Page 86

86

degree of difference between the PDP and MA-PD normalization factors as exists under the method implemented for CY 2025. Response: We appreciate the concerns and suggestions expressed by commenters regarding the use of separate normalization factors. We are finalizing the separate normalization factors for PDPs and MA-PD plans because we believe separate normalization factors will lead to risk scores that more accurately reflect Part D costs in each sector of the Part D market that are driven by a variety of market-based variables, including the overall benefits that plan sponsors are able to manage, the strategies available for managing Part D costs, and the inability of PDPs to affect the submission of diagnoses in FFS. Our use of separate PDP and MA-PD normalization factors is because, although the statute treats Part D as one market, these two segments of the market operate quite differently. CMS believes that this policy will best address growing disparities between PDPs and MA-PD plans in order to ensure a level playing field, allowing for fairer competition between PDPs and MA-PD plans so that beneficiary options for Part D coverage are sustained. Finally, we do not think it is appropriate to exclude any populations from the calculation of the normalization factors, since the expected average risk score of 1.0 is necessarily set across the entire Part D market, regardless of their role in setting the NAMBA. CMS acknowledges that there is inherent uncertainty in our normalization factors because they are projections of the payment year risk scores, and any projection can be imprecise. However, we base our normalization factors on the data available to us at the time and whether or not the risk score projected (i.e., the normalization factor) is a reasonable estimate of the payment year risk score based on observed historical risk scores. By applying separate normalization factors calculated with the proposed multiple linear regression methodology, the relative risk scores will more accurately reflect the relative cost in each market sector compared to the historical methodology applied in 2025 or another methodology that does not account for the difference between PDP and MA-PD plan risk scores. CMS will continue to monitor PDP and MA-PD risk score trends and conduct analyses to determine the normalization methodology that results in the most reasonable predictions of the payment year risk scores, and how best to capture diverging risk score trends between PDPs and MA-PD plans in future years to more accurately reflect Part D costs in each of these two sectors of the Part D market. Comment: One commenter suggested that CMS did not have the authority to apply separate normalization factors to PDPs and MA-PD plans. The commenter suggested that CMS had acknowledged in a footnote in the CY 2026 Advance Notice that its authority to apply normalization in Part D stems from its specific authority related to risk adjustment, and specific direction for CMS to use “similar methodologies” to those used under section 1853(a)(3) of the Act. The commenter posited that applying separate normalization factors for PDPs and MA-PD plans constitutes a separate risk adjustment methodology that is impermissible because section 1853(a)(3)(D) of the Act states that the risk adjustment “methodology shall be applied uniformly without regard to the type of plan.” The commenter asserted that, by requiring that the Secretary “establish an appropriate methodology” (emphasis added) for adjusting standardized bids to take