Proposed Medicare Rule for 2026 

The U.S. Centers for Medicare & Medicaid Services (CMS) unveiled its proposed rule for the 2026 Medicare contract year, with several key changes that could reshape Medicare Advantage (Part C) and the Medicare Prescription Drug Benefit Program (Part D). Among these changes, the CMS has proposed increased scrutiny on prior authorization practices, enhanced transparency in pharmacy networks, and a new focus on vertical integration within healthcare organizations. The proposed rule reflects the Biden administration’s efforts to improve healthcare access, increase transparency, and ensure that Medicare dollars are spent effectively. However, as the proposed regulations are published late in President Biden’s term, the incoming administration—potentially led by President-elect Donald Trump—will have the final say on whether these proposals move forward. 

Prior Authorization (PA) and Health Equity 

One of the most discussed aspects of the proposed rule concerns prior authorization (PA) practices. PAs are often used by Medicare Advantage plans to control the utilization of services and medications, but these processes can delay or deny access to necessary care. According to CMS, the goal of these new guidelines is to address equity concerns in healthcare. The proposed rule acknowledges that prior authorization can sometimes create barriers for patients, particularly those who belong to underserved or marginalized communities. People dealing with persistent poverty, historical inequities, or complex health issues may be disproportionately affected by PA practices, CMS notes. 

Research published in 2024 supports this concern, showing that PA practices may be contributing to healthcare disparities, especially for patients from lower socioeconomic backgrounds. CMS is taking steps to reduce these inequities by proposing the creation of a Utilization Management (UM) committee tasked with examining the impact of prior authorizations on Medicare beneficiaries. The committee will analyze data disaggregated by specific services and items to identify trends and patterns in PA denials. 

The 2026 rule also mandates that data on prior authorization requests be compiled and made publicly available, detailing the approval and denial rates, the number of PA requests that are approved after an appeal, and the average time it takes for decisions to be made. This level of transparency is expected to help CMS and the public better understand which services are more frequently denied and whether these denials disproportionately affect certain groups of beneficiaries. CMS has also proposed providing an executive summary with context to help make these figures more understandable for the public. However, some commentators have raised concerns that the data may be too complex for average beneficiaries to interpret, even with explanatory summaries. 

The proposal further specifies that MA plans will not be allowed to use prior authorization as a tool to discriminate against certain types of services, ensuring that patients are not unduly restricted from receiving care based on health status or other factors. Additionally, CMS is recommending that plans make their internal coverage criteria public and easily accessible on their websites. This will allow beneficiaries to better understand the policies that govern their care and the appeals process if a service is denied. 

Pharmacy Transparency and Contracting Practices 

Another significant change proposed in the 2026 rule concerns pharmacy transparency. Under current rules, pharmacies often struggle to navigate the complex world of Medicare Part D contracting, with unclear or inconsistent information about which plans they are part of for any given year. This lack of clarity has led to confusion for both pharmacies and beneficiaries, particularly when patients seek to fill prescriptions at their preferred pharmacy and discover that it is not in-network. 

The new rule would require Medicare Part D sponsors to provide pharmacies with a list of plans they will be in-network for by October 1 of the preceding year. This would ensure that pharmacies have sufficient time to notify their customers about which plans they are participating in. Additionally, pharmacies would be able to request a list of in-network plans from sponsors after October 1 to clarify any ambiguities about their participation in the networks. 

This proposal stems from concerns raised by Congress and the Federal Trade Commission regarding the negotiating power of pharmacy benefit managers (PBMs), especially for independent pharmacies that are not part of large chains. Smaller pharmacies have limited ability to negotiate or demand clear information about which networks they will be included in, making it difficult for them to serve their customers effectively. Inaccurate or unclear information has led to situations where seniors discover late in the year that their preferred pharmacies are not part of their Medicare Part D plan’s network, prompting requests for special enrollment periods. 

By improving pharmacy transparency, CMS hopes to reduce confusion among beneficiaries and pharmacies, ultimately ensuring that patients can access their medications without unnecessary disruptions. This is especially important as CMS continues to push for greater accessibility and affordability within Medicare. 

Vertical Integration and Medical Loss Ratios (MLR) 

A third major change proposed in the 2026 rule addresses the growing concern over vertical integration within the healthcare industry. Vertical integration occurs when health insurers or Medicare Advantage (MA) plans acquire or affiliate with healthcare providers, such as hospitals, physician practices, and pharmacies. Critics argue that vertical integration can lead to higher healthcare costs by reducing competition and increasing the likelihood that healthcare services will be provided within the same organization, even if it is not the most cost-effective or efficient option for patients. 

CMS is particularly concerned about the impact of vertical integration on medical loss ratios (MLRs), which measure how much of the premium dollars collected by insurance companies are spent on medical care versus administrative costs and profits. Under the current system, MA insurers are required to spend at least 80% of premiums on medical care, or issue rebates to beneficiaries. However, when insurers own or affiliate with healthcare providers, they may be able to funnel more money into the integrated system, inflating healthcare costs while meeting the MLR requirements. This situation can lead to higher premiums for beneficiaries and less competitive pricing in the market. 

The 2026 rule proposes to address this issue by requiring MA plans to report more detailed data about their MLR calculations, particularly when the insurer is part of a vertically integrated healthcare system. By requiring more transparency, CMS hopes to ensure that healthcare spending is directed toward patient care rather than inflated administrative costs or profits. The rule also seeks to address the potential for inflated MLRs due to incentive payments or bonuses to providers within vertically integrated systems, requiring plans to exclude such payments from the MLR calculations. 

Vertical integration has raised red flags for policymakers and researchers alike, as studies show that it may be contributing to higher healthcare and prescription drug expenditures. CMS hopes that this proposed rule will provide greater insight into the financial arrangements of vertically integrated systems and help ensure that Medicare dollars are spent effectively. The agency is seeking public comments on this issue to inform future regulations. 

The Future 

The CMS’s proposed rule for the 2026 Medicare contract year includes several important provisions aimed at improving healthcare access, increasing transparency, and addressing the growing influence of vertically integrated healthcare organizations. By focusing on prior authorization practices, pharmacy transparency, and MLR reporting, CMS hopes to address longstanding concerns about equity, access, and cost in Medicare Advantage and Part D programs. 

However, as these proposals are still in the comment phase, they are far from final. With responses due by January 27, 2025, the public, industry stakeholders, and policymakers will have the opportunity to weigh in on these changes. The Biden administration is eager to push these reforms through, but the incoming administration could alter or reverse some of these proposals, depending on their priorities. 

Regardless of the outcome, these proposed changes reflect the ongoing effort to reform Medicare programs to ensure they provide equitable, affordable, and transparent healthcare options for beneficiaries. Whether these regulations are ultimately adopted or modified, they will continue to shape the future of Medicare in the years to come.