CMS Pub. 100-16, ch. 8, § 60.3.2

A plan bid represents a statement of the average per member revenue that it needs to

provide original Medicare benefits. Particularly for regional plans covering a wide

geographic area, underlying the single bid there could be significant variation in costs

across the geographic area that the organization is required to serve.

Using the MA capitation rates as a basis for the ISAR adjustment presumes that the

variation in these rates among counties measures the variation in plan revenue needs across

different counties. Because regional plans have service areas established by CMS, while

local plan service areas are selected by MA organizations, MA organization may opt to use

an alternative methodology for calculating the geographic ISAR adjustment for their

regional plans. In the event that an MA organization believes that the variation in MA rates

among the counties in the region covered by its regional plan is not an accurate reflection

of the variation in its projected revenue needs in the region, the organization can request to

have payments geographically adjusted at the county level using an organization-determined statement of the relative revenue needs for the provision of Medicare-covered

services in the service area. (Note that organization-determined ISAR factors, like the MA

rate-based ISAR factors, will result in a different average payment to the plan only if the

actual enrollment mix differs from the projected mix that formed the basis of the plan bid.)

CMS reviews the organization-provided ISAR factors for reasonableness and actuarial

soundness. CMS also reviews enrollment projections for all plans, both those with ISAR

factors based on the MA capitation rates and those with ISAR factors that are determined

by the MA organization for a particular regional plan. The MA organizations will be

required to provide support for the organization-determined ISAR factors (such as the

projected utilization and cost by service category for each county), and CMS reserves the

right to ask for additional detail and documentation of organization-determined factors

during bid negotiation or during an audit. Approval of these factors will be contingent on

the comprehensiveness, actuarial soundness, and reasonableness of the MA organization's

cost, utilization and enrollment assumptions, and associated documentation.