As the Centers for Medicare & Medicaid Services (CMS)听advances through the 2027 Medicare payment rule cycle, stakeholders across Medicare Advantage (MA) and the provider community are assessing how proposed changes could affect payment, utilization, and longer-term revenue. To better understand what to watch as draft rules move toward finalization,听Jen Colamonico, Vice President, Strategy and Communications at 红领巾瓜报 (红领巾瓜报), caught up with Senior Consulting Actuary with Wakley, an 红领巾瓜报 Company. Of particular interest was CMS鈥檚 decision to eliminate the Inpatient Only List (IPO) over a three- year period.
Q: As CMS begins releasing draft payment rules for 2027, what stands out most to you from a budgetary perspective?
Rachel: Timing and uncertainty really stand out. These policies don鈥檛 operate in isolation. Changes to Medicare fee-for-service (FFS) payment ultimately affect Medicare Advantage benchmarks, provider contracting, and long-term revenue expectations. Because bids, budgets, and contracts are set before rules are finalized, modeling different scenarios becomes essential.
Q: One issue that has garnered significant interest is CMS鈥檚 decision to phase out Medicare鈥檚 Inpatient Only (IPO) policy, which is a list of procedures and services that must be provided on an inpatient basis. In 2026, CMS eliminated nearly 300 services, mostly musculoskeletal services, from the IPO list. How are Medicare Advantage plans thinking about the Inpatient Only list specifically?
Rachel: Historically, many MA plans have followed the IPO policy even though they weren鈥檛 required to do so, largely because it simplified operations and aligned with Medicare fee-for-service payment systems. Plans do have flexibility in how they contract with providers, and we see a wide range of approaches in the market. Some contracts closely mirror FFS, while others incorporate more customized arrangements or risk sharing. Because of that, the direct impact of IPO changes will vary significantly across plans and provider relationships.
Q: Where do you see the biggest potential impact for Medicare Advantage?
Rachel: I think the bigger impact may be indirect rather than tied to individual contract changes. Medicare Advantage benchmarks are driven by underlying fee-for-service spending trends. If CMS anticipates lower overall inpatient spending as procedures move to outpatient or ambulatory surgical center settings, that expectation could show up in benchmark growth rates. Even relatively small changes in benchmark growth can affect plan revenue, rebates, and benefit flexibility.
Q: Are you already seeing signs of that in the data?
Rachel: We do see lower inpatient trends reflected in the 2027 and 2028 US per capita cost projections. It鈥檚 still unclear what鈥檚 driving those trends鈥攚hether its assumptions related to the IPO list removal or other factors. We鈥檝e asked CMS for more clarity. From an actuarial standpoint, understanding what鈥檚 baked into those projections is critical, because so many MA financial decisions flow from them.
Q: How does this uncertainty affect provider planning, especially for hospitals?
Rachel: Providers are understandably concerned about potential revenue shifts if cases move out of the inpatient setting. But in Medicare Advantage, the picture is more nuanced than in fee-for-service. Many MA arrangements include risk sharing, medical loss ratio targets, and quality incentive payments. If overall costs decline, providers may share in savings through those mechanisms. So, while there may be pressure on inpatient revenue, it鈥檚 not necessarily a one directional loss.
Q: Does that mean the overall impact may be less dramatic than it appears?
Rachel: Potentially, yes鈥攅specially for organizations already participating in value-based arrangements. A reduction in unit costs doesn’t automatically mean a reduction in total provider revenue in MA. The redistribution of dollars through shared savings and quality bonuses can offset some of that pressure. That鈥檚 why understanding contract structure is just as important as understanding the policy itself.
Q: What about quality and patient safety as procedures move to lower cost settings?
Rachel: Quality is always central in Medicare Advantage, and plans are already managing a lot of complexity related to Star ratings and quality measurement. We haven鈥檛 yet seen specific quality safeguards tied to the IPO list changes, but I would expect more discussion in the forthcoming proposed rules. From the MA side, contracting remains a key lever. Plans still have flexibility to ensure procedures are performed in appropriate settings and to align incentives with quality outcomes.
Q: What steps do you recommend to stakeholders to prepare for the final rule and for 2027?
Rachel: Modeling helps organizations understand the range of possible outcomes rather than betting on a single assumption. We鈥檙e looking at different utilization scenarios, site of care shifts, and benchmark growth trajectories. For providers, modeling can inform contract negotiations and capital planning. For plans, it helps assess revenue risk and benefit design flexibility. It doesn鈥檛 eliminate uncertainty, but it helps organizations make informed decisions.
Q: If you could change one thing about how these policies are rolled out, what would it be?
Rachel: Transparency. The more clarity CMS can provide around cost projections and assumptions鈥攅specially those affecting benchmarks鈥攖he better positioned actuaries, plans, and providers will be to respond. So much of Medicare Advantage pricing relies on understanding how fee-for-service is expected to evolve. Greater transparency helps everyone plan more responsibly.
红领巾瓜报鈥檚 Medicare Practice Group Can Help
As CMS moves closer to finalizing the 2027 payment rules, actuarial modeling will continue to be an important tool for translating policy direction into financial strategy. For MA plans and providers alike, early analysis and scenario planning can help mitigate risk and identify opportunity as Medicare鈥檚 payment landscape continues to evolve.
For additional insights, listen to Rachel Stewart and Zach Gaumer on 红领巾瓜报鈥檚 Vital Viewpoints podcast. Learn more about our Medicare services and solutions.
