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This week, our second In Focus article addresses the transition to end the Medicare Advantage Value-Based Insurance Design (VBID) model, which launched in 2017 and subsequently has been expanded with bipartisan support. This model was designed to promote flexible benefit design, reduce cost barriers, and enhance care for targeted populations, especially dual eligibles and individuals with chronic conditions. In December 2024, however, the  that the model would be terminated by the end of 2025, citing unmitigable costs to the Medicare Trust Funds, totaling more than $4.5 billion across 2021 and 2022 alone鈥�.

Despite its popularity and effectiveness in improving medication adherence and addressing social determinants of health, CMS concluded that the cost trajectory was unsustainable within the parameters of the Innovation Center鈥檚 mandate.

The end of the VBID model is not the end of innovation in Medicare Advantage (MA); rather, it is a strategic inflection point. Plans that approach this transition with a proactive, data-driven lens will be best positioned to maintain competitive advantage, compliance, and member trust. This article reviews critical steps VBID plans should be taking and how Medicare Advantage Organizations (MAOs) and their partners can best prepare for future opportunities.

Pain Points and Key Strategic Decisions for MAOs

As plans prepare for a post-VBID world, they face a series of complex trade-offs鈥攅specially those with Dual Eligible Special Needs Plans (D-SNPs) that had $0 drug cost sharing under VBID. With the end of CMS鈥檚 drug cost offset in the initial coverage phase, MAOs will need to determine whether and how to absorb those costs through alternative mechanisms. In addition, plans will need to make important decisions regarding their other VBID benefits, namely, whether to discontinue or transition them to the special supplemental benefits for the chronically ill (SSBCI) program. MAOs should consider the following key strategic decisions:

• Offer an Enhanced Alternative (EA) or Basic Alternative (BA) Part D Plan:听To replicate $0 cost sharing, MAOs would need to use EA or BA plan designs with $0 deductibles and $0 copays across all tiers鈥攁n expensive move and potentially untenable investment for many.
• Tier-Specific Buy-Downs (T1/T2):听Some plans may consider buying down T1 and T2 copays to $0, a much less costly approach. Others may consider moving key T2 drugs to T1, while keeping T1 copays at $0 to protect access and using non-zero dollar T2 copays to limit costs.
• Competitive Alignment Considerations:听MAOs offering broader cost-sharing reductions (e.g., $0 copays on both T1 and T2 drugs) may experience undesirable shifts in enrollment patterns depending on how competitors structure their formularies and benefit designs. MAOs should consider competitive parity and attempt to maintain a balanced benefit structure that aligns with market norms.
• Transferring VBID Benefits to SSBCI:听Some benefits鈥攍ike non-health-related transportation, healthy foods, and general supports for living鈥攃ould migrate to the SSBCI program. But SSBCI has strict eligibility, documentation, and operational requirements, calling for nuanced workflows and cross-departmental coordination.

Action Plan: What MAOs Should Be Doing Now

To navigate this transition successfully, teams of experts at Wakely, a 量子资源网, Inc. (量子资源网) Company, are already working with VBID stakeholders to evaluate multiple transition scenarios. Our experts recommend that MAOs take the following actions:

What to Watch: Future Innovation in Medicare Advantage

Though VBID is ending, the innovation landscape is far from static. With the new Trump Administration and the return of Abe Sutton鈥攁 VBID expansion advocate鈥攁ppointed as Director of the CMS Innovation Center, our experts are closely monitoring the potential for a revised version of VBID or similar models. Stakeholder advocacy could influence how CMS prioritizes the next wave of innovation. Plans should consider engaging in dialogue now to shape what happens next.

Connect with Us

Wakely is embedded in MA strategy and policy. Wakely and 量子资源网 teams are working with clients to evaluate multiple transition scenarios, helping them optimize value, protect Star Ratings, and preserve member satisfaction during this pivotal shift, while also supporting targeted policy engagement efforts to ensure their perspectives are reflected in future CMS and Innovation Center decision making.

Our joint capabilities bring together:

• Actuarial modeling expertise听to quantify cost and risk impacts of design alternatives
• Regulatory insight听to ensure compliance with CMS requirements
• Operational support听to help you implement SSBCI programs efficiently
• Market strategy consulting听to align your plan offerings with local competition and enrollment goals
• Policy advocacy听to help clients engage in the conversation around what comes next after VBID

To connect on additional questions contact our featured experts听below.

This week, our In Focus section reviews the policy changes that the Centers for Medicare & Medicaid Services (CMS) proposes to make in the Fiscal Year (FY) 2026 Medicare Hospital Inpatient Prospective Payment System (IPPS) and Long-Term Acute Care Hospital (LTCH) Proposed Rule (). The IPPS proposed rule, released April 11, 2025, includes several important policy changes that will alter hospital margins and change administrative procedures, beginning as soon as October 1, 2025.

Key Provisions of the FY 2026 Hospital IPPS and LTCH Proposed Rule

For FY 2026, CMS proposes to modify several hospital inpatient payment policies. We highlight and interpret six of these proposed policies that may be among the most impactful for Medicare beneficiaries, hospitals and health systems, payers, and manufacturers, as follows:

1. Annual inpatient market basket update
2. Labor share reduction
3. Medicare Advantage (MA) data integration in measuring hospital readmissions
4. New Technology Add-on Payment (NTAP) program growth
5. Transforming Episode Accountability Model (TEAM) modifications
6. Uncompensated care payment increase for disproportionate share hospitals (DSHs)

Annual Inpatient Market Basket Update

Proposed Rule: CMS鈥檚 FY 2026 Medicare IPPS Proposed Rule will increase payments to acute care hospitals overall by 2.4 percent from FY 2025, amounting to an estimated $4 billion increase in reimbursement. This update is based on a hospital market basket increase of 3.2 percent and a 0.8 percent reduction for total factor productivity.

量子资源网 Analysis: CMS鈥檚 2.4 percent increase results from the estimated rate of increase in the cost of a standard basket of hospital goods鈥攖he hospital market basket. For beneficiaries, this payment increase will lead to a slightly higher standard Medicare inpatient deductible and an increase in out-of-pocket costs. For hospitals and health systems, payers, and manufacturers, the proposed payment increase (2.4 percent) is consistent with economy-wide inflation over the past year (2.4 percent) and below the amount that MA plans will receive for 2026 (5 percent).^[1], [2] Although the published payment update for FY 2026 is 2.4 percent, other policy changes result in the average change in inpatient payments totaling slightly more than 3 percent. We anticipate the proposed 2.4 percent increase will increase somewhat by the time CMS finalizes these rates later in the year.

Labor Share Reduction

Proposed Rule: CMS proposes to modify the hospital labor share used to reimburse hospitals for inpatient services. Using 2023 hospital cost report data CMS proposed a national labor鈥憆elated share of 66.0 percent, a decrease from the labor share of 67.6 percent.

量子资源网 Analysis: Every five years, CMS recalculates the hospital market basket and the hospital labor share using updated cost data from the hospital cost reports. For FY 2026, CMS conducted its routine rebasing calculation using 2023 cost report data, replacing the 2018 cost data currently used. As a result, CMS calculated that the cost of labor accounts for a slightly smaller share of total hospital costs in 2023 than in 2018. The labor share is used within the IPPS to identify the proportion of payments that are affected by the hospital wage index in an effort to adjust payments for geographic variation in labor costs. The consequence of a lower hospital labor share is that a slightly smaller share of hospital inpatient payments will be adjusted by the hospital wage index. The subtle impact of this change is that hospitals with higher wage index values may experience reductions in payment. Further, this downward revision of the labor share signals that hospital wages, salaries, and employee benefits account for a smaller share of total costs in the post-pandemic environment. This change may come to a surprise to some, as hospital labor costs have been a subject of concern since the COVID-19 public health emergency.

Medicare Advantage Data Integration in Measuring Hospital Readmissions

Proposed Rule: CMS proposed to make several modifications to the Hospital Readmissions Reduction Program (HRRP), including:

• Refining all six readmission measures to add MA patient data
• Removing the COVID-19 patient denominator exclusion from measures
• Reducing the applicable period from three years to two
• Modifying the DRG payment ratios in the payment adjustment formula to include MA beneficiaries
• Clarifying that CMS has the discretion to grant an extension to hospitals under the extraordinary circumstances exception (ECE)

CMS also proposed to include MA data in other measures included in the Hospital Value-Based Purchasing (VBP) program and the Inpatient Quality Reporting (IQR) program.

量子资源网 Analysis: The inclusion of MA data in the HRRP may have significant payment implications for many hospitals because it will alter their readmission rates in unanticipated ways, particularly if hospitals鈥� MA patients differ substantially from traditional Medicare beneficiaries. Importantly, the inclusion of MA data in the HRRP measures, and also within the VBP program and the IQR program, signals that CMS is moving toward broader integration of MA data into Medicare fee-for-service reimbursement systems.

New Technology Add-on Payment Program Growth

Proposed Rule: CMS proposed to continue NTAP status for 26 products because they continue to meet the newness criteria required under this program. In addition, within the proposed rule CMS discusses new NTAP applications for 43 additional products. Among these applications, 29 were submitted under the alternative pathways for breakthrough devices and qualified infectious disease products (QIDP).

量子资源网 Analysis: The overall number of products with NTAPs is on par with other recent years, but the number of NTAP applications has blossomed in FY 2026 as the result of the alternative breakthrough application pathway. This alternative pathway allows breakthrough devices and certain antibiotic and antimicrobial drugs to apply for NTAP using an abbreviated application process.

Transforming Episode Accountability Model Modifications

Proposed Rule: CMS proposed several modifications to the forthcoming CMS Innovation Center TEAM framework. Among the various methodological modifications proposed to this mandatory payment model beginning January 1, 2026, CMS proposed to take the following actions:

• Limit the deferment period for certain hospitals
• Replace the Area Deprivation Index (ADI) with the Community Deprivation Index (CDI)
• Use a 180-day lookback period and Hierarchical Condition Categories (HCC) for risk adjustment
• Remove health equity and health-related social needs data reporting
• Expand use of the Skilled Nursing Facility (SNF) three-day rule waiver

量子资源网 Analysis: The critical aspect of CMS鈥檚 TEAM provision is that the agency proposes to follow through with this Innovation Center model while cancelling other Innovation Center payment models in recent months. It also is noteworthy that the agency has proposed to remove the health equity data reporting requirements for TEAM in line with actions taken with many other CMS programs. Another proposal of note is the plan to expand the use of the waiver to circumvent the SNF three-day inpatient stay rule, which will allow hospitals to discharge patients more quickly to SNFs.

Uncompensated Care Payment Increase for Disproportionate Share Hospitals

Proposed Rule: CMS proposes to increase uncompensated care payments to DSHs by $1.5 billion in FY 2026.

量子资源网 Analysis: CMS鈥檚 proposal will increase uncompensated care payments to hospitals by 26 percent. This increase is driven by CMS鈥檚 assumption that the rate of uninsured people will increase to 8.7 percent of the population in 2026 from 7.7 percent in 2025.

Stakeholder comments on the IPPS proposed rule are due no later than June 10, 2025.

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The 量子资源网, Inc. (量子资源网), Medicare Practice Group monitors federal regulatory and legislative developments in the inpatient setting and assesses the impact on hospitals, life science companies, and other stakeholders. Our experts interpret and model hospital payment policies and assist clients in developing CMS comment letters and long-term strategic plans. Our team replicates CMS payment methodologies and model alternative policies using the most current Medicare fee-for-service and Medicare Advantage (100%) claims data. We also support clients with DRG reassignment requests, NTAP applications, and analyses of Innovation Center alternative payment models.

For more information about the proposed policies, please contact our expert below.

[1]听, by Expenditure Category. Modified April 10, 2025. Available at.

[2]听. April 7, 2025.