-term reforms to the Medicare Advantage program in light of its continued growth. The agency requested feedback on improving risk adjustment accuracy and fairness, refining the Star Ratings and Quality Bonus Payment structure and advancing policies that promote prevention, nutrition and overall beneficiary well-being. Commenters generally supported efforts to enhance transparency in risk adjustment, improve the alignment of Star Ratings with outcomes and expand the role of preventive and holistic care. CMS did not respond to comments or finalize any policies in this rule but indicated that feedback will inform future rulemaking and potential Innovation Center model development. This RFI signals continued CMS interest in structural MA reforms, particularly in risk adjustment and quality payment policy, which may have significant implications for plan revenue and performance measurement.

Implications for Stakeholders

• Medicare Advantage Plans: The reduction in Star Ratings measures and continuation of the existing reward factor are likely to increase the number of plans qualifying for bonus payments while narrowing focus to clinical measures. Plans should reassess quality strategies and CY 2027 bid assumptions. At the same time, increased guardrails around supplemental benefits signal heightened program integrity expectations.
• Prescription Drug Plans (PDPs) and MA-PDPs: Codification of the Part D redesign provides critical clarity ahead of the June 1, 2026, bid deadline, particularly regarding catastrophic phase liability and manufacturer discount obligations. Plans should ensure pricing, formulary design and contracting strategies reflect these changes.
• Providers and Manufacturers: Changes to Star Ratings and Part D structure may indirectly influence plan behavior, including network design, utilization management and formulary placement. The removal of the Health Equity Index reward may also shift plan investment away from targeted population health initiatives.

For questions about Medicare Advantage, Medicare Part D or related regulatory developments, please contact the author or your Holland & Knight relationship attorney.

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